The 5 key pitfalls to entering the US market
The consumer market in the US is astronomical. In fact, it’s the largest in the world. So, it’s clear to see why conversations about entering the US market come sooner or later for businesses in the consumer goods industry. The potential is eye wateringly huge and it can be tempting to go for the plunge, but the pitfalls of entering this crowded market need to be considered. It’s competitive, it’s risky, it’s expensive, but the payoff can be worth it.
The basis of the appeal to expand a UK business to the US is clear – a common language, shared culture, the political and economic stability of the relationships between the UK and the US, and of course, reputation. Most American consumers and business people see the UK in a positive light and British goods are highly regarded for providing top quality. It’s not just all talk – the US is the UK’s largest export market for goods and services, accounting for 21.4% of total UK exports in the 12 months leading up to September 2021. And for businesses at the seed or startup stage, money might be tight. That naturally makes entering such a lucrative market appealing but increases the risk.
Here we take a look at five pitfalls of entering the US market:
- Lack of focus
The UK consumer market is considerably smaller than the US. When businesses experience even moderate success in their home market, they often diversify into multiple sectors or expand the portfolio of what they’re selling in order to grow. In smaller markets, consumers want more from a consumer goods seller. However, this angle rarely works in the US. With such a huge and competitive market, the key is to break the offering down to narrow niches and focus entirely on targeting those audiences. Consumers in the US aren’t a ‘one size fits all’, targeting needs to be precise and completely in service of one or two niche markets.
It feels incredibly obvious to say, but the competition in the US market is fierce and relentless. A focus and niche are needed to properly identify competitors. Without a focus, businesses will (and do) drown. You might find that your particular niche is already highly crowded by highly specialised US businesses, so finding your way into that audience will be a big challenge.
The US is the leading country in number of startups with 71,153 currently operating, so competition is fierce. To put that into perspective, the UK is third on the list with just 6,220. And it’s clear that the potential for startups in the US is growing exponentially, with venture capitalists investing $329.9 billion in startups in 2021. That nearly doubles the previous record, which was $166.6 billion in 2020. With so many startups entering the US, and so much money being poured into startups, a business with a lack of focus will drown in this hot market.
- Not understanding the US market dynamics
Companies often misunderstand the market dynamics of the US. It can be complicated and nuanced, but understanding the market dynamics of your industry is imperative.
Firstly, what is the right channel of distribution to reach a customer? While you might work with channel partners in the local markets at home, you could find that your addressable market is made up of an entirely different audience, who expects a different business model. This results in a mismatch in the distribution model.
Secondly, the US regulations are a minefield. The US market isn’t necessarily one market, it’s 50 different markets with different rules and regulations. In many industries, particularly ones that are highly regulated, those entering the market need to be prepared to navigate the complexities of federal, state, and local regulations.
- Poor localisation
Companies can go wrong by assuming that given the shared culture, history, and language, the UK target audiences will be the same in the US. This results in over-or-underestimating how much the target audience values certain features. For example, the priority of making a product beautifully designed with superior engineering is often overestimated for a US market, which then reflects on the price.
Ensuring that a product or service fits well in the marketplace is essential. Entrepreneurs tend to underestimate the importance of localising features, pricing, marketing support, design, and channels when entering a new market.
The most obvious example of poor localisation is quite literally, bad translation. Products need to be culturally aware of their language choices and be aware of grammar differences. For example, in the US, localisation would be ‘localization’. Little changes like this make a product more appealing to the US market. It feels more inclusive and is less likely to disrupt the user experience if a customer notices something out of place. Also prevalent is the lack of adaptation to US data formats and customer expectations. For example, address forms with ‘post code’ instead of ‘zip code’, or ‘county’ instead of ‘state’. All fields and dropdown choices need to be relevant for a US audience, otherwise, you’re excluding the entire market.
Pricing is the next element that needs to be localised. The most effective way to price a product is not by looking at what your competition is doing, or by changing the price from pounds to dollars, but to research what the optimal price point is. This can be done at a relatively low investment by simply sending your target audience a survey and running a price sensitivity analysis.
- Not enough marketing power
Relating to localisation, marketing and sales collateral needs to be familiar to an American audience. For example, printing brochures in Letter size is much more familiar to American audiences than A4.
Without enough spending power behind marketing and sales activities, companies are likely to fail when entering the market. According to business owners surveyed, ineffective marketing was amongst the reasons for start ups to fail.
The US’ business culture is highly marketing-oriented and underspending is a fatal mistake. While in many international markets salespeople are often the ones to source leads, the US business landscape is structured differently. In the US, it is generally marketing that produces most of the leads. And it’s not difficult to see why, either. Emarketer, a market analysis firm, found that US companies spend an astonishing $190 billion a year in advertising, which is 32% of the global spend. So, it’s fair to say that competing for customer mind share in this US market requires a much bigger marketing investment than anywhere else.
- Poor hiring decisions
A company’s workforce is one of its biggest expenditures, so it’s critical to put together a capable, dependable team in the US and avoid expensive hiring mistakes. The first hands-on deck will be responsible for finding local customers and building out a marketing and sales team.
Companies tend to go down similar routes when filling these positions. The first instinct is to send someone over from the home base, but these individuals tend to lack deep knowledge of the US market. Another idea is to hire someone locally, but when there is such a fight for top talent, companies tend to overestimate how simple it’ll be to find someone skilled and reliable.
The distribution of talent is highly skewed in the US, and companies must ask themselves why a sales and marketing professional would join a company with no track record in the market. The alternative is to go remote. While we’re all accustomed to remote working, entering a new market in a new time zone is another ballpark completely. Managing a US subsidiary puts a huge strain on management and colleagues back home, and running remote customer support teams for US customers becomes challenging to say the least. There isn’t a solution; it’s a delicate balancing act.
Breaking into the US market is a big undertaking, requiring careful consideration and planning. When around 90% of start ups in the USA fail within the first 10 years, competition is ruthless and the market is unforgiving. However, if you get it right, put the research in, and refuse to give up, the opportunities can be endless.