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Using An Adjacency Strategy for Organic Growth

Going into a new market is fraught with risk.  Yet it can be the key to organic growth. One of the ways to step more safely into a new market is to employ an adjacent market strategy. Developing and pursuing effective market expansion opportunities is one of the core competencies of Marketing.

What should you look for in a new market? A viable opportunity is one that meets all 3 of these criteria:

  • fits with who you want to become as a company
  • involves an attractive market
  • takes advantage of a competitive opening 

Because markets evolve quickly, you need to continuously engage in the process of seeking, evaluating and committing to new opportunities.  Our popular article on using segmentation to fuel organic growth generated a number of questions, including, “How do we generate ideas for ‘good business’ in the first place?” So, this article outlines the two key steps to achieving this goal.

Seek Core Business Adjacencies

When we work with customers seeking growth we use the “Adjacency” approach as presented by Chris Zook of Bain & Company in his book, Profit from the Core, Growth Strategy in an Era of Turbulence. His approach is based on the fundamental premise that successful market strategies start with protecting the Core Business through seeking growth in Core Business adjacencies.  Through adjacency expansion your organization moves into related segments or businesses that utilize and, usually, reinforce the strength of your profitable core.

The approach we use encompasses the following broad steps.

  1. Define all of the dimensions of doing business in markets related to your Core Business. 
  2. Map of possible growth opportunities as you move outward from the Core in each dimension, for example new geographies, channels, products, and customers.
  3. Assess and choose the right adjacencies.

 

Seek Adjacent Markets Near Your Core

How Do You Identify Adjacent Business Opportunities?

After you select the dimensions and create the map, The crucial step is to identify potentially viable adjacent market opportunities. Start this process by examining the following:

  • Adjacent markets you are already serving. Evaluate how well you are doing in these markets in terms of revenue, market share, and profitability.
  • List adjacencies your organization has previously considered or rejected and determine if the reasons for the decision are still relevant.
  • Identify other existing adjacencies you know of that would require two or more strategic moves, such as addressing creating a competitive advantage related quality, innovation or customer experience or adjacencies that competitors are pursuing.
  • Consider what potential adjacencies might emerge due to a technology advancement, or other market or economic development.

After completing this step, it is very possible that you will have a long list of possibilities. We have found that a screening process is necessary to winnow down the list.

How Do You Assess and Choose the Right Adjacencies?

We recommend a three-step approach to identify the most ideal adjacent market opportunities.

  1. Hone in on which adjacencies merit further investigation. To accomplish that we suggest diving more deeply into a potential adjacency based on how well it meets these five criteria. Then remove any adjacencies that fail on two or more of these criteria from your list.

Criteria table

  1. Establish 5-10 specific success criteria for each of the adjacencies that remain on your list and therefore warrant further assessment. For example you may want a target profit margin, a target market growth rate, a capital investment threshold, and so on.

You are going to need to conduct research to ascertain how well each potential adjacency stacks up against each success criteria.  Decide on your assessment schema and the minimum overall rating a potential adjacency must have in order to make it to step three. For example, you can use high, medium and low. Or a 1-10 scale. You will need to specify exactly how you will decide high, medium, low or the numerical score. We recommend creating a spreadsheet or table such as this:

Table of data

After you complete your research and have completed the table, select the adjacent markets that achieve the overall minimum “score”. This is the group that will be put through the paces associated with step three.

  1. For each of the high-potential adjacent markets, prepare a plan of action document. This should be a relatively deep dive into each of the potential opportunities and should address at least four areas:
  • Why this is an attractive market for your company. Be specific about market size, growth rate, pricing trends, competitive landscape, operating environment and so on.
  • What it would take to win in this market. You’ll want to be able to answer questions such as: What customers would you have to acquire, and how many? From which influencers you would need support? If your target prospects are doing business with a competitor, what would it take for them to switch?
  • What strategy you could employ to succeed in this market. In this section be sure to address knowledge, skills, and all investments needed to execute the strategy.
  • Recommendation for market entry.

The ability to identify, assess and choose adjacencies to fuel growth is essential for the majority of companies today. But it can be challenging due to resource requirements, pre-existing biases, and lack of experience in this specialized process. If you have started, or are considering starting a project in this area, contact us to explore how we can help you effectively expand to other markets.

 

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