FREITAG - an Innovator in Product Development and Environmental Sustainability - Essay Example

? FREITAG: An Innovator in Contemporary Product Development and Environmental Sustainability Market entry and international marketing plan BY YOU FREITAG 1. Introduction Launched in 1993, graphic design brothers Daniel and Markus Freitag found an opportunity in the European market. Messengers, who generally travel by bicycle, maintained one consistent problem: when attempting to deliver their goods and services, the riders always found their bags wet. The Freitag brothers set out to design waterproof, functional and heavy-duty bags that would withstand the elements for this specific purpose (Freitag.ch 2012, p.1). The materials utilised for this purpose quickly gained acceptance as being top quality and therefore gave the business a unique position in the European marketplace. Both brothers being environmentally conscious, they quickly learned to procure industrial tarps known as tarpaulins and then transform these colourful and unique water-resistant covers into stylish, contemporary and trendy bags of many different varieties. Over time, the Freitag brothers realized that not only would their products perform well in this market, but were able to gain consumer demand in coverings for electronics, totes and purses, and other multi-purpose bag needs. Consumers were quickly attracted to the stylish and innovative designs crafted by transforming tarpaulins into useable and socially-relevant products, thus establishing a well-known brand name with an emphasis on quality as a primary marketing concept (Schwartz 2007, p.28). Freitag has just recently developed an internationalization strategy, providing products to Japan and England, which have both been eager and profitable markets. The main rationale for adopting an internationalization strategy: the products were being compared, by consumers, to very upscale brands such as Dolce & Gabbana and even Gucci due to their colours and variety. Thus, in the Swiss market where Freitag is headquartered, profit potential was the key driver for opening new international market opportunities. The long-term benefits of choosing England and Japan are currently unknown, since both of these export markets have not been functional long enough to establish a trend or statistical report on profitability and consumer interest; as well as evolutionary branding strategy. Much to the advantage of Freitag, there is a new market opportunity for these durable and fashionable products based on demographics and lifestyle of the Brazilian consumer. This market report describes the benefits of establishing a new operational strategy in Brazil as well as justification for why this represents an incredible market opportunity. 2. Situational Analysis This section describes the justification for establishing a new market presence in the emerging market of Brazil, including the PESTEL model and the Five Forces model as well as discussion of the cultural characteristics in Brazil that will benefit Freitag for new market entry. The political environment in Brazil does not currently maintain any known barriers to market entry, with the government supporting a free commerce system and without considerable restrictions to international trade and supply (Kelley 2009, p.6). Many large international companies, such as Wal-Mart, have found success in their internationalization strategies with cooperative government policies and limited tariffs or other trade restrictions. The Brazilian government currently desires more international trade relationships and provides incentives to businesses looking to expand their products to serve the Brazilian consumer market (Branson 2008, p.109). The economic environment is a considerable strength to justify new market entry in Brazil for Freitag. The Brazil consumer economy experienced a 7.5 percent growth rate in 2010 (much higher than international per country averages) and is considered the eighth largest national economy in the world (Mazza and Stul 2012, p.2). It is estimated that three million consumers in Brazil can actually afford luxury-priced goods and over 30 million people, due to economic infrastructure improvements, are now considered middle class having evolved from lower-class income status (Mazza and Stul, p.2). This represents enormous market opportunity especially considering that Brazil only has 6.7 percent of its total population as consumers over 65. For the Freitag brand, it is the younger markets that will adopt and embrace this brand for its style and quality. Most favourable to the Freitag brand is the social lifestyles that exist in Brazil that will be superbly beneficial to its market entry strategy (which will be defined in-depth later in the report). Brazil is characteristically a culture that scores low on Hofstede’s Cultural Dimensions Index in individualism. Brazil is a highly collectivist nation in which consumers look to reference groups before making product purchasing decisions. According to Leng and Botelho (2010, p.270) Brazil looks to family, school in groups and even the workplace associates with a high emphasis on relationship and relationship development as primary lifestyle values and goals. Kelley (2009, p.1) further supports this notion by suggesting that wealth, prestige and status are highly valued in Brazil and consumers tend to seek out high quality goods as a primary motivational driver in decision-making. If Freitag is able to develop relationships and loyalty with consumers, the likely trend (supported by research statistics) is that word-of-mouth and reference group mentality will make many Brazilian consumers seek out Freitag merchandise as a collectivist whole. Furthermore, Brazilians score high on Hofstede’s Cultural Dimensions Index in areas of power distance. This, defined, is the degree to which “any person in society accepts social or class inequality and considers it to be normal” (Leng and Botelho, p.266). There is an inequality between wealthy social class and middle income consumers that is well-tolerated, however Brazilian consumers often look to the more affluent when making product purchasing decisions. Wealth and status, as described earlier, are important concepts in consumerism in Brazil. The traditional success in using quality and higher price rationale through quality in Brazil will serve this new market successfully and thus have Freitag be able to capitalise on the same pricing and quality marketing focus that has worked for years in Europe and Japan. As already established, the economic environment is highly supportive of active and ongoing consumerism in Brazil for these types of products offered by Freitag. The legal environment, through exhaustive