The Development of an Export Market - Assignment Example

? The Development of an Export Market Table of Contents I. Introduction 3 II. Marketing Mix (7 Ps) 6 A. Product 6 B. Price 8 C. Place 8 D. Promotion 9 E. People 9 F. Process 10 G. Physical Evidence 10 III. Supply Chain 11 IV. Distribution 11 A. Channel Strategy 11 B. Distribution Costs 12 References 13 I. Introduction The paper details plans for the development of the US as an export market for Lucozade. As a product, it is currently in production in the United Kingdom, and as a brand it represents a slew of sports drinks and related drinks owned by GlaxoSmithKline, the global pharmaceutical giant. The emphasis on the sports benefits of the drinks, as an improvement to water and as an aid to intense sports activities that is able to provide adequate hydration and nutrition even to the most demanding and most gifted athletes. It is worth noting that as a product range, the Lucozade brand benefits from insights and inputs from hard core research undertaken on behalf of the brand by universities, sports coaches, practitioners, and nutritionists, under the so-called Lucozade Sports Science Academy. Moreover, the brand is well-known for its marketing tag line, which is about replacing the lost energy from intense physical activities making use of Lucozade. That said, officially the classification is that of Lucozade being a soft drink brand (Answers Corporation 2013; GlaxoSmithKline Group of Companies 2013). In the United States, which is the chosen export market, key competitors in the segment of sports hydration drinks where Lucozade is bound to compete includes Gatorade and Powerade, with the former being the heavyweight brand with the greatest mind share and market share not only in the United States but in many parts of the world, and with the latter being the key competitor brand offered by Coca Cola (Carpenter 2000; Howard 2008; Competitor Group 2013). It is worth noting that those three brands mentioned above remain dominant in the world when it comes to sports drinks, with Lucozade in particular being the most dominant brand in the United Kingdom in terms of both value sales and sales by volume. Annual sales for Lucozade is estimated at 260 million British pounds. Its presence in other markets, on the other hand, is hampered by strong competition from Gatorade and Powerade, even as the overall market for sports drinks is forecasted to reach US 55 billion dollars by 2018, indicating a large opportunity for Lucozade to get a substantial piece of that pie from exporting activities. The US being a large and lucrative market for sports drinks, this export development plant for that export market has potentially great value for the brand and for GlaxoSmithKline. Other statistics meanwhile bolster the case for exports as a lucrative activity given that there is a relatively low penetration level for sports drinks in general, at just 50 percent, even as the segment grew by 64 percent for the five-year period from 2007 all the way to 2012. By product category, all three categories, hypotonic, isotonic and hypertonic drinks experienced sustained growth in volumes and dollar value over that given period, with prospects for growth also promising moving forward to 2018 and beyond (Companies and Markets 2013). In the US, moreover, Gatorade and Powerade together account for virtually the entire market for sports drinks with Gatorade owning 69 percent of the market, and Powerade owning 30 percent of the market. Both companies spend heavily on advertising and marketing activities centered on getting star athletes to endorse the brands and products. The trend towards a sustained growth in the sports drink sector is confirmed in the long term, in contrast to the general decline in soda consumption in the United States over the past several decades (Daily Mail Reporter 2013). Other estimates put the market share of Gatorade at an even larger percentage, 75 percent, with Powerade taking 20 percent and the rest of the players in the sports drink market taking up the remaining 5 percent, reflecting the overall dominance of Gatorade in this segment. Growth estimates for the period from 2007 to 2012 according to one source was pegged at 21 percent, with the growth in the market from 2013 all the way to 2017 estimated to reach 53 percent. 