Emerging Markets and the Internalization of Retailing - Assignment Example

Marketing Strategy Executive summary With the advent of globalisation and comprehensive marketing strategies, retail sector has seen a new high. Companies are growing at an enormous rate and with the increase in customer’s wallet-size; retailers are also acquiring huge profits. However, the rise in retail sector has also given way for stiff and intense competition. Many brands offering similar products in similar process have not only given huge bargaining power to customers, but also resulted in declining net profit margin of these retail chains. The objective of the current report is to analyse the marketing and global expansion strategies for an international retailer. Taking cue from international brand, Tesco, along with its various marketing and global expansion strategies over the years, the report will evaluate the various marketing strategies, which are essential for success of a retail firm while entering into a new or foreign market. The report will also throw light on concepts such as, localisation. A situational analysis of the Turkish retail environment will be conducted, which will help in understanding Tesco’s current operations and future in Turkish market. Contents Answer 1 4 Answer 2 6 Pestle Analysis of Turkey Retail environment 6 Situational Analysis 7 Tesco’s future operations in Turkey 9 Answer 3 9 Reference List 13 Answer 1 The development of retail sector is based on democratization of the consumption of consumer, which is a result of the development of low price model of economies. This model is founded on value offerings oriented towards low pricing ranges. For effective implementation, this model relies on controlled distribution costs and increasing the circulation speed. Marketing is a critical factor in this category of business and expectations of customers are the major focus, in order to locate the lowest possible prices. However, marketing tends to merge with communication and advertisement in order to bring out the best results out of veracious models and theories adopted by the business. With the increasing success of the retail sector, companies have now started to realize the need for change in their strategies and tactics, majorly by understanding and adapting the evolution in customers’ behaviour as well as expectations (Holt, Quelch and Taylor, 2004). Securing a consumers’ loyalty and increasing their wallet share have taken an important place in the strategies of these retail companies; rather than just acquiring new customers. A sharpening competition among retail brands has prompted these retail firms in paying more attention to their marketing activities. The integrated marketing communication, adopted by many big retail brands, such as, Tesco and Walmart, has given them invariable success and since then, it has been implemented and followed by various other retail organizations. This evolution in retail sector has brought a much-required shift in the transaction process and as a result, strategic marketing has taken a crucial step in channelizing and enhancing the overall retail experience of customers. In order for a business to flourish, there is a need for proper marketing and communication strategy, so that the right message reaches intended buyers, audiences as well as individuals, for which such services and goods are meant for. Thus, advertising has become an integral concept in the world of retail marketing. Advertising helps distributors and manufacturers in getting close to meeting the exact needs and demands of customers. If an individual is not aware of a service or product, then he or she will never be able to make any purchase decision for that product or service. It not only creates needs for services and products among potential customers, but also subsequently fulfils those needs by offering exact solutions. Tesco’s marketing strategy was based on global expansion and offering lowest priced products and services. Through this, the company was able to attract a huge chunk of customers as well as serve its brand as a complete store for the middle-class consumers. However, as shoppers got rich and no longer considered buying cheap products from Tesco, the retail giant altered its marketing strategy and reinvented the concepts of servicing in retail. The company also opted for global options in order to reach those markets, where they could still sell cheap and low-end products and services. In case of developed and saturated markets, Tesco went for a complete restructuring process, wherein it changes the overall look and design of its stores, making them look more elegant and sophisticated (Dawson, 2001). Smaller stores were made customer-friendly and stuffed with products which were in demand and trending. Several loss making stores and retail outlets were closed and the company focused only on its superstores. The brand also diversified in other businesses such as, petrol pumps. Intensive market research helped Tesco in understanding and evaluating the changes in customer trends and demand, which is an important concept in marketing. In order to increase both customer traffic and loyalty, the company introduced various customer-centric services and products such as, loyalty card, memberships and discounted shopping for regular customers. It also introduced the concept of grocery home shopping and personal finance. Thus, by adopting integrating marketing activities and spreading its business into various other businesses, the