The Marketing Strategy Project - Research Paper Example

Running Head: Feasibility study for a nightclub in UK FEASIBILITY STUDY FOR A NIGHTCLUB IN UK Abstract This Paper is a feasibility report for a nightclub Company that is based in the United States and runs successful nightclubs in the home territory. The Company is planning to expand into the UK, where target markets identified are the younger population below 30 years of age. Existing competition appears as the most significant factor that will affect the expansion of the Company into the UK and the industry trends have also been negative in the past two years. However, through an optimum marketing strategy, it is possible that the Company launch in the UK could be a successful one. Feasibility study for nightclub expansion in the U.K. Introduction: This is a feasibility report for the establishment of nightclubs in the United Kingdom. An organization that is currently operating some nightclubs in the United States seeks to expand into the European market and is interested in targeting its preliminary efforts in the U.K. This country has a vibrant history of active nightclub life with the latest record labels and new artists being introduced here. The New York nightclub that has opened several facilities across the United States using the same principles of urban music, designer food and décor and good food and music, and the organization has experiences dome degree of success and is in a healthy position to consider expansion into the European market. The U.K. scenario: The selection of the U.K. offers several advantages. Next to the United States, it has the highest proportions of nightclub traffic. The common language of English used in the UK reduces barriers that may be created by communication difficulties. New York City laws on smoking and noise control have resulted in loss of some business for the nightclub and this is aggravated by the fact that the customers are not loyal to one club but are constantly on the look out for the latest hot spot (Crains, 2004). However, in contrast, the UK offers the facility of a new Licensing Act that provides for a 24 hour, composite license to open and operate a nightclub, provide drinks, refreshment and entertainment. Several of the trendy new pop artists who are gaining popularity are from the U.K., as are film and media personalities including the famous Rowling. Consumers in the UK are young, savvy, trendy and contributing significantly to the success of nightclub related ventures and new record labels. Therefore the UK offers an exciting new market for the U.S. Company to consider. On the negative side, a research study conducted by the Mintel group(2004) shows that nightclubs in the U.K. have been struggling for the past two years due to increased competition from other leisure time activities, including summer music festivals. Moreover, the U.K. Government is also considering the imposition of bans on smoking , which could the Company’s business in a negative way similar to what it has suffered in New York. Additionally, the Government is also considering the Alcohol Harm reduction Strategy for England and may impose stricter laws to control drinking and unruly behavior at nightclubs, all of which may be seen to pack a potentially negative impact upon the new Company’s business. In response to this, many UK nightclubs are choosing refurbishment of their premises and branding, in order to attract additional business. The problems of crime and security is another important aspect that a nightclub business needs to consider. Statistics available for 2003-4 indicate that crime rates are increasing steadily, with 2605 homicides reported.(www.homeoffice.gov.uk). While the problems of crime are also present in the home territory of New York, it is vital that the Company maintain a good security policy, especially in the London metropolitan area where criminal activity is higher than in other areas. In view of the stricter measures that are being taken by the Government to reduce crime and alcohol related incidents in the U.K., it is important for the Company to hire good bouncers who will be able to keep the customers in control so that the good reputation of the Company can be maintained and there is no trouble with the Government in maintaining the license to operate the business. The Asian countries do not offer good potential for the nightclub to expand into those areas since nightclub culture is not yet established in those countries. Similarly, Russia and Japan do not offer scope for enough volume of business and there are also serious problems of language, communication and cultural conflicts that may arise. Latin American countries offer the advantage of closer location, but pose the problems of low per capita income for entertainment spending. The European Union offers the best opportunities for the Company, especially in the new Commonwealth of European nations, where a wider potential consumer base can be identified. While countries like Greece or France could also be considered, language and communication problems will have to be overcome, together with cultural conflicts, while the UK offers high per capita income, more or less similar cultural environment, a diplomatic ally – reducing the possibility of political violence and threats to the business and a youth culture that is tuned in to all the latest trends and will appreciate the designer décor and music offered by the Nightclub. Therefore UK offers the best potential synergy in operations. Licensing Act of 