In-Depth Market Analysis and Selection of Target Market - Case Study Example

IKEA MARKET ANALYSIS NAME INSTITUTION In-Depth Market Analysis and Selection of Target Market The data collected in relation to the new market for IKEA is very useful for decision making. The management has the responsibility of further dissecting this information so as to come up with the most feasible market for this particular product (Hubert, 2000). In the process of arriving at this, every detail regarding the market is very useful. All aspects of these markets on which information has been collected must be considered. The statistics collected can only be of great use if properly analyzed and disseminated. The effectiveness of this particular analysis must be translated into profitability of the products in the optimal market. The optimal market is that which will not only enable the products to sell at lower operation costs, but also less bureaucratic in terms of legal requirements (Freenstra, 2003). To arrive at this specific market, we will use the collected data for analysis. To analyze such results, we shall assign value to every market indicator. We shall assign 1 to the best results, then 3 to worst performance. One assumption that has been made in order to derive conclusion from this market is that the country with the lowest aggregate is considered the most feasible. India South Africa Brazil DEMOGRAPHICS Income distribution 2 2 1 Age distribution 2 2 2 Household income 2 2 1 Population size 1 3 2 Population growth 2 3 1 Unemployment % 2 1 3 Human development index 3 2 1 Life cycle stage 2 2 1 Gender 2 2 2 Social class 2 2 2 Life style 2 1 1 ECONOMIC CRITERIA Consumer expenditure 2 2 1 Consumer account balance 2 3 1 GDP and GDP per capita 1 2 3 Inflation % 1 3 2 Currency unit and current value on world markets - - - Exchange rate determination (free or convertible) 3 2 1 INFRASTRUCTURE Internet/Communication skills 2 3 1 Transport 2 2 2 Water and electricity 3 2 1 Investments 2 2 1 LOCAL CONSUMPTION FOR TARGET MARKET Substitutes 2 2 2 Consumption of product (quality) 2 2 1 Current imports of your product category 2 2 2 Per capita consumption of product category 2 1 3 POLITICAL AND LEGAL ENVIRONMENT Corruption perception 1 1 2 Ease of doing business 1 1 1 Economic freedom 1 1 1 Free trade zones - - - Political stability 1 2 1 Tariffs and duties 1 1 1 Aggregate 53 54 41 From the above analysis, the country with the lowest aggregate is Brazil with a total of 41. This is based on the assumption that the country with the least value shall be deemed effective. The performance of India and South Africa is relatively the same. All of these countries have done extremely well in regards to political and legal environment. The three countries are experiencing political stability. India and South Africa have performed very poorly in demographics. The population related factors in these two countries are not working out well for them. All these results are pointing to one thing: Brazil is favored by most of these economic factors. The results per sector of the economy show that Brazil is the most favorable. Entry Strategy Penetrating a new market has never been an easy task. It requires laying the right strategies that are commensurate with the market features. Every market has its own unique characteristics that make it either hard or easy for a new entrant. Nevertheless, the right mechanisms must be put in place to ensure that the market entrance is successful. 4.1 Distribution Strategy Distribution is a medium that facilitates the movement of goods to a place where the consumer can access with little or no efforts. Distribution channels refer to the medium used to move goods from the producer to the consumer. Measures will be put in place to ensure that all the needs of the consumer are fully satisfied. One of the distribution strategies to be adopted is the Vertical Marketing Strategy (Kennedy, 2011). The main target of this distribution channel is to reduce conflict while at the same time enhancing efficiency in the distribution of products. Vertical Marketing System can take any of the three types: Administered VMS This is the type of Vertical Marketing System that is characterized by dominance of one channel. The dominant channel is mostly referred to as the channel captain (Kennedy, 2011). The channel captain in our scenario can be a wholesaler, a retailer or the producer himself. In most cases, the channel captain is the producer. He has been in recent past been in charge of mobilizing other members. Contractual VMS This is a distribution channel where all participants are guided by a legal agreement. Examples of contractual VMS are the likes of franchises; wholesaler sponsored marketing chain, etc. In the case of wholesaler contractual agreement, the wholesaler is responsible for providing necessary marketing programs, selection of merchandize to retailers who have agreed to buy the wholesaler’s products under the VMS contract. Another kind of contractual VMS is the retail cooperative. This is where retailers set up their own distribution system where they act as wholesalers (Kennedy, 2011). In this operation, the retailers agree to acquire merchandize from wholesaling operations and later on develop their own private line of goods Corporate VMS It is the case where channel members are owned by a single enterprise. This shows that the distribution of products shall be fully in the hands of one member. The channel in charge of all distributions will basically transact on behalf of other members. 