company was able to revive its losses and secure a market leadership position in the global retail market. Tesco’s example successfully establishes the fact that retail sector has become one of the most favoured as well as most competitive industry in this business world. As a direct consequence, effective marketing and communication strategies is the need of the hour for these established as well as upcoming retail firms. With the changing environment, various new marketing concepts have evolved in the field of retail marketing. The most common among them are social marketing, promotional tactics and service design and customer relationship management. It is a known fact that internet has become one of the major channels for reaching the new-age customer. With the increasing usage of technological equipments and habit of searching information online, internet is increasingly being used as an effective media channel for reaching potential customers. Advertising and selling businesses online is an easy, convenient and cheap method and also, acceptable by the customers. More and more retailers are now using online medium in order to attract customers and sell their services and products. Promotional tactics have become an invariable part of any retail marketing strategy as a direct consequence of the competitive retail market. With more and more retail chains launching every day and offering similar products and services, customers are being loaded with choices and alternatives. As a result, retailers are now attracting customers by offering discounts, lower prices, freebies and other promotional strategies. Even though these tactics might be helpful in fetching temporary gain in profit, marketers and retailers should be aware that these are in no means an alternative for the long-term growth and development. Thus, retailers should also ensure that their long-term growth strategies are running parallel and providing steady and continuous development to organizational goals and objectives. Service design is becoming an increasingly popular concept among retailers. During the early period of retail marketing, focus was given only on the products and services to be sold. Nevertheless, with changing retail environment, marketers have started giving critical importance to concepts such as, retail space, interior design and service blueprint. This not only helps retailers to create a customer-friendly environment, but also increases the overall interface between customers and retailers. In long term, this customer-retailer interface leads to a committed relationship between these two (Alexander and de Lira e Silva, 2002). Answer 2 Pestle Analysis of Turkey Retail environment As a result of its strategic geographical positioning, Turkey has become one of the key transit points for gas and oil, offering market access such as, Europe, Middle East and central Asia. Turkey is a young and emerging nation with an average population of 28. Even though the country has shown high growth rate, the rate of unemployment is still high and the economy has shown signs of overheating and stress. Major sources of economy for Turkey are financial, construction and retail sectors (EU, 2008). Consumers welcome new services and products and are open to foreign brands. Technology is still at a developing stage and foreign companies, entering in the Turkish market, find it difficult to follow their standard procedures for operations and management. However, the economy is at a fast developing stage and the local government is spending a huge capital for technological development, so that it can match the standards of other European nations, investing in Turkey. Corruption and bribery are major problems prevailing in the government of Turkey. The nation is also facing a backlog of many environmental problems. There is a dire need for facilities such as, water treatment, wastewater treatment, management of solid waste and biodiversity conservation. Situational Analysis In order to do an extensive situational analysis, Porter’s five forces will be implemented in the Turkish retail environment. Porter’s five forces Characteristics Influence on Tesco Buyer’s power Turkey’s fast growing economy and increasing purchasing power parity has given immense power to consumers. Buyers are now equipped with choices and alternatives. However, as most of the customers belong to middle-class and average income group, majority of purchases occur in services and products for daily use, like, apparel, food and beverages and furniture. With the introduction of many foreign retail chains in Turkey, buyers are being flooded with similar products and services and threat of buyer’s power is high in Turkey’s retail environment. During its initial establishment in Turkey, Tesco opted for cost-based pricing strategy, thereby increasing the prices of its products and services. However, with the entry of new retail chains and increasing competition, the company is now following value-based pricing strategy, offering products at a cheaper price. Supplier Power The concentration of suppliers in Turkey is low, which weakens the bargaining power of suppliers. Majority of suppliers rely on local purchases and manufactured products, which are increasingly difficult to sell. Also, the cost of switching suppliers in low. The consequences are decline in pricing and similar pricing strategies among various suppliers. Thus, bargaining power of suppliers in weak (Ercan, 2002). An early entry into the Turkish market has helped Tesco in