Market Entry Strategies - Case Study Example

LUSH’s transfer to Brazil Contents Contents 2 Introduction 3 Reasons for selection of the new country by LUSH using SWOT analysis 3 Analysis of alternative markets that were suggested but not selected by the company using PESTEL analysis 6 Proposed market entry strategy including rationale 8 Outline of the recommended marketing mix 9 References 12 Introduction LUSH is a company known for its fresh handmade cosmetics having its headquarters in United Kingdom. Lush started off with a small store in UK in Poole in the year 1995. They operate their business through franchisee, partnerships and currently have partners in North Africa and Middle East. The company operates with more than 900 stores worldwide in almost 50 countries. Lush is currently opening a shop in Brazil in Sao Paulo and it will be considered as a flagship store operating in South America. The founders of LUSH are Mark and Mo Constantine. Lush has got a variety of product range all of which are handmade. The products include soaps, shampoos and hair conditioners, shower gel, bath bombs, face make, bubble bars, hand and body lotions for a variety of skin types. Lush in all its products uses essential oils, fruit and vegetables, honey and beeswax, and synthetic ingredients. It is a public limited company and is a part of the personal care industry. Lush operates in more than 50 countries there are some appropriate conditions of Brazil that has enforced the company to open its stores over there. Lush operates in Australia, Canada, Germany, Kuwait, New Zealand, Singapore, Taiwan, Australia, Hong Kong, UK, Sweden etc. This report outlines the opportunity that Lush has seen in the Brazil market and the reasons why it has not chosen any alternative markets for its operations. The report even proposes some marketing mix strategy that would be helpful for the company to operate in the overseas market. Reasons for selection of the new country by LUSH using SWOT analysis Brazil is selected as a new market to enter by Lush. The reasons behind selecting the Brazilian market for personal care industry can be justified using the SWOT analysis. It is structured planning method which is used to evaluate the strengths, weakness, opportunities and threat related to a component. The strengths and weakness are internal to the organization whereas the opportunities and threat are the external factors of the environment which cannot be controlled by the organization. These internal and external factors are analyzed using the SWOT analysis and it helps to know the factors essential to be considered while designing a strategy or in case of a product it helps to analyze which market is suitable for the business. The strengths highlight the advantage the component has over the others. The weakness illustrates the characteristics that place it at a disadvantage over others. The opportunities describe the factors it could consider in order to exploit its advantages. The threats highlight the possible external environmental factors that could cause harm for a particular business. Thus SWOT analysis is an effective tool in order to analyze the whole scenario before going in for any investments. Brazil is selected as a new country by Lush where it plans to open a shop and spa. Lush is following an expansion strategy so it needs to open up stores where it finds a greater market opportunity (Pahl and Richter, 2009, p.78). The strength that Brazil as a new market has is that it is the third largest personal care industry in this world. This makes it a great opportunity for those companies who want to expand its business overseas like that of Lush. It is one of the fastest growing beauty industries in the world. The country has got 41% of the population who are youth this enhances the sale of these personal care products. Even there are multiple direct sellers across this country. Brazil has a huge territory region which makes it a suitable market for many industry players. The inflation rate of the country is low and there is high disposable income of the population. The mindset of the people living in Brazil is that it is more beneficial to spend on beauty products to look good then to spend on other products. This kind of consumer behaviour makes Brazil a suitable market for the company in personal care sector to establish its business. The weakness that Brazilian market has is that it has high excise duties and limited distribution this has resulted in acting as an entry barrier for many premium brands. Even though the size of Brazilian territory is huge but it comprises of low income population which enhances only small transactions that too sometimes on a credit system which would not be a good condition for those brands that are charging high brands and offering much better quality. The Brazilian market in the personal care sector has a large number of competitors which means that there is a need for huge new product development investment while entry into the market. The opportunities that Brazil has are its huge territory and a booming personal care market. The country has huge young talent who are working and having a high disposable income. Even the country has various shades of weather that makes it very necessary for the purchase of beauty products. Since it is at an expansion stage the market is not yet exploited and the investment cost for setting up a new store will not be as higher compared to those of other countries. Brazil has positive response of consumers