Market Entry Behavior of New Ventures: A Contextual Approach Viktor Jung Wolfgang Gaul Institute for Decision Theory and Management Science University of Karlsruhe P.O. Box 6980, 76128 Karlsruhe, Germany Tel. + 49 721 608 3726, Fax. + 49 721 608 7765 Email: [email protected]; [email protected] http://marketing.wiwi.uni-karlsruhe.de

Keywords: New Ventures, Market Entry, Marketing-Mix, Entrepreneurship, Contextual Analysis, Germany Abstract To investigate the market entry behavior of new ventures, an empirical study was conducted in 2002 in cooperation with StartUp, the largest nationwide business plan competition in Germany. 2500 participants from the years 1997/98-2001/02 have been contacted in the survey resulting in 537 returns usable for analysis. Examples for possible instruments that can be used or decisions that have to be made by new ventures in order to design their market entry (which – among others – have been integrated in our analysis) are: what competitive advantage is the new offering based on, what additional services are offered, how has the price been calculated and what price strategy is used, how high is the marketing budget and how is it determined, what communication efforts to contact potential customers are made or what distribution channels are used? As the situation for every new venture is different regarding the founding concept and the specific internal and external conditions, contextual factors have been integrated into the analysis. Possible factors that can influence the market entry and the use of marketing instruments are, for example, industry sector and geographical market of the new venture, target customers, level of innovation of the new product offering, market dynamics or competitive intensity. As a result we got a detailed analysis of what marketing instruments are used by new ventures in specific situations that can support the market entry planning process of prospective entrepreneurs.

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1. Introduction Marketing, more than technology, is most often the reason for success or failure of a new venture. Yet there are few detailed guides, and fewer serious studies, on which marketing instruments do or do not work when dealing with entrepreneurial situations and, especially, on the explicit market entry behavior of new ventures. (Lodish et al. 2001, pp. xi) Very often entrepreneurship is focused more on planning and launching as well as on financing new ventures and little attention is paid to the implementation of the business concept, despite its critical importance (Hills/LaForge 1992). Marketing plays a decisive role especially for entrepreneurs who are introducing innovative, new products into the market. It is the tool that the entrepreneur needs to help a product or service be perceived as more valuable than the competition by target segments. Marketing strategies and tactics help guide the development of products and services that the market wants, help target the firm’s offerings to the right customers, get the product or service to the customer, and help insure that the customer perceives the incremental value of the offering that makes it superior to competition and will pay for the added value (Lodish et al. 2001, pp. xi). Although implementation with concrete (marketing) instruments is typically situation specific, a major research challenge is to seek new knowledge regarding this process as conducted by successful entrepreneurs (Hills/LaForge 1992). This difficulty to describe the implementation and introduction of new business concepts is reflected by existing literature which pays more attention on strategic aspects or the general role of marketing during the venture creation process (see, e.g., Chaston 2000, Rüggeberg 1997, Bamford et al. 1997, Carson et al. 1995). In some cases studies concentrate only on single aspects of marketing like information generation (Brush 1992, Cooper/Folta/Woo 1995) or pricing (Pitt et al. 1997) as well as the special field of high-tech marketing (see, e.g., Hagemann 1999, Zentgraf 1999, Meier 1998, Covin/Slevin 1990, Traynor/Traynor 1989). Very often not the specific marketing of new ventures is addressed but the role of marketing 2

in SMEs in general is investigated (see, e.g., Hill 2001, Carson/Gilmore 2000, Mazzarol/Ramaseshan 1996, Romano/Ratnatunga 1995) and comparisons with large corporations are made (see, e.g., Coviello et al. 2000, Andrus/Norwell 1990). Only few studies exist which investigate the use of concrete marketing instruments in new ventures (see, e.g., Grulms 2000). Lodish et al. (2001), for example, take a closer look at the price building, budget determination, distribution or public relation of new ventures in the USA. 2. Research Design 2.1. Research Objectives and Sample Considering the high importance of the market entry behavior and the scarce knowledge that exists regarding this subject, we want to take a closer look on the actual instruments and activities new ventures use to introduce their product offerings (as well as services) into their target markets and especially to attract customers. Regarding the large differences that arise due to the various business concepts und individual contexts, a generalized analysis reveals only limited information and a situation specific approach is required. Therefore, contextual factors like geographical market, segmentation strategy or target customers, that evolve from the strategic concept have to be considered. On the other hand, external conditions like competitive intensity or market dynamics can also influence the market entry behaviour and especially the use of concrete marketing instruments. The following questions are addressed: How do entrepreneurs proceed when entering their target markets? Which instruments are most suitable to meet the marketing related goals during the venture creation process? Which contextual factors, like e.g. industry sector, target customers, market stage or level of innovation, influence the market entry behavior and lead to differences? Which are the most common instruments used by new ventures in certain situations?

