How to enter an established market? (a successful case study)

Photo Credit: newscientist.com
This post comes from my personal experience of entering a crowded and established marketplace. This case study refers to brick-and-mortar retail stores selling food products, but the principles apply to other kinds markets as well.

Let me state the obvious first: The more established/mature a market is, the higher are its entry barriers. Entry Barriers give old companies a significant advantage over new "new entrants" in their "home market". Business books and magazines usually point to things like economies of scale, when they talk about barriers. The way I understand it, long term survival of companies depend on two things: 
  • either they have exclusive/semi-exclusive rights to exploit one or more market gaps (achieved via contracts or licenses or patents etc.)
  • or, they build a competitive advantage over other firms (achieved via things like cost of production or distribution scale or basket of related product/service offerings etc.)
From the outside it seems (at least to me it did) that you either need some sort of a deal or tons of capital or invent something groundbreaking to enter an established market. In a lot of ways that is true; especially if you want to exploit only the major market gaps. My recent experience however has exposed me to some finer lines. It gives me a sense of hope in trying to do "apparently impossible" things. I have learned that it is awesome if you can disrupt a market but you don't have to (at least not to just enter it). There are other ways to "sneak in" without disturbing the ecosystem.
The idea is to get your foot in the door by exploiting scrappy bits of market inefficiencies, instead of going for the glory. Once you have a foot in the door, you have a chance to build relationships from the inside. It can potentially open up avenues to address bigger gaps.  It is far less capital intensive and way more practical, if you ask me.
In any decent sized market there are a lot of companies playing the roles of manufacturers, traders, distributors and retailers (even in web based businesses). No matter how compact the situation looks from the outside, it is not hunky dory at any point of time. There is always a retailer who is unhappy with some vendor. There must be some distributor looking for new products. There is always a manufacturer who can't produce enough to fill the temporary spikes in demand (especially for seasonal products). They key is to find these situations.

Going back to the case study - we came across a manufacturer who had a few winning products and commanded a strong brand in a particular category. Retailers loved his fast moving products (high revenue/area for them). He had the negotiation muscle to push other products onto the shelves of these retailers, if he wanted to. However, his duties as a manufacturer (with increasing demand for his products) left very little time for him to plan and execute the launch of a different line of products. That's when we met him. 
It was actually not a lucky coincidence. We had recruited a sales person to scan the market and this was one of the leads he had produced. If not this, we would have found some other "situation". 
Even if you have the ability to get shelf space - it is a lot of work to launch a new set of products in the market. The products have to be relevant, need to be sourced from reliable manufactures and they need to be packaged/ shipped in a timely fashion. It can damage your brand name pretty quickly if you don't pay attention to the details (especially the legal challenges of doing business in multiple countries, which was the case for us). We helped him launch the new line of products and in return earned our right to be his exclusive supplier for a bunch of things. Being an "insider" reveals intricate gaps that are not revealed by any kind of market research. At best it only reveals the broad-strokes of what the market needs. It is a case of doing it yourself vs. asking someone else. Example: only qualified insiders would have a shot at knowing the actual reasons behind shelf space utilization of "x" type of products in area "a". Probability of success (of course) increases with access to key bits of information.
In conclusion: you don't have to make a grand entrance to start playing the game. You can start by finding a special situation, instead of waiting to do something special.