2012 total sales for sports drinks in the US in 2012 was estimated at US 6.3 billion dollars (Haderspeck 2013). The United States market is also special for several other reasons relating to the positive uptake of sports drinks in that country in general. It has been noted for instance that the growth in sugar sweetened beverages consumption in the United States for the observation period from 1985 all the way to 2005 showed that about 40 percent of the growth can be attributed to the rise in consumption of sports drinks. Sports drinks are taking up the cudgels for sodas by capturing the shift away from sodas within the time period, especially among young people in the US. Meanwhile, the percentages of people drinking sports drinks also increased, as well as the volumes consumed during the same time period. Sports drinks were observed to be growing at the third fastest rate in the US as early as 2006, and by other estimates had total sales of US 7.4 billion dollars by 2008, with volume growth pegged at 17 percent for the period between 2004 and 2008 (Robert Wood Johnson Foundation 2012, p. 2). In terms of marketing, on the other hand, in the United States there has been a shift in trends towards offering more benefits other than the fundamental electrolytes and hydration replenishment, towards offering nutrition benefits as well as low-calorie, low-sugar and no-sugar offerings or diet offerings. There has also been a marked movement in advertising towards targeting younger people and children, with activities in advertising to those age groups being marked and increasing for the biggest sports drinks brands, and most notably Gatorade. Sports drinks are being marketed to young people as replacement for sodas, and in this way the sports drinks companies in the US are hoping to catch the movement away from sodas towards alternatives such as sports drinks. These trends also represent opportunities for Lucozade as developments plans for the US as an export market for sports drinks are firmed up (Haderspeck 2013; Robert Wood Johnson Foundation 2013; BNP Media 2011; Skerrett 2012; Cohen 2012; Sharkey et al. 2012) II. Marketing Mix (7 Ps) A. Product It is clear from an investigation as to the nature of the US market for sports drinks that it is a hyper competitive space dominated by two very large players with marketing savvy and world-dominant brands in Gatorade and Powerade. Lucozade has brand equity and its large traction in the UK markets, and that can be leveraged to a certain extent, but it is also clear that exporting Lucozade into the US requires tweaking the product aspects of the marketing mix to be able to leverage on the insights gleaned from the moves and strategies of existing players in the US space. In the literature this translates to looking at those product attributes that have been shown to e a hit with the consumers, and to craft product aspects of the marketing mix that cater to substantial segments of the market, as already determined by Gatorade and by Powerade. Clearly it is not an easy task given that the umbrella brands in the US have been devolved into several product lines each catering to specific market segments. Gatorade has diet and nutrition-packed product attributes that clearly cater to specific parts of the market, and as an outsider it will be difficult for Lucozade to export its successful lines to the US without thought to how potentially different the UK formulation and the US market tastes are. The development o the US market as an export market for Lucozade therefore entails undertaking the appropriate market research to find out which segments of the population respond to the current product attributes of the marketing mix for Lucozade product lines, and what different segments of the target markets are most lucratively served by tweaked product attributes of the marketing mix. For instance, the literature notes that low-calorie and no-calorie offerings, as well as offerings with distinct nutrition value propositions, are a hit with an expanding market in the US. Those same product attributes can be considered for new products or for existing products to be exported from the UK to the US (Haderspeck 2013; Robert Wood Johnson Foundation 2013; BNP Media 2011; Skerrett 2012; Cohen 2012; Sharkey et al. 2012). The export marketing literature also points to shaping aspects of the product aspects of the mix so that they conform to the preferences of the target export markets, as a general principle. There is a need for instance to incorporate product adaptation as an important factor in an export marketing strategy, as a prerequisite to exporting success. This means in