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Fig. 1 shows the research design for the contextual analysis of the market entry behavior of new ventures including the investigated marketing instruments and the different categories of contextual factors that are considered. Contextual Factors: Target customers  End users  SMEs  Large corporations  Public sector Geographical Market  National (regional, Germany)  International (Europe, global)

Segmentation Strategy  No segment focus  Several segments, different offerings  Several segments, same offering  One segment  Niche Founding Year  Up to 1999  As of 2000

Industry Sector  Retail  Craftsman  Service industry  Industrial goods  Consumer goods  R&D Competitive Context  Benign  Hostile

Market Stage  Early (formation, growth)  Late (maturity, stagnation) Level of Innovation  Low  High Market Dynamics  Low  High

Market entry design considering contextual factors

Marketing-Mix-Instruments: Product  Competitive advantage  Program politics  Market oriented NPD  Additional offerings

Price  Price determination  Price strategy  Price politics

Distribution Communication  Channels  Instruments  Politics  Politics  Communication focus  Budget determination and level

Fig. 1 Research Design To investigate the market entry behavior of new ventures, an empirical study was conducted in 2002 in cooperation with StartUp, the largest nationwide business plan competition in Germany. StartUp was initiated in 1997 by the weekly magazine stern, the multiple brand banking Sparkassen, and the consulting firm McKinsey&Company. Recently, ZDF (Zweites Deutsches Fernsehen) has joined this initiative. So far almost 7000 potential founders have participated in the StartUp competition. 2500 participants from the years 1997/98-2001/02 have been contacted in the survey to get insight in their market entry behavior. Of the 2500 questionnaires that were sent out to former participants of the StartUp competition 537 of

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those returned were usable for analysis. 445 new companies have been founded by the respondents, 9 existing businesses have been taken over, 21 persons gave up their plan to found a company, and 51 had not yet founded a company at the time of the survey. 11 respondents made no statements regarding the status of their venture creation process. 2.2. Contextual Factors and Target Market Characteristics To display the differences in the importance of certain marketing instruments that arise from the individual situation, contextual factors are integrated into the analysis. First, the founding year of the responding new ventures is considered, which is displayed in Fig. 2. For the following analysis companies are divided into two groups, started up to 1999 and as of 2000. Founding Year N %

Up to 1996 9 1,9

1997 48 10,6

1998 80 17,7

1999 80 17,7

2000 90 19,9

2001 110 24,3

2002 36 7,9

Fig. 2: Founding Year of Responding New Ventures

Industry Sector Retail Craftsman business Service industry Industrial goods Consumer goods R&D Else (multiple answers possible)

N 58 39 266 64 12 57 58 554

% 13,0 8,7 59,6 14,3 2,7 12,8 13,0

Segmentation Strategy No segment focus Segments different offerings Segments same offering One segment Niche Else (multiple answers possible)

N 22 148 57 62 183 8 480

% 5,0 33,6 13,0 14,1 41,6 1,8

Target Customers End users SMEs Large corporations Public sector Else (multiple answers possible)

N 119 288 181 104 44 736

% 26,7 64,6 40,6 23,3 9,9

Geographical Market Regional Germany Europe Global

N 115 163 76 89 443

% 26,0 36,8 17,2 20,1

Market Stage Formation Growth Maturity Stagnation

N 122 164 51 71 408

% 29,9 40,2 12,5 17,4

Fig. 3: Market Characteristics of Responding New Ventures

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Another important factor is the industry sector, here classified into retail, craftsman business, service industry, industrial goods, and consumer goods. Values for the sample are shown in Fig. 3 together with the geographical market (later divided only into national and international), segmentation strategy, target customers, and market stage (early and late) of the respondents. Additional factors that can influence the market entry behavior are competitive context (described by similarity of product offerings, intensity of competition, development of number of competitors), market dynamics (frequency in changes of customer needs, technical dynamic, market growth), as well as level of innovation compared to competition. On average respondents had 8,5 employees and revenues of 1,55 Mio. EUR at the time of the study. 3. Empirical Results In the following chapter the market entry behavior regarding product, price, distribution, and communication for the overall sample and for selected contextual factors is described. As it is not possible within this paper to explain and interpret all identified differences, the complete results for marketing instruments and contextual factors will be summarized in two tables, one for product and price (Fig. 4) and one for distribution and communication (Fig. 8). 3.1. Product/Price As mentioned before, the complete results regarding the use of instruments concerned with product or price decisions are summarized in Fig.4. First, the mean ratings of all respondents for the marketing instruments are displayed. Next the significant differences (positive/+ or negative/- plus the level of significance) considering the different categories of the contextual factors are given. Here, low or high levels of dichotomised variables (like high or low level of innovation) or different values for categorical variables (such as retail industry – other industry sector, or end users – other customers) are compared and the differences along with the level of significance are indicated. Price strategy and determination as categorical variables can not be included in the table, but are described for the overall sample.

