ClickThrough's Head of International, Alison Booth, tells us how to increase your profits through untapped markets during a recession.
You may not think that a recession would be your best time to look into taking your business international, but now may be the perfect opportunity to jump into untapped markets. Whether you’re just deciding to look into it, or you’re further into planning and just want to check you’ve covered all bases, I’ll be going through it all in this blog.
So, why would you want to move into a new market during a recession? Maybe your main export market is saturated, your profits are declining, or you just want to expand into new areas. Let’s take Lego as an example. Though a Danish company, in the early 00s, Lego had kept a focus on North America as their primary target market. In the 2008 recession, Lego noticed this export market was becoming saturated and, as a result, they saw their sales declining. They decided to shift their attention to further developing web strength and their business in Europe. In recognition of increased interest in Lego products, they opened an additional European factory in Hungary and scaled up production to meet the demand. This saw their sales increase by 23%, giving them a 746-million-pound turnover. The following year, Lego did the same with Asia, opening a factory in China which saw a further sales growth of 20%.
Deciding to export
There are many reasons to decide to export, whether it’s saturation, diversification, growth in demand or economies of scale, all are great reasons to be looking into new markets. Of course, there is a lot to think about before you move into new markets. According to a 2021 survey carried out by Google, 60% of businesses felt that obtaining market insights was crucial to support their decision making and for building their export strategy. We use a range of different programs to see a range of different insights. To name a few:
- Market Finder – to find your audiences demographics
- Market Explorer – to analyse the market and identify opportunities
- Shopping Insights – to know what your shoppers want
- Google Trends – to stay on top of market trends
We are also part of Google’s International Growth Program, which proves us with access to Google’s Market Explorer Tool, which enables us to identify the markets that offer the greatest export opportunity.
Identifying your route to market
The next step is to identify your route to market. There are several routes to market that can be used to start exporting into a new market or grow your footprint in existing export markets.
If you choose to sell globally from your website and ship to international markets. You will need to consider how you warehouse your products – if you warehouse in your domestic market, your customers may need to pay customs duties when they receive their orders, but warehousing in market will be high risk without testing the market first, so this will need to be considered.
Another option is an agent. They will introduce your products/services to potential clients in your target market and will be paid a percentage of the contract or selling price. Similarly, distributors will buy products from you to sell onto their customers. If you choose to go down this route, ensure you select your distributors with care rather than simply opting for the companies that have approached you and make sure their responsibilities are clearly defined in your agreement with them.
Licensing can be useful if you wish to launch your products/services more quickly without the time and cost of setting up locally. Franchising is more suited to well-developed exporters and is a popular route to market in the US. Whilst marketplaces are a lower risk to entry, as they take care of the warehousing, fulfilment, and promotion of your products, but you need to ensure you have clearly defined objectives and get the right fit for your products to be successful.
Joint ventures involve coming together with another company to form a new business sharing costs, profits and losses dependent on your agreement. This can help you to establish a presence in an overseas market to capitalise on opportunities without taking on the full responsibilities and costs.
Setting up in a new market would follow on from testing the market. this can be a logical progression from working with an agent or distributor as a company grows its sales. There may be a demand from customers that the exporter has a local presence, and to win government contracts this could actually be a requirement. In most countries around the world there are government-backed economic development organisations ready and willing to support setting up a more permanent base in the local market.
The lowest risk logistics set up is third-party logistics providers (3PLs), which are used to outsource part or all of the distribution and fulfilment services for a business. They receive a customer order and handle the storage, fulfilment, and shipping of inventory. However, almost all 3PL companies have upfront costs, like integration of their software into your online store, SKU upload etc. Reliance on a 3PL can also be risky, especially because customers look to you to solve delays over which you will have no control.
You could follow in Lego’s footsteps with near sourcing, by moving production closer to where the products are sold. It has become a popular strategy to strengthen supply chains. A shorter chain is a stronger chain: deliveries can be faster, smaller when needed, and more in your control. You do need to consider whether local manufacturing is viable if your products are made in a specialized factory with unique tooling, precision manufacturing, or a highly skilled labour force. Replicating this in another region might cost more than transporting goods from your current manufacturing facility to your expansion countries.
The last option is setting up an international warehouse, which can be profitable in the long term, but it’s a large investment up front. If you’re planning to ship significant volume to a single country, your own warehouse gives you control over every aspect of the fulfilment process.
