Introduction
The current market is saturated with every kind of product that a business person could invest in, thus necessitating taking risks to win the market. However, with proper market analysis, there are always products that have not reached all markets that could be exploited. For example, the less common product is electric vehicles in developed and developing countries. With nations converging for annual climate change summits and discussing environmental pollution, electric cars could lower the pollution caused by the existing fuel-powered motors. This product will be accepted in the global market because all nations face fuel crises due to pollution, high cost of importation, and economic wars. However, one must consider market selection, Porter’s five forces, diversification, modes of entry, and pricing strategies to conquer the market. Although new products could face difficulties in a new market, with proper strategizing, the product could grow and reach the global market.
Market selection
The first strategy in market selection is the market penetration approach, where one analyzes how they will introduce their product to the market. Since an existing similar product performs the purpose the newly introduced product will perform, such as diesel-powered engines, the entrepreneur should plan on how to gain the current customers (Deaza et al., 2020). This step will emphasize gaining loyal customers to reduce the competition, attract loyal customers to existing brands and convert non-users into users, increasing the customer capacity. Furthermore, executing this step will ensure the product is widely accepted in the market and widely used, thus increasing the production volume and leading to company growth through profits.
The second strategy will be market development, where the institution will seek to expand sales by selling the existing product to a new market. The newly produced cars cannot reach all of the markets instantly, thus requires strategizing on how the market could be improved (Baena-Rojas et al., 2022). The approach involves analyzing the world market, especially those not dominated by other brands, to establish electric cars as dominated market. Market expansion strategy will involve entering new geographic areas, creating product awareness, and developing stable distribution channels of the product to all customers.
Thirdly, entrepreneurs should consider product development strategies to reach more customers. This action requires the producers to analyze customer needs and improve the quality of their products to increase their sales to existing customers. Additionally, there might be laws governing the energy sectors which must be taken into consideration, such as the introduction of green energy to reduce pollution.
Lastly, the product diversification strategy will involve introducing a new product to new customers. This approach will exploit the company’s abilities to reach more customers and produce more products that solve existing problems (Brouthers & Nakos, 2019). In this step, a new product will be produced to diversify the production. For example, since the creation was the electric car, the company might consider producing cellphones and internet of things (IoT) gadgets that could be under the existing brand. This new and diverse product will reach new customers easily because current and loyal customers will be willing to use the brand products. However, this strategy could be riskier because it will involve an entirely new product that should be on its own as a brand.
Porter’s five forces
Porter’s five force analysis strategy is an approach seeking to explain why businesses can maintain their production and sustain different levels of profitability. This approach attempted to explain competitive strategy analysis on how companies could keep up or defeat competitors in the market. The model has been widely used to examine the industry structure and cooperation strategies. Then, the forces are used to determine the company’s completion, attractiveness, and profitability compared to others in the market.
The first force is the competition in the industry, where it analyzes competitors and their abilities compared to its company. When many companies provide the same services, the new company has less power to dominate the market (Isabelle et al., 2020). If one considers electric cars, there are few manufacturers of this product. However, some companies are seeking to diversify their product. Existing companies, such as Tesla, have improved their products but have not developed their market. Other companies like Mercedes have also started the production of electric cars over diesel; thus, the market will have a bigger completion. Since these companies have not fully developed their model to cover all of the markets, introducing electric cars with a better strategy will perform well in the market-leading to success.
Second, in Porter’s force is the potential of new entrants into an industry. A company’s power and influence in the market are negatively affected by new entrants. When less money and time are required to start a competitive industry, the company will likely be saturated by new developers. Thus, when considering investing, entrepreneurs should consider complex and expensive sectors which will require more investment to reach the market. For example, electric car production is very expensive; therefore, few investors could raise the money for the output; thus, the market will take long before saturation. Additionally, the product must reach suitable standards for production. Therefore, more time and assessment are required for the product to penetrate the market.
Thirdly, the power of suppliers in the five force model addresses how they can drive the cost of inputs. Suppliers determine the product production through their product quality and the numbers in the market (Kustipia & Wulung, 2019). If there are fewer suppliers in the market, companies are likely to depend on the limited suppliers; thus, companies will rely on the suppliers losing the bargaining power over them. For example, when we consider the electric car production industry, there are limited suppliers of electronics and materials required for the construction of this product hence the higher cost of production. Thus, for this industry to thrive, investors should consider and explore mechanisms that could lower production to increase their profits.
Fourthly, Porter considers the power of customers as a driving force in the market. Customers can drive the product cost lower or to their level depending on the company’s number of customers, the significance of each member, or how long it will take to gain more customers. For example, when we consider electric cars in the market, it is likely to reach more buyers if the producers work on lowering the production hence lowering the costs of the product. However, finding new customers for this product will not be difficult since many nations are advancing their technology and therefore could accommodate the product, especially charging and maintenance.