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Product

-

++

-

+ (+)

(-)

Geogr. Market

Internat. vs. National

-

Founding Year

As of 2000 vs. Up to 1999

64

Public Sector

++ + + (+) (+)

266

Large Corporations

R&D

++ +

39

SMEs

Consumer Goods

++ (+) (+) + ++

Industrial Goods

104

Service

5,26 5,32 5,65 4,60 4,16 5,04 3,85 5,57 5,42 5,11 4,60 4,49 4,38 2,70 2,57 2,12 3,78 3,80 2,29 3,45 2,27 5,24 3,03

119 288 181

Craftsman

New, previously not offered product features Better price-performance relation High product benefits perceived by customers Program Higher depth of market offering Politics Higher breadth of market offering Source of Customer need is origin of market offering Opportunity Technical innovation is origin of market offering Innovation Level of innovation compared to competition Informal meetings with customers, suppliers etc. Product adaptation / improvement due to customer input Market Product tests with customers Oriented Surveys among customers, suppliers, distributors etc. NPD Product development with lead user Test markets, test sales in limited area Right to return / exchange product Additional Extension of product warranty Offerings Installation of product Inspection, maintenance and repair of product Hire-purchase, leasing Special introduction discount Price Politics Advance order discount Calculation of costs Concepts tests with different prices Competitive Advantage

Price

7

Fig. 4 Contextual Analysis of Product/Price

N

57

58

Mean (1-7)

Target Customers

12

Retail

Marketing Mix

Differences in use / meaning of instruments considering contextual factors (Significance:++/--<=0,01; +/-<=0,05; (+/-)<= 0,1)

Industry Sector

End Users

Overall

236 | 217 278 | 165

++ ++ +

++ ++

(+)

+

--

--

++ ++

--

++ (+) ++ (+) ++ (+)

+

++ ++

-

++ ++

++ ++

++

(+) (+) + ++ ++

(-)

-

(+) (+) --

++

++

-

(+) ++ (+)

(+)

(+) ++

-

++

++ + (+)

++

++ + ++

+ --

-

(+)

+

Product

1 Segment

148

57

62

++

-(-) --

++

(-)

++ +

(-) -

Market Dyn.

183 196 | 245 222 | 214 255 | 185

(+) ++

++

(+) +

++ (+)

+

Innov. Level

Low vs. High

Segments Same Offering

22

Competition

Low vs. High

Segments Different Offerings

286 | 122

Niche

No Segment Focus

New, previously not offered product features Better price-performance relation High product benefits perceived by customers Program Higher depth of market offering Politics Higher breadth of market offering Source of Customer need is origin of market offering Opportunity Technical innovation is origin of market offering Innovation Level of innovation compared to competition Informal meetings with customers, suppliers etc. Product adaptation / improvement due to customer input Market Product tests with customers Oriented Surveys among customers, suppliers, distributors etc. NPD Product development with lead user Test markets, test sales in limited area Right to return / exchange product Additional Extension of product warranty Offerings Installation of product Inspection, maintenance and repair of product Hire-purchase, leasing Special introduction discount Price Politics Advance order discount Calculation of costs Concepts tests with different prices Competitive Advantage

Price

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Fig. 4 (Cont.) Contextual Analysis of Product/Price

N

Early vs. Late

Mrkt.- Mix

Differences in use / meaning of instruments considering contextual factors (Significance:++/--<=0,01; +/-<=0,05; (+/-)<= 0,1)

Segmentation Strategy

Benign vs. Hostile

Market Stage

(+)

(+)

+

++ ++ (+)

(+)

+ +

++ + ++ ++ ++

+ (+)

++ ++

+

(+) ++ (+) ++ (+)

(-)

+ (+) + +

(-) +

(+)

++ ++ ++ +

++ (-)

+

(-)

(+) + (+) ++

++ (-)

-(-)

++ + ++ ++ (+)

(+) + +

++ ++ ++ +

(+) +

(+) +

The most important product advantages the respondents could develop are high benefits perceived by customers (80% rating  5 on 7-point scale), together with higher levels of innovation compared to competitors (75%), and new, previously not offered product features (71%). Despite their more innovative products, entrepreneurs also stress a better price-performance relation (72%). Origin of the new product concepts are primarily explicit customer needs or problems (70%) and less often technical innovations (48%). The majority of the respondents has improved or adjusted the original offering due to customer information (72%). In general, market oriented new product development seems to be of high importance. Only test markets (as a more resource and know-how intensive instrument) receive low ratings. Offering additional services such as inspection, maintenance or repair as well as installation of the product play only a minor role. The same applies for offering a right to exchange/return the product or an extended product warranty. After looking at the product concepts that are introduced by new ventures, it is interesting to see how the price has been determined and what price strategy is followed. Fig. 5 shows that there is no dominant way of setting the price for the new products. Price Determination Competition based Demand / market based Surcharge pricing Profit based calculation Individual pricing, negotiation No special method Other methods

N 134 136 28 77 100 27 23

% 30,25 30,70 6,32 17,38 22,57 6,09 5,19

Price Strategy High pricing Medium pricing Low pricing No explicit strategy

N 91 233 50 70

% 20,50 52,48 11,26 15,77

Fig. 5 Price Determination and Price Strategy The majority of the respondents follows a medium price strategy. With more than 15% a relatively large part of the companies has no clear long-term price strategy. Most companies perform a cost calculation or rate this as being important (73%) while testing different prices perceives only low ratings (61%  3). Special instruments that could reduce customer concerns like hire-purchase/leasing, special introduction discounts, etc., are rarely used.