2003: The club will need to be licensed under the New Licensing Act of 2003, which was passed on July 10, 2003. The major advantage offered by this Act is the opportunity to obtain a composite license that covers different activities for which separate licenses had to be obtained before. This single license, known as the premises license, brings together six previous licenses – for alcohol, public entertainment, cinemas, theatres, late night refreshment and night cafes. This Act was framed in response to the need that was felt for a more streamlined and unified licensing system in a modern vibrant society (www.culture.gov.uk), because the old licensing system was increasingly felt to be outmoded and regressive. The new Licensing Act provides for a single integrated license that permits supply of alcohol, late night refreshments and regulated entertainment. The license fees are also less for this composite license which can be obtained at the same price of an earlier single license and the turn around time in processing has also been reduced. It is projected to bring in savings of 1.97 billion pounds to the industry within the first ten years of operation. The provision of a single license has eliminated a great deal of red tape and will facilitate the process for the new Company to acquire a new license. The license allows a nightclub to remain open 24 hours around, which eliminates many of the problems that were associated with traditional cut off times when all the nightclubs would close, producing last minute binges and large crowds of inebriated people crowding the streets at the same time. This created problems of maintenance of law and order for the police and created difficulties in controlling drink related violence and accidents. Thus, the new Licensing Act provides the facility whereby customers leave at different times, thereby making it easier for the police to maintain law and order. SWOT Analysis of the nightclub Company: Strengths: History of successfully introducing new nightclubs * Availability of financial resources for expansion Designer décor, urban music, good food and drink Good reputation Weaknesses: Lack of exposure to European culture Lack of familiarity with the U.K. market Opportunities: The chance to carve a niche for itself among European customers The chance to establish a brand image for itself in coordination with record labels The chance to tap into a new market Threats: Competition from other nightclubs Licensing restrictions, potential smoking and drinking restrictions from Government Cultural conflicts and differences in operation Entry Strategy: In choosing its strategic thrust, a business must take into account the four Ps of global marketing – Place, Price, promotion and product (Ramarapu et al, 1999: 99). The nightclub Company is entering a new market, despite the fact that the consumer base is more or less similar to home territory. It is trying to establish itself in a market that has been struggling for the past two years (Mintel 2004). Therefore, it is better to set up nightclubs one at a time and depending upon the success, consider further expansion. Although the UK is a fairly small area, the highest concentration of potential customers may be found in London, where the nightclub will also be able to attract customers from London suburbs. Setting up a location further into the country may not be a good option because customers will have to drive longer distances to reach the location and there could be complaints of noise and disturbances from people living in the countryside. Therefore the best Place for entry is in London. As a part of its entry strategy, the Company may also consider the options for pricing, promotion and dealing with competition as follows: Potential Competition There are several nightclubs currently in operation in London. Some of them are The End, Electric ballroom, Aquarium, Fabric, the Hippodrome, Scala, etc. The End for instance is regarded as one of central London’s nicer venues and provides a variety of music nights for different days of the week. They offer a variety of music like punk and glam rock, drum and bass, gay funk and disco. One of their specialties is Chew the Phat nights, offering a variety of music each time. It offers two spring loaded dance floors and a five way crossover sound system. Another nightclub offering stiff competition is the Fabric located at Clerkenwell. It’s one of the larger nightclubs in London, offering three dance floors over 24,000 of club space with a capacity of 2500. It even offers a bass loaded body sonic dance floor. Toilets are unisex and their Saturday night playlists offer the best new talent coupled with a 24 hour music license. The Café de Oaris is a swanky nightclub on the expensive side, which hosts lavish private parties and fashion shows and has a large impressive ballroom and prices are also high. As opposed to this, the Borderline is a club that is a smaller, more intimate nightclub which is also cheaper than the larger establishments. The Ministry of Sound was one of the nightclubs set up by independent financiers who are interested in nightclubs as a business proposition. It was situated in the Elephant and castle region in South London and in spite of being located in an unpopular location became a great success and was the most popular and fashionable club of 1991. (Gallo 1999). While the status of most popular club has been transferred to other nightclubs, nevertheless the club remains successful, branching out into other businesses such as record labels, selling apparel, a radio show and licensing products, posting profits of 25 million pounds in 1998. The high point of the Liquid nightclub is the stadium quality sound effects and a designer interior using giant lava lamps and oil wheel projectors (www. clubs.ukcn.com). Other clubs are Aquarium, Hanover Grand and Cargo would also offer sizable competition. Dealing with competition: The nightclub will have to devise a skilful advertising strategy in order to grab the attention of the customers. According to Porter (1996), “Competitive strategy is about being different”.