4.2 Exchange Rate Strategy Price setting is very crucial when it comes to marketing of products in a foreign country.The policy will be designed in a way that will reduce the cost of operation. This will involve prior analysis of the exchange rate trends of the country of interest. In relation to this market, the prices shall be set in home country currency (Cialdini, 2006). Most of the transactions relating to the products being marketed are being carried out in the home country. If the currency is to be determined in the foreign currency, difficulties may arise when accounting for these costs. This will be easier when the price is set in home country because most of the transactions can be recordedeasily. At the same time, most of the transactions that shall take place in the foreign country shall be affected by many financial contracts. The choice of adopting home currency is also in line with the accounting system that shall be used to record transactions relating to the activities of the branch (Steel, 1998). There are quite a number of financial tools that are useful when it comes to transacting international trade. These tools are usefulin dealing with the risk involved in international trade. These risks are related to the changes in the foreign exchange rates. This is one of the factors that all those interested in international trade must be aware of. One of the tools used to salvage this situation is the use of forward contracts and futures. All these contracts enable one to acquire commodities at a predetermined price. In these contracts, a buyer and the seller agree to sell and buy a commodity in futureat an already agreed price. This is one way of locking the price of a commodity to make sure one is not affected by the future fluctuation in the product price. Forwards and futures are closely related. Nevertheless, there are a number of differences in the two kinds of contracts. In the case of futures, this is an official transaction and is carried out in market exchange. At the same time, the goods are transferred at the onset of the contract. This is not the case with forwards (Martinez & Jarillo, 1992). It is an informal arrangement between the seller and the buyer to exchange goods in future at a predetermined price. The delivery of these goods takes place at the expiry of the contract. November 1.65 March 1.70 May 1.90 July 2.0 September 2.2 USD/BRL From the above graph, one trend is very clear; the value of the Brazilian currency keeps on weakening. This shows that future transactions will demand more and more money. This is because as the currency weakens, the purchasing-power of the Brazilian currency keeps on weakening. I will use futures in order to salvage this situation a bit. For instance, future contract shall be entered by sellers of some of the items we need in future. The price shall be agreed on to transfer that commodity. This will enable immunity against future price fluctuations as seen on the graph. There is also an option of adopting forward contract as an alternative. 4.3 Marketing Strategy Regardless of how good a product, without proper marketing strategies the product may never attract enough customers to break even. Therefore, this calls for the right marketing strategies to be put in place to ensure the product is made known to the customer. First, the new product in the market will require a good pricing policy that will attract customers. There will be promotion and special offers intended at attracting a mass of customers. These offers and promotions shall be designed in accordance with product specifications (Hopkins, 1996). The features of the product are the key determinant of the type of promotion to be undertaken. These promotions will run for a period that will be needed for the product to be well known by the majority of its consumers. This can be scheduled to take the first quarter of market entry in the foreign country. After that a market research shall be carried out to establish the effect of these promotions. The market share shall also be analyzed. Besides promotions and special offers, the company will invest heavily in advertisement costs. Advertisement is useful to any new product on the market. Just like promotions, the designing of adverts shall depend upon the features of various products. This ranges from audio adverts, visual adverts to audio-visual adverts. All these will be reviewed to make sure the core products of the company are well advertised (Steel, 1998). Since this is a new product, the cost of advertisement will be very high. The advertisement expenses will be reducing as time goes on because the products will be gaining awareness among customers every time. Those products to be accorded audio-visual advertisement will be core products alone. This is because it may be too expensive for the company to bear. This is because audio-visual adverts are very expensive. Lastly, use of social media is a wonderful marketing tool. Things are changing so fast in relation to marketing of goods and services. With the uprising of the social media, it will only be profitable to use social media for marketing the new product. This is also in line with the e-marketing advances that have been on the move in the 21st century. All marketers are opting online selling of goods and services, 4.4. Cultural Strategy In deed the cultural aspect of the new market is totally