Lucozade Company International Expansion - Essay Example

?Lucozade Company International Expansion This article looks at the expansion of the lucozade company into Saudi Arabian market and its effects on the Muslim people. The Saudi Arabian market, unlike England, is a Muslim dominated market where people are strict followers of the religion. It is known as the cradle of Islamic faith, as it is where the prophet Mohammed was born. The people in this country have different cultural believes and practices which differ from those in England. However, there is similarity in the market forces, which determine the way a product will perform in the market. Introduction Lucozade Company is a trademark name that is used to encompass a series of sports energy drinks, which are produced by the GlaxoSmithKline Company. The energy drink alongside Ribena is currently being produced in Royal Forest Factory in Cole ford, Gloucestershire, in the Forest of Dean. Although Lucozade is presently known as Lucozade Energy, it was previously branded Lucozade. The drink contains a series of flavors, which depend with the taste, and preference of the individual consumer. It contains a series of still, fruit based, isotonic energy drinks, which are designed mainly for use to the original Lucozade sport and other physically demanding activities. Moreover, the company has developed a brand known as Lucozade sport lite, which is a sugar free substance and was launched in 2011 mainly for diabetic people. Other flavors that come along with this drinks include, Orange, Raspberry, Tropical, Cherry, Lite- Orange, Lite- Lemon & Lime, and Lite- Cherry. Background Lucozade Company was started in 1953 in Brent ford, England. However, William Owe, a chemical analyst from Newcastle-Upon-Tyne, started the events that started the company in 1927. Owen’s original idea was to come up with a soft drink that would be primarily used by ailing patients to boost their energy. The product was marketed in UK under the brand name Glucozade but later, the product was rebranded to Lucozade. The company has rebranded severally since then, which has been informed by several breakthrough insights by consumer psychologist Roy Langmaid, who recognized that there was a need to shift the brand's associations away from illness and towards empowerment. Expanding In Saudi Arabia and Saudi Drink Sector Lucozade Company is a major sponsor of events and sports globally. The company also sponsors various athletes in different sports. The recommendation by most countries has cautioned the company not to exceed 700k Cal per liter and 0.01% ethanol. This has made the energy drink to be forbidden in most Muslim countries. However, the Muslim council made a ruling that it would be religiously safe to use the energy drink. However, it is recommended for people to take Lucozade in case they are suffering from diarrhea. This is because during this condition, a great deal of fluid and electrolytes are lost from the body. However, it is scientifically claimed that the drink does not contain enough electrolytes to be suitable for electrolyte replacement. The sports and energy drink industry in Saudi Arabia can be analyzed and depicted well according to the Porters Five Forces Model. Porters Five Forces Model is arguable the most important tool for analysis since it is based on fundamentals of competitive advantage. The model deals with forces outside the model which influences the nature of competition in the industry, which is the microenvironment and so, the industries likely profitability (Ekeledo, 2003, p.68). The Saudi Marketing Environment Lucozade Company has to understand the dynamics of the industry and the Saudi Arabian market in order to compete favorably and effectively in the marketplace. This model describes the forces, which describe the forces that drive competition (Madsen & Servais, 1997, p. 561). These forces include rivalry between existing sellers, influence of consumers on the market, seller-supplier influence, the potential threat of new market entrants as well as threat of substitute products (Zahra et al, 2000. p. 925). The Lucozade Company ought to understand and fully analyses the nature of each of this forces which will give the necessary insight to enable them to come up with the best formulae for the best strategies to be successful in their market (Whitelock, 2002. p.342 and Roy, 2011, p. 5) Porters Five Strategies One of the forces that Lucozade Company faces is the degree of rivalry from the competitors. The degree of rivalry in the energy drink industry will suffice to determine the value creation of the soft drink players in the market due to competition. The importance of the rivalry among the competitors is that it determines the industry attractiveness. This pleasure of the degree of rivalry affects the sports and energy drink industry in that there is a threat of substitution on the Lucozade drink from the existing power of suppliers and buyers in the market (Chowdhury, 2008, p.3). The Saudi Arabia market is a fragmented market, which makes it to be much more competitive for Lucozade. Lucozade drink has used several strategies in order to get the competitive edge over its rivals in the industry. One of them is the use changing prices. The motive behind changing the prices is to lower the prices to suit its customers. Being a large multinational company, Lucozade is able to sell its high quality products to customers and retain some significant profit. However, this is a short-term strategy, which the company keeps on changing from time to time (Barry et al, 2007, p. 114). interestingly, Lucozade gains a competitively through product differentiation. This occurs in that the company constantly improves the features of its products. This includes making the sugar free drink for diabetic people and through branding to differentiate its products from those of rivals. Furthermore, the company implements innovative features in its products (Abdul-Muhmin, A.G. 2003, p. 691). One of them is through the level of high technology that is used to make the drinks to ensure that the set standards are met. In addition, the company has continued to use creative channels of distribution to reach out to many different consumers in the Muslim country. The company has embarked on using vertical integration and using the distribution channels that are novel to the company (Barry, & Johnson, 2004, p. 5). Lastly, the