(p 64). He also states that “Strategy is the creation of a unique and valuable position, involving a different set of activities……different from rivals.” (page 68). Porter has established the importance of competition as a factor in the success of a business and achievement of its objectives. He has emphasized the importance of strategy as a tool in the achievement of this goal. In view of the fact that the atmosphere of competition in the European market and global markets lays the stage open for the entry of several competing firms, a business can stand out only if it is able to devise a unique or different strategy that will enable it to stand out from its competitors and grab the customer’s attention (Porter 1996). The establishment of a brand name therefore sets a business apart from its competitors and ascribes value to it. In lieu of acquisition of a brand name, a business may also devise other means and strategies to set itself apart from other businesses – Porter suggests that the business establish a theme for itself and that all tasks are geared towards the achievement of that theme or themes, which he had illustrated in the case of Southwestern Airlines.(Porter 1996). The most important aspect of promotion that the Company must focus on is the establishment of brand name and presence, so that it acquires a reputation for quality and service. One of the strongest points the Company has is its designer décor and top notch music. It is the kind of music that is played at a nightclub which is the biggest crowd puller. The kind of audio system the Company uses will play an important role in attaining this impression of a trendy place among youngsters. The Company must focus on its décor and ambience and its ability to play the latest music. It may also consider entering into a strategic alliance with a record label in the United States order to promote the newest artists and the latest tracks at its club. Urban music is the Company’s specialty and it’s better for the Company to stick to one brand of music such as rock or hip hop rather than adopting a policy of different kinds of music on different nights, as some of the nightclubs in London are offering. It is much more likely that the club will gain a loyal following if it sticks to a particular image as a club that plays the newest tracks and establishes itself with that brand recognition. This will immediately push the Company into a commanding position in the market. Establishing a brand name is vital. Secondly, the Company could also consider offering complementary gifts with drinks that are purchased at the club. For example, fridge magnets could be considered as a promotional tool, since almost 80% of customers may have fridge magnets and they typically may be up for at least three to five years, so they provide long term exposure and an effective form of advertising which is unobtrusively placed on the fridge, yet reminds the customers of the nightclub every time they open their fridge Production cost of small magnets is low and they can be offered as free souvenirs with the purchase of drinks, offering a low cost advertisement means that will help in promotion. Radio and TV advertisements are generally an expensive method of promotion. Since the Company will initially seek a strategic alliance with a record label, it will incur some expense on that front, therefore cheaper means of advertising must be used. Using flyers in college campuses is a good form of advertisement for a nightclub, since most of the customers, at least initially, are likely to be young college students. Flyers are an inexpensive and effective way of advertising and can be printed in sufficient numbers to compensate for losses that occur from lost or missing flyers. The Company website would also be one of the best forms of advertisement, because it could advertise any specials, and provide information to its customers about the kind of music and the facilities that are offered at the club. This is also an inexpensive way of advertising which would have a wide outreach, since most young people who are the potential customers of the club are online. It would also be very advantageous to the Company to offer e-mobile services where customers could download promotional videos about the nightclub on their mobile phones. This is the latest kind of advertising which is gaining relevance in an electronic age and more and more Companies, such as Levis, for example, are resorting to such advertisements which are proving to be very successful. (www.e-consultantcy.com) Price: Most nightclubs in the London area charge an entry fee that ranges between 15 to 60 pounds for the exclusive establishments. Prices for drinks, range from 3.50 to 8 pounds for a glass of beer. A high entry price is likely to automatically restrict customers, while a low entry price will convey the impression of a cheap joint and moreover, will also be difficult in terms of maintaining the financial feasibility