different. The differences arise from background, beliefs, perceptions, and many other traditions that are unique to this country. The effectiveness of these products will be dependent on the ability to overcome these challenges. Before overcoming these challenges, a clear understanding of the social-cultural products is very important (Hubert, 2000). One of the many challenges that we will face is language barrier. This is a very big stumbling block in the marketing of the product in the new market. This is because most of the marketers for these products are from the home country. This decision was reached on the basis that these marketers have already known the product and therefore easy to market it. This was a strategy to ensure effective marketing. Besides the issue of language barrier, there are also religious beliefs. These affect the way certain people or products are likely to be perceived. Religious beliefs affect the buying patterns and trends by the consumers. At the same time, culture directly affects which kinds of goods are consumed in a certain territory. Traditional tendencies when it comes to consumption affects the way a product may be received in a foreign country (Kennedy, 2011). Nevertheless, there are counter mechanisms we have put in place to ensure the cultural diversities do not affect the marketing of the new products. Some of the cultural challenges in this market were discovered during the research into the new market. Therefore adequate means were enhanced in order to make sure the challenges do not affect the performance of the product in the market. The issue of language barrier shall be overcome through use of a portion of marketers from the foreign country. They will work with marketers from home country in order to ensure communication with consumers does not become an issue. Second, the products have been designed to suit the needs of the country. The products were made uniquely for the purpose of meeting these standards from the foreign country. In overall, the research that was carried about the new market was meant to help the company come up with strategies to overcome them. That is the reason the traditions of these people may not affect the performance of the business. 4.4 Corporate Social Responsibility Strategy Ethical issues are a part of every market. Any market entrant must deal with the issue of ethics in the new market. The ethical issues may be varied in the new market. This may include fair pricing issues. There is a tendency by most marketers to inflate the price of new products due to consumer surplus. The product may sell at price that allows the company to make exorbitant profits at the expense of the company (Martinez & Jarillo, 1991). This is unethical. Though the product will sell profitably, the excess profit is a burden that is laid upon consumers unfairly. To overcome this, the pricing polices shall be made with a lot of professionalism. They will only be reviewed at the head office. At the same time, the employees shall be taught the need to maintain high ethical standards and the benefits that will accrue to the company. Another ethical issue of concern is the use of unfair monopoly. There are possibilities of using unfair means to lock out other competitors from the market. This can be through excessive lowering of prices at the expense of competitors. This will make sure that competitors cannot enter the market because the product may be selling at a very low price for them to make any profits (Bandler, 1994). To deal with this, mechanisms shall be put in place to ensure the price of goods is not lowered below unacceptable limits. That is, the price of commodities should not be lowered up to a level where there is no profit being made. Conclusion Entering a new market is definitely a big challenge. Penetrating a new market in a foreign country is even a heavier responsibility. This calls for the need to follow all the preliminaries required. These include researching into the new market. Thorough analysis of the market should be carried out to ascertain the feasibility of the new market. The possible challenges in the new market will be highlighted during research process. At the same time, investment into marketing strategies is not an option. Enough funds must be set aside to ensure the product is able to break even as early as possible (Bandler, 1994). All these responsibilities must be carried out by professionals to make sure reliable outcomes are guaranteed. This is meant to ensure the new product quickly adopts the new market. References Bandler, J. (1994). How to Use Financial Statements: A Guide to Understanding the Numbers. New York, NY: McGraw-Hill. Cialdini, R.B. (2006). Influence: The Psychology of Persuasion. New York, NY: Harper Business. Freenstra, R.C.(2003). Advanced International Trade: Theory and Evidence. New Jersey: Princeton University Press. Hopkins, C.C. (1996). My Life in Advertising and Scientific Research. New York: McGraw- Hill. Hubert, C. (2000). Knowledge Management: A Guide for Your Journey to Best-Practice Processes. Houston, TX: American Productivity Center. Kennedy, S.D. (2011). The Ultimate Sales Letter: Attract New Customers, Boost your sales. Avon, MA: Adams Media. Kieso, D.E., Weygandt, J.J., & Warfield, T.D. (2007). Intermediate Accounting, 12th Edition. New York: Wiley Martinez, J., & Jarillo, J. (1991). Coordination demands of international strategies. 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