Management and Marketing Budget of Connection Company - Case Study Example

Management and Marketing Budget of Connection Company Table of Contents Company Summary 4 Vision 4 Mission 4 Products range 5 Market Analysis 6 Market condition in UK 6 Market condition in developing markets 7 Marketing strategy 8 Test marketing 11 Development plan 12 Phase-1 12 Phase-2 12 Phase-3 13 Phase-4 13 Phase-5 14 Phase-6 14 Operation Plan 14 Financials 17 Bibliography 20 Executive summary Connection, a new company, is striving to enter the mobile handset manufacturing business. This particular industry is predicted to grow extensively in the years to come. The present market is dominated by major international mobile manufacturing companies who are engaged in a cut throat competition with each other. This makes it increasingly difficult for the new entrants to step in. Connection has conducted a thorough market survey to evaluate the prevailing market condition. Research was also carried out to collect authentic information regarding the nature of competition existing in the industry. The information derived will thus be used by the company to formulate its marketing strategy to enter the developing markets. The company has decided to cater to the need of a specific customer target (niche market) as this will assist in entering and penetrating that particular market. First and foremost task of Connection will be to envisage its corporate goal and this will later on be segregated into SMART objectives which will have to be achieved within the predetermined time period. Later on, the marketing strategies will be developed to achieve the corporate goal. The management of the company will then formulate a development plan to decide the manner in which the marketing process will be conducted in the target market. Operation plan will then be framed to decide the marketing activities. This will be followed by the cost related activities after which the marketing budget of the company will be finalised. Company Summary Connection is a company that plans to operate in the mobile manufacturing sector. Though UK is its country of origin, it is more focussed on the developing markets. A proper understanding of the needs and demands of the target customer base is thereby required so that the product range can be modified accordingly. Vision The vision of the company is to assist the nations in developing a strong communication network which will add value to the nation and play an active role in its economic growth. Mission The mission statement is framed in alignment with its vision. According to it, the company will produce such handsets that possess high economic value. The technology used in such handsets will be of international level. The company will ensure that quality is not compromised at any cost and that the products are friendly and easy to operate. Connection strongly believes that environment is one of the vital stakeholders in the company; hence the products and the technology used by Connection will be environment friendly. The mission statement of the company is also focused in developing an organisational culture where the employees will feel themselves to be an integral part of the organisation. Apart from employee welfare, the company will also participate actively in different social welfare programs. Products range Being a new entrant in the industry, the company’s product portfolio is not highly diversified. At present the target customers is restricted to teenagers who emphasise on text and voice quality of the products. The company tries to woo this section of the customers through cost effective products. The products offered by the company posses specific features like 3.2 mega pixel camera, MR3, expandable memory. These are some of the must have features for youngsters in UK. However, these products fail to attract more mature users who require fast connectivity to the internet or better browsing facilities. The products of the company can be further categorised into some distinct products ranges. Some of the products are low in price having very general and basic features. These are useful for users whose chief purpose is to communicate. The aged people fall in this category. They are more comfortable with products having minimum features and easy operation. Another product range is more focused on the image quality of the handset. The memory of these phones can be expanded to more than 8GB and are mainly preferred by those users who are addicted to games on their mobile sets. The picture quality is decent and the graphics can be shared which makes playing games more interesting. Another product range offered by Connection is solely meant for the music lovers. The handsets possess a good sound quality, MP3 is also provided with these mobile phones. These phones have good memory extendibility so that the users can store many songs. At present the company offers 3.2 mega pixel cameras but it plans to introduce phone with higher megapixel for better picture quality. The company always tries to develop its products in such a way that it suits the specific requirement of the target market. To enter the developing markets of the third world nation, Connection might have to introduce some new features to cater to the needs of its new potential customers. Market Analysis Market condition in UK The mobile manufacturing sector is quite competitive in almost all the developed nation and most of the small companies have undergone mergers with the major players. The big players include names like Motorola, Nokia, Sony Ericsson and Samsung. These players are engaged in a cut-throat competition with each other. In UK, the mobile manufacturing industry contributes almost 3 percent to the total GDP. As compared to other sectors like construction, hospitality, oil & gas and food manufacturing, contribution of mobile manufacturing sector is quite low, yet this sector plays a vital role in the economy of the country (O2, 2004, p.6). The market of UK is characterised by strong demand for smart-phones. Mobiles like iPhone and Blackberry have become hugely popular which in turn has attracted various companies towards it. Companies like Nokia and Samsung are trying hard to expand their business in the smart-phone market of UK along with other potential markets (Wray, 2010). Microsoft too has announced its entry in the smart-phone segment which had further aggravated the competition. The market analysts predict that soon out of 10 smart-phones sold in UK at least 3 will be of Microsoft. In 2009, the market share of Apple reached its peak but is expected to deteriorate in future (Elmer-DeWitt, 2010). Market condition in developing markets Last few years saw a stupendous increase of the mobile phone market in developing nations like India and China. The market experts have predicted that despite such growth, the density of mobile users is quite low in these nations and hence they serve as strong potential markets for international mobile phone manufacturing companies. In India, a large section of people still dwell in villages or suburbs. The demand of these people is quite different from their counterparts living in big cities and metropolitans. City people possess high purchasing power and to them mobile phones is a symbol of status. These people are more interested in purchasing phones having advanced features like camera of 12 mega pixel, 3G compatibility, bluetooth, navigation facility and easy accessibility to internet. The demand of the people in village and suburbs is quite different; they use mobile phones as a basic requirement for connecting with other people. These people have less purchasing power and are hence in favour of low budget phones. Moreover low literacy rate coupled with lack of technology has made them hesitant towards high end phones. These people are more comfortable with phone that offer good text and voice quality and have simple user friendly mode of operation. Local mobile phone manufactures are not very prominent in India and hence the market is laid for the international player to capture. In China, the number of mobile phone users has shown a healthy growth. As compared to India, the users in China are much more technologically advanced. However, the local Chinese phones are a strong competitor of the international mobile manufacturers in China. The local Chinese phone offers almost all the advanced features at a much lower cost. Though the quality is not of international standards, but still the local users are more inclined to use the local phones. The Chinese government motivates the local mobile manufacturer by providing tax relief and other exemptions. This has assisted the local phones to gain cost leadership in the domestic market. However, the mobile phone users’ psychology is changing with the advancement in economic and social state. Many users are now shifting to international brands and the market of foreign mobile is indeed expanding. Marketing strategy After considering the data derived from the market analysis, Connection will set its marketing strategy. At present, the company is trying to enter the new markets and is therefore trying to launch a new product specially designed to suit the local taste. According to Ansoff Matrix, since the company is trying to enter the new market with new products, it should diversify its existing product range as per the needs of the potential customers. Figure 1: Ansoff Matrix (Source: Lester, p.52) Before developing the new product range, the marketing department of Connection gathered all the relevant information regarding the requirement of the people in the developing nations. It was then left to the marketing department to study the life style, the economic condition, the purchasing pattern, the degree of loyalty possessed by the potential customers. It conducted a small online market survey, where people living in the developing nations where asked to express the problems they face with their prevailing mobile handset. People were asked to suggest what changes (new features) they want in their mobile handset. The summary of the information collected through the survey is as follow: Around 18% of the respondent asked for better signal or better connectivity as one of the basic required features. Almost one-fourth of the respondent said that they want an economical hand set that with better features. 10% of the respondent asked for a long battery back-up, 16% expressed the need of having a water-proof body and 8% demanded user friendly mode that can be used even by the layman. The young users (respondents below the age group of 16) demanded better games, better picture quality, better sound, more storage capacity and so one. There were some respondents who wanted more advanced features like internet, fast browsing facility and navigation option. However, the number of such respondents is comparatively less. This information indicates that majority of the users in the developing nations possess low to moderate purchasing power. The marketing department has thereby suggested that the company should pay more emphasis on the basic requirements of the user. It was decided that the products should have long battery backup, good sound and picture quality, better connectivity and most importantly they price range should be comparatively low. This implies that, Connection need not introduce much change in its prevailing product range. Test marketing It has been decided that once the products to be launched is finalised, a pivot test will be conducted. This will be the way to test the market for the product range offered by the company. It