International Marketing Strategy

Contents

Abbreviations

List of figures

List of tables

1 Introduction

2 Company and product background

3 Market entry strategy

4 Product strategy

5 Communication strategy

6 Distribution strategy

7 Pricing strategy

8 Conclusion

References

Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of figures

Figure 1: The MACP matrix

Figure 2: Modifications of the original ASC logo

Figure 3: Conceptual framework of distribution

List of tables

Table 1: Most important dimensions to be assessed

Table 2: Strategies to enter a foreign market

Table 3: Most important global communication strategies

Table 4: Factors that influence global pricing

1 Introduction

Managers throughout the world perceive that international business operations be- come more and more necessary. Saturation of domestic markets as well as signifi- cant growth potentials of emerging markets confirm this necessity. Companies which solely rely on their existing markets often miss significant economic opportunities. However, the management of both an international company and international cus- tomers is a challenge; customer wants in overseas markets can dramatically vary from those in the home market. This assignment gives an overview of the major managerial decisions that could have been made in a well-established South African company to enter the marketplace of India. Theoretical background will be discussed at the beginning of each chapter. In particular, the company and its products, a pos- sible market entry strategy, and the four marketing controllables (product, price, pro- motion, and distribution strategy) will be discussed.

2 Company and product background

Avroy Shlain Cosmectics (ASC) describe themselves as one of South Africa’s lead- ing cosmetics brands. Within the last 30 years, ASC have developed well and have accomplished their forecasts. The following paragraph gives a brief outline of the his- torical development, the current economic situation, and the products of ASC. Founded in 1973 by Avroy and Beryl Shlain, the company is now growing rapidly. Current sales figures show a turnover of more than R350 million which is more than 40 per cent of the turnover in the South African cosmetics market. ASC reign su- preme in South Africa’s direct selling cosmetics market. The reason for their eco- nomic success is that they sell their products to their customers on a personal basis. There are more than 28,000 sales people who periodically visit the customers’ homes in order to present them the latest products (cp. [ASC06 (a)]). Door-to-door retailing has nowadays become a huge industry but ASC were among the first that started it (cp. [Cant02], p.194/195). ASC are an equal opportunity employer; they try to give women the chance to cope with both their job and their children by allowing them flexible working hours. The founder of the company, Avroy Shlain, is fanatical about black economic empowerment and helped several black people to fill some major senior management positions in the company. 20 per cent of all sales people are black; black women who are at a management level in sales earned up to R10,000 per month in 2002 (cp. [Cant02], p.196).

There is a wide variety in ASC’s products. According to their website they offer skin care treatments (e.g. lotions), body care products (e.g. shower gels), diverse types of sun lotions, colour cosmetics (e.g. lip and eye cosmetics) as well as accessories, toiletries, fragrances, vitamin supplements, and gift lines. ASC’s latest product range covers baby products (e.g. baby soap). However, not only does ASC offer products for females but also did they enter the male cosmetics market. They provide male fragrances as well as male skin care products (cp. [ASC06 (b)]).

ASC characterise themselves as the number one direct selling house in South Africa with expanding international links. They have already started to go international in a few eastern European countries but so far their main focus has been on South Africa. ASC’s headquarters are located at Midrand between Pretoria and Johannesburg in Gauteng, South Africa (cp. [ASC06 (a)]). ASC successfully work together with the American multi-national enterprise (MNE) Sarah Lee Corp. that bought the assets of ASC (cp. [Cant02], p.194). Sarah Lee Corp. itself has recently been bought by Tupperware Brands Corp. However, ASC retain their own identity and brand; they can keep on making business decisions on their own.

3 Market entry strategy

Entering an international market can lead to some major economic advantages for a company. CHEE/HARRIS list factors that stimulate firms to market abroad. Among these are the following (cp. [Chee98], p.263-267):

- Economies of scale: If the home market is not large enough, a company could enter a foreign market and gain economies of scale.
- Risk diversification: Economic downswing in the home country doesn’t affect an interna- tional firm if it can focus on markets that have not been affected yet.

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Figure 1: The MACP matrix

(cp. [Chee98], p.275)

- Geographical diversification: Firms with a nar- Competitive strength row product line often prefer to go international than engage in product-line diversification.

