Impact of Culture and Macro Factors on the Marketing of Products - Essay Example

?Impact of culture and other macro factors on the marketing of products as well as insight into market attractiveness and entry Introduction The following report deals with launching of magazine for children by a UK publisher in Eastern European market including Russia. The publisher wants to enter into Eastern Europe through the gates of Russia. Therefore the main concentration is on Russia and its children’s market. To enter into an international market, the company has to deal with changing landscapes of international marketing (Peebles, Ryans and Vernon 1977). International marketing can be defined as application of marketing principles outside the domestic market which include similar functions like conception, promotion and distribution of products and services in order to satisfy market demands as well as organisational objectives (Papavassiliou and Stathakopoulos 1997). Generally, international marketing is confused with terms like global marketing and export but these terms are different. (Appendix 6) Market Segment Analysis Market segment analysis provides a comprehensive analysis of the children’s market. Segmentation of the market is the process through which market can be defined and accordingly subdivided into various segments whose needs, wants and demands are similar in nature (Ernst & Young's 2011 Russia attractiveness survey 2011). It is very useful in international marketing because it directs the way for designing the marketing mix according to the expectations of the target market. There are few companies which are big enough to fulfil the varying demands of the entire market. However, most of the companies prefer market segmentation into several segments and opt for the one or more than that whose demand it can easily fulfil (Retail and FMCG sector in Russia 2011). In relation to today’s children, it can be said that they have their own lifestyle which is largely affected by their surroundings, background and education. Children’s segment itself forms a huge market for books, video-games, garments, accessories and even for magazines (World of toys 2011). And, Russia is witnessing growth in all these sections (Mintel 2012). In every country of the world, this segment is rapidly growing. This segment is important because it not only affect children but also their parents, schools and day care centres because they are the ones who either buy for them or provide them with money to buy. Three or four decades ago, no-one could consider children as a customer but now the market scenario has entirely changed and children form a big consumer market (Levitt 1983). There is variety of products and services are available for which children are segmented as huge market potential. Both retailers and wholesalers view them as viable market hence involved in child-focused advertising (Donthu, N., 1998; Belluz 2010). In today’s rapid changing business scenario, children are forming most lucrative market as they are three markets in one. Firstly, they have their own needs and desire and purchasing power too through their pocket money. Secondly, they influence, persuade or ask their parents to buy for them which are another form of market and thirdly, in future they themselves emerge as consumers hence marketers cultivate them. Size of children’s market is growing because of the rising world population (Anon 2010; Usunier and Lee 2009). Macro-environment analysis The target market for the magazine is children. Magazine is entertainment in the form of reading and children from the age of 6 develop good reading skills hence the age group of 6 to 14 will be mainly targeted. Large size of market increases the potential of Russian children’s market for the international marketer (Solomon et al. 2009; Sloman 2007). In addition to this, the political environment of the country is stable and under the presidential-ship of Putin the country has transited from communist state to market economy. Though, Russia is not considered as free economy for doing business yet its position is continuously improving (The Heritage Foundation & Wall Street Journal 2010; Appendix 4 and Appendix 3). As per the new regulations of the country, protection would be provided to private property and tax rates are also decreased (PEST RUSSIA and Study of IMF 2008). People have good disposable income in Russia and children also persuade their parent for spending on them. In addition to this, Moscow- the capital of Russia is centre of affluence where children’s market is developing at highest rate. The content of the magazine should be designed such that parent allow their children to read as Russian society is family- oriented (Rugman and Collinson 2006; Ghauri and Cateora 2010). With the advent of the internet, even children are becoming tech-savvy hence it is a good mean of advertising along with TV and hoardings at children’s outing sites. Market Entry Analysis BERI Analysis Companies undertake a systematic approach for entering into an international market otherwise they may prone to failure. Also, companies perform better when they adopt international marketing strategies (Peng 2009). In this context, they use Business Environment Risk Index (BERI) which is a useful tool in screening the international market. It measures the business environment risk of countries on the basis of operational risk index and political risk index (Haner 2007). The main concerns are poor predicated economic growth, high level of inflation, nationalisation and political instability. Russia ranks 15 in labour regulations which are good for new business entry. However, it ranks 55th in terms of globalised country. In country risk rating, Russia stands at 77th rank which indicates moderate risk level. The overall ranking of Russia is 124 among 183 countries. BERI index is well-respected and reliable worldwide and it ranks