International Marketing of Natural Confectionery Company - Research Paper Example

Table of Contents Executive Summary 2 I. Introduction 4 II. Description of the brand 4 III. External environmental analysis 5 A. Economic/Financial 5 B. Political/Legal 5 C. Cultural/Social 6 D. Geography/Infrastructure 6 E. Technological 7 IV. Competitor analysis 7 A. Nature and size of the market 7 B. Market share statistics 8 C. Description of the major competitors (local and international) 8 D. Structure of the industry 8 E. Growth potential and other distinguishing characteristics of the competitive environment 9 V. Market segmentation and target marketing 9 VI. Market entry and expansion strategies (short and long term) 11 A. Short-term 11 B. Long-term 11 VII. International marketing mix 12 A. Brand framework 12 B. Marketing tactics 13 i. Product 13 ii. Price 14 iii. Place/Distribution 14 iv. Promotion/Integrated marketing communications 14 VIII. Conclusion 15 Executive Summary The Natural Confectionery Company is an Australian brand of confectionery. In this paper, the prospect of expanding the brand's reach in a different geographical market such as Brazil is explored. After the country is studied based on its external environmental factors, the local market is studied more closely by looking at the market segments as well as the confectionery industry in Brazil. The market study has shown that Brazil is one of the largest confectionery markets across the globe. The increase in purchasing power of the people over the course of the years, with its 180 million population that is significantly young in terms of median age, the country is indeed an attractive market for expansion for a company like The Natural Confectionery Company. For The Natural Confectionery Company, the most profitable target market in terms of volume is the middle-class urban consumers. This can be the company's primary target market, as they have the purchasing power; they are also the groups that are leaning toward a healthier range of products due to the growing trend of health consciousness. This is the group that is consistent with the company's brand positioning. By looking at the external factors, the company can expand with strategic alliances as the employed mode of entry over the short-term. As it learns more about the industry and the market, in order to compete in a society where brand loyalty is one of the market trends, the company needs to gain better control over its marketing efforts. This can be done by building a direct subsidiary which will enable it to employ its marketing plan for the local market. The Natural Confectionery Company can standardize its products in the Brazilian market as these consumers have the same needs with consumers in the company's country-of-origin. However, the company has to 'localize' the product, by providing Portuguese translations to the brands which could still embody the brands' essence. Pricing considerations are also vital to the company's marketing mix decisions. The price will entail a certain perception, therefore it is important that the company's positioning in terms of price is consistent with its target market: the proposed is to put it in mid-range in order to create a perception of being affordable to the target market without creating a cheap perception of the brand if it is otherwise positioned in the lower range. The company can also utilize the current distribution channels such as hypermarkets, neighborhood supermarkets, large retailers and specialty food stores to reach its consumers. Lastly, The Natural Confectionery Company can promote the brand using the Awareness-Trial-Reinforcement model of consumer behavior on which to serve as basis to come up with the marketing communications mix for the brand (Pickton & Broderick 2001). I. Introduction The Natural Confectionery Company is an Australian brand of confectionery. In this paper, the prospect of expanding the brand's reach in a different geographical market such as Brazil is explored. After the country is studied based on its external environmental factors, the local market is studied more closely by looking at the market segments as well as the confectionery industry in Brazil. After the market is studied, the market is segmented according to a few variables. After the target market has been decided and described, the company's expansion strategy is determined, both for the short term and long term. The company's positioning is determined as well. Lastly, marketing tactics are crafted in order to come up with a local marketing plan for Brazil. The decision between standardization and adaptation should be weighed in the process. II. Description of the brand The Natural Confectionery Company is an Australian brand that positions itself as a no artificial flavor, no artificial color and 99% fat free brand of confectionery (TNCC.com.au 2009). The brand holds a range of products under the categories sweet treats, sour treats and soft jelly treats. The Natural Confectionery Company's brand personality includes fun and light enjoyment as apparent in its signature colors that are part of its brand identity. The brand stands to promote 'fun and enjoyment with a balanced diet or lifestyle,' as its main promise to consumers