was decided that basically the handsets will be introduced in the suburban shopping centres or local market places. As per the company strategy, it has planned to introduce its product in the suburbs where the customers have moderate purchasing power, but the density of the potential purchaser is high. Moreover, as compared to big cities and metropolitans, the degree of competition is also quite less there. The management of Connection is well aware of the fact that niche marketing is a better way to enter the new market. Likewise the product ranges of Connection mobile handsets will be introduced in selected sub urban markets. During the test marketing, the customers will be asked to come and view the different features of the mobile handset. The customers would be given the liberty to test these features and later on the customers would be asked to provide their feedback on its available features, the picture quality, sound quality and other such profiles. Suggestions too can be expressed in the form of feedbacks. All these information will assist the marketing team to study the customer behaviour in the target markets. If required, some modifications will be introduced to make the products more effective in developing a satisfied customer base. Development plan The company is yet to make a full fledged plan for entering the new markets. As per the marketing department, they need at least 180 day (6 months) to develop it. The marketing department has segregated the entire planning session into six phases, each having one month time period. Phase-1 1. The marketing team plans to introduce its product range in the suburbs of India and China. Henceforth it needs to identify the location where the company will open its outlets. Planning is also required to identify the local market places and shopping centres where the products of Connection will be introduced for sale. 2. The financial cost associated with opening of outlets and signing the agreement with the shopping centres will also have to be analysed. 3. After considering the results of market analysis, the demand pattern in these locations will be examined. This information will be used to develop the operation plan; i.e. the number of handsets to be produced for the target markets. Phase-2 1. Based on the operation plan, the requirements of material, labour and finance will be determined. 2. As the company plans to open a number of outlets in the target markets; hence planning will be done to find out the cost associated with these stores. 3. The management has decided to employee local people in these outlets as employees. The main reason is that local folks are better acquainted with local culture and ethics. Moreover it will also generate new employment opportunity in the society. This process will also save on the cost; since as compared to UK, labour rates are much lower in these developing nations. Hiring of local people will also help the company to reduce the cost of operation. Phase-3 1. In the next phase, the marketing department will develop a plan for identifying different marketing tools to be used in the local market. 2. While developing the marketing plan, the concerned department will have to collect information regarding customer behaviour, their purchasing power, the cultural & ethical behaviour of the customer and the marketing strategy used by the rival firms. 3. The marketing department will then determine the cost associated will different marketing tools. Phase-4 1. After the successful completion of phase 3, the company will then try to approach different media persons to set the contracts needed for marketing. Phase-5 1. The company plans to introduce the concept of integrated marketing. The marketing department is henceforth required to divulge and gather all the necessary information to and from the other departments. The combined suggestion will make the marketing plan more effective. Phase-6 1. The company will finally implement its marketing plan. However, to keep the process functioning smoothly it will have to monitor the implementation process at regular interval of time. Operation Plan After the development plan is over, Connection will finalise its operating plan. As discussed in the development plan, the marketing department is interested in introducing the concept of integrated marketing. This is only possible if all the departments agree to assist in developing the marketing plan that possesses the ability to attract customers. For this the marketing department will have to analyse the market, the customer behaviour, the existing degree of competition and the external environmental factors. It will be followed by the sales forecast for the next one year (four consecutive quarters). This information will be shared with the operation department to check whether the company possesses the potential to meet the demand with the existing infrastructure. If not, queries like, how many new machines need to be installed, how much extra material will be required, how much extra labour should be hired, etc will be pondered on. After that the finance department will calculate the investments required to build the desired infrastructure. All the possible alternatives prevailing in the market place will be harnessed to fulfil the requirements of the operation department. As for example whether the machine should be purchased, or it should be taken on lease. Even if purchasing a machine is more economical in long term, the finance department might very well suggest a lease. This depends on the availability of finance. Purchasing a machine requires fund and here too the finance department will have to conduct the feasibility analysis. Apart from production, other factors like the cost associated with opening new outlets will also be analysed by the finance department. The