Once the reasons for internationalisation have been set up, it is necessary to decide if a foreign market is worth entering; portfolio analysis is a major technique used. The so called market attractiveness-competitive position matrix (MACP matrix), shown in figure 1, measures market attractiveness (vertical axis). The horizontal axis measures competitive strength. There are several factors that need to be assessed (see table 1). The goal of the MACP matrix is to perceive market priorities and competitiveness in a country (cp. [Chee98], p.275).

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Table 1: Most important dimensions to be assessed (cp. [Alba94], p.113)

After the overall success of ASC in South Africa (see chapter 2), ASC managers plan to enter India. India is the 2nd most populous country in the world with a population of approx. 1.1 billion people (cp. [Wiki06 (a)]). The market is huge so that significant economies of scale can be expected. Furthermore, India is an emerging market and the 4th largest economy in terms of GDP in the world (cp. [Wiki06 (a)]). In general, emerging markets show a high growth potential (cp. [Dool04], p.202); India in particu- lar can be characterised as one of the fastest growing economies (cp. [Wiki06 (a)]) which enables a company to diversify its risk. As ASC are planning to go abroad, they consider India an opportunity for economic risk diversification. Referring to geo- graphical diversification, it can be said that India is so huge that it is divided into 28 states each of which is big enough to be treated as an own marketplace. ASC’s strategy is to enter one state after another beginning in the north of India. Most India economic activities take place in the cities (cp. [Wiki06 (a)]). Accordingly, ASC will go to the major cities. India’s attractiveness is high; as seen above the market size is big and meaningful future market growth can be expected. The economic environment can be characterised as stable. India is the world’s largest democracy and politically constant (cp. [BBC06]) so that the country’s attractiveness in terms of the MACP ma- trix is high. On the other hand, it must be stressed that Indian is bureaucratic (cp. [MoF06]). The Indian cosmetics market has a total volume of approx. R6 billion; it grew at an average rate of up to 15 per cent for the last years. It can be character- ised as a market that will keep growing in the future (cp. [Phoo06]). Judging ASC’s competitive strength in India, it can be said that ASC offer high product quality (as seen in chapter 2). Regrettably, ASC do not yet have any market share. Major ad- vantages for ASC’s plans can be found in the fact that the Indian cosmetics market is growing significantly. As lifestyles of the Indian middle class workers change, more and more people take interest in personal grooming (cp. [Expo06]). Thus, the product fit can be described as high. Growing market support for cosmetic products can be found. As ASC have concentrated on cosmetics for more than 30 years, their techno- logical expertise and position is high as well. Considering that the market attractive- ness as well as the competitive strength of ASC in India is high, the appropriate strategy according to the MACP matrix is to invest in India in order to enter the local Indian market. There is a variety of possible market entry strategies that a company can choose from. JOHNSTON/BEATON distinguish between strategies mainly suitable for smaller and strategies suitable for lager companies.¹ Some of the most important approaches are summarised in table 2.

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Table 2: Strategies to enter a foreign market (cp. [John98], p.101-126)

The following paragraph explains the approaches that suit ASC’s plans to enter India:

- Branch offices: A company can open up an office using local personnel that will be trained in the firm’s products and organisational culture (cp. [John98], p.120).
- Subsidiaries: An overseas company can set up a subsidiary that provides the firm with a base in the market and the carrying of stock (cp. [John98], p. 120).
- Manufacture overseas: A company can also set up a local manufacturing plant that provides the market with the goods of the company (cp. [Chee98], p.305). In the short run, ASC concentrate on strategies for smaller companies. Although ASC can be considered a big company in terms of the South African economy, it is propor- tionally small compared to the Indian economy and the MNE that mainly operate in India. Only in the long run, ASC introduce strategies suitable for larger companies. Their strategy can be described as follows: They will start their business operations with a branch office and a subsidiary respectively in New Delhi. This is in accordance with their plan to first go to the northern states before spreading throughout the coun- try. New Delhi is an appropriate starting point as there are approx. 14 million people living there and the literacy rate is at more than 80% (cp. [Econ06]). New Delhi has a strong British influence so that the English language is sufficient to start business there. As there are more than six universities, numerous colleges and the headquar- ters of some major Indian companies, it can be estimated that the middle class is dis- tinctive in New Delhi. ASC see New Delhi as a marketplace in itself. Immediately af- ter the opening of the branch, South African expatriates are sent to India to organise the business. Their major responsibility is to develop the workforce of the Indian ASC branch. During that period of time, the strategic decision will be made in the head- quarters at Midrand. In the long run, it is ASC’s strategy to open up a production plant to avoid shipping costs and to take advantage of the low labour costs. Addition- ally, it is proven that there are several advantages of overseas manufacturing: For instance, customers in local markets view companies that support local economy more favourably; there are lower transporting costs; companies are in closer contact to their market etc. (cp. [Dool04], p.231). In the long run, the strategic decisions will be made in India. The organisation can be described as an umbrella structure (cp. [Dool04], p.206) as the Indian subsidiary will have full independence.