towards beauty products as they are very much beauty conscious. This is a great opportunity that Brazil has in order to invite more and more personal care company. The threat that the country has is the change in government regulations and a high inflation rate. If the inflation rate rises than the low income population will not have a higher disposable income to purchase such beauty products as in this situation basic necessities will have a priority over such personal care products. Direct selling accounts for a large amount in the beauty sales, these small transactions can be hindered at a late stage due to many players in the market. There already exist some competitive players in the personal care sector in Brazil like Avon and Natura. The presence of such a competition would result into a price war and would exploit the market that has great opportunity for the personal care industry. There can even be some threats posed by China, US, Japan who is nearby it in terms of personal care sales. The SWOT analysis clearly depicts the reason behind why LUSH has chosen Brazil as a new market to enter. This is mainly because of the scope the country offers in the personal care sector and the growth opportunities that Brazil forecasts for any industry operating in this sector. Analysis of alternative markets that were suggested but not selected by the company using PESTEL analysis Lush had plans to open stores in Sudan, Egypt, Jordan, Pakistan and Iraq. But the alternative markets that were chosen in respect to opening markets in Brazil were that of Iraq and Pakistan. But both of these alternative markets were rejected by the company because of the various factors that were concerned with these two countries. The PESTEL analysis helps to examine what were the factors that made Lush reject opening its stores across Iraq and Pakistan. The PESTEL analysis is a framework of the macroeconomic environmental factors, they mainly constitute of the political factors, economic factors, social factors, technological factors, environmental factors and lastly the legal factors. It helps in understanding the business position, market growth or decline, direction and potential for operations. These factors form the essential strategic tool for market research. The political factors encompass the level till which the government intervenes in the economy. It mainly includes areas such as labor laws, trade barriers, tax policy, political stability and tariffs. The economic factors encompass the rate of inflation, interest rates, economic growth and exchange rates. These factors impact the operations and decisions of a business. The social factors encompass the population growth rate, health consciousness, age distribution etc. These factors have an impact on the demand for the products that the company offers and hence affects the operations of a business. The technological factors include the various R&D activity, rate of technological change that determines the entry barriers, outsourcing decisions and levels level of efficient production (Allen, 2006, pp.154-155). The employment law, consumer law, discrimination law, health and safety law forms the legal factors. These factors cause an impact on the company costs, the demand for its products and the operations of the company. The environmental factors encompass the weather and climate change. These factors affect the company’s operations and even the kind of product that the company offers. The environmental factor has the power to create new markets as well as destroy the operating markets. The political factors of Iraq make it not a good market for the company to carry out its operations. Iraq faces political instability that is the rule and regulations of the government are highly subject to change. This instability in political sector makes it an unfavourable market for Lush. Even the inflation rate is increasing in Iraq, which is leaving the people with very less amount to spend on such products which is not a basic entity. The economic factors are also not very supportive. These factors include the purchasing power of the consumers which is very low in Iraq. The reason behind this is higher inflation rate and unemployment. The lower purchasing power brings the consumer demand. This slowdown in Iraq’s economy is not a favourable condition for Lush to operate. The social factors includes the age distribution, Iraq has got majority of the population who are above 60 years of age as the youth are shifting to other countries due to political instability in Iraq. The presence of lesser youth population makes it very difficult for products related to personal care gain much of market share. The technological base of the country is neither at a good state and the company which operates in modern technology needs to make sufficient investments before entering into the market. The weather conditions are suitable to create demand for these kinds of personal care products. The laws and regulation of the country are subject to change so the company need to flexible to adapt to various legal changes related to government policy. This is not an effective measure that can be undertaken by Lush. On a similar way the political conditions of Pakistan are not so much stable considered to that of other countries where Lush operates (Henry, 2011, pp.167-169). The high trade barriers and taxes make it not a good market to invest. The technological and weather conditions make it a suitable market to create a product demand. But some of the