is the additional functional health benefits that are included in the product, apart from its major positioning (TNCC.com.au 2009). III. External environmental analysis A. Economic/Financial Brazil holds the largest economy in the South American region (CIA.gov). The recent economic reforms has provided the company with huge trade surpluses and its per capita GDP growing. Having more than 180 million of people in this country with strengthening purchasing power (CIA.gov), Brazil is one of the most attractive countries to venture into in terms of global market expansion. Brazil also has more lenient foreign direct investment policies, where foreign enterprises can operate within the country legally through a subsidiary, where it will be treated like other companies that are incorporated under the Brazilian law, as well as the prevalence of some incentives such as exemption from withholding tax when distributing and remitting profits abroad (WTO.org 2009, 69). When it comes to import, however, the country still has some protectionist policies in the form of high tariffs and existence of various taxes that are levied on imports (WTO.org 2009, 26). B. Political/Legal The political and legal implications of Brazil regulations on transnational companies differ according to the type of legal entity a transnational company utilizes in its entry. For example, the laws that govern the investment via conversion of foreign credits is different from the laws that govern the investments via the import of goods without exchange cover (Brazil Ministry of External Relations 2007, 5). Brazil does not have any non-multilateral investment agreement, which is favorable for multinationals. According to da Motta Viega, Brazil's sole commitments include GATT and the TRIMs agreements (2004, 1). If a multinational company wants to enter Brazil, it just needs to make sure that the foreign capital is registered on the country's Central Bank Information System (Brazil Ministry of External Relations 2007, 23). C. Cultural/Social Brazil is home to more than 180 million people. According to CIA.gov, the country has a young median age of 28.6 years (2009). Since the country has experienced rapid economic growth during the past few years due to reforms, disposable income rises and affect the social landscape of the country. This has lead to the rise of the middle-class urban consumers. According to Euro Monitor International, this trend in Brazil has resulted in growth in premium food categories as well as foods that offer health benefits to consumers (2008). This rising trend towards health-consciousness among the middle class and the more affluent consumers in the country is a great opportunity for The Natural Confectionery Company. According to Euromonitor International, Brazilian parents are also starting to pick their choices of snack among the healthier alternatives in the market (2008). This emerging trend in the Brazilian social landscape has an important consideration to The Natural Confectionery Company brand in terms of venturing in Brazil for its international operations. D. Geography/Infrastructure The infrastructure sector of Brazil has been developing over the years as the government has liberalized trade policies where many foreign investors can invest in this sector in the form of FDIs. The urbanized areas in Brazil are connected by railways, highways, seaports and harbors, and major airports (Yates 2003). While cities are linked by these transportation networks, some of these networks extend to other countries such as the railways, reaching adjacent countries such as Uruguay, Argentina and Bolivia. Merchant marines also operate to serve as another mode of transport, as well as airports (Yates 2003). These transportation networks are important for a company like The Natural Confectionery Company as these have implications on how the company can reach their target consumers in different areas of the country. E. Technological Brazil has the most developed information technology sector in South America. Positioning itself as a major player in the IT industry, Brazil has trained tens of thousands of scientists and scholars in order to sustain its national ICT policy (Yates 2003). The IT industry in the country is much developed, with several large IT cluster within the country. This one of the reasons why multinational companies see Brazil as a viable place for investment. With a strong IT sector to support many businesses, and at cheaper prices as well, this is good for a company like The Natural Confectionery Company. The availability of advanced technology in Brazil will enable multinational companies to cut down on costs especially in terms of communications in different business units across the globe. IV. Competitor analysis A. Nature and size of the market According to Data Monitor, the confectionery market is defined as the market 'consists of chocolate, gum, cereal bars and sugar confectionery (Data Monitor 2008, 7). This global industry is under the packaged foods industry, which retail revenues is to have grown by an estimated $40 billion from 2002-2007 (Rogers 2008, 35). In the Brazilian market, the market is estimated to have reached 3.9 billion dollars in 2007 (Data Monitor Brazil 2008, 8). Brazil