of the Company. Hence the best strategy for the nightclub to follow is to adopt a median price range like Aquarium or Fabric. The entry price could therefore be pegged at about 20 to 25 pounds which will ensure that the nightclub is placed too far out of reach of the pockets of the middle class customers, at the same time it is high enough to prove the impression that it’s a decent place, so that the more quality customers will be attracted to the establishment. Sale prices for drinks can also be maintained at about 5 pounds for a glass of beer, with prices ranging in the higher range for drinks such as champagne. The complementary magnets can be offered with the higher priced drinks, and a promotional strategy could also be introduced whereby the collection of a certain number of magnets would entitle the customer to a free drink. In this way, the nightclub is likely to do good business, especially in the initial stages when it is seeking to pull in customers. After about a year of operation, when the profits have started trickling in, the Company can consider a small increment to its entry price in order to improve its financial margins. The Product: The product offered by a business is in effect, the foundation. If the foundation is bad, the house will fall. The U.S. nightclub has an excellent foundation, it offers urban music, good food and drink and designer décor. Therefore the Company must take pains to ensure that its premises are maintained at the high standards for which it has become famous in the United States. While the availability of the latest tracks will automatically ensure that the Company has exposure to lots of business, nevertheless poor customer service, bad lighting, queues at toilets, stuffy cramped premises – are all factors that would impact negatively upon the Company business. The premises must be spacious enough to accommodate people without cramping, good quality dance floors must be provided and the sound system should be of exceptional standards. Providing plenty of toilets and places for customers to chill out will add to the good impression that customers will have about the place and provide the best advertisement of all – i.e, word of mouth advertisements which will boost the Company’s business. Porter’s Five Forces: Porter’s five Forces provides an industry analysis that helps a business evaluate and analyze its position. Porter’s model is particularly relevant in the global, intensely competitive marketplace of today. The framework provided by Michael Porter addresses the fact that while the economic model of pure competition would indicate that risk adjusted rates of return should be constant across firms and industries, this is not often the case. Porter proposed that every business was influenced by five different forces and by gaining an understanding of these forces, it was possible for a business to maintain its competitive edge over its rivals (Porter 1980). He identified these five forces as: Supplier Power, Buyer Power, Barriers to Entry, Degree of Rivalry and the Threat of Substitutes. Porter felt that the nature of buyers and suppliers affected the competitive edge that a business could have, almost as much as environmental factors, changes in price and access to markets. Applying Porter’s Five Forces to this business, Buyer Power and Degree of Rivalry may be identified as the most important factors that will affect its success. There are no barriers to entry since the free trade agreements have facilitated the setting up of new businesses in other countries and access to markets also should not be difficult because the nightclub industry is a fluctuating one, where customer tastes are constantly changing and they keep seeking out the latest new trends, therefore opening up a new nightclub is like to guarantee an initial crowd curious to try out a new place. From the price point of view the company will be entering the market as a moderately priced club and since inflation in the UK is under control, it is not likely that there will be any problems of heavy fluctuations in prices that are not on par with global trends. Therefore, the major thrust of the nightclub company will have to be to harness buyer power and establish itself firmly as a customer friendly enterprise which will be perceived to be of value from the customer’s viewpoint. Dealing with the competition will be the biggest challenge this Company will face, since it will have to ensure that it keeps up with the latest trends and quickly matches competitor services or offers other services on par, so that fickle customers are not pulled away to other nightclubs. Target Market: The major target market of the nightclub would be the customers between the ages of 20 to 30. This is the group that is most likely to visit nightclubs, as they look out for a good time and would be the most desirable segment for the Company to attract. On the one hand, they are old enough to know what they’re doing and are more controlled than the younger teenage crowds, who are likely to be a source of trouble for the managers of the club. On the other hand, they are also employed and have money to spend on entertainment. If they are convinced that the nightclub offers the prospect of a good time, they are likely to hang out there frequently. In fact, it would be advisable for the Company to seek to attract this segment of the population through an expansion of the brand, by attaching their names to fashion and musical events, CD and record launches and similar events, to build identification