company has been exploiting relationships with its suppliers in order to have the right material for the processing of the Lucozade energy drink. The large numbers of the competitors has accelerated the intensity of the rivalry in the sports drink industry in Saudi Arabia. This is because many firms compete for the same customer resources. The level of rivalry intensifies since most of these companies have equal market share in Saudi Arabia. This has led to the different companies to compete for the market leadership (Boles et al 2000, p.75). Moreover, Saudi Arabia market is mostly characterized by slow market growth rate. This has intensified the fight for the limited market share. However, due to the expanding market, Lucozade and its rivals are able to improve revenues due to the expanding market. Being a large multinational company, Lucozade enjoys large economies of scale. This is a major boost to them since the company has used this strategy effectively to gain market dominance in the market (Bolton, 1998, p. 45). However, energy drinks are perishable and thus must be produced and sold quickly to the consumers to avoid them expiring quickly. The advertising that is done by the company has enabled the consumers to gain awareness of their product thus selling quick in the market. In addition, Lucozade has faced the risk in the low switching cost from one product to the other in the market. This is due to the many available substitutes in the market (Bolton et al 2003, p.271). The potential and existing competitors in the industry pose the threat of entry. The peril of new entrants is usually based on the market entry barriers. A number of entry barriers into the Saudi Arabian face Lucozade Company the most important being, economies of scale. There are several large energy drinks company that operates in the Saudi Arabian market (Bove & Johnson 2001, p.189). Moreover, there is also a high cost of entry into this market. one of the main causes is the legal regulation that which tends to increases taxes in all products with ethanol that are brought into Saudi Arabian market for human consumption. In addition, the company faces the threat of selecting the best distribution strategy and channel since the distributors and the suppliers are involved in distributing rival companies products (Cannon & Homburg, 2001, p. 29). In addition, the cost advantages, which are not related to the company such as contacts and expertise, make it difficult for the company to penetrate fully into the market. There are also government regulations that are associated with the entry barriers of the Lucozade product into the market. Saudi Arabia is a Muslim nation, which prohibits the consumption of alcohol products, thus makes it difficult for Lucozade to penetrate the market (Caruana, 2004, p.256). Another threat that affects the marketing strategy of Lucozade Company is the threat of substitutes. The substitute’s products refer to the threat that is caused by other products, which satisfy the same need. The threat of substitutes occurs when the price range of the substitute product affects the products demand. This is mostly affected by the price elasticity of substitute products (De Wulf et al, 2001, p. 33). This implies that more substitutes will flood the market thereby forcing the market to be more elastic especially considering that the customers will have more alternatives. However, this has not affected the company in a great extent since the company enjoys economies of scale due to the production in large scale thus able to operate at a lower price. The threat of this substitutes is mostly seen in the price competition that is exists in the Saudi Arabian market (Dillman, 2000, p. 5). In addition, Lucozade Company is affected by the buying power of customers. The satisfaction of customers’ needs is the main goal of any business alongside optimizing profits. The power of buyers is the impact that the customers have on the Lucozade energy drink company. However, being a strict Muslim country that is affected by their religious believes, the Saudi Arabian market becomes a weak market (Donaldson & O’Toole, 2000, p.491). This is because the producers have threatened forward integration meaning that the producers can take over own distribution or retailing. Moreover, there is a significant buyer switching costs. This is because products are not standardized and the buyer cannot easily switch to another product. In addition, buyers are fragmented meaning that no buyers have any particular influence on the products or its prices (Eggert, & Ulaga 2002, p. 107). PESTLE To Analyze Marketing Environment of Saudi Arabia  Several factors in the macro environment that affects the decision are made investors in Saudi Arabia. Some of these factors include barriers to trade, new laws, changes in demographics, as well as government policy changes. In order for Lucozade Company and other companies to analyses this factor, their managers should consider using the PESTEL model. Using PESTLE model, I will analyze the many different factors in the firm’s macroeconomic environment (Harzing, 2000, p.243). One factor affecting the marketing environment in Saudi Arabia is the political factor. Political factors refers to policies enacted by the government to regulate business practices. The government in this country has a huge influence in the kind of goods and services to be produced in the country. The government itself provides incentives, which are essential in the functioning of the economy. The government of Saudi Arabia believes in subsidizing production of safe goods and services in the country (Flint, & Woodruff 2001, p.321). The country also gives a high priority in the in terms of business support for local investors as well as providing support to interested investors from other foreign countries. This is because the political decisions can influence a lot on the many vital areas for conducting business such as the education of the workforce, the quality of health of the nation, and the quality of infrastructure of the economy such as the road and rail system (Friman, et al, 2002, p.403). In addition, there are economic factors, which have affected the country of Saudi Arabia. Some of the economic factors include interest rates, tax, economic structures, forex rates, and market inflation. This occurs in that high interest rates may deter investment because it costs more to borrow. Having