Lastly, the customers could consider threats of substitute products because it offers the same services. In the motor vehicle industry, there are fuel and electric-powered motors (Beattie, 2021). Since our company will be using electric-powered motors, fossil fuel-powered motor manufacturers will consider increasing the efficiency of their engines to consume less fuel and lower the production cost, creating stiff competition for electric cars. The electric car industry faces bigger threats from the substitute product since they have already penetrated all markets and reached regions that electric vehicles could not go because there is no electric power supply in all areas worldwide. Electric cars could be limited to remote, less developed, marginalized regions, thus considering substitute products.
Diversification
Diversification of the products is an approach many companies consider when they want to grow their market, cover a gap in a given industry, and keep up with the competition and demand. When considering the electric car manufacturing company, the ideal strategies will be horizontal and conglomerate diversification (Shropshire, 2019). In horizontal diversification, the company will produce a new and unrelated product but give service to existing companies. For example, electric car manufacturing companies should consider battery manufacturing company to complement their services to customers making it easy and affordable to replace the cars’ cells.
Additionally, the company can consider conglomerate diversification where they produce unrelated products that significantly differ in technology or commercial similarities. For example, the electric car company could consider assembling mobile phones to capitalize on their fame to market their new product. However, this approach could be costly because it requires a new company setup (Le, 2019). In addition, this approach requires intense research and is riskier with the likelihood of failing; thus, should not always be encouraged.
Modes of entry
The first mode of entry to be considered is exporting the electric cars to another foreign market. Since this is a new company, they should consider exporting their products because they cannot afford the large capital needed to invest in every foreign markets (Plouffe, 2020). Investing in every market could be expensive because of the setting of the factories in every region, and the industry requires heavy investment to set up a single factory. This method will be effective because of its fast entry into the market and the low risks involved. However, it has low control of the foreign market, especially the pricing and legal factors and inadequate local knowledge; thus, the product might not meet all the customer needs.
Secondly, the producers should consider licensing and franchising by agreements with foreign companies. The international licensing agreement allows the foreign company to sell the product of the producer company and use intellectual patents in exchange for royalties (Bretas & Alon, 2021). The company should consider this mode for foreign markets far from the region of setup; however, that region must have the potential to manufacture electric cars. These regions include most Europe countries and a few Asian countries. Africa, Asia, and southern America should consider importing the product from a nearby factory, such as the parent company or franchise. Licensing and franchising help the company penetrates the market quickly, at low cost and risk. However, the approach gives the parent company less control of their product, and the licensee or franchisee might become a bigger competitor.
Thirdly, partnering and a strategic alliance could help the company penetrate the market easily. This approach requires contractual agreements with foreign market companies to contribute to developing the product for a given period to achieve a common goal (A A AL Gharrawi, 2018). However, this mode will be ideal because there are assembling industries in many foreign markets. Thus, partnering will help produce electric cars in the foreign market.
Pricing strategy
Three common pricing strategies in the market apply to the electric car manufacturing industry. They include cost-based pricing, value-based, and completion-based pricing, with each approach having a positive and negative contribution to the company. For example, the cost-based approach assesses the cost of production before setting the price (Mattos et al., 2021). Thus, the cost of production is calculated, and the company adds its suggested profits before releasing its selling prices.
Table 1. Cost-based pricing
The value-based strategy is also known as a customer-based strategy, where product price depends on the service it offers to the customer. For example, the value of electric cars will be based on the ability of the product to meet all the customer preferences, thus determining its price. This pricing strategy will support the product image and value-added, increasing sales and attracting new customers (Zhao et al., 2021). However, the theory will lead to ignorance of production costs leading to losses.
Finally, the completion base strategy is where companies base their product selling prices on the competitor’s prices. For example, the competitors in electric car companies include Tesla and Mercedes Benz, while substitute product competitors such as Ford and Toyota. This approach could be effective because it helps monitor the existing and incoming companies to provide more data to improve their pricing (Zhao et al., 2021). Additionally, it helps companies set better prices depending on the market to remain competitive.
Conclusion
To summarize, entrepreneurs should always analyze the market before introducing a new product. The analysis will include market selection using the market selection strategies to decide on the most appropriate market to invest in. the investors should consider Porter’s five forces, diversification, modes of market entry, and pricing strategies to make better decisions. The decisions include the market to be covered, the possible approximated cost of setting up the business, how to reach the customers, and the price for each product. Thus, all-electric car manufacturers should consider the discussed approaches to make better decisions that will increase their chances of success. However, this analysis does not guarantee success because the application could vary, but this approach will guide how to handle the market challenges to increase the chances of success.
References
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