Changes in Marketing Strategies of International Companies - Essay Example

Urbanization and Marketing Strategies Introduction According to the report of Ghauri and Cateora, it has been mentioned that the global population is gradually shifting from the rural to the urban areas. The report also mentioned that currently around 40 % percent of the world’s population lives among urbanized areas and this number is most likely to increase to 60% by the year 2020. This clearly indicates that the urban population will eventually outnumber the rural population in the next few years. This as a result will eventually change the entire market scenario which in turn will compel the managers to change their marketing strategies. This paper will focus on the new opportunities and prospects for the international companies and the current change in the market scenario can be leveraged by them (Czinkota and Ronkainen, 2012). It will also include some real life corporate cases to justify the statements discussed in the paper. Changing Population Trend It has been evidenced that the global population has been constantly increasing. The rate of increase has varied over the past year and is sometimes dependent on a particular nation. However, along with the rise in the population figures, it has also been noticed that the people are gradually changing their social lifestyle and mode of living. Figure 1: Population growth trends Source: (Diczfalusy, 2012) Ghauri and Cateora, (2014) have also mentioned in their study that at least 26 cities will bear a population of more than 10 million and most of these cities will belong to the developing countries. This change in patterns are mostly because the people of rural areas are seeking out for better lifestyle, better education and better income prospects. This as a result compels them to shift into bigger urbanized cities (Abu-Lughod and Hay, 2013). More recent studies by the United Nations (2014) have revealed that the overall global population growth along with the increasing urbanization will increase the overall population of the urbanites by 2.5 billion by the year 2050. The year 2050 may be a farfetched projection, but the current trend of urbanization has increased the population of some of the major cities in the world. Tokyo holds the first rank of being the most populous city in the world with a population of 38 million. ‘Tokyo is followed by Delhi, Shanghai, Mexico City, Sao Palo and Mumbai. In between 1950 and 2014, the urban population of the world has increased from 746 million and 3.9 billion’ (United Nations, 2014). Change in Market Scenario The gradual shift in the urbanized population is also changing the global market scenario. The international firms which once only focused on a narrow and streamlined developed market are now widening their view and focussing on the developing markets as well. This is mostly because the rise of the urbanized population has also increased the overall customer base of the multinational companies (Davis, 2011; Terpstra, Foley and Sarathy, 2012). The rising population of the major cities has opened up new opportunities for the international firms to apply new marketing strategies to leverage the increased population growth. It is also responsible for bringing changes in the industry lifecycle. In most cases in the developed counties, certain industries have reached its maturity stage and are going towards its decline. However, in order to avoid sudden collapse, the international firms have decided to internationalize their business to developing countries where the urban population is on a growing spree. The growth in the urban population has also increased the competiveness among the firms. Urban population growth eventually expands the market size, which in turn also increases the market demand. Thus, in order to meet the growing market demand, the multinational firms flock over to the developing countries and seek out new ways to increase their market share and brand preference (Ramalho and Hobbs, 2012). Role of International firms The growing trend of urbanization has also changed the marketing strategies and marketing mix of the existing firms. Newsome (1999) found in his study that in order to expand the business operations of Converse sneakers, the company focused on the urban population particularly on the youth. The company ensured that the products are targeted at the urban young population and in order to achieve that, it decided to find out which celebrity endorsement will help to increase the popularity of converse among the target population. Thus, it can be stated that in order to increase the brand awareness among the urbanized population, the marketers need to find out what attracts the target market the most. It has been evidenced that the urban population are quite conscious about their social status and also have high level of indulgence towards leisure activities. This as a result leads to prospective opportunities for brand development and attracting the urban population by communicating high perceived value. According to the studies of Chan and Cai (2009), the marketing activities conducted by the marketers put different effects on different target customers. A differential study of the rural and urban customers have shown that the marketing communicational activities although put similar impact on both of them, however, the individual preference varies largely. The rural population are more interested in the product value and how it can change their lives and make their life style easier. However, the urban population is more inclined towards the brand image and social status that one can yield from the products (Kumar, 2003). The rural customers are more materialistic in nature, whereas, the urban customers are more inclined towards the perceived affluence of the products. This clearly indicates that from the marketing point of view, the firms need to focus more on the perceived value of the products. The advent of globalization has bought several developing economies together. The onset of liberalization at the same time has reduced the overall trade barriers between the nations. The firms are more inclined towards internationalizing their operations in countries where they have prospective growth opportunities. The increase of urban population in the major cities of the developing countries has attracted a lot of foreign firms to enter in those markets. Costa and Hoyer (2014) have mentioned that owing to the economic stability of the highly urbanized areas, the urban population also have a higher disposable income. Moreover, the population that have shifted to the urban areas are also most likely to indulge in the urban lifestyle. The better job and business opportunities will also increase the affordability of the population that has recently shifted to the urban areas. Thus, the overall increase in affordability of the target customers has allowed the international firms to delve in to aggressive market development strategies. The rise of urbanization has also boosted the growth of several industries which were once only focused to a narrow customer base. One such industry can be the consumer electronics and laptop computer industry. During the inception of laptop computers in the market, it was only targeted at the business executives and the corporate professionals (Goodall, 2013). However, over the years, the increase in urban population and the increased demand for laptops have made it a basic commodity for every urbanite. A similar example can be drawn in favour of the smartphone industry. This industry has seen a significant level of growth over the past five years (Xie and Liang, 2013). The smartphones along with other consumer electronic item or gadgets are targeted at the urbanized population who are supposed to be more comfortable in handling technologically advanced equipments. The gradual rise of the urban population has eventually increased the customer base of these companies. This as a result, has increased the attractiveness of the industry, thereby attracting several new entrants. Thus, it can be stated that the cities which are characterized by large number of urbanites attracts the attention of several firms. Opportunities for new market development The managers of the international firms are constantly looking out for new strategies to develop new business operations. In order to cater to the urban population of the developing countries, the marketers need to focus on creating a value proposition that is in line with the consumer behaviour of the target customers. Unlike the rural population, the urban population are more attracted towards the technologically advanced products and services. Thus, it will be more lucrative for the IT and electronic firms to expand its business to the major cities which are inflating with urban populations (Felker, Jomo and Rasiah, 2013). The entry of new smartphones or any new gadget will prove to be attractive than before, since the companies will now have a much larger customer base (Xie and Liang, 2013). This as a result will allow it to generate higher revenue and take advantage of the economies of scale. Moreover, the firms with high brand preference are most likely to enter in the newly urbanized cities so as to leverage the first mover advantage in the industry. Since the urban customers are more inclined to the brand image of a product, so, the marketing activities of the firms are more focused on creating a perceived value of the products and services and the company itself. The concept of generation X and Y have created distinguishing segments that identifies the young urban population by their age and preferences. The age group ranging from 12-17 years are considered as generation Y and on the other hand the age group of 18-34 years is considered as generation X (Newsome and Gallop-Goodman, 1999). These segments of the market are considered to have a different status symbol than the rest. They mostly dwell among the upscale urban sector and are heavily influenced by modern fashion and music. This segment of urban population is mostly concerned about its own well being and is quite individualistic in nature. They are not concerned about the social issues and like to follow their own rules. Therefore, in order to influence their purchasing decision, the marketer cannot push them to buy anything as they do not respond well to aggressive selling because of their individualistic personality (Albouy and Stuart, 2014). Instead of pushing a product, the marketer needs to pull them towards a brand that is closely associated to their lifestyle. This segment can be a lucrative option for the clothing and apparel industry. The young urban population are constantly looking forward to wear new designs and following the latest fashion trends (Thorpe, 2014). Thus, the clothing and fashion industry is also likely to widen up in the near future. Thus, it has been evidenced that the growing urban population can bring lucrative business opportunities for the international marketers in industries such as consumer electronics and fashion products. Apart from these sectors, there are others which are also likely to expand owing to the rise in urban population; one such sector is the fast food restaurant and takeout industry. The urban lifestyle exhibits a hectic nature of living owing to the strong focus on one’s professional life (Turok and McGranahan, 2013). This as a result leaves them with very little time to cook food at home. This particular lifestyle has increased the out of home eating trends among the urban population. Thus, the restaurant and takeout industry has grown drastically. The urban population is more inclined to have their meals outside of home due to their hectic life style; this as a result will expand the restaurant industry in the near future. One of the examples pertaining to the attractiveness of the restaurant industry can be cited by the Applebee’s business operations. Establishing a business in the highly urbanized location can be cost extensive. However, several firms like Applebee’s try to apply their luck by moving their business from the suburban to the urban locations. The company owns more than 1500 restaurants in the urban locations (Shari, 2003). It is further expanding its business to urban cities like Los Angeles and New York. This clearly suggests that the firms are invariably attracted to the urban population and are designing their marketing strategies according to their needs and preferences. Targeting the urban population is quite lucrative because it has been evidenced that the urban market has the necessary economic and social background to support the industry growth. Due to the relatively strong affordability of the urban population, they can spend to spend higher amounts of money on premium products. This as a result increases their priority to urban customers over the rural or suburban customers. Furthermore, the urban population also exhibit higher level of consumerism and they prefer to spend of luxury and impulse products. On the contrary, the rural population exhibit thriftiness and are less likely to spend on luxury goods. Thus, the difference in the psychographic profile between the urban and rural population clearly indicates that the former helps to bring more cash flow for the marketers. TGI Fridays is among the famous restaurant chains in America. The company at first decided to expand its business in the suburban areas owing to the low cost of operations and high availability of space. However, over the year the population of the urban areas have significantly increased particularly in the Chicago’s downtown area. This as a result compelled the firm to consider relocating their operations in the urbanized areas to cater to a wider customer base and improve its brand image. Likewise, Hooters of America has also decided to shift its business to Washington DC from its home town Atlanta (Shari, 2003). Shari (2003) mentioned that even though the cost of operation in the urban areas are higher than that of the suburban areas due to the higher rent and higher price of raw materials, the companies still prefer to run their business in the urban area owing to the population growth and higher affordability. This as a result leads to higher foot fall and increased revenue generation. However, in order to attract the urban population, the restaurants and take out firms need be more focused on the product and service quality and they also need to create a strong differentiation factor to face the steep competition in the urban areas (Counihan and Van Esterik, 2013). Conclusion The rise in urban population has resulted in a drastic shift in the demographics of the consumers. The primary reason behind this shift is probably because of better professional and educational opportunities in the urban areas. From the point of view of the marketers the change in the customer demographics is quite important as it has opened up new business opportunities for the international firms. The rise in the urban population has led to higher footfall for the international companies which as a result have helped in increasing their revenue. It has positively influenced the industries which directly attract the urban lifestyle, which are fashion industry, consumer electronics and smartphones, fast food and restaurant chains. This as a result has attracted a lot of firms in the emerging markets which are increasing being urbanized. It has been revealed that the urban population, particularly the young ones are particularly fascinated by their social status and seek out for different ways to improve that. This as a result makes it important for the firms to focus on building a good brand image rather than only focusing on product development. The consumers are ready to pay higher price if the perceived value of the products or services is also high. Therefore it can be stated that in order to ensure competitive advantage in the changing consumer market the firms must be able to create a higher brand value along with higher product and service quality. Reference List Abu-Lughod, J. and Hay, R. J., 2013. Third world urbanization. London: Routledge. Albouy, D. and Stuart, B., 2014. Urban population and amenities. Cambridge: National Bureau of Economic Research. Chan, K., and Cai, X., 2009. Influence of television advertising on adolescents in China: an urban-rural comparison. Young Consumers, 10 (2), pp. 133-145. Costa, C. S., and Hoyer, J., 2014. Why Invest in Urban Landscapes? Impace of European Research on Paradigm Shift in Urban Planning. Focus, 11(1), p. 17. 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