Once you’ve decided the route you’ll be taking, it’s important to remember that local market customs documentation naturally differs market to market, if you are unsure what you will need, seek advice on local market from your local Chamber of Commerce. Transport documents will instruct the carriers on what should be done with the goods. For transportation of non-hazardous goods Standard Shipping Notes (gives details about the contents of a consignment to carriers, receiving authorities and forwarders) are required to instruct port authorities on how the goods should be handled. It is also likely that you will need Export Cargo Shipping Instruction (ECSI) when you export goods. The ECSI contains details of your consignment, including customs information and an allocation of costs.
The correct paperwork is needed to make sure the customer pays, and the supplier delivers, which is predominantly a bill of exchange stating how much is to be paid and when. If you are shipping by sea, a documentary collection is likely to be needed. A letter of credit is likely to be provided to guarantee that a buyer’s payment to a seller will be received on time and for the correct amount.
As an exporter, you need to make sure shipping and delivery responsibilities are written down and clearly understood. Using international commercial terms (known as incoterms) in contracts can help you do this. Incoterms are a set of internationally recognised 3-letter trade terms. They describe the practical arrangements for the delivery of goods from sellers to buyers and allocate the obligations, costs and risks between the 2 parties. An example is Delivered Duty Paid (DDP), where the seller is responsible for delivering the goods to the named place in the country of the buyer and pays all costs in bringing the goods to the destination.
Delivery and Payment Options
With 66% of customers saying they will abandon their cart if the delivery cost is too high, we can all agree delivery is a huge part of exporting. It is important to carry out research into delivery propositions amongst your competitors to gauge how competitive your delivery costs are and whether your competitors offer promotions on delivery to incentivise people to buy. Click and collect may be at a collection point shared with other businesses like Amazon Hub. It is important to tailor the delivery proposition to the preferences of the consumers in the markets you are targeting to maximise the opportunity to convert.
Researching the most popular payment methods in your target market is key to prevent the loss of sales. These differ notably, for example iDEAL is the most popular payment method in the Netherlands whereas SEPA direct debit and SOFORT account for a large share of the transactions in Germany.
Along with delivery and payment options, the impact of localising the promotional materials is clear to break down barriers to conversion. However, direct translation often loses the meaning of the content, so it is important to transcreate your content and ad messaging ensuring that they are written by a local market specialist with the target audience in mind. 82% of shoppers are more likely to buy if the promotional material is in their own language. Localisation of promotional text into the local market language is not the only consideration, imagery, colours, logos etc, used should all be aligned with the cultural characteristics and requirements of the local market.
Also consider that some countries require invoices to be certified by a Chamber of Commerce. Your local Chamber of Commerce should be able to tell you the requirements of your target market. You may choose to export using GBP but bear in mind that this will be a barrier to conversion particularly with ecommerce where most of your competitors will be billing in local currency. Obviously selling in the local currency will need you to factor the cost of exchanging currency in your pricing but monitor competitor prices to ensure this doesn’t make you uncompetitive.
Implementing your export strategy
As previously mentioned, we research the export market opportunity to identify the most lucrative opportunity. If our test launch in English language using Digital Paid Media to amplify reach is successful, we will:
- Create localised landing page/s, to test the performance of the market before investing in a full website localisation
- Test a variety of digital strategies to understand the market and what resonates well before fully investing
- If our tests are successful, we recommend full site localisation
We recommend working with in-market specialists for your localisation activity to ensure you can input real time knowledge of what is happening in market such as consumer reactions to economic decline into your strategy to provide you with insights to determine reasons behind fluctuations in performance to determine how to adjust the strategy to reflect this. Our network of in-market specialists are key to the success of our export strategies, we have an ever-expanding network of in market Digital Marketing specialists located across Europe, Asia, Africa, UAE and North and South America. Our network currently spans 18 markets and 49 Digital Marketing Specialists.
A few other key factors that can easily be forgotten but can be really important to your exporting journey.
- Ensure you are using transcreation, not translation. You need to be using localised linguistics, rather than just translated language.
- Slogans do not always translate cross border; again ensure you are checking with a local linguistic rather than a literal translation.
- Ensure that imagery used is localised with your target market in mind to have the best opportunity to convert.
- Consider the key trends in media usage in your target market.
- Target search and social platforms used most frequently in your target markets.
- Select optimal marketplaces if this is the route you are going down.
There is a lot to think about when exporting to a new market, but we know how beneficial it can be for businesses, especially when your main market is in a recession. Ensure you’re using all the tool you (or your marketing agency) have available, they may all offer different useful insights. Determine your route to market including logistics, fulfilment, delivery, payment, and localisation. If you want to discuss how we can support your international growth and accelerate your performance – or ask about another aspect of your digital marketing plan – we are here to help.