is one of the top global confectionery market, and is estimated to grow at 3.8% over the course of five years, from 2003-2007 (Data Monitor 2008, 8). Brazil is even larger than the Australian market. B. Market share statistics In the Brazilian market, the dominant players include Nestle, S. A. at 41.7% market share, followed by Kraft Foods, Inc. at 16.5%, and Cadbury Schweppes Plc at 11.3% (Data Monitor Brazil 2008, 13). These are also the dominant market players across the globe, with the recent merger in the confectionery industry such as the merger of Wrigley and Mars, Inc, making them the largest power in the global confectionery industry at 14% (Rogers 2008, 35). Apart from the other 3 major players, there are smaller players that consist the 30.5% of the confectionery market (Data Monitor Brazil 2008, 13). Among these, The Natural Confectionery Company is one of those players that share the remaining 30.5%. C. Description of the major competitors (local and international) According to Data Monitor, Cadbury Schweppes is a major player in the branded confectionery and non alcoholic beverages industry (Brazil 2008, 13). The company is a global player which is stationed in London, with subsidiaries in different countries that market its global brands which include 'Cadbury, Schweppes, Halls, Trident, Dr Pepper, Snapple, Trebor, Dentyne, Bubblicious and Bassett, etc (Data Monitor Brazil 2008, 13).' Like Cadbury, Nestle is a global giant that started in Switzerland. According to Data Monitor, the company 'operates through six divisions that are organized along product groups which include: beverages; prepared dishes, cooking aids; milk products, nutrition and ice cream; pet care products; confectionery; and pharmaceutical products (Brazil 2008, 19). Kraft Foods, Inc. is a major player in the global food and beverage industry (Data Monitor Brazil 2008, 21).' The company's products are sold in 150 countries (Data Monitor Brazil 2008, 22). D. Structure of the industry The global confectionery industry is divided among segments that include chocolate, non-chocolate and gums (Rogers 2008, 35). In 2007, the market structure is consisted of the chocolate segment at 54.5%, 31.3% for non-chocolate segment, and 14.2% for gums (Rogers 2008, 35). In the Brazilian market, the market structure is comprised of the sugar confectionery at 50%, chocolate at 33.1%, gum at 15.3% and 1.6% for cereal bars. As compared to the Australian market, the sugar confection is higher than that of the chocolate. E. Growth potential and other distinguishing characteristics of the competitive environment According to Rogers, the global confectionery market has a lot of growth potentials as well as product-specific opportunities (2008, 35). Although the majority of sales can be found in the US, Canada and Western European regions, the regions that pose the highest growth and are the most viable for market expansion are the Asia-Pacific and the Eastern European regions (Rogers 2008, 35). Product-specific opportunities also exist in the market, such as the shift to a healthier and functional range of confectionery in many different countries (Rogers 2008, 35). This is a major trend in Brazil (Euro Monitor International 2008). Newer products such as cereal bars also have distinct opportunities (McCombe 2008, 26). According to Price-Waterhouse-Cooper, A very significant contingent of potential consumers has currently not attained the minimal levels of consumption and any increase in the income of this group will likely boost demand, particularly in this industry (2007, 13). These are areas of growth for a company like The Natural Confectionery Company. V. Market segmentation and target marketing The average household in Brazil spends 15% of the household income in food (Price-Waterhouse-Cooper 2007). According to Data Monitor, confectionery is still one of the most bought food for the snack food category (Brazil 2008, 15). Apart from the segments, the Brazilian confectionery market can be segmented, first according to the largest and most profitable segment in terms of volume, which according to Euro Monitor International is the middle-class urban households in Brazil (2008). According to Euro Monitor International, these consumers are also the most likely to respond to what The Natural Confectionery Company offers in its positioning statement. The target market can then be described according to its demographics and psychographics. As for the demographics, these consumers include middle-class urban households comprised of adults in their late 20s, with children. Looking at the decision-making unit of this target market, the gate-keeper, influencer and the user are usually the children, with the parents as the decision-maker and the buyer (Fiates, Amboni & Teixeira 2008, 161). Therefore, it is appropriate to make the whole decision-making unit the target market. Children ages 0 to 14 account for about 50 million as regards Brazil's population, and 80% of these live in the urban areas of the country (Fiates, Amboni & Teixeira 2008, 157). As for the psychographics, this middle-class urban household has become more health conscious; especially as parents tend to lean toward healthier snacks for their kids when they make their purchase