8 key reasons for the struggle of successful brands in new markets

The road to success in new markets demands astute planning, effective implementation, and, most importantly, the flexibility to pivot and adapt to shifting market conditions. Here are eight pain points that brands need to avoid

Harsh Pamnani
Updated: Feb 24, 2023 01:14:52 PM UTC
Image: Ricardo DeAratanha/L A Times via Getty Images

Building a brand that is recognised globally is no easy feat. These brands achieve worldwide love and respect due to their products, marketing, and distribution strategies that appeal to diverse consumer groups in different markets. Despite this success, even the most successful brands can face difficulties when entering new markets.

As Bill Gates famously stated, "Success is a lousy teacher. It seduces smart people into thinking they can't lose." With this in mind, it is important to examine the various factors that have led to the struggles of successful brands in certain markets. Here are a few:

1) Lack of market understanding

When a company enters a new market, it's important to have a thorough understanding of the local culture, consumer behaviour, and market dynamics. Without this understanding, companies can make costly mistakes that could lead to failure. For example, Tesco, one of the largest retailers in the United Kingdom, attempted to enter the United States under the brand name "Fresh & Easy.” However, the company faced several challenges that ultimately led to its failure in the market. Their stores were located on the wrong side of the road and were too small to cater to the American customers' preference for larger stores with a wider variety of products. The stores' daily shopping design also contrasted with the bulk shopping preference of the typical American grocery store, making it difficult for Fresh & Easy to attract customers.

2) Inefficient software systems

If the information systems used by a company are unreliable, it can result in inaccurate or incomplete data, which can negatively impact decision-making. American retail giant Target saw potential in the Canadian market due to its proximity and English-speaking consumers. However, Target's entry into Canada was unsuccessful. The company expanded rapidly, opening 124 locations in just ten months with an inadequate supply chain, which was poorly structured and plagued by data errors. These issues were exacerbated by major technical problems and a flawed merchandising system, leading to overstocking in the warehouse and empty stores. Inadequately stocked stores disappointed customers and impacted Target's ability to compete with competitors like Walmart, Costco, Giant Tiger, and Sears.

3) Misleading advertisement

Consumers expect companies to be truthful and transparent in their advertising. And when they feel that they have been misled, it can lead to negative emotions such as anger and frustration. In 1999, Coca-Cola launched Dasani bottled water in the US, where it became a huge success. Dasani was launched in the UK in 2004. Despite being marketed as purified water, it was revealed that it hadn't come from alpine glaciers or natural springs. It was sourced from tap water. Although the company put it through a purification process and added mineral salts, the source was tap water, leading to disappointment and a loss of trust among consumers seeking a premium product.

4) Incorrect brand positioning

When a brand is positioned incorrectly, it can confuse consumers and make it difficult for the brand to stand out in the market. Volkswagen means "people's car" in German, primarily what the brand sells, stylish, well-engineered, and relatively affordable cars. People's car implies that it's supposed to be something for the masses. Yet, with the Volkswagen Phaeton, the company tried to elbow its way into the luxury car market, competing directly with Mercedes Benz and BMW. The Phaeton was, by most accounts, a marvellous car, but it was expensive. Despite its luxurious features, the car failed to sell well, especially in the US, where customers did not want to spend the high price on a Volkswagen.

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5) Customer price sensitivity

In a price-sensitive market, it is difficult for the brand to compete with lower-priced alternatives. Harley-Davidson is a widely recognised brand and is often seen as a status symbol by many consumers. However, the high price of Harley-Davidson motorcycles in India was a significant factor in the brand's failure to gain a foothold in the market. Despite the prestige associated with the brand and its iconic status, the cost of the motorcycles was prohibitive for many potential customers. Additionally, the high cost of ownership, including maintenance and parts, made it difficult for Harley-Davidson to attract and retain customers. In India, many consumers are price-sensitive and often prefer to purchase more affordable options. Over a decade, Harley-Davidson in India sold approximately 27,000 units, while its closest competitor, Royal Enfield, sold a similar number in just one month.

6) Poor dealer and service network

To be successful, automakers must meet several criteria, including fuel efficiency, resale value, service stations' proximity, parts' affordability, and low servicing costs. GM entered the Indian market with its Opel brand, hoping to capture a share of the growing automobile market. However, the brand failed to resonate with Indian buyers and did not receive the expected response. Determined to succeed in the Indian market, GM introduced its Chevrolet brand, which brought some success. Despite these efforts, GM still struggled to establish a significant market presence due to various challenges, such as the lack of an adequate dealer and servicing network. Dealerships in India often sell a single brand. So, GM's low sales volumes meant a single dealer might sell only a handful of cars in a month and could be making losses on the costs of running the business. The brand eventually pulled out in 2017, after years of declining market share, reaching an all-time low of only one percent in 2016.

7) Sourcing issues in the supply chain

A brand’s inability to source high-quality raw materials from the right suppliers can lead to higher production costs and reduced profit margins. In 2011, Danone entered the Indian market. Unlike France and the US, where Danone leads, India's dairy industry is fragmented. Most dairy farms in India have only one or two buffaloes or cows. Most milk produced in India is consumed by farmers’ households. Big players like Amul, Mother Dairy, and numerous local players have built their dairy supply chains over the years. So, it was not easy for Danone to source milk at a competitive price. The fluid milk and ghee market in India was already crowded and competitive. Danone focused on plain and flavoured yoghurt drinks, which were popular in the US and France, and had high-profit margins. However, in India, yoghurt made up only seven percent of the dairy consumed at the time. These combined factors ultimately led to Danone shutting down its dairy business in India in 2018.

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8) Misaligned product and brand image

If a brand's product does not match its image or messaging, it can result in confusion among customers, who may not understand what the brand stands for or what it offers. When Dunkin' Donuts came to India, the brand was initially seen as a breakfast option for Western countries. However, Indians generally prefer their local cuisine for breakfast. Doughnuts are typically considered high-calorie desserts. The brand was perceived as a pastry shop, and Indians didn't want to start their day with sweet baked goods. Dunkin' attempted to pivot its image by offering burgers to appeal to India's large vegetarian population. While this strategy may have been effective in bringing in more customers, it diluted the brand's image as a doughnut retailer, which went against the basic principle of marketing—focus.

The secret to conquering new markets lies in diligent and comprehensive research that delves into the intricacies of local customer behaviour and needs. But this is only the starting point. The road to success in new markets demands astute planning, effective implementation, and, most importantly, the flexibility to pivot and adapt to shifting market conditions.

The writer is an author of 'Booming Brands' and co-author of ‘Booming Digital Stars’. Views expressed are personal and don't necessarily represent any company's opinions. The thoughts and opinions shared here are of the author.

The thoughts and opinions shared here are of the author.

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