growing sales of a current product in a new market.
A company follows a market development strategy for a current brand when it expands the potential market through new users or new uses. New users can be found in new geographic segments, new demographic segments, new institutional segments or new psychographic segments. Another way is to expand sales through new uses for the product.
The key difference between this growth strategy and market penetration is that the definition of the target market must change. In other words, the market potential must increase through this strategy, whereas the market size is "fixed" with a market penetration strategy.
Always start with the definition of the target market for a brand. If the target market for Coca-Cola is the US market for soft drinks, then when Coca-Cola took their products to Russia, that was an example of market development since the market potential for Coca-Cola increased. One way that Neon basically doubled its market potential was when it abandoned its initial feminine positioning (the "Hi!" campaign) and expanded their target market to include men. If Neon further expanded into fleet sales, this would be an example of a new institutional segment adding to market potential. The Volkswagen Beetle is increasing its market potential by making its newest version more masculine. Finally, Evian placed their bottled water in both the regular and health sections of grocery stores. This expanded their market potential by appealing to different psychographic segments—in effect broadening their target market to include regular water drinkers and health-seeking water drinkers (who perhaps before bought specific heath drinks).
It is also possible for existing brands to find new uses for their products. Mica is a mineral that was originally used in industrial products. But today it's found in everything from pearlescent automobiles to sparkly cosmetics. So each producer of mica has expanded their market potential by finding new uses for the product.
Other examples of new uses for particular brands would be the standard examples of Chex cereal for party snacks, Heinz vinegar to clean windows and Tums for calcium.
There is an important distinction to be made between selling to non-buyers and selling to a new customer base, which in a manner of speaking could include "non-buyers." This is settled through the point of view of the company or brand's target market. Thus, for the Coca-Cola example above, its "current" target market would have been the US market for cola soft drinks (or simply soft drinks). Coca-Cola's non-customers are those people who buy cola but not Coca-Cola; they may buy Pepsi-Cola. Coca-Cola's non-buyers do not buy cola at all. But the non-buyers are always available (part of the current market potential) to Coca-Cola and Pepsi-Cola as a way to increase sales. Indeed, that was the point of Pepsi-Cola's "Joy of Cola" advertising campaign—get more people to drink cola again.
But when Coca-Cola decided to sell their cola drink in Russia, that changed the definition of their target market from the US market for cola to the US plus Russia market for cola, thus increasing market potential by adding a different customer base.
The danger of market development
The main danger facing a company following a market development strategy for a brand is that it could fail to adequately understand the new customer base.
When Office Max decided to use a market development strategy in Japan, they just built the large superstores that were successful in the United States. But this was a mistake because the Japanese consumer didn't want to shop at American-style "big box" stores. Had Office Max thought through who their target market was, they would have realized that they didn't really understand very much about the Japanese consumer, even though they understood a great deal about the American consumer.
Companies expanding to foreign markets often make errors like this. The online auction company eBay shut down its first Japanese Web site due to a major failure to recognize that Japanese consumers were different from American consumers. eBay had emphasized used collectibles, which is eBay's core business in the US, but Japanese consumers were more interested in new goods. By not heeding the main danger of a market development strategy—understanding the consumer—eBay failed in Japan.
Remarkably, it was reported that Wal-Mart—three years after entering the Japanese market—was losing money. They followed the same low-price strategy on lower-end products that was so successful in the US. But Japanese consumers were not interested in low-end products which they equated with low quality. So Wal-Mart plans to add more upscale products to their stores in Japan. Wal-Mart said that they were "surprised" by the preferences of the Japanese consumer. With a properly-executed market development strategy there would be no such surprises.
And this is difficult to believe: After Disney messed up the launch of Euro Disney, they messed up the launch of Hong Kong Disneyland, and for exactly the same reason—not understanding the consumer.