search, did not identify any significant barriers that would propose problems to direct and aggressive market entry strategy. Porter (2012, p.1) identifies five forces that can impact the success or failure of a new market entry strategy. Freitag is not impacted by issues of supplier power, since they procure their own tarpaulin merchandise and then utilize their own manufacturing facilities to assemble their heavy-duty and quality bag products. Having control over Freitag’s own supply and development network gives them an advantage in cost and control over distribution. Further, there are no significant threat of substitutes since the materials utilized are innovative and Brazil does not currently have similar competition other than the larger brands such as Gucci. This also reduces consumer power in the market since customers cannot readily defect to other brands and still maintain the same heavy-duty, quality and durable goods offered by Freitag. It has already been established that there is an ample consumer market with the resources to make product purchases and evidence did not produce any issues that might arise in relation to price sensitivity in the Brazilian market. The only potential problem with establishing a brand in Brazil is the brand identity for Freitag products, which are not well-known in Brazil. However, this is due to the country being characterized as an emerging market where consumers are just, today, getting to understand the many different international brands available. As will be described in the next sections, this will entail a preliminary marketing presence in Brazil prior to launching its own retail concept to build brand awareness, loyalty, and identification based on logo design and trademarks. However, a lesson can be learned through the marketing successes of MasterCard who was able to establish preliminary relationships, thus building a brand identity, by focusing on lifestyle elements through psychographic-based literature to gain consumer loyalty for this financial brand (Galloni 2009, p.6). Values create motivations, thus influencing purchasing decision behaviour (Schwartz 1992, p.8; Schwartz and Bilsky 1990, p.889). Because of these positive aspects and the lack of brand awareness that Freitag would maintain in Brazil, it would be most cost-effective and strategic for the business to establish a ground-up launch of the Freitag brand. There are no similar products or services that would justify an acquisition strategy as brand identity would still have to be established. Freitag would not benefit from a sampling strategy to let consumers test these products simply based on the nature of design, materials and product functionality. Further, large companies such as Coca-Cola have actually used their vast resources to assist Brazil in building roadway infrastructures and distribution networks, thus entry for Freitag into this country allows for piggybacking on existing networks and the assurance that adequate infrastructure exists for proper city-by-city distribution and retailing. The current exchange rate for Brazilian currency versus European currency is substantial, thus favourable for developing a direct market entry strategy constructing a manufacturing facility in South America to avoid the high cost of global product distribution transfer. This would, in the future, allow for product to be moved into Latin America and the United States or Mexico without heavy financial reliance on air transport or ship logistics required for movement from Europe. 3. International Marketing Objectives The objectives of Freitag will be analysed using the SMART model, suggesting specific, measurable, achievable, realistic and timed strategies for achieving marketing success. First and foremost, Freitag must establish a preliminary marketing presence by gaining brand awareness in the Brazilian market. Currently, based on economic data already provided in the report, there is no need to segment the markets until after statistical information (such as surveys) can provide better data about the major and minor customer markets and their purchasing/buying behaviour. Freitag requires the production of a product catalogue that highlights the Freitag history, quality and product variety that can be distributed to the main urban areas where retailers (or Freitag direct) will carry its products. Incentive marketing, such as coupons, can be tracked in the catalogue for those interested in Freitag products prior to actual launch to gain knowledge of what urban areas have the most demand. This requires consultation with graphic arts designers or utilisation of the brothers’ graphic arts background to develop a print and/or online catalogue that spotlights key Freitag products and concepts. This process, prior to launch, requires approximately eight months to successfully coordinate and track. The second SMART objective for Freitag is to create its retail network. It is suggested that Freitag work with existing retailers in Brazil in the major urban areas that carry high-end or youth-inspired products, thus avoiding extensive operational costs of creating its own retailing facilities. This is achievable by sending expatriate leadership/management from European or Japanese administrative headquarters to create/negotiate contracts for the retail channel distribution system. Such a development should occur simultaneously with the distribution of the catalogue system and would require approximately one year to establish a network and the logistics systems to ensure rapid replenishment of product. For issues of cost efficiency and to guarantee exposure in markets where quality-driven products are valued and sought after, such alliances or partnerships will provide ample exposure and higher sales volumes by consulting with experts already familiar with the Brazilian infrastructure and hub/distribution systems. 