Posted in Marketing & Strategy Articles, Total Reads: 478
, Published on 26 July 2016
A startup starts with an idea. The idea may be a breakthrough innovation meant for a new market or one that solves a problem of an existing market. In other terms, I like to term it as entering a blue ocean that is new and unexplored vs. entering a bloody red ocean where a large number of competitors are already present and struggling hard to capture market share. Now, it is crucial to understand that these are two mutually exclusive areas of the market have entirely different dynamics in terms of customer sentiment as well as the marketing requirements.
The Customer Sentiment in the buying process
Customer sentiment in entirety determines the kind of marketing that needs to be done for a startup. Before we analyze that, we need to see how the various stages of the buying process contribute towards the sentiments of customers. Stage one of the buying process is which emphasizes on understanding the need of the service/product. Once a customer recognizes the need, he/she carries out some information search to understand that need. Once that is established, evaluation of all the alternatives that are available to the customer is done to choose the best suited one. The next two stages which are purchase and post purchase behavior are what any company aims for.
Two major questions need to be answered here by a startup: Are we addressing a need of the customer that wasn’t addressed earlier or are we providing an alternative to the customer for a need that already exists?
The answer to these two questions determines the kind of market we are entering and hence, the kind of marketing that is required by the startup. Although the latter seems easier to be captured since the need is already identified, the reality is that both the markets come along with a lot of pros and cons.
The stark difference
Contingent upon the kind of market it enters, a startup can have altogether different rates of customer reception and acknowledgment and their deals and showcasing methodologies would be significantly distinctive. A startup focusing on a new market positions focusses on the needs of customers that have not been addressed earlier, i.e. they are in the initial stage of the buying process. Marketing in this scenario is mostly concentrated towards increasing the knowledge of a customer and making him aware of the benefits of the product. This can be better understood on the basis of the AIDA model or the buyer-readiness model as suggested by Philip Kotler. On the other hand, a startup entering an existing market has to deal with customers which are on the third stage of their buying process since they are already aware of their needs. The marketing activity in this case in focused on inducing trial and conviction amongst the customers such that they move towards the final purchase decision as per the buyer readiness model.
Another difference that can be pointed out is in the objective for which marketing activity is performed for both the markets. Marketing for new markets is done with an objective of creating a market whereas in case of an existing market, marketing is done with an objective of capturing the market share in an existing market. Creating a new market requires a considerable measure of things other than tech and item improvement. You need to teach individuals, proselytize the idea and make a group of back the idea. There exist no competitors in a new market whereas in an existing market a large number of competitors already exist. Hence, the marketing activity for an existing market is mostly inclined towards nothing else but re-segmenting and repositioning the business model of the existing competitors in such a manner that they serve a better suited segment by addressing the problems.
Both types of startups can have drastically distinctive money needs. A startup in a new market (empowering clients to accomplish something they never could,) may be unfruitful for 5 or more years while one in an existing market may create trade out 12-15 months. Now this creates a dilemma for the new market startups. On one hand they have a huge mass to educate about their product or idea which requires a large amount of money in advertising and sales promotion. On the other hand is the constraint due to the fact that they won’t achieve breakeven anytime soon. This definitely is a dilemma that the startups in the existing markets do not get to face.
Let us now consider some examples from the Indian context. Grofers is an Indian startup that is still in the initial stage of educating the people about the need of shopping for grocery online. This is a startup that came up with an idea that had not been explored before and hence, entered a new market. Some other startups in this league are Zomato, Paytm, and Zoomcar etc. Their marketing campaigns educate the target segments about their needs which for example in the case of Grofers are the Indian men and women which are unable to find time to go buy grocery from the supermarkets.
If we talk about startups which came up in an existing market, they include Ola Cabs which entered the taxi market which already had a large number of players. However, the startup successfully carved out a niche for itself by addressing the problems of the customers which were not addressed earlier. They came up with the aggregator model which facilitated cheap rides, a better interface and hence a better value proposition. So the whole marketing activity was aimed at telling the people why they are better than the rest of the players in the market like Meru cabs etc.
The startup world is dynamic and establishing oneself in such dynamic environment involves gaining the trust of the customer which makes it really important for them to realize how the customer is going to react to the idea or the product. With such a large number of startups coming up in the India, all of them close alternatives of each other, finding new markets has become difficult. However, the existing markets also have shown immense potential in the form of the segments which remain untapped and the issues which remain unaddressed. However, the market dynamics also determine the success and the failure and it will be known over time which of these two markets fares better.
This article has been authored by Kavisha Agarwal from IIM Raipur