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Considering the industry sector of the new ventures, the use of the marketing instruments reflects the special requirements and standard ways of acting. More technology oriented sectors like industrial goods or R&D put a stronger emphasis on products with new features, going back on a technical innovation and consequently possessing a higher level of innovation. But at the same time, high product benefits perceived by customers are important and to achieve sufficient market acceptance, product development is supported by the integration of customers in the new product development (NPD) process. In the service industry less innovative and new market offerings are introduced and, accordingly, verification of these concepts in the target market is less important. To attract customers, service providers rely more often on special introduction discounts and different prices are tested more frequently. Fig. 6 compares the average ratings of respondents belonging to the service industry with those from other industry sectors to point out significant differences.

new product features*

test markets

price-performance relation product benefits perceived by customers*

right to return / exchange product

depth of market offering

extension of product warranty*

breadth of market offering installation of product

origin customer need origin technical innovation**

inspection, maintenance and repair

level of innovation*

hire-purchase, leasing

informal meetings product adaptation due to customer input

special introduction discount**

product tests with customers** conduction of surveys

advance order discount

development with lead user (*)

concepts tests with different prices**

calculation of costs

3,0

3,5

4,0

4,5

__aaaa  service industry

5,0

5,5

6,0

1,5

2,0

2,5

3,0

3,5

4,0

aaaaaaa  other industry sectors (significance: **0,01; *0,05; (*)0,1)

Fig. 6 Product/Price for Service Industry – Other Industry Sectors (Comparison of Mean Values)

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Offering a right to exchange or return the product and exact calculation of costs are more important for new ventures targeting end users. They also introduce larger product assortments. NPD supported by lead users is performed less frequently. If the products are directed at large corporations more technology-oriented and innovative products with new features and a better price-performance relationship are offered. For new ventures without an established reputation it is necessary to convince these demanding customers by offering high product advantages. Regarding the geographical markets of the new ventures, the different goals, growth ambitions and market conditions are reflected by the market entry behavior. National oriented companies show a significant lower product advantage, level of innovation and intensity regarding the use of various instruments. Companies in early market stages have much higher levels of innovation which is not surprising as the markets and technologies are still developing and can be influenced by innovative market players. Acknowledging these high market dynamics and the still evolving customer needs, new ventures in early stages integrate their customers in their NPD process to enhance market acceptance of the product. To increase product adoption and diffusion, additional services like installation or inspection, maintenance and repair of the product as well as special introduction discounts and hire-purchase/leasing are also offered. Fig. 7 compares the behavior of companies in early market stages with those in late market stages. Further contextual factors and the resulting differences regarding product and price politics are displayed in Fig. 4.

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new product features**

test markets(*)

price-performance relation

right to return / exchange product

product benefits perceived by customers

extension of product warranty*

depth of market offering breadth of market offering

installation of product(*)

origin customer need origin technical innovation**

inspection, maintenance and repair

level of innovation*

hire-purchase, leasing*

informal meetings product adaptation due to customer input product tests with customers**

special introduction discount(*)

conduction of surveys(*)

advance order discount**

development with lead user **

concepts tests with different prices

calculation of costs

2,5

3,0

3,5

4,0

4,5

5,0

5,5

__a

6,0

market stage:  late

aaaaaaa  early

1,5

2,0 2,5

3,0 3,5 4,0

4,5

(significance: **0,01; *0,05; (*)0,1)

Fig. 7 Product/Price For Early Market Stages – Late Market Stages (Comparison of Mean Values) 3.2. Communication Fig. 8 shows a detailed evaluation of the communication and distribution instruments as well as the contextual factors that have been taken into account. As a benchmark the ranking regarding communication instruments used to contact customers and distribution channels for the overall sample as well as the mean ratings for all instruments are given. This is followed by the ranking of the communication instruments and distribution channels for the categories of the contextual factors to allow comparisons in the meaning of these instruments between certain situations (e.g., retail industry or benign competition; in case of dichotomized factors the ranking refers to the value that is given first, e.g., as of 2000 or international). Also displayed are significant differences between the single categories of the contextual factors (e.g., service industry – other industry sector, low – high level of innovation, etc.). Like price strategy and determination before, communication focus and budget determination as categorical variables are not displayed in this table.

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Channels

Politics

266 2. + 1. (+) 4. 3. ++ 5. 6. 7. 10. -8. 9. 11. + 12. + 13. 14. -15. 16. 17.

64 1. (-) 2. 5. 8. -4. 7. 10. 3. ++ 9. 6. ++ 11. 14. 13. 12. 16. 15. 17.

12 2. 10. 7. (-) 4. 1. 12. -5. 3. 6. 11. 9. 14. 13. 8. (+) 17. 16. 15.

57 2. 1. 3. ++ 7. 5. 4. ++ 10. -6. ++ 8. 9. 14. -12. 13. 11. 17. (-) 15. 16.