a strong currency will affect the country in that it will make exporting more difficult because it may raise the price in terms of foreign currency, while inflation may provoke higher wage demands from employees and raise costs. Similarly, a higher national income growth may boost demand for a firm’s product (Hennig-Thurauet al, 2002, p. 230). Social factors also affect the running of the investors firm in Saudi Arabia. Ideally, social trends can affect the influence of demand for the firm’s products. In Saudi Arabia, the country population is largely Muslim. This has affected the companies which deal with alcohol substances because they are not allowed to operate in the country (Hewett, & Bearden, 2001, p. 51). In addition, technological factors have greatly affected the country. A great impact has been brought about by the emergences of new technology such as the evolution of computers. This has aided a lot in areas such as online shopping, bar coding, and the computer aided designs. All these are have changed the way people in Saudi Arabia do business (Hewett et al, 2002, p.229). The change of technology has also reduced the costs, improved their quality, and led to more innovation. These changes towards development have benefited the consumers as well as the organizations providing the products. The other PESTLE factor facing Saudi Arabia is environmental factors. These include the weather and the climatical changes. Changes in the weather patterns have affected a lot in the many industries in the country (Furre et al, 2000, p. 355). These include the farming industry, tourism and insurance industries. The multivariate effect of climate on business performance is usually huge enough not to be simply ignored. This is because the climate has a direct or indirect effect on production variables such as transport, customer availability, and availability of raw materials among others (Gilliland& Bello 2002, p. 24 and Boddy, 2010, p. 5). Lastly, the major impact has been seen because of the legal factors in the country. In the recent years in Saudi Arabia, there have been significant legal changes, which have affected the firms’ behaviors. Legal changes can affect a firm's costs and demand the different category of laws that affects the firms operations is the consumer laws (Grisaffe, & Kumar 2002, p.98). Consumer laws are there to safeguard the customer against bad business practices. Secondly, competition laws are aimed at cushioning small players from the large players within the same market. Employment laws, on the other hand cover the employees against misuse by the employers. They aim to protect employees against the abuse of power by managers. Lastly, legal factors affect the health and safety legislation. The importance of this law is to ensure that the workplace is as safe as is reasonably practical (Johnson, & Grayson, 2005, p.500). Saudi Arabia Cultural Breakdown Culture refers to the learned ways in which, a society understands, decides, and communicates. The culture in Saudi Arabia has had several hindrances since it was started. This is because the country being a hugely Muslim regulates the products and services being sold and produced. An example is the sale and brewing of alcohol. The regulation of the industry in this country has hindered creation of employment in the country. In another example, the country regulates the number of television stations that operate in the country. The aim is to keep the citizens off from explicit contents, which are aired on western countries. In addition, the country has been monitoring internet activities. This has hindered free interaction with other people in other countries (Harris, & Goodie 2004, p. 139). Critical Areas That May Affect Promotional Mix In Saudi Arabia The word promotion mix is mostly used to refer the set of tools, which are often used to create awareness of the benefits of certain products to the business. Promotion mix plays an important role in making a marketing campaign a success. In this promotion mix effort, the most important tools are advertising, public relations, sales promotions, personal selling, and direct marketing. It is advisable for Lucozade Company to take consideration of cultural mix, religious believes and the political differences between their home market and the Saudi Arabia market. As we have seen earlier, the country of Saudi Arabia is a Muslim nation compared to England, which is a majority Christian nation. Therefore, advertisements that do not conform to the demands of the Muslims will be highly condoned in this nation. Critical Areas Affecting Marketing Mix In its effort to diversify the products outreach, Lucozade Company should address the marketing mix issues, which it faces. Product, place, promotion, and price are four dominant factors, which faces marketing mix. These are the product, price, place, and promotion. On the issue of the product, the company ought to realize the best way to develop the product so that the different Muslim consumers can accept it. In addition, the company ought to identify how to price the product to have a favorable price to Saudi Arabia market. Moreover, the company should identify the best place to sell this product in Saudi Arabia. Lastly, the company should identify the best promotional strategy for the product. There are various promotional strategies such as advertising and giving incentives. Conclusion In conclusion, Lucozade Company is a trademark name that is used to encompass a series of sports energy drinks, which are produced by the GlaxoSmithKline Company. The energy drink alongside Ribena is currently being produced in Royal Forest Factory in Cole ford, Gloucestershire, in the Forest of Dean. Porter’s five models affect the operations of Lucozade Company in Saudi Arabia. The macroeconomic pestle factors affecting the country are political, economic, social, technological, environmental, and legal factors. The market in Saudi Arabia is therefore untapped and has a great potential for growing and enlarging. I recommend lucozade to continue with its objective while taking into consideration the requirements of Muslims. Appendix Porters Analysis PESTLE ANALYSIS Works Cited Abdul-Muhmin, A 2003, Instrumental and interpersonal determinants of relationship satisfaction and commitment in industrial markets, Journal of Business Research, Vol. 58, pp. 619-628. 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