factors of PESTEL mainly the political and legal conditions reject the country as a new market to enter by Lush. Proposed market entry strategy including rationale The market strategy is a planned method of delivering products to a new target market and then do distribution of those products in that specific market. The Brazilian market imposes a high excise duty so in order to enter this market the company should follow the strategy of production in abroad not by direct investment but through franchising. Through these franchisees it can cover a larger territory of Brazil and do not have to invest directly into the new market. Product and cost related strategies are also taken into consideration while entering into a new market. The population in Brazil is of low income group but they have high disposable income because of low inflation rate (Tielmann, 2010, p.15). Since their disposable income is high but they spend on low price products at the same time they are health and beauty conscious it is important that Lush has a cost effective product range by adopting penetration pricing. Another market entry strategy is having product differentiation by offering even deodorants and fragrances as it has a great opportunity in the Brazilian market according to the statistics. According to the STP analysis, the segmentation of the Brazilian market will be on the basis of the age group as majority is low income people. The target audience will be the youth population as they constitute more than 41% of the entire population and they are the one who spends much more on such beauty products. The position of the Lush’s product will be handmade personal care products at the lowest affordable price, thus making it easily accessible by the low income youth population of Brazil. Outline of the recommended marketing mix The marketing mix of a product or service comprises of product, price, promotion, distribution, people process and physical evidence. This mix varies depending on the type of market and the opportunities that the market offers. As in case of Lush it operates on a specific marketing mix depending on what exactly is the consumer demand of that particular country. Like in case of Brazil where Lush is entering the consumer demand is totally different. Though it is one of the fastest growing beauty industries but still there are certain changes in the consumer behaviour. The product strategy of Lush in Brazil should be such that it meets the demands of the consumer. The product range should be limited in relation to its operations in other countries. The reason behind this is that Brazil has shown a great increase in hair care, skincare and fragrances sector. So Lush should only offer its lotions, soaps, shampoos and conditioners and bring forth a new set of some fragrances that would attract the mass. This kind of product strategy would help the company to have a competitive edge amongst some of the key players like Natura, Avon, and Oriflame etc. The economic conditions of Brazil are suitable for new investments, with a stable political condition. But the main aspect of concern is that it offers high excise taxes. This prevents access of the consumers to premium brands. Even the income level of the population is very low which indicates that they have lesser demand for premium products. Though the cost of these handmade personal care products is following a skimming and premium pricing strategy in most of the countries, but in Brazil it needs to follow a penetrative pricing strategy to offer economical products with good quality. This pricing strategy will help the company to be competitive a cover a mass market. The distribution of Lush in Brazilian market is to offer the products without direct investment through franchisees. This strategy would help to capture the large territory of Brazil and at the same time the minimum distribution to offer the low priced beauty products. The mode of promotion to be used will be social networking sites and TV channels. This is an adaptive strategy depending on the target audience. As the target market is the youth these two promotion techniques will be more beneficial than the standardized ones of newspaper, magazines etc. Another way of promotion could be advertising through pilot testing by offering free sachets with beauty magazines so that the consumers get to know the product well (Richter, 2012, pp.133-135). The physical evidence of the product will be solving the beauty issues of the people and giving a long term impact so that they become a loyal customer of Lush. The people associated with different franchisee should have the skills to deal with the beauty products. They must have the knowledge regarding the different issues of the customers and then offering the best of products. The company should have a specific customer relation department to handle the queries of the customers after post sales of the products. This will create a positive impact on the customers that they are on safe hands and their queries or problems are handled effectively. References Allen, M. 2006. Analysing the Organizational Environment. UK: Select Knowledge Limited. Henry, A. 2011. Understanding Strategic Management. New York: Oxford University Press. Pahl, N., Richter, A. 2009. Swot Analysis - Idea, Methodology and a Practical Approach. Germany: BoD – Books on Demand. Richter, T. 2012. International Marketing Mix Management. Berlin: Logos Verlag Berlin GmbH. Tielmann, V. 2010. Market Entry Strategies. USA: GRIN Verlag. Read More