(-) (+)

(+) +

Public Sector

R&D

58 1. 2. 3. 5. 6. 10. 7. + 4. ++ 9. 8. (+) 14. 11. 12. (+) 13. 15. ++ 17. 16. + +

Large Corporations

Consumer Goods

1. 5,45 2. 5,22 3. 4,52 4. 4,46 5. 4,43 6. 3,97 7. 3,58 8. 3,58 9. 3,49 10. 3,39 11. 2,92 12. 2,91 13. 2,50 14. 2,40 15. 1,46 16. 1,43 17. 1,31 4,09 3,54 3,07 2,96 2,46 2,45 2,37 1. 5,87 2. 4,11 3. 3,96 4. 3,71 5. 2,06 6. 2,03 7. 2,01 8. 1,83 9. 1,70 5,75 4,80 5,53 5,25 5,05 2,70 1,77

SMEs

Industrial Goods

39 1. + 2. 4. 3. + 5. 14. -7. 8. 6. 12. 10. 11. 9. ++ 15. 13. ++ 17. 16. ++

Mean (1-7)

288 2. 1. (+) 4. 3. + 5. 6. 8. 7. 9. 10. 12. 11. 14. 13. 15. 16. (-) 17. (-)

181 2. 1. 3. 6. 4. 5. ++ 10. 8. 9. 7. ++ 12. (-) 11. 14. -13. 16. (-) 15. 17. --

104 1. 2. 3. (+) 6. 4. (+) 5. ++ 10. 8. + 7. ++ 9. + 11. 12. 14. 13. 16. 15. 17.

End Users

Service

Communikation

Politics

Distribution

13

Fig. 8 Contextual Analysis of Communication/Distribution

Instruments to Contact Customers

N Recommendations of existing customers, reference customers Contacts from previous employment, business life Support from partners, alliances, networks Private relations & acquaintances Press reports and information Speeches / lectures and publications Direct mailings Trade fairs and exhibitions Events, public presentations Visits by sales force / employees Flyers, billboards / placards, posters Internet (banners etc.) Advertisement / print ads Free samples / tryout Lottery, contests Radio / TV spots Point of purchase displays Frequency of advertising activities More creative advertising than competition Control of advertising effects Advertising is directed at customers of competitors Professional advertising agency Higher advertising pressure than competition Several alternative campaigns to choose from Personal sale by founder / entrepreneur Distribution channels of partners Internet Personal sale by own sales force Sales agents / trade representatives Catalog / (mail/phone) order Own shops / sales outlets Retail Wholesale Expansion of existing distribution channels Development of new distribution channels Ability / reliability to deliver Development of customer data base Long-term distribution concept Sales force training Concept tests with distributors

Target Customers

Craftsman

Industry Sector

Retail

Mrkt.- Mix

Differences in use / meaning of instruments considering contextual factors (Significance:++/--<=0,01; +/-<=0,05; (+/-)<= 0,1)

Rank

Overall

119 1. 2. (-) 5. 4. 3. + 10. 7. + 9. 6. ++ 13. 8. ++ 12. ++ 11. ++ 14. 15. ++ 16. ++ 17. ++ ++ ++ ++

(+) ++ (+)

(-) ++ 1. 3. 2. 4. 8. 6. 9. 5. 7.

++ ++ + ++ ++ + + ++ + ++ (+)

1. 5. 3. 2. 8. 7. 4. 6. 9.

(-) ---

++ ++

1. 3. 2. 4. 7. 6. 5. 8. 9.

(+) (-) ++ -----

(-) ---

(-) (+) (-)

1. 2. 5. 3. 4. 7. 9. 8. 6.

++ -+ ++

++ + + +

1. 2. 3. 7. 9. 8. 4. 6. 5.

-

(-)

+ (+) ++

(+) (-)

1. 2. 4. 3. 5. 6. 7. 8. 9.

(+) -

++ ++ 1. (-) 3. -2. (+) 4. 8. 7. ++ 6. ++ 5. ++ 9. ++

-

(+) +

+ +

1. 2. 3. 4. 6. 5. 7. 8. 9.

++ + (+)

(-)

+ +

1. 2. 4. 3. 5. 6. 7. 9. 8.

++ + +

--

1. 2. 3. 4. 6. 5. 7. 8. 9.

+

Politics

Channels

Politics

183 1. 2. 5. 4. 3. ++ 6. ++ 9. 8. 7. (+) 12. 10. ++ 11. + 13. + 14. 15. 16. (+) 17.

Level of Innovation (high vs. low)

62 1. 2. 4. 3. 5. 8. 6. 9. 13. -7. 12. 10. 14. 11. (+) 16. 15. 17.

Market Dynamics (high vs. low)

57 1. (+) 2. 3. 6. (-) 4. 8. 9. 5. 10. 7. 12. 11. 13. 14. 17. 15. 16.

Competition (benign vs. hostile)

Niche

Segments Different Offerings

No Segment Focus

Market Stage (early vs. late)

Geogr. Market (internat. vs. nat.)