4 Product strategy

Products do not only consist of the material they are made of as customers expect more than physical goods. KOTLER/ARMSTRONG developed a theory (cp. [Kotl96], p.119) that a product consists of the core product (e.g. a car); in addition, there is the actual product (e.g. the quality, the styling of the car) as well as the augmented product (e.g. after services). These elements need to be treated as a unit when considering an international product strategy. Roughly speaking, there are two opposed product strategies: 1. standardisation or 2. adaption of the product (cp. [Lage06], p.8). The need for adaption of a product can be summarised as follows (among others) (cp. [Pali93], p.211; cp. [Dool04], p.257-258):

- Consumer tastes are not consistent throughout cultures.
- Usage of certain products may vary significantly throughout different cultures.
- Low income in certain markets may lead to smaller products sizes.
- Low levels of education will necessitate product changes or simplifications in cer- tain markets, e.g. words could be replaced by symbols.

An important aspect within product strategies is the creation of a brand. Products that are distinguishable from one another often contain a means of identification for the buyer. Thus, a brand is important to increase sales. There are five strategies to im- plement a product in foreign markets (cp. [Chee98], p.382; cp. [Dool04], p.263):

1. Straight extension (i.e. standardised product, standardised promotion strategy),
2. Product adaption (i.e. slightly modified product, original promotional campaign),
3. Product extension (i.e. unchanged product, changed promotional campaign),
4. Dual adaption (i.e. modification of both the product and the promotional activity),
5. Product invention (i.e. product cannot be adapted; a new one is invented).

ASC have decided to implement the dual adaption strategy although it can be very costly. The modification of the promotional strategy is shown in the next chapter. ASC conducted research into India which advised them to take care of significantly different tastes compared to South Africa. That is why they adapt their product. The modification of the product can be summarised as follows: ASC see their cosmetics as their core products. As seen, the Indian taste differs from the South African taste, so that alternations are implemented. One important decision is that ASC will keep their product range as it is. Their target group is the growing Indian middle class. In India there is a huge middle class due to the fast growth of information technology businesses (cp. [Wiki06 (a)], cp. [BBC06]). Estimations say that today 20 per cent of all Indians (approx. 220 million people) belong to the middle class in terms of behav- iour, lifestyle, and income. Furthermore, there is a huge growth potential as approx.

50 per cent of all Indians will become middle class between 2020 and 2040 (cp. [Das06]). As seen in chapter 3, personal care and grooming becomes more impor- tant to both women and men. That is why ASC will offer the whole product range. Their major competitors in the Indian cosmetics market (e.g. MNE such as Revlon, L’Oréal, Coty, Avon or Garnier) have entered the low price mass market (cp. [Buta06]). Thus, ASC will concentrate on premium segments. However, there will be changes in the core product; analyses show that Indians prefer lipsticks, fragrances and other commonly known products. Products that are too specialised do not show a particular success (cp. [Buta06]). That is why ASC will first promote their non- specialised goods whereas more specialised products (e.g. hand care) will be offered at a later stage. Changes to the actual product are also necessary. The purchasing power of an average Indian middle class IT worker is up to approx. US-$14,000, about R90,000 per year² (cp. [TCP06]). There are other resources that are contradic- tory to this and show an income of only approx. US-$5,000 which is about R30,000 per year (cp. [Das06]). This shows how difficult it is to make the right decisions.

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¹ Different classifications also available; cp. [Chee98], p.293; cp. [Dool04], p. 217-245

² Exchange rate as at 3rd April 2006; the rates can be subject to sudden change.