gaining hold of the suppliers and distributors. Intensity of rivalry As a result of the growing industrialization and increase in foreign brands, the intensity of rivalry has increased. Though the local manufactures are not much of a competition, major threat comes from big retail brands, offering similar products and services. Tesco has been one of the earliest companies to invade Turkey. Thus, the company has gained a first mover advantage here. This has helped the retail giant in establishing its brand as well as building relationship with the local consumers at an early stage, when other competitors were still making strategies for entry into this market. Substitute products Threat of substitute products is low. Majority of the substitute products and service are developed by local brands and manufactures. Even though they are able to sell to some of the consumers, majority of them are aware of the known brands and are opting for better brands. Tesco is facing some challenges from the local manufactures and substitutive products and they have taken away a chunk of market share. In order to make customers aware of the substitute products and make them buy genuine products, Tesco has been using aggressive marketing and branding strategies. Threat of New Entrants Threat of new entrants is high in the Turkish retail environment. Turkey has become a burgeoning market for retail industry and the Turkish government hugely favours FDI in retail sector. Since entry barrier is very low and Turkey is increasingly proving to be an attractive retail market, more number of retail firms are entering into this nation. Tesco is facing tough challenges because of the entry of new brands such as, Aeropostale, Christian Louboutin, Dirk, Superga, Moncler, and Bikkembergs as well as other big grocery retail brands. Tesco’s future operations in Turkey Even though the company has established a strong base in the Turkish retail market, it has been suffering from market loss because of the increasing competition and changing customer’s preferences. In recent years, the company saw a steep decline in its revenues and profits. Tesco’s recent failure in Japan might be one of the reasons for the declining sentiment from customers. Even so, there is an underlying opportunity for the company to cater to its long-term opportunities in growth and development. Turkey’s retail market is still untapped and unexplored and majority of the retail chains are still unorganised. The current Turkish market is dominated by few unorganised local retail brands such as, Turk, BIM and Mirgos. However, with the increasing change in consumer preferences and increasing demand for international products, Tesco has huge opportunities for market growth in this nation. The company has been suffering from few roadblocks which resulted in negative publicity as well as loss of market share. The company has been strongly criticised because of its labour practices. Also, unfavourable economic conditions had led to a disappointing sales and profit, which further de-motivated the company in Turkey (Quelch, 2003). In order to create an impact in the market, the company recently announced intentions to expand its market by increasing its store numbers to 150. The company is also planning to acquire few Turkish retail chains which will boost its growth opportunity. Answer 3 Entering a new foreign market can be achieved in several ways. Each method demands unique strategies and support from the company, in terms of its financial and organisational resources. In most of the cases, entering an international market is more of a necessity than choice, with major objective of remaining competitive and gain potential market growth. During an internationalisation process, companies have a lot of options for entering into the new market. The first choice can be represented by developing existing markets and using them for growth and development. This method is generally used by firms which act in a highly competitive market. The second option is that organisations can develop their activities in new markets, which are similar to the markets already penetrated and established by them. This can be achieved through export strategy. The third option is development of new products or service line similar to their own marketed services and products. This can be implemented through licensing or joint venture strategy (Agarwal and Rarnaswami, 1992). Localisation is the method of adapting a service or product to a specific culture and language with the objective of developing local appeal and satisfying local needs. Huge difference lies in income and customer preferences across nations. Localization process takes account of the specific demands such as, values and qualities, recognition of the local brand, process of localism, competition from international as well as domestic products and trade costs. The major advantage of localisation process is that it makes consumers feel that the international brand or product is relevant and is specifically tailored to meet their wants and needs. An effective localization strategy involves suiting the needs of local customers, while ensuring that the global brand equity of the product is intact. In the localization process, changes can be made, in terms of augmented design, packaging and product appearances. In terms of advertising, changes are necessary in order to suit the language and perception of local consumers. It is important to send the right message through right communication channels and