Russia on moderate level. Therefore, magazine launch in Russia for children is a good option because the country indicates good purchasing power. Market Attractiveness Other than BERI index of the Russia, I have also conducted a fine-grained screening of the market attractiveness in Russia. Analysis of the market indicates that Russian market is moderately attractiveness and flow of FDI is continuously increasing in this country. It has large emerging consumer market which attracted more than 50% of the global foreign direct investment in the 2010. Children’s market is gaining momentum in Russia. Experts talk of stable growth rates of 10 to 15 per cent a year in the Russian market for children's products. According to largest goods retailer of children in Russia i.e. Detsky Mir, the Russian children’s market is expected to grow at the rate of 15 to 17% in the period of 2011 to 2015 (Johansson 2009). In Russia there are about 22 million children under the age of 14who are very keen for reading magazines as it is source of entertainment of them. The sale of toys is of 1847 million US dollar which indicates potential of Russian children’s market. There are two main factors which drive the growth of this factor; first is an increase in the number of newborns in 2007-2015 and second is handsome spending on children in Russian families i.e. monthly expenditure per child is $124 (Jain 2003). Thus market size is one of the attractive factors of the children’s market in Russia whereas popularity of magazines is another. The Russian children’s market is mature enough to handle the launch of a children’s magazine (Hollensen 2007). However, there are certain challenges too (Appendix 7). Modes of Entry There is variety of methods available to enter into an international market. These methods include licensing, exporting, franchising, strategic alliances, joint venture and wholly owned subsidiaries (Hankinson 1996). Looking at the large size of children’s market in Russia, it would be recommended that the UK publisher of the children’s magazine establish its own wholly owned subsidiary in the Russia. In this context, report of World Bank and international financial corporation would be useful (The World Bank 2010; Appendix 5). Though it would involve risk in establishing new business in new country yet constant growth of the Russian children market worth this risk. In addition to this, a child’s spending forms a major part in a family’s total spending in Russia which in turn gives business perspective to the concerned magazine company. For establishing a wholly owned subsidiary in the Russia, the company has to understand the features of the market as well as of its competitors (Herbig 1998). Magazines are very popular among the children as it is considered as healthy source of entertainment for the children. Their popularity can be understood by the fact that filmmakers make big budget films on magazine characters. Through the wholly owned subsidiaries (WOS), the company can enjoy full control over the resources and achieve above average returns. Size of the market as well as popularity of the magazine plays a decisive role in choosing the market entry mode in the international market. Russia is a prominent country of the world and holds eminent place in the eyes of the investors. Its global competitiveness is increasing day by day which in turn demonstrate that it is an attractive destination for starting up a venture (Refer Appendix 2) (Hall and Hall 1990). Recommendations On the basis of the above discussion, it can be said that Eastern Europe including Russia forms lucrative market for children’s magazines as children’s market is rapidly growing in this region. Hence the magazine should make first publication of the magazine which is most popular in most of its operating territories (Ghauri and Cateora 2010). On the basis of BERI index, complete should opt for least risky place which can generate highest profits. It should establish its WOS in least risky and most profitable region where children have more disposable income. Market segment analysis indicates that there are two groups of buyers’ viz Individual buyers and group buyers. Individual buyers are children and their parents whereas group buyers are schools and day care centres who buy in bulk. The company should focus on both categories. Advertising Strategy for Eastern European and Russian market There are three forms available to design an advertising strategy viz standardised, adaptation and adapted standardisation. The main argument in the favour of the standardisation is economies of scale that may be generated both in terms of time and money (Usunier et al. 2008; Fastoso and Whitelock 2006). Advertising a single campaign worldwide is more cost-effective than developing different campaign for different countries. Companies like Coca-Cola and Benetton adopt standardised global campaign and save cost. This strategy not only proves to be cost-effective for the company but also develop a single coherent global image. On the contrary, differences in socio-cultural environment hinder the applicability of the standardised advertising strategy. Eastern Europe and Russia have different socio-cultural environment than UK hence standardised strategy won’t be most suitable for this region. Therefore, this strategy fail (Appendix 8).Decision over which comic character will be featured in the advertising campaign also depends on the popularity in the particular region (Melewar and Vemmervik 2004). An adaptation of completely new advertising campaign will be proved very consumer oriented and include the elements as per the characteristics of the region. Though it overweigh the economies of scale yet generate more sales. Also, adaptation strategy won’t be required for this target market because it is also part of Europe hence have some similarities so same campaign of UK is applicable to this region with some