22 148 278 165 286 122 1. 1. 3. 4. 2. 2. 1. 2. 4. 3. ++ 4. 3. 7. -5. 2. (+) 1. 3. + 4. ++ 5. 15. 5. ++ 6. ++ 8. 17. 10. 9. 6. 6. 6. ++ 7. ++ 10. 14. 9. + 8. + 7. 16. 8. ++ 10. 9. 5. 12. (-) 11. (+) 12. 8. 11. 12. 11. 10. 14. 14. 14. (-) 7. 13. + 13. 13. 13. (-) 16. 15. 16. 11. 15. 16. 15. 9. 17. 17. 17. 12.

1 Segment

N 217 236 Recommendations of existing customers, reference customers 2. (-) Contacts from previous employment, business life 1. (+) Support from partners, alliances, networks 3. ++ Private relations & acquaintances 5. Press reports and information 4. Speeches / lectures and publications 6. Direct mailings 7. Trade fairs and exhibitions 8. Events, public presentations 9. (+) Visits by sales force / employees 10. Flyers, billboards / placards, posters 11. + Internet (banners etc.) 12. Advertisement / print ads 14. Free samples / tryout 13. Lottery, contests 15. (+) Radio / TV spots 16. Point of purchase displays 17. Frequency of advertising activities ++ More creative advertising than competition Control of advertising effects Advertising is directed at customers of competitors Professional advertising agency Higher advertising pressure than competition (+) Several alternative campaigns to choose from Personal sale by founder / entrepreneur 1. Distribution channels of partners 2. ++ Internet 3. ++ Personal sale by own sales force 4. + Sales agents / trade representatives 5. Catalog / (mail/phone) order 6. Own shops / sales outlets 7. Retail 8. Wholesale 9. Expansion of existing distribution channels Development of new distribution channels Ability / reliability to deliver Development of customer data base + Long-term distribution concept + Sales force training Concept tests with distributors

Segments Same Offering

Instruments to Contact Customers

Distribution

Fig. 8 (Cont.) Contextual Analysis of Communication/Distribution

14

Communikation

Mrkt.- Mix

Differences in use / meaning of instruments considering contextual factors (Significance:++/--<=0,01; +/-<=0,05; (+/-)<= 0,1)

Founding Year (as of 2000 vs. up to 1999)

Segmentation Strategy

196 245 222 214 255 185 1. 1. 1. 2. (-) 2. 2. 4. 3. ++ 4. 5. 5. (+) 6. 3. ++ 4. + 3. ++ 6. 6. ++ 5. ++ 9. 10. (-) 10. 7. + 7. (+) 7. ++ 8. ++ 8. 8. ++ 10. 9. 9. ++ 11. (+) 12. 11. ++ 12. (+) 11. 12. 14. 14. 14. 13. 13. 13. ++ 16. 16. 16. 15. + 15. (+) 15. ++ 17. 17. 17. (+) ++ ++

(+) (-)

(+) ++ ++ (+)

1. 2. 4. 3. 5. 6. 7. 8. 9.

-++ ++ ++

++ ++ + ++ ++ +

1. 2. 3. 4. 5. 7. 6. 8. 9.

++ ++ +

+

+ +

1. 3. 4. 2. 5. 7. 6. 9. 8.

-

-

1. 2. 3. 4. 5. 7. 6. 8. 9.

1. 2. 4. 3. 5. 8. 6. 7. 9.

+ (-) ++

+ + ++ + ++

1. 3. 2. 4. 7. 5. 6. 8. 9.

(+)

1. 3. 2. 4. 7. 5. 6. 8. 9.

+ (+) + +

1. 2. 3. 4. 5. 6. 7. 8. 9.

(-) (+) (+) ++

1. 2. 3. 4. 7. 6. 5. 9. 8.

++

(-)

1. 2. 4. 3. 5. 7. 6. 8. 9.

-++ ++ ++ + + ++ ++

+

+ (+) +

++ ++ ++ ++

The communication instruments new ventures use most frequently to contact and consequently to acquire new customers are, as displayed in Fig. 9, recommendations by existing customers, contacts from previous business life, help of partners and networks, as well as private relations and acquaintances. More traditional instruments like radio or TV spots or point of purchase displays are only of minor importance.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

Communication Instruments Customer recommendations Previous business contacts Partners, alliances, networks Private relations, acquaintances Press reports and information Speeches and publications Direct mailings Trade fairs and exhibitions Events, public presentations Visits by sales force/ employees Flyers, billboards, posters Internet (banners etc.) Advertisement / print ads Free samples / tryout Lottery, contests Radio / TV spots Point of purchase displays

Mean 5,45 5,37 4,52 4,46 4,43 3,97 3,58 3,58 3,49 3,39 2,92 2,91 2,50 2,40 1,46 1,43 1,31

Communication Focus Technical features Customer benefits Price Entire company Else

Determination of Budget Available / liquid funds Percentage of revenue Percentage of profits Goals and necessary activities According to competition Costs of single activities Else