4. Marketing Strategy and Plan There is a saying in Brazilian culture: Rua Oscar Friere. This is the upscale shopping district in Sao Paulo Jardins carrying many high-end products such as Luis Vuitton, Cartier, Bulgarie, Marc Jacobs and Christian Dior (McKinsey and Company 2012, p.1). This region in Brazil maintains 155,000 millionaires all under the age of the 35 (a key target market for Freitag bags). It is not, however, just this group that will make up the potential total market, but the aforementioned 30 million Brazilians nationwide able and ready to purchase luxury products. A typical marketing strategy in which there are multiple competitors would require significant segmentation and competitor analysis in order to determine the best marketing tactics available. However, the urban areas in Brazil not necessarily catering to luxury goods, but maintain high population densities of individuals with higher resources represent considerable market opportunity. Thus, the business should not be utilising demographic segmentation, rather the basis of the marketing should be psychographic in nature taking a lesson from the MasterCard model of relationship development. Boone and Kurtz (2007, p.271) suggest that in order to create an appropriate positioning strategy, it is necessary to understand social, cultural and lifestyle elements of the target market. In this case, the target market represents approximately 30 million consumers in multiple urban areas with a focus on their collectivist mentalities and desire for outward material wealth through product display. Freitag will be utilising the VALS 2 network which describes key lifestyle and affluence characteristics of consumers, such as achievers versus strivers in order to develop appropriate positioning strategies and distribute associated marketing literature (i.e. advertising). The business must develop a quantitative survey and a qualitative questionnaire in order to gain preliminary knowledge of what drives lifestyle and culture with key markets. These surveys will be conducted utilising guerrilla marketing tactics, with low paid street team representatives trained on Freitag history, concept and quality and apply opinions about consumer notions on integrity, quality and pricing. Since this market has never been tapped before, in order to effectively position on quality and ensure success, hard data that can be quantified should be the first step in marketing strategy development. As an early mover, Freitag will maintain a significant advantage in terms of mitigating potential consumer-based risk issues. For instance, Kalyanaram and Gurumurthy (2008, p.11) identify that early movers can avoid risk averse customers and lower risk that the target customers will switch to late mover products. “The pioneer becomes the prototype for the product category where later entrants are compared to the pioneer and always somewhat unfavourably” (Kalyanaram and Gurumurthy, p.2). The goal in this marketing strategy is to ensure that the brand has awareness and identity whereby consumers will be attracted to the quality dimensions of product and quality based positioning and thus build a sense of loyalty to this new and innovative Freitag brand. Additionally, Brazilian consumers have a propensity to value environmentalism, especially the target market of 18-35, thus there is an advantage in terms of positioning by quality and business integrity. Oregon State University (2008, p.9) provides knowledge of Brazilian youth sentiment regarding environmentalism that is comparable to Western countries and that drives collective purchasing decisions. Freitag maintains a very dominant position simply by being an early mover in this type of environmentally responsible product category and product design. The goal is to establish, in the minds of consumers, that Freitag is unique, credible, quality, and responsible. Once this is instilled in the target market group, the most predictable response will be a collective group appreciation for Freitag that will be difficult for late movers to emulate. Finally, Freitag must develop initial relationship marketing presence to appeal to consumer values on lifestyle and business. Why is this? Brazilian consumers, as a whole, are (from birth) integrated into very powerful and cohesive family and social structures where loyalty for group membership is paramount (Hofstede 2012, p.4). “In business, it is important to build up trustworthy and long-last relationships: a meeting starts with general conversations in order to get to business concepts and agreements” (Hofstede, p.4). Brazilian consumers, based on the data, do not value conducting business with individuals or corporations that negate the importance of the social environment and context-important communication styles (Hofstede 2001, p.55; Veras and Veras 1999, p.2). Freitag should utilize its expatriate leadership as well as human resource professionals to perform business-to-business marketing that is relationship-focused in order to gain retailer as well as consumer loyalty. This could occur concurrently with expatriate contract management efforts, but extend to executive level representation to appeal to this collectivist mentality and acceptance of power distance as a measure of executive-level respect. Business-to-business relationship marketing will be highly beneficial for positioning Freitag according to social and cultural characteristics as collectivist groups develop practices based on group-oriented traditions that actually become customs related to socialisation (Schwartz 1994, p.25; Schwartz 1990, p.27). It is necessary to remain focused on the social and cultural characteristics associated with Brazilian lifestyle and relationship development in order for Freitag to maintain a positive brand presence and ensure strategic-based profitability. Rather than focusing on the financial, general demographic, or geographic traits of potential consumer markets, the business must develop an expertise associated with social psychology in order to create effective and worthwhile advertising materials. 5. Implementation and Control Task Months 1 2 3 4 5 6 7 8 9 10 11 Creation of Catalogues X X X X X X X X Expatriate Consultation with Retailers X X X X X X X X B2B Development X X X X X X X Survey Distribution X X X X Survey Analysis and Positioning Development X X X X Capital Development and Construction X X X X X X X X X X X Capital development includes procurement of appropriate resources for facilities construction/acquisition as well as costs associated with operations (payroll, recruitment, signage, etc). This is ongoing from onset of initial marketing to final distribution of first run of finished product produced in Brazil. 5.1 Estimated Budget in British Pounds Catalogue production and distribution 500,000 Expatriate expenses 100,000 Survey distribution and analysis 75,000 Capital Investment in Construction 6,000,000 Manufacture and Distribution 1,000,000 Retail In-store Marketing Material 500,000 Total Budget Allowance: 8,175,000 The method of ensuring controls falls largely on executive leadership for contract negotiation in construction and ensuring supply chain cost reduction through lean manufacturing. This can be measured through a total quality management system and direct managerial assessment of departmental costs. Marketing literature effectiveness will be gauged by volume of returned consumer mailings and incentives coupons from catalogues and then charted in organisational software provided by company information technology. 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