What is the Beachhead Strategy?
The beachhead strategy comes from the military strategy of winning a small border area that becomes a stronghold, and from which you can advance to the rest of the territory. The small border area is referred to as a beachhead.
In business, the idea is to focus your resources on a small market area (such as a product category or smaller market segment) to turn it into a stronghold before advancing to the broader market or product categories. The beachhead strategy enables a company to dominate the small areas from which it can then enter and dominate the rest of the market.
The alternative to the beachhead strategy is the spray and pray technique. The latter strategy involves spreading a generic message to a wide market of prospects and relying on sheer numbers to make wins in that market. Businesses that use the spray and pray technique often set unrealistic larger plans for dominating the market segments or product categories. They reach a large number of people, but their efforts are not as targeted as is the case with a beachhead strategy.
The term beachhead is derived from a military strategy that advocates that, as you are approaching an enemy territory, you should plan and focus all your resources on winning a small border area that becomes a stronghold area from which to advance into the enemy territory.
The term references the 1944 invasion of Normandy where allied troops focused their attention on the Normandy beaches, which they used to stage a counter-invasion of Europe and win the Second World War. The concept was first presented in Geoffrey Moore’s book, Crossing the Chasm.
The beachhead strategy is also replicated in mergers and acquisitions. A beachhead acquisition occurs when a business acquires another business in a new geographical location as a way of establishing itself in that location for future growth potential. A business can implement a beachhead strategy when the market is very large and it does not want to take the risk of making a huge investment in a new, untried market.
Beachhead acquisition also enables a company to test the acceptance of the company’s products in the new market, and decide whether to invest more capital into the market or abandon the whole plan if the market is unreceptive to its products.
The strategy can also be implemented by purchasing a minority interest in a company, as the first move in a hostile takeover. Most often, when the target is aware of the takeover plans of an acquirer, it may take actions that may prevent the takeover from happening. Some of these actions may include transferring majority shares into a voting trust, taking legal actions, or voting down the acquisition.
However, by acquiring a minority interest in the target company, the acquirer may advance its plans of owning a majority of the company’s shares gradually without raising the alarm. The strategy can also help the acquirer assess if the target is an ideal company for investment since it will get a better view of the company’s operations when it owns a minority interest in the target company.
A beachhead market can be defined as a small market with specific characteristics that make it an ideal target to sell a new product or service. The choice of the market is based on the compatibility between the resources available, the product, and the market itself. The market should help the business serve specific goals that will help it advance from its infancy to other markets.
Here are some of the conditions that define a beachhead market:
Customers purchase similar products
A business should go into a market where the potential customers are already purchasing a similar product to that which the business intends to offer.
Customers have similar sales cycles
The customers within the potential market should have similar sales cycles, and they should expect to get the product value in similar ways. Sales cycles are predictable phases when a company expects to sell its products or services to customers in a specific market segment.
Word of mouth communication between customers
A market where customers frequently spread information or ideas by word of mouth is potentially a good market for implementing the beachhead strategy. The customers can belong to specific communities or regions where they share information with other potential customers. These markets, where existing customers serve as references for potential customers, serve as ideal hubs where new businesses can create dominance.
Segmentations for the Beachhead Market
A business should have a focused segmentation for the beachhead market to enable it to refine its propositions. The market segmentation can be based on:
Geography refers to the home market where the business wants to launch its products or services. Since venturing into a home market will require relationship building and face-to-face confidence, local promoters will enjoy distinct advantages. The local promoters will be well-versed with the culture of the local market, the cost of travel and access to the market will be minimized, and the local customers will be comfortable dealing with local suppliers.
Customers value products that are specifically designed for them. A business should target and position its products and services so that customers can differentiate the company’s products from those offered by its competitors.
The characteristics of early adopters of the product or service offered by a company can be defined to identify which segment of the market to target. The ideal customer profiles should comprise early adopters and customers seeking specific solutions since they are more receptive to new relationships or product offerings.
A company may decide to offer a new product in the target market that provides a variety of applications for different business processes and technology environments. For better targeting in a beachhead environment, the company should minimize the variety of uses so that it can focus on specific categories of customers first, before advancing to the rest of the market.
Thank you for reading CFI’s guide to the Beachhead Strategy. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below: