Market Entry Report for Petcoats.com - Essay Example

Market Entry Report for Petcoats.com Introduction Petcoat.com was founded about ten years ago. The company specialises in bespoke luxury pet “clothes” for the high-end market of UK pet owners. At its inception, the company had three employees – the director, his wife and a part-time IT specialist who designed and operated the small company’s website. Five years later, the company brought on board a marketing intern, bringing the total number of employees to ten. Supported by the UK’s enduring love for their pets [Pet15] and the growing trend towards the “humanising” of pets by affluent pet owners[Res14], Petcoats.com has registered considerable growth in the last five or so years. This year, all factors being constant, the company hopes to make sales to the tune of 600,000 pounds, the highest since the company was founded. Recently, the company received local coverage on BBC East Midlands followed by a favourable article on the company by Daily Mail. Following the two incidents of coverage, there was an avalanche of activity on the company’s website leading to the crash of the website. This event convinced the manager to explore the possibility of venturing into two foreign markets – the USA and France. This paper constitutes a report to the director of Petcoats.com on the viability of entering the US market and how best to approach the market. The report is organised into three parts: the first part investigates the US pet market, the second analyses a number of possible market entry strategies before proposing the strategy the author feels is the most appropriate. The third part of the report explores the various ways through which Petcoats.com can communicate with American pet. Finally, the author concludes by making a number of recommendations. An Investigation of the US Pet Market In the 1970s, 64 million American households owned at least a pet. By 2012, that figure had more than tripled 164 million households – this figure translated to 62% of American households [The143]. As has always been the case, the dog and the cat are the two most favoured pets. In 2012, 47% of all households owned at least a dog, translating to a total of 83.3 million pet dogs. In that same year, dog owners spent an average $231 in a year on routine veterinary visits. The pet cat population stood at 95.6 million and on average, the cat owner spent $193 on routine visits to the veterinary. In 2014, 68% of American homes owned at least a pet, the two most dominant ones remaining the dog and the cat [Ame15]. Over the years, expenditure on pets by American pet owners has been rising steadily. In 1994, a total of $17 billion was spent on pet products and services. By 2013, that figure had risen to $55.72 billion. Most of that amount was spent on food ($21.57 billion), followed by veterinary care ($14.37 billion), supplies and over-the-counter medicine ($13.14 billion), grooming and boarding ($4.41 billion) and live animal purchases ($2.23 billion). For 2014, APPA estimates that $58.51 billion was spent on pet products, representing a 5% increase from the previous year. APPA estimates that $4.73 billion of the $58.51 billion was spent on grooming and boarding, representing a 7.3% increase from the previous year. The above statistics indicate improvement in pet ownership, hence expenditure on pet products. Two other trends in US pet ownership are important to Petcoat.com. The first is one is the so-called premiumisation of pet products where leading manufacturers of pet products are finding it more profitable to produce and market premium goods and services as opposed to producing for the mass market[Pac12]. A growing affluent population fuels demand for premium pet products. In 1998, the up-market accounted for 36% of expenditure on pet products. By 2008, that proportion had grown to 56%. The second trend, and one that is closely related to the first is humanisation where affluent pet owners increasingly treat their pets as members of the family [Pac12]. Pet owners who have humanised their pets spend lavishly on them. They take their pets for such veterinary services like chemotherapy and hip replacement; they feed them on pet supplements such as glucosamine; their pets enjoy designer supplies such as Burberry apparel and pet beds by Simmons Beautyrest; they book them into luxury hotel rooms while on travel and even fly them on Pet Airways, a dedicated pet airline. The trend towards humanisation is projected to persist in the years to come [Pac12]. Alternative Market Entry Options While there are many strategies available to the company seeking to enter a foreign market, the choice of strategy largely depends on the size of the company and, therefore, its financial resources. Thus, multinational corporations find subsidiaries the most appropriate entry option. A subsidiary, also called a subsidiary company or daughter company, is a company that is owned or regulated by another company called the parent or holding company. The subsidiary could take one of several forms – a company, a limited liability company, a corporation or a state-owned enterprise. The most common method by which parent companies gain control in their subsidiaries is by owning shares in them. The main advantage of using a subsidiary as an entry strategy is that it allows the parent company to comply with the regulatory and legal requirements of the host country without disrupting operations at the head office. The small size of Petcoats.com rules out the possibility of setting up a subsidiary in the United States. However, several other options are available to the company. These include exporting directly or indirectly to the United States, sales outsourcing, producing the company’s products in the US, a joint venture and the sprinkler strategy. This last option involves diversification where the company seeks to penetrate as many markets in the host country as possible in the shortest time. This approach is resource-intensive and, therefore, not a viable option for Petcoats.com, bearing in mind the company’s limited financial and human resources. Also, producing the pet clothes in the United States is not a viable given the high initial costs. This preliminary analysis leaves Petcoats.com with three options – direct exportation, indirect exportation and sales outsourcing. Each option is discussed below in some detail. Sales outsourcing, also called indirect sales or channel sales, entails gaining entry into a foreign market using a third party without links with the sales force of the third party[Tri05]. Usually, the company to which selling is outsourced is paid according to the volume of sales they make. This arrangement is believed to be mutually beneficial to both parties. Full sales outsourcing is differentiated from distribution or value added reselling. In the former, the client, that is the company that outsources sales, and the firm that provides the selling services share the risks involved. By contrast, a distributor or value added reseller is paid for the work they do, much like an in-house salesperson. In exchange, the distributor undertakes to expedite the sales and provides flexibility and experience. The sales outsourcing firm must account to the client for all sales activities and results. Sales outsourcing is thought to be cheaper in the short-run, but longer-term cost considerations must take into account the cost of managing the contract [Tri05]. As a market entry strategy, a joint venture would entail Petcoats.com entering into a partnership with one of the several firms that deal with pet accessories in the United States. In the event that Petcoats.com opts for this option, the company must be prepared to do a lot of ground works. First, the company will need to familiarise itself with the laws governing partnerships in the United States. Then, the company must also be prepared to do due diligence in selecting a suitable partner. While Petcoats.com may receive several expressions of interest from potential partners, it will be difficult to establish a credible partner [Chu01]. The fact that the company is entering a new market will further complicate the matter. Nonetheless, in the process of selecting a partner for Petcoats.com some of the steps will include screening and shortlisting the candidates; verifying their credentials and what they bring to the joint venture – a ready market or an efficient sales force, for example; and preparing the partnership deed. The option of exporting into the US market may take one of two forms. First, Petcoats.com may opt to export directly into the target country. This option will necessitate the company to open a shop or a number of shops from customers can buy the products. Alternatively, as the company is web-based, all it may need in the United States is a warehouse from which goods will be delivered to customers. Indirect exportation entails the use of export intermediaries as middlemen. The exporting firm enters into agreement with an intermediary company that undertakes to manage the sale of the product in the host country. Usually, export intermediaries help their clients in identifying customers and the available financing and distribution options [Hes07]. They provide their clients with the necessary information, thereby reducing the risk involved in entering a new market. The main distinction between the export intermediary and the sales outsource is that the former is not necessarily involved in the actual selling of the goods. Many export intermediaries play the role of consultant, although some are agents and distributors. Communicating with Customers For a large business, advertising would come in handy in communicating their entry into a given market [Cio09]. Petcoats.com cannot afford this option given the company's meager financial resources. For far, and going by its name, Petcoats.com is largely an Internet-based company. Many of the inquiries the company receives emanate from the company's website. The company website is, if properly designed and maintained a powerful marketing and communication tool for a small business. By virtue of its size, the small business is necessarily customer-oriented: it can pay personalised attention in a manner that is not possible for a large organisation. For these reasons, Petcoats.com's website will remain the main means by which the company will serve its American clients. However, the company may need to customise the site for the American audience, taking note of any differences that may exist in the internet habits of the Americans. Being the main means of communication, the company will need to invest in revamped website that will be able to attract traffic to it. The great design must be accompanied by quality content. Besides the company's website, Petcoats.com should take advantage of such social media platforms like Facebook and Twitter to communicate with their customers. For some time now, social media firms have been shifting their attention from individual users to the small business and corporate communities who use who interact with their customers through social media. In 2007 Facebook introduced Facebook Pages to enable businesses and other organisations interact with their clients. Twitter soon responded with a similar feature. In an attempt to promote their platforms, social media companies have since interacted with small businesses. For instance, in the summer of 2014, Facebook conducted a series of events across the United States to sensitise small business owners on how they can leverage on Facebook to grow their businesses. In spite of these initiatives, many small businesses, including Petcoat.com are yet to warm up to social media sites a marketing tool [Cio09]. Indeed, the issue of privacy has been cited as one of the major causes of the low uptake of social media by small business owners [Cio09]. In many ways, when a person posts their personal information on social media, they lose control over that information: the information enters the public domain. However, this need not be a problem to Petcoats.com. The Director should consider hiring an IT expert who will be in charge of maintaining the company’s social media profiles and websites. With a professional manning the two, the possibility of posting personal and potentially damaging information will be reduced. Among other duties, the IT officer will manage content on both the company’ website and on the social media. They should ensure that at all times the content is up to date, interesting and informative. Recommendations and Conclusion From the investigation of the American pet products, it is clear that there exist opportunities for Petcoats.com. Since the 1970s the proportion of households owning a pet has been on the increase and there are no indications pet ownership declining any time in the near future. Household expenditure on pet products has also been on the rise and the upmarket, which Petcoats.com targets currently, has been mostly responsible for the increases. The other two favourable trends are the shift by pet products manufacturers towards premium products rather than producing for the mass market and the growing “humanisation” of pets[Pac12]. All these factors combined create a conducive environment for Petcoats.com to enter the American market. All the company will need to do is position itself for the middle market between the mass and designer producers of pet accessories. While three market entry alternatives have been proposed, the author recommends that Petcoats.com goes for the indirect export option. That way, the company will avoid the many pitfalls that are associated with the other two methods [Chu01]. More importantly, the company will benefit from expert advice on how to enter the market while retaining the discretion of how to go about it. In order to communicate with its new clients, the company should maintain its website as the primary means of communication and marketing. At the same time, the company should embrace the social media. An IT specialist should be hired to man the platforms. References Pet15: , (Pet Food Manufactures' Association (PFMA), n.d.), Res14: , (Research and Markets, 2014), The143: , (The Humane Society of the United States, 2014), Ame15: , (American Pet Products Association (APPA), n.d.), Pac12: , (Packaged Facts, 2012), Tri05: , (Trickle, 2005), Chu01: , (Chung & Enderwick, 2001), Hes07: , (Hessels & Terjesen, 2007), Cio09: , (Cioppi & Buratti, 2009), Read More