A geographic market is not necessarily equal to a country. While small countries may be considered as one geographic market, larger countries are divided into several geographic sub-markets.

Software companies with growth ambitions all share the challenge of deciding which market(s) to approach next. As penetrating any additional market is associated with investments and uncertainty, using a fact-based process for the selection can help accelerate the return on investment and mitigate the risk.

A market is in this context defined as a geographic market. A geographic market is not necessarily equal to a country. While small countries may be considered as one geographic market, larger countries are divided into several geographic sub-markets. Germany, Italy, Spain, France, China, UK, Australia, Russia, USA and many others are made up of several substantial and independent sub-markets.

The objective of an Ideal Market Profile is to help define a framework and a process for selecting the most appropriate geographic markets for expansion and growth. In this context “appropriate” means balancing the growth potential, the investment requirements and the risk.

The Ideal Market Profile

The Ideal Market Profile is a description of those characteristics, which are considered important demand indicators for the product[1] in question.

The Ideal Market is a market with a high density of Ideal Customers.

The definition of Ideal Market Profile is based on three basic concepts:

• The Customer Value Proposition[2]
• The Ideal Customer Profile[3]
• The Value Chain[4]

The definition of the Customer Value Proposition is required for evaluating the importance of the competitive situation in the Ideal Market Profile.

The definition of the Ideal Customer Profile is required for selecting those characteristics which indicate a high density of Ideal Customers in a new market.

The Value Chain definition is required to estimate how fast and smooth an established value chain framework can be established in a new market.

Based on these definitions the Ideal Market Profile will normally include the 10-20 most important characteristics, which will indicate a high density of Ideal Customers, an acceptable level of competitive pressure and an infrastructure available to operate the value chain.

The Three Types of Market Characteristics

There are basically three types of data available for any market.

• Macro Demographics
• Micro Demographics
• Competition and Other Barriers to Entry

Macro Demographics

Demographic data is normally readily available and includes:

• Political system and population characteristics
• Transparency and level of corruption in decision making
• Infrastructure information (roads, water, electricity and telecommunication)
• Macroeconomic data on GDP and growth expectations
• Size of vertical segments and geographical sub regions
• Number and size of companies in vertical segments and geographical sub regions
• Name of key decision makers and company contact information (phone number and address)

Sources for these are the government statistical office, international organizations and private data providers. Macro Demographics data are normally free or available at a very reasonable cost. Access to a full set of company data for a market costs approximately €2.000 per 10 million inhabitants. A market profile based on macro demographics can be made for €5-10.000.

Micro Demographics

Micro-demographic data may also be readily available and includes:

• Early versus late adaptor bias
• Off-shore versus on-shore bias
• Vertical/horizontal market surveys (size, growth and competition)
• Power Distance, delegation and decision making structure
• Cost of operation

Sources are Government Statistical Office, OECD, UN, the World Bank Group, Market Analysis Agencies and Specialist Research Agencies. Micro Demographics are primarily available for larger and mature markets. The cost for a specific market segment information is typically between €5-20.000.

Competition and Other Barriers to Entry (OBTE)

Mapping competition and OBTE normally requires individual research and includes:

• Susceptibility to solution specific characteristics
• Local market requirements
• Local competition (from local as well as other international players)
• Access to and availability of dedicated and competent resources

Sources for assessing the competitive pressure and OBTE is very seldom readily available and requires the engagement of Specialist Research Agencies. The cost of getting a reasonable picture of the competitive pressure and OBTE is typically around €20-50.000.

The decision making matrix

With the definition of 10-20 of the most important characteristics (CHA) of the Ideal Market Profile, a decision-making matrix can be established.

The score used for the market profile characteristics is 3 for “critical” and 1 for “important”. The score used for actual market information is 5 for “the perfect match”, 3 for” the good match” and 0 for little, none or unknown match.

Social Physics and Proximity

If no preliminary market data or other criteria for making the preliminary selection are available, I will recommend applying social physics and proximity considerations.

The social physics and proximity considerations recommend starting with those markets that are closest. Cost of market entry and cost of doing business are comparably lower than markets further away. For almost all countries in the world, social physics and proximity explain why most international trade is performed between neighboring countries.