thus, advertising and branding strategies should be localised in order to successfully cater to the foreign market. The localisation strategy of Tesco can be regarded as successful, considering the fact that it was one of the earliest companies to launch itself in the Turkish market. Global market expansion was the major marketing strategy implemented by Tesco, in order to gain a sustainable position in overseas market. The company targeted nations which were still developing and emerging and where retail market was at a nascent stage. During its initial global expansion strategy, the company targeted nations such as, Ireland, Poland, Slovakia and Czech Republic. Tesco followed acquisition strategy in order to enter these markets. These strategies not only helped the retail chain to successfully launch itself in foreign markets, but also helped in establishing its brand among local consumers by acquiring local retail chains (Ellis, 2000). The company also ventures Asian countries such as, Thailand, South Korea, Taiwan and Malaysia and has quickly increased its global market share. The overall success behind Tesco’s global expansion strategies was quick understanding of the local retail market, extensive market research which helped in acquisition of strategic organizations and venturing into retail markets with first mover advantage. Current global corporations face immense difficulty in making decisions regarding apt marketing strategy, which should be implemented while operating in a foreign country. In case of overseas expansion, retailers and brands need to strategise their proposition. It is important to consider the right mix of price, products, content, availability, customer experiences as well as customer services (Andersen and Strandskov, 1998). They also need to ensure that their services or products offered are appealing and attractive to the customers. While standardization of various marketing activities is implemented in the home market, this strategy might not be the best one, in terms of global expansion, in an entirely different market place. Much detail is needed on tactical and operative levels while working in a foreign market. It has been seen that most of the marketing activities were successful when they adapted to the local circumstances and conditions in a foreign market place. So, it can be said that a pure or standard global strategy of marketing might not be apt for meeting the local needs of customers. The objective of localisation is to understand the local market condition, needs and demands of local customers and brand preferences among them. Another factor which emphasizes on the importance of localisation is the huge cultural difference that prevails, while entering a new market. For instance, when Tesco entered Japan, it faced huge gap in cultural preferences and choices, which created difficulty for the retail giant in understanding their needs and demands. Tesco entered Japan through joint venture with the local brands. Nevertheless, the company soon started experiencing problems with the local employees. Tesco also realised that majority of Japanese customers, preferred local brands and paid very little attention to international brands and products (Schiffman and Kanuk, 2009). Culture and tradition have been major influences on the daily preferences and choices among Japanese customers and as a result, it became extremely difficult for Tesco to sell their products. With declining sales and revenues, Tesco has to shut down its operations in Japan. Tesco’s above situation clearly explains that establishing business operations in a region, with entirely different or opposite culture, can be a tedious task. However, companies can opt for proper market research as well as analysing the consumer trends and demands before formulating strategies in any foreign market. It might be difficult to attract a huge set of target population during the initial phases. Even so, companies can start by targeting a niche or more vulnerable segment. With the help of word of mouth advertising and local branding strategies and tactics, the retail chains can successfully establish themselves in any foreign market. Reference List Agarwal, S. and Rarnaswami, S. N., 1992. Choice of foreign market entry mode: Impact of ownership, location and internalization factors. Journal of International Business Studies, 23(1), pp. 1-28. Alexander, N. and de Lira e Silva, M., 2002. Emerging markets and the internalization of retailing. International Journal of Retail & Distribution Management, 30(6), pp. 300-14 Andersen, P. and Strandskov, J., 1998. International market selection: A cognitive mapping perspective. Journal of Global Marketing, 3, pp. 65-84. Dawson, J.A., 2001. Strategy and opportunism in European retail internationalization. British Journal of Management, 12, pp. 253-66. Ellis, P., 2000. Social ties and foreign market entry. Journal of International Business Studies, 31(3), pp. 443-70. Ercan, E., 2002. Changing world trade conditions force the Turkish textile and apparel industry to create new strategies. Journal of Textile and Apparel Technology and Management, 2, pp. 1-8. EU, 2008. Turkey 2008 Progress Report. [pdf]. Available at: [Accessed 17 January 2014]. Holt, D.B., Quelch, J.A. and Taylor, E.L., 2004. How Global Brands Compete. Boston: Harvard Business Review. Quelch, J.A., 2003. The Return of the Global Brand. Boston: Harvard Business Review Schiffman, L. and Kanuk, L., 2009. Consumer behavior. New Jersey: Pearson Prentice Hall Publishing. Read More