the US case hurdling regulations with regard to product ingredients, apart from making sure that the target export markets are a fit with the Lucozade products being introduced. This means market research and testing whether or not the current product attributes are a match with what the target market desires (Kim, Cavusgil and Zou 2009; Seyoum 2008, pp. 69-77; Noonan 1998, pp. 80-192; Linton and Donnelly 2009, pp. 11-19). Now adapting the product aspects of the marketing mix partly entails, for Lucozade, following the positioning of the many product variants of Gatorade for instance and finding out the target markets for those differing product variants, focusing on the low-calorie and no-calorie aspects for instance, as well as the corollary diet aspects of the product aspects that appeal to certain segments of the target export market. (Haderspeck 2013; Robert Wood Johnson Foundation 2013; BNP Media 2011; Skerrett 2012; Cohen 2012; Sharkey et al. 2012; Kim, Cavusgil and Zou 2009; Seyoum 2008, pp. 69-77; Noonan 1998, pp. 80-192; Linton and Donnelly 2009, pp. 11-19) B. Price In the presence of dominant market players in Gatorade/PepsiCo and Powerade/Coca Cola, tweaking the price aspects of the marketing mix entails the price of products with similar market positioning as the Lucozade offerings, unless Lucozade opts for either premium or mass market positionings, in which case price will either be above or below the price points of the different Gatorade and Powerade products. Given the similarities in the market positioning of the various variants of Lucozade in the UK markets and the Gatorade and Powerade variants in the American market, the price aspect of the marketing mix will be at parity with existing prices of competing products from the major US players (Haderspeck 2013; Robert Wood Johnson Foundation 2013; Kim, Cavusgil and Zou 2009; Seyoum 2008; Linton and Donnelly 2009; Answers Corporation 2013; GlaxoSmithKline Group of Companies 2013; Carpenter 2000; Howard 2008; Competitor Group 2013). C. Place Distribution aspects of the marketing mix need to be well thought out and managed. Given the maturity of the US market for all kinds of goods and services there are mature and robust distribution options that can be considered. The literature tells us that the distribution channels in place for sports drinks and for various other consumer goods in the US markets are sophisticated as well, and so in this regard the place aspects of the marketing mix for Lucozade can be tweaked and rethought as the exporting activities start and evolve through time. The goal is to achieve parity in distribution with the key players in this space, Gatorade and Powerade. This means saturating the distribution channels where the two dominant brands are present, and achieving parity in placement with those two big brands (Haderspeck 2013; Robert Wood Johnson Foundation 2013; Kim, Cavusgil and Zou 2009; Seyoum 2008; Linton and Donnelly 2009; Answers Corporation 2013; GlaxoSmithKline Group of Companies 2013; Carpenter 2000; Howard 2008; Competitor Group 2013). D. Promotion The dominant players rely on time-tested promotions activities as essential aspects of its marketing mix for its brands. They rely on celebrity endorsers, invest heavily in traditional media advertising, are present in large communal sporting events, and have large and sophisticated presences on the Internet in general and in social media in particular. This needs to be matched by Lucozade in the different fronts where Gatorade and Powerade are present, in order to be considered and perceived as being in the same league as these major players (Daily Mail Reporter 2013; Haderspeck 2013; Robert Wood Johnson Foundation 2013; Kim, Cavusgil and Zou 2009; Seyoum 2008; Linton and Donnelly 2009; Answers Corporation 2013; GlaxoSmithKline Group of Companies 2013; Carpenter 2000; Howard 2008; Competitor Group 2013). E. People As a demanding market for exports, there needs to be an organization on the ground to manage all of the exporting activities for Lucozade, and that can mean piggybacking on the existing organizational resources and manpower from the US subsidiary and partners of the parent firm GlaxoSmithKline. Given the relative novelty of sports drink marketing for the parent firm in the US market, marketing staff needs to be complemented by marketing personnel with experience in the field, as well as logistics and supply chain personnel with exposure to the supply chain dynamics in the sports