N 59 295 16 68 4

% 13,3 66,6 3,6 15,4 0,9

N % 198 44,8 21 4,8 11 2,5 112 25,3 6 1,7 81 18,3 13 2,9

Fig. 9: Communication Instruments, Focus and Determination of Budget The high importance of informal ways and networks is supported looking at the ratings of further instruments, which are rather low. The majority of new ventures conducts advertising activities only sometimes (60%  rating 4 on 7-point scale). Using professional agencies (73%  3), controlling advertising effects (60%  3), and developing several alternative campaigns are also of low importance. New ventures show only limited aggressiveness as they do not create higher advertising pressure (71%  3) and target competitors’ customers only rarely (61%  3). Fig. 9 shows that 2/3 of new ventures focus on communicating the customer benefits of their market offering. The majority does not determine the marketing budget in advance as is it

15

results very often from available funds or the costs of activities. New ventures are spending an average 10,4% of their revenues for marketing. Fig. 10 shows communication activities of new ventures which are targeting end users in more detail. Contacts from previous employment are less important but press reports, public events, print ads, flyers and billboards as well as radio/TV spots or internet receive higher ratings and are perceived to be more suitable to reach the target segments. Advertising activities in general are conducted more frequently and advertisement effects are controlled at a higher level. customer recommendations

flyers, billboards, posters**

previous business contacts(*)

internet (banners etc.)**

partners, alliances, networks

advertisement / print ads**

private relations & acquaintances

free samples / tryout

press reports and information*

lottery, contests**

speeches and publications*

radio / TV spots**

direct mailings*

point of purchase displays**

trade fairs and exhibitions

control of advertising effects**

events, public presentations**

advertising directed at customers of competitors

visits by sales force / employees*

professional advertising agency

frequency of advertising activities**

higher advertising pressure**

more creative advertising**

alternative campaigns**

2,5

3,0

3,5

4,0

4,5

5,0

5,5

6,0

1,0

1,5

2,0

2,5

3,0

3,5

4,0

aaaaaaa

aaaaa

 end users

 other customers (significance: **0,01; *0,05; (*)0,1)

4,5

Fig. 10 Communication For End Users – Other Customers (Comparison of Mean Values) Globally active new ventures can rely less on private relations and put more emphasis on trade fairs and exhibitions, publications and speeches, as well as visits by sales force/employees.

16

The level of innovation of the product concept has a large influence on the choice of communication instruments. Fig. 11 shows differences in the mean rating between companies with high and low levels of innovation.

customer recommendations

flyers, billboards, posters**

previous business contacts*

internet (banners etc.)

partners, alliances, networks

advertisement / print ads

private relations & acquaintances*

free samples / tryout**

press reports and information**

lottery, contests

speeches and publications**

radio / TV spots**

direct mailings

point of purchase displays(*)

trade fairs and exhibitions**

control of advertising effects

events, public presentations**

advertising directed at customers of comp.(*)

visits by sales force / employees**

professional advertising agency**

frequency of advertising activities**

higher advertising pressure**

more creative advertising**

alternative campaigns

2,5

3,0

3,5

4,0

4,5

5,0

5,5

6,0

6,5

aaaaaaa level of innovation:  high

1,0

1,5

2,0

2,5

3,0

3,5

aaaaa  low (significance: **0,01; *0,05; (*)0,1)

Fig. 11 Communication For Low – High Level of Innovation (Comparison of Mean Values) 3.3 Distribution By far the most important way of selling new products is personal sale by the founder(s) of the new venture. Fig. 12 displays the importance of the different distribution channels. New ventures plan to expand the use of their existing distribution channels (83%  5) and on a lower level also to develop new channels (63%). Companies state that they have a long term distribution

Distribution Channels 1. 2. 3. 4. 5. 6. 7. 8. 9.

Personal sale by entrepreneur Distribution channels of partners Internet Personal sale by own sales force Sales agents / trade representatives Catalog / (mail/phone) order Own shops / sales outlets Retail Wholesale

Fig. 12 Ranking of Distribution Channels 17

Mean 5,87 4,11 3,96 3,71 2,06 2,03 2,01 1,83 1,70

concept (69%) and plan to install (or already have) a customer data base (70%). High availability and reliability of delivery are very important (79%). Sales force training (68%  3) as well as concept tests with distributors receive (85% 3) only low ratings. Companies in the retail industry give overall higher ratings to distribution instruments since this is their core business, as can be seen in Fig. 13. sales agents / trade representatives**

personal sale by entrepreneur distribution channels of partners

catalog / (mail/ phone) order**

internet own shops / sales outlets*

personal sale by own sales force expansion of existing distribution channels*

retail**

development of new distribution channels*

wholesale**

ability / reliability to deliver** sales force training** development of customer data base* long-term distribution concept

concept tests with distributors(*) 3,5

4,0

4,5

5,0

aaaaaaa  retail industry

5,5

6,0

6,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

aaaaa  other industry sectors (significance: **0,01; *0,05; (*)0,1)

Fig.13 Distribution For Retail Industry – Other Industry Sectors (Comparison of Mean Values) Especially sales representatives, wholesale and retail as well as catalog/orders are more important compared to other industry sectors. Accordingly, high availability and reliability to deliver as well as sales force training are more essential. Craftsman are using own stores and retailers more often to distribute their products and rely less on distribution over the internet and partners. To sell the often more complex products in the industrial goods sector, new ventures are using their own sales force supported by sales representatives, partners and wholesalers. Distribution activities used in other situations are summarized in Fig.8.