with the brand among this section of the customers. Other nightclubs such as the Ministry of Sound are already doing this to strengthen the brand image of the nightclub (Phil, 1999). Subsidiary markets that may be identified are the younger age group between the ages of 18 to 20 and the 30 plus group, but these would constitute a smaller section of the desirable target market. Risk Analysis: Risk Analysis is a framework for analysis of the potential threats to a business. While the SWOT analysis does provide a general analysis of the perceived inherent threats to the business, a detailed risk analysis helps to decide what actions to take to minimize disruptions to the business plans and also to decide which measures may be used which will be the most cost effective. In order to analyze a risk we may classify it as a function of the probability of an event occurring multiplied by the costs that may accrue should such an event occur. The nightclub industry is not in a healthy state in the United Kingdom and has been facing a downswing in the past two years (Mintel 2004). This is the biggest risk that the Company is likely to face, since prevailing customer trends demonstrate that other forms of entertainment are competing for the leisure pound. Therefore the probability that the Company’s launch into the UK may be a loss is a potential threat. The industry does not show positive trends for new entrants. Yet, the industry is not in a doldrums state which would seriously threaten the investment. There is a good possibility that by using the latest tracks and providing its success formula of designer décor, good food and latest music in the UK as well, the Company will be able to launch itself successfully. Since the preliminary effort is focused on building brand image, the move could be successful, therefore this risk may be taken on. The second risk that the Company faces is the disparity in wages and working conditions that exist in Europe as compared to the United States. European employees typically work for 40 hours a week and have to be provided with paid holidays and an entire package of other compensations that increases the operational costs. Therefore employee costs in the UK are likely to be much higher than in the United States. This could affect the financial feasibility of operations in the UK and affect the productivity of the nightclub. There may also be cultural conflicts that could arise in terms of the style of functioning of the English vis a vis the American way of doing business and this will have to be factored in as a potential source of liability. Conclusion: The U.S. Company has an excellent product to offer. It has been successful in home territory, which shows that it has a valuable product. The UK market is the one that most closely parallels the US market and offers the best chance of repeating the success story of the US. The Company has a great opportunity to enter a new market and carve a niche for itself through effective advertising and the strategy of branding its product. The area where the Company’s initial marketing efforts are most likely to be successful is in London, after which it can consider expanding into other places. The competition in London is stiff, because there are several nightclubs in the city which are competing for a share in the market and the Company will have to devise a unique strategy that will stand out, in order to attract customers. Many nightclubs are expanding out into other operations in order to improve productivity and improve branding of their product and this is also an option that could be considered by the Company. However, the industry has been demonstrating negative trends in the recent past and the future scenario is also uncertain, since the New Licensing Act of 2003 has been implemented. However, despite the risks inherent in this venture, they are not substantial enough to ignore this opportunity, since no other global location offers as much potential as the UK market and especially the London area. References: * “Business smoking at nightclubs”. Crains New York Business. 20 (12), March 22- 28, pp 1,41. * Gallo, Phil. (1999). “Clubs weild branding iron.” Variety, 377(5). December 13-19. * “Levis introduced mobile content for 501 campaign” (2005). [Online] Available at: http://www.e-consultancy.com/newsfeatures/360134/levi-s-introduces- mobile-content-for-501-campaign.html; accessed 11/13/2005 * “Licensing Act 2003”. [Online] Available at: http://www.culture.gov.uk/alcohol_and_entertainment/licensing_act_2003/default .htm; accessed 11/13/2005 * “London Nightlife: Introduciton”. (No date) [Online] Available at: http://www.talkingcities.co.uk/london_pages/entertainment_nightlife.htm; accessed 11/13/2005 * “Liquid”: [Online] Available at: http://clubs.ukcn.com/clubs/desktopdefault.aspx?poid=140; accessed 11/13/2005 * Mintel (2004). “Nightclubs – U.K.” A research study conducted by the Mintel International group Ltd. Available at: http://www.marketresearch.com/product/display.asp?productid=1077908&g=1 * Porter, Michael E, 1980. “Competitive Strategy: techniques for analyzing industries and Competition”. New York: the Free Press, pp 47-71 * Porter, M.E. (1996), What is Strategy? Harvard Business Review, Nov-Dec.: 61-78. * Ramarapu, Sangeeta, Timmerman, John E and Ramarapu Narender. (1999). Journal of Marketing Theory and Practice. 7(2): 97-105 * “Statistics on race and the criminal justice system-2004.” [Online] Available at: http://www.homeoffice.gov.uk/rds/pdfs2/s95race02.pdf; accessed 10/09/2005 Read More