drink market in general (Daily Mail Reporter 2013; Haderspeck 2013; Robert Wood Johnson Foundation 2013; Kim, Cavusgil and Zou 2009; Seyoum 2008; Linton and Donnelly 2009; Answers Corporation 2013; GlaxoSmithKline Group of Companies 2013; Carpenter 2000; Howard 2008; Competitor Group 2013) F. Process Supply chain processes, including logistics, are the most important processes in the activities tied to exporting Lucozade to the United States market. This means putting an emphasis on making sure that distribution channels processes are in sync with the processes tied to getting the product into the American shores and into point of consumption shelves (Daily Mail Reporter 2013; Haderspeck 2013; Robert Wood Johnson Foundation 2013; Kim, Cavusgil and Zou 2009; Seyoum 2008; Linton and Donnelly 2009; Answers Corporation 2013; GlaxoSmithKline Group of Companies 2013; Carpenter 2000; Howard 2008; Competitor Group 2013). G. Physical Evidence The physical evidence aspect of the marketing mix for Lucozade exports in the US are the physical points of consumption at the end of the distribution channels. This will include retail shelves of various kinds, where the products will be displayed and consumed. This is ideally at par with the physical evidence aspects of the marketing mix for Powerade and Gatorade (Daily Mail Reporter 2013; Haderspeck 2013; Robert Wood Johnson Foundation 2013; Kim, Cavusgil and Zou 2009; Seyoum 2008; Linton and Donnelly 2009; Answers Corporation 2013; GlaxoSmithKline Group of Companies 2013; Carpenter 2000; Howard 2008; Competitor Group 2013). III. Supply Chain There are massive macro-trends in global food supply chains that factor into discussions relating to the supply chain for beverages and in particular sugared drinks and sports drinks. For instance, in the developed markets of the United States, high income levels translate to more sophisticated supply chains that cater to a larger variety and diversity of offerings in terms of beverage types and brands, imported as well as locally made. There is a ready infrastructure in the supply chain that can accommodate the activities of Lucozade entering the US market, is the take from the literature (Gehlhar and Regmi n.d.). A critical analysis of existing academic literature on supply chain excellence in the US shows that Lucozade can also benefit from the gains made by existing distribution channels, such as Wal-Mart, for instance, in achieving supply chains that are technically excellent and yield the best returns for third parties like Lucozade exporters and for itself (Lee 2004). Lucozade can also, in part, achieve better returns and lower costs for its supply chain activities tied to exporting the product to the United States by leveraging insights from emerging supply chain disciplines such as the green supply chain, which essentially focuses on reducing wastes and costs along the exporting supply chain for the product (Beamon 1999). IV. Distribution A. Channel Strategy As an initial channel strategy, the recommended strategy is to prioritize from among the key distribution channels that are in use by the key players in the US market to achieve maximum reach for the target markets for Lucozade, while keeping within the distribution cost budgets. This means choosing among the different distribution channels and going with the channels that will yield the greatest impact on placement. One notes from the literature that the major players have established distribution channels that leverage the strengths of certain large retail channels, such as Wal-Mart and the large chain of convenience stores in the US. This can be the preferred distribution channels and the gist of the initial channel strategy for Lucozade (Daily Mail Reporter 2013; Haderspeck 2013; Robert Wood Johnson Foundation 2013; Kim, Cavusgil and Zou 2009; Seyoum 2008; Linton and Donnelly 2009; Beamon 1999; Lee 2004; Gehlhar and Regmi n.d.; Haderspeck 2013) B. Distribution Costs One can have an idea of ideal distribution costs from the cost structure of the dominant brands in the US, and working back to determine distribution costs as a percentage of total revenues, for instance, or as a percentage of gross margins. Working back to impute exporting related costs as well, Lucozade distribution costs can also be made to be at par with the distribution costs for Gatorade and Powerade in the US market. This is to achieve parity in terms of competitiveness of price, while being in line with expected gross margins and