18

4. Conclusion This contribution gives a detailed overview about the tactical market entry behavior of new ventures. By analysing the use of different marketing instruments from the product, price, communication, and distribution domains, the way new ventures enter their target markets has been investigated. As the environment and context of every new venture is more or less unique and demands individual concepts, a contextual approach has been followed to get a more detailed and applicable understanding of the market entry behavior. The industry sector, target customers, founding year, geographical market, market stage, segmentation strategy, competitive context, market dynamics, and level of innovation have been considered to obtain more differentiated results. Significant differences in the use of marketing instruments have been identified which show that new ventures take the internal and external conditions into account when designing their market entry. Limitations for the generalisation of the results may arrive from the special sample of the study. As the respondents are all participants from a business plan competition in Germany, the new ventures may be based on more innovative and growth oriented concepts. But still, helpful insights and guidelines can be obtained which can support prospective entrepreneurs when developing the appropriate way to enter their target markets. This study can serve as a reference on which instruments are suitable for new ventures in certain situations when the tactical market entry behavior is concerned. For further analysis performance dimensions will be integrated to obtain information about the behavior of more successful new ventures under consideration of contextual factors. References: Andrus, D.M.; Norwell, W.(1990): Marketing Differences Between Large and Small Firms, in; Akron, No. 3, pp. 81-90. Bamford, C.; Dean, T.; McDougall, P. (1997): Initial Strategies and New Venture Growth: An Examination of the Effectiveness of Broad vs. Narrow Breadth Strategies; in: Frontiers of Entrepreneurship Research, Babson College.

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Brush, C. (1992): Marketplace Information Scanning Activities of New Manufacturing Ventures, in: Journal of Small Business Management, No. 4, pp.41-51. Carson, D.; Gilmore, A. (2000): Marketing at the interface: Not 'what' but 'how', in: Journal of Marketing Theory and Practice, No.2, pp.1-8. Carson, D.; Cromie, S.; McGowan, P.; Hill, J. (1995): Marketing and Entrepreneurship in SME´s, Prentice Hall. Chaston, I. (2000): Entrepreneurial Marketing, Palgrave. Cooper, A.; Folta, T.; Woo, C. (1995): Entrepreneurial Information Search, in: Journal of Business Venturing, Vol.10, pp. 107-120. Cooper, R.; Kleinschmidt, E. (1995): Benchmarking the Firm’s Critical Success Factors in New Product Development, in: Journal of Product Innovation Management, pp. 374-391. Coviello, N.; Brodie, R.; Munro, H. (2000): An Investigation of Marketing Practice by Firm Size, in: Journal of Business Venturing, No. 5-6, pp. S.523-545. Grulms, M. (2000): Marketing in neugegründeten Unternehmen - Eine empirische Analyse des Existenzgründer-Trainings "ExTra!", Josef Eul Verlag. Hagemann, O. (1999): Innovationsmarketing für technologieorientierte kleine und mittlere Unternehmen, Wiesbaden. Hill, J. (2001): A Multidimensional Study of the Key Determinants of Effective SME Marketing Activity: Part 1, in: International Journal of Entrepreneurial Behaviour and Research, No. 5, pp.171-204. Hills, G.E.; LaForge, R. (1992): Research at the Marketing Interface to Advance Entrepreneurship Theory, in: Entrepreneurship: Theory and Practice, No.3, pp. 33-59. Lodish, L.; Morgan, H.; Kallianpur, A. (2001): Entrepreneurial Marketing, John Wiley & Sons. Meier, A. (1998): Marketing junger Technologieunternehmen, Wiesbaden. Pitt, L.; Berthon, P.; Morris, M. (1997): Entrepreneurial Pricing: the Cinderella of Marketing Strategy, in: Management Decision, No. 5, pp. 344-350. Romano, C.; Ratnatunga, J. (1995): The Role of Marketing: Its Impact on Small Enterprise Research, in: European Journal of Marketing, No. 7, pp. 9-30. Rüggeberg, H. (1997): Strategisches Markteintrittsverhalten junger Technologieunternehmen: Erfolgsfaktoren der Vermarktung von Produktinnovationen, Wiesbaden. Smith, J. (1998): Strategies for Start-Ups, in: Long Range Planning, No. 6, pp. 857-972. Traynor, K.; Traynor, S.C. (1989): Marketing Approaches Used by High Tech Firms, in: Industrial Marketing Management, Vol. 18, pp. 281-287. Zentgraf, C. (1999): High-Tech-Marketing in kleinen und mittleren Unternehmen, Wiesbaden.

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are made (see, e.g., Coviello et al. 2000, Andrus/Norwell 1990). Only few studies exist which investigate the use of concrete marketing instruments in new. ventures (see, e.g., Grulms 2000). Lodish et al. (2001), for example, take a closer look at the. price building, budget determination, distribution or public relation of new ...

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