Strategy Execution Life Cycle – new market entry analysis and strategy development

Background context – The drive to net zero carbon is leading to a generational shift in residential and industrial heating and cooling markets. In the southern regions of Australia, the heating load today is heavily dependent on gas as a fuel source. If Australia is to hit its net zero targets then a combination of upgrades in the building code to seven star rating and the electrification of the gas heating and cooling network is required. This goal and target is being supported by a range of government-backed rebate incentive schemes that are underpinning demand. While heat pumps are already well-established in Australia in the application of reverse cycle air conditioners, their expansion into new market segments is seeing high product growth rates. In particular, heat pumps are replacing gas heating in southern Australia to reduce gas ducted air heating and to satisfy water heating needs. Across a broader geographic area, heat pumps are increasing their share in the clothes drying and swimming pool heating segments. In the commercial and industrial sector, heat pumps are playing an increasing role in meeting water heating needs.

Strategic Challenge – Guberno’s client is a European headquartered consumer products company operating in the residential and commercial heating and cooling markets. The company’s Australian operations is well-established providing heating and cooling products into the residential markets through major wholesale and retail distribution outlets. However, there are a range of market segments that the global business are active in but not currently servicing in Australia.  The core strategic challenge was to see whether there were opportunities to enter new market segments in Australia leveraging off the product and operating capabilities (particularly in relation to heat pumps) established within the global corporation. Many of these potential new market segments in Australia are currently being supplied by competitors out of Asia.

Strategic Activities – Guberno supported the leadership team of the Australian BU to undertake core market research to identify the most compelling market segments and the preferred market entry strategy to grow their operations in Australia;

  • Market assessment – Guberno undertook core market research to identify and quantify the different market segments in the residential cooling and heating markets. This involved collecting, analysing, and distilling a broad range of market information to help identify the relative size, product share, market penetration, and growth rates for the different market segments.
  • Competitor analysis – Guberno undertook a competitor analysis to identify and quantify what companies were providing what products into the different sub-segments. This included looking at market concentrations and relative market shares, product and technology mix, price point analysis, and value stream analysis from sourcing to consumers.
  • Market entry strategy – Guberno worked with the client and used the market assessment and competitor analysis to identify the more prospective market segments and the initial product and channel strategies the company could exploit to broaden their market participation into the new segments.
  • Alignment and support of parent company stakeholders – Guberno supported the client in their interactions with their parent organisation in Europe to ensure alignment with the market entry aspirations and gain support for the investment required to deliver against their aspirations.

Outcomes – The market entry assessment provided critical foundational knowledge of adjacent residential and industrial heating and cooling market segments, relative competitive dynamics, and underlying growth drivers for the client. The client used this information to educate their parent company stakeholders in Europe on the characteristics of the Australian market and how that may vary from other markets the parent company was active in. Alignment was achieved in the recommended market entry strategy. Building a logic and rationale of why certain existing capabilities in Europe could not be exploited in Australia was critical in the both the market entry segment, product, and value chain recommendations. The client is currently executing against the phased market entry recommendations.

Key Learnings – There were a range of specific and generic key learnings from this market entry strategy. Firstly, in the more specific area of the heating and cooling markets in Australia. A combination of differential climatic conditions, legacy source of heating and cooling fuels, and available government incentives stimulating demand meant that the growth and market entry opportunity was not equally distributed geographically or across all market segments. This variability was not obvious at the outset but was pivotal in the ultimate market entry strategy. Gas for air and water heating makes up circa 60% of the overall residential energy demand and this is dominated in the cooler and temperate climates of Victoria, Tasmania, and ACT. Given these dynamics it is no surprise that government incentives are heavily targeted (and biased towards) at electrifying the heating demands in these states representing the most prospective market entry segments and locations.

At a more generic level, the market entry strategy reinforced the criticality of sound market research as a foundation for market entry activities. While market entry is inherently a risky activity and always a mix of structure and experimentation, learning and adjustment, there are equally some predictable outcomes based on market and competitive structures. Spending time upfront to understand the nuances of market segments and use the best insights to be targeted and purposeful in market entry can help to increase the probability of success. Particularly in larger global organisations, ensuring that all stakeholders are aligned to market segment characteristics is important to ensure that erroneous assumptions are not translated from one market to another and miss the nuances of particular demand and competitor dynamics. In this case study, not only did assumptions between Europe or USA not translate to Australia but nor did those of the Southern Australian states translate to the northern states of Australia. Market entry should be more of a surgical approach to improve efficiency and probably of success.

Andrew Rosengren

MD Guberno Consulting  Andrew Rosengren | LinkedIn