finance department is also responsible for taking decisions like whether the stores to be opened will be self owned or company should go for franchisee. The finance department will also provide the budget for marketing expenses along with expenses of other departments. The human resource (HR) department is also responsible for making the new venture successful. The HR department is endowed with the responsibility of recruiting the workforce required in the new outlets and also the people who will take up active roles in the marketing plan developed by the company. The HR department will develop a pool of potential candidates and then it will select the most suitable one. The HR department will also develop HR policies for the employees who will work with the company in the target markets situated in developing nations. The role of the marketing department is crucial for the success of the expansion plan, devised before entering the new overseas markets. The marketing department will take into account the 4Ps (product, place, price and promotion). Product: Connection plans to introduce its product range for the local people dwelling in suburbs and villages of India and China. Place: At the initial level, the company will develop vertical integration. Price: After undertaking the market survey it has been decided that Connection will keep the prices as low as possible. Though this will reduce the profit margin, but will assist in entering the new market and to sell the products in bulk. Promotion: As the company has no past experience in these target markets, so initially it will be difficult to finalise the promotional tool that will be in accordance with the customers’ culture and value system. Publicity and advertisement are two commonly used non-personal communication tools that are often used by the companies to convey their massage to the targeted audience. For advertising the products ads can be shown on local television channels and local newspapers. These traditional advertising methods are found to be very effective in the developing nations. Connection is concentrating on niche marketing, so personal marketing promotion is also a good way to interact with customers and to make them aware of the products, their features and the price strategy followed by Connection. Financials After analysing the entire plan of Connection, the marketing department has provided some very important financial facts. Some of them are listed below. The company has decided to achieve operating profit of 11% in the first year of its operation in the targeted market. The net profit should be a minimum of 8% in the first year. The marketing department has forecasted sales for the first year of operation as: 10,000 handsets in 1Q; 15,000 handsets in 2Q; 20, 000 handsets in 3Q and more than 30,000 in 4Q. The company will try to minimise the operating expenses so that operating profits can be increased above 11%. This is only possible if the company can achieve economies of scale. The company has decided not to use too much of debt instruments. Instead it plans to use the internal reserves. This will reduce the cost of capital. As the prevailing reserves may not be enough for financing the entire project, so it has been decided that the company will develop an optimum capital structure where a part of the cost will be acquired from the market through debt instruments and rest will be arranged though introducing fresh equity in the market. The financial department has decided that target debt-equity ratio should not be more than one. As the company needs capital to be invested in the newly started business; therefore, the company will maintain dividend retention of 60 percent and rest 40 percent of the earning will be distributed to the equity share holders as dividend. Whenever a company starts a new business in foreign country, the risk associated with that business remains comparatively high. The financial department has calculated that both economic and currency risk related to this new venture is high. To minimise the currency risk, the financial department will undertake different currency hedging instruments (debentures and swap). While analysing the projects, a greater weightage will be given to pay back period of the project. The company has decided to make a two year payback period as a benchmark for this new venture. The company will publish all the financial information on quarterly basis and at the end of the financial year, the audited financial statement will be published to inform the stakeholders regarding performance of the company. The financial report will contain income statement, balance sheet, cash flow statement and CSR report. The above given financial information will help the company to achieve its goal of entering and penetrating the developing markets to expand the business. Reference Elmer-DeWitt. August 03, 2010. Smartphone wars: The big picture. CNN Money. [Online]. Available at: http://tech.fortune.cnn.com/2010/08/03/smartphone-wars-the-big-picture/ [Accessed on August 07, 2010]. Lester, A. 2009. Growth Management: Two Hats Are Better Than One. Palgrave Macmillan. O2. May 2004. The Contribution of Mobile Phones to the UK Economy. [Pdf]. Available at: http://www.o2.com/media_files/news_100504.pdf [Accessed on August 07, 2010]. Wray, R. February 14, 2010. How the smartphone made Europe look stupid. [Online]. Available at: http://www.guardian.co.uk/business/2010/feb/14/mobile-world-congress-phones-networks [Accessed on August 07, 2010]. Bibliography Curtis, T. 2007. Marketing in practice, 2007-2008. Butterworth-Heinemann. Koekemoer, L. & Bird, S. 2004. Marketing Communications. Juta and Company Ltd. Hulbert, J. M., Capon, N. & Piercy, N. F. 2005. Total Integrated Marketing: Breaking the Bounds of the Function. Kogan Page Publishers. Read More