modifications (Robertson 1995). Therefore, the company should go for adapted standardisation or homogenisation. It is combination of standardisation and adaptation which is based on the concept of glocalisation i.e. think local and act local. In this form of advertising, standards of the campaign will be maintained with some alteration as per specifications of local audiences (Doole and Lowe 2008). Differences and similarities in between USA and Eastern Europe including Russia Geert Hofstede’s cultural dimensions are used for identifying similarities and differences between US and Russia. This section is important because the UK publisher has already launched its child’s magazines in the US and wants to know if the same strategy would be applicable in Russia too. On the differences and similarities between the two countries, he would make a fair decision. There are five dimensions of this analysis viz power distance, individualism, masculinity, uncertainty avoidance, long-term avoidance. The Russia’s score in power distance dimension is 95 which is very high whereas US scores 40. High score indicates that inequality in terms of wealth, power and status (Refer Appendix 1) (Elenkov 1997). Russia is much more collectivist than US as their scores are 50 and 91 respectively. It indicates that there are strong relations between individuals and family is given utmost importance which is contrary to US. Russia scores 40 whereas US scores 62 in masculinity dimension which implies that females enjoys similar rights as the males in Russia (Lee and Carter 2009; Kelly 2009). In uncertainty avoidance, Russia and the US scores 90 and 46 respectively which means that Russia is rule-oriented society that have low tolerance for uncertainty. In long-term orientation, Russia scores 10 and the US scores 29. On this scale both countries score low which implies that protection of self image, stability and personal steadiness (Engle and Dimitriadi 2006). Conclusion On the basis of above discussion, it can be said there are several differences exist between the Russia and the US as per Geert Hofstede’s cultural dimensions. Therefore, a same advertising strategy won’t be applicable for both countries. The UK publisher cannot publish the magazine with the same strategy that it adopted in US however; print version of the magazines would also be acceptable in US (Porter 2004). There is also big language difference between Russia and US as Russian and English respective most spoken languages of these two regions therefore change in the languages of the magazine is also recommended (Lewis 2006.). Appendix 1: CULTURAL DIMENSION SCORES FOR TEN COUNTRIES      Power  Distance   Individualism   Masculinity Uncertainty Avoidance Long-term  Orientation USA    40L 91H 62H 46L 29L Germany    35L 67H 66H 65M 31M Japan    54M 46M 95H 92H 80H France    68H 71H 43M 86H 30L Netherlands    38L 80H 14L 53M 44M Hong Kong    68H 25L 57H 29L 96H Indonesia    78H 14L 46M 48L 25L West Africa    77H 20L 46M 54M 16L Russia    95H 50M 40L 90H 10L China    80H 20L 50M 60M 118H Source: Hofstede Dimensions Appendix 2: Country Score Denmark 8.25 Singapore 8.19 Hong Kong 8.08 Switzerland 8.00 United States 6.30 Thailand 6.29 Canada 6.23 Israel 6.00 Taiwan 5.94 Japan 5.80 Jordon 5.78 Australia 5.75 Austria 5.69 Hungary 5.68 Russia 5.64 Source: IMD World Competitiveness Yearbook 2008 Appendix 3: (Source: The Heritage Foundation & Wall Street Journal- 2010 Index of Economic Freedom) Appendix 4: Russia’s performance in terms of free economy ECONOMIC FREEDOM SCORE- 50.5 Rank- 144 RULE OF LAW Property Rights- 25.0 Freedom from Corruption- 21.0 LIMITED GOVERNMENT Government Spending- 48.6 Fiscal Freedom- 82.5 REGULATORY EFFICIENCY Business Freedom - 65.1 Labour Freedom- 63.5 Monetary Freedom- 66.3 OPEN MARKETS Trade Freedom- 68.2 Investment Freedom- 25.0 Financial Freedom- 40.0 (Source: The Heritage Foundation & Wall Street Journal- 2010 Index of Economic Freedom) Appendix 5: Economy Ease of Doing Business Rank ^ Starting a Business Dealing with Construction Permits Getting Electricity Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Resolving Insolvency Nicaragua 118 130 150 136 122 98 97 155 83 52 78 Cape Verde 119 131 116 70 61 126 133 104 61 37 183 Russian Federation 120 111 178 183 45 98 111 105 160 13 60 Costa Rica 121 122 141 43 46 98 166 138 73 129 121 Bangladesh 122 86 82 182 173 78 24 100 115 180 107 Uganda 123 143 109 129 127 48 133 93 158 116 63 Swaziland 124 161 47 158 128 48 122 60 148 171 69 Bosnia and Herzegovina 125 162 163 157 100 67 97 110 108 125 80 Source: International Financial Corporation (IFC) & World Bank Appendix 6: Difference between international marketing, global marketing and export marketing Before going into the depth of the research, it is necessary to understand the difference between the international marketing, global marketing and export marketing because these terms are generally confused with the same meaning. However, international marketing and export marketing are the step in the evolution of the global marketing. Export marketing start with exporting the goods and services in the foreign territories and it is a basic stage of global marketing. Here, the approach is ethno-centric. On the other hand, international marketing deals with manufacturing and selling products as per the needs and tastes of the different countries. Here, the approach is polycentric. In the global marketing, company operates in a very large number of countries and develop a common product for all the users worldwide. Here, the approach is geocentric. Appendix 7: Challenges of Russian Market Despite of so many opportunities in the Russia in terms of international market, there are varieties of challenges too. The major challenge in the international market is competition as developing countries are also emerging as major source of competition. 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