profits for selling sports drinks in the US (Daily Mail Reporter 2013; Haderspeck 2013; Robert Wood Johnson Foundation 2013; Kim, Cavusgil and Zou 2009; Seyoum 2008; Linton and Donnelly 2009; Beamon 1999; Lee 2004; Gehlhar and Regmi n.d.; Haderspeck 2013). . References Answers Corporation 2013. Lucozade. Answers.com. [Online]. Available at: http://www.answers.com/topic/lucozade#Lucozade_Sport [Accessed 11 May 2013] Beamon, Benita 1999. Designing the Green Supply Chain. University of Washington. [Online]. Available at: http://ebiz.bm.nsysu.edu.tw/2012/frederic/1001%E6%9C%9F%E5%88%8A%E5%A0%B1%E5%91%8A/Designing%20the%20green%20supply%20Chain.pdf [Accessed 11 May 2013] BNP Media 2011. Sports drink sales get into shape. Beverage Industry. [Online]. Available at: http://www.bevindustry.com/articles/84828-sports-drink-sales-get-into-shape [Accessed 11 May 2013] Carpenter, Dave 2013. Gatorade Has Competition on the Run. Los Angeles Times. [Online]. Available at: http://articles.latimes.com/2000/may/30/business/fi-35457 [Accessed 11 May 2013] Cohen, Deborah 2012. The truth about sports drinks. MJ. [Online]. Available at: http://dev.kickthecan.info/files/documents/Cohen2012_BMJ_SportsDrinkIndus%2BAcademia_Investigation_0.pdfess/fi-35457 [Accessed 11 May 2013] Companies and Markets 2013. Gatorade, Powerade, and Lucozade continue to dominate the sports drink market. CompaniesandMarkets.com. [Online] Available at: http://www.companiesandmarkets.com/News/Food-and-Drink/Gatorade-Powerade-and-Lucozade-continue-to-dominate-the-sports-drink-market/NI6897 [Accessed 11 May 2013] Competitor Group 2013. Gatorade Brings Sports Science Innovation to Rock N Roll Races. CompetitorGroup.com. [Online]. Available at: http://competitorgroup.com/2012/07/18/gatorade/ [Accessed 11 May 2013] Daily Mail Reporter 2013. Maker of Gatorade nixes controversial ingredient from popular sports drink recipe in response to consumer 'rumblings'. Mail Online. Online] Available at: http://www.dailymail.co.uk/news/article-2268539/PepsiCo-Inc-Gatorade-maker-nixes-controversial-ingredient-popular-sports-drink-recipe.html [Accessed 11 May 2013] GlaxoSmithKline Group of Companies 2013. Lucozade Sport vs Water. Lucozadesport.com [Online]. Available at: http://www.lucozadesport.com/lucozade-sport-vs-water/ [Accessed 11 May 2013] Gehlhar, Mark and Regmi, Anita. n.d. Factors Shaping Global Food Markets. New Directions in Global Food Markets/USDA Economic Research Service. [Online]. Available at: http://www.ers.usda.gov/media/872087/aib794c_002.pdf [Accessed 11 May 2013] Haderspeck, Jennifer 2013. Sports and protein drinks share the glory. Beverage Industry. [Online]. Available at: http://www.bevindustry.com/articles/86367-sports-and-protein-drinks-share-the-glory [Accessed 11 May 2013] Howard, Theresa 2013. Gatorade ready to pump up marketing efforts. ABC News. [Online]. Available at: http://abcnews.go.com/Business/story?id=3929315&page=1#.UZABIVJ_78M [Accessed 11 May 2013] Kim, Daekwan, Cavusgil, Tamer and Zou, Shaoming 2009. Export Marketing Strategy: Tactics and Skills That Work. Kindle Edition. [Online]. Available at: http://www.amazon.com/Export-Marketing-Strategy-Tactics-ebook/dp/B002TX72PW [Accessed 11 May 2013] Lee, Hau 2004. The Triple-A Supply Chain. Harvard Business Review On Point. [Online]. Available at: http://file.seekpart.com/keywordpdf/2010/12/22/2010122294137780.pdf [Accessed 11 May 2013] Linton, Colin and Donnelly, Ray 2009. The Official CIM Coursebook: Delivering Customer Value Through Marketing. Butterworth-Heinemann. Noonan, Chris 1998. The CIM Handbook of Export Marketing: A Practical Guide to Opening and Expanding Markets Overseas. Butterworth-Heinemann. Robert Wood Johnson Foundation 2013. Consumption of Sports Drinks by Children and Adolescents. Healthy Eating Research. [Online]. Available at: http://www.healthyeatingresearch.org/images/stories/her_research_briefs/RRSportsDrinkFINAL6-2012.pdf [Accessed 11 May 2013] Seyoum, Belay 2008. Export-Import TheoryPractices and Procedures. Routledge. Sharkey, Joseph et al. 2012. Convenience Stores and the Marketing of Foods and Beverages Through Product Assortment. American Journal of Preventive Medicine. [Online]. Available at:http://www.nopren.org/images/Sharkey_Food_Marketing_AJPM.pdf [Accessed 11 May 2013] Skerrett, Patrick 2012. Trade sports drinks for water. Harvard Health Publications. [Online]. Available at: http://www.health.harvard.edu/blog/trade-sports-drinks-for-water-201207305079 [Accessed 11 May 2013] Read More