In a nutshell
When planning international expansion, retailers need to consider a wider set of metrics than just economic opportunity in early decision making (including brand resonance), to avoid over-estimating larger markets that are impossible to break into and under-estimating smaller territories with high adoption and growth potential.
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International expansion is an alluring prospect for a retailer. With access to new markets and new customers comes exciting growth opportunities and competitive advantage. But all too often, the promise of more revenue overshadows other crucial considerations - things like brand resonance, customer preferences and business entry models - and markets are ruled in or out of the process without looking at the data.
Take a mid-premium fashion retailer who we worked with in Asia-Pacific. China, South Korea and Japan were initially under consideration - given their well developed economies, large retail markets and low operational barriers - but our customised market attractiveness analysis determined that these countries didn't resonate with the timeless, classic aesthetic, nor the focus on sustainability, which were core to this retailer's brand offering.
When brand resonance takes a back seat, so too do realistic revenue gains. Without this, there's a significant risk that retailers will underestimate some markets and overestimate the opportunities in others, where they end up struggling to pull consumers away from familiar, established brands, especially after the novelty of a new launch and a shiny new store dies down.
Understanding brand resonance
In this context, brand resonance refers to the degree to which a retailer has developed, or is likely to develop, an enduring relationship or connection with consumers. It goes further than an affinity for the brand and relates more to the emotional and psychological connection that exists - likely built on the brand reflecting the consumer in culture, identity and belief systems.
Its importance in international expansion is often understated, but when a brand gets this right, it can develop a highly penetrated, core customer group built on trust and loyalty.
The importance of gaining an early foothold
The first step in international expansion is to answer the "where" questions. This is often wrongly assumed to be synonymous with the "how much" question, with disproportionate excitement being placed on the economic opportunity and opening stores.
By considering how your brand will resonate in a market and its culture from the very start, you avoid ruling out the low-hanging fruit and focusing too heavily on big markets that aren't viable or require a series of key activities before they become so (e.g. brand building in a complimentary market)
Customer preferences - fit, style, culture and attitude to brand beliefs - are just as important as the economic opportunity. Why? Because they indicate how quickly you are likely to get a foot in the door, and we know that the speed at which a retailer breaks into a new market is a key indicator of long-term growth and customer loyalty. Accessing opportunity quickly to gain a secure foothold often has a greater impact than going after the lion's share.
Learning from the past
There are many examples of retailers struggling to gain this all-important foothold in large markets due to issues with brand resonance. Zara is steadfast in its size consistency and style, so when it launched in the US - a country known for its strong consumer preferences - it initially struggled to attain anywhere near the level of market penetration seen in Europe.
Meanwhile, American Apparel faced a number of costly hurdles when it launched in the UK - not least due to its overtly sexualised advertising, which resulted in banned adverts, 12 out of 13 store closures and negative press coverage.
On the more positive side:
- Nike recognised the limitations of having built a brand based on basketball fever in the US in the '70s, and instead focused on local sports to expand internationally.
- Similarly, Uniqlo broadly maintained its minimalistic Japanese core as it moved across continents but tweaked its offering by celebrating local cultures to drive consumer engagement.
Leveraging your core competencies
One of the overriding considerations when expanding overseas should be leveraging your core competencies without jeopardising the identity the brand has built in its home country. From an operational perspective, the more you deviate from the domestic heartland of the brand, the more cost and risk you start to accumulate, whether that's the cost of adapting and communicating a new value proposition, or the risk of reputational mishaps and legal issues.
International growth is a major investment for any brand, so it's essential to make room for the right analysis at the outset. Narrowing down the world is a significant task, and the best results will come from analysing the right data at the start and making way for your greatest chances of success.
To find out how we work with retailers to set their international growth strategy, including analysing economic, brand resonance and operational complexity metrics to determine market attractiveness and calculating price parity, please speak to a member of our retail team.
