Written by: Blair Severn, CanAm Executive in Residence and Chairman enabling ideas®
It is common practice for U.S. companies entering Canada (or vice versa Canadian companies entering the U.S.) to define their Target Market of their cross border initiative. But as important, have you determined your Participation Strategy?
Often companies conflate or confuse Target Market and Participation Strategy as synonymous but they are very different strategy elements, each critical for success. Setting a Target Market characterizes and describes who you are trying to market and sell to, where as Participation Strategy is the hard-line boundary of where you ‘will’ do business (and with who) and where you ‘won’t’ do business. For example, if your Participation Strategy boundary is Southern Ontario and a company from Quebec (outside your Participation Strategy) asks to buy your products, you would decline the business.
Both Target Market and Participation Strategy are determined by segmenting the market into groups of similar distinguishing characteristics. Such as geographic – describing where they are, (i.e. companies in Toronto, Southern Ontario or Canada-wide), demographic – describing who they are (i.e. automotive channel, retail dealers with $1 million in revenue) and psychographic – describing what they think (i.e. environmentally ‘green’ is important). Target market defines your focus of marketing and sales effort where as Participation Strategy establishes the boundary of profitable effort.
It’s often difficult for companies to consider the notion of declining business but there is a very good reason, in particular when heading across the border to Canada (or vice versa when a Canadian company is entering the U.S). A poorly defined Participation Boundary, like a a poorly defined Target Market is generally not effective (i.e. in trying to serve everyone you end up serving no one well) but additionally is generally financially imprudent. At best, doing business outside a Participation Boundary is distracting but more often than not when fully costed (fully understood) is not profitable for the company.
Determining a Participation Strategy starts with costing different Participation Boundary choices. Wider geographic boundaries inherently have greater costs for travel, distribution, servicing, etc. Urban geographic boundaries inherently have greater costs for marketing, rent, parking, etc.
You may also consider to segment Participation Boundaries by channel or customer size / type as these again can have very different cost structures.
Even if a your company has the economic means and bandwidth to enter Canada with a wide Participation Strategy, there remains an important reason to first test the market with a narrow boundary and build toward a wider strategy later. Most new market efforts require some form of learning and course correction. It is far less costly to correct something not working in a small boundary. And equally important, early failures across a wide Participation can be so credibility destroying that it’s impossible to recover. A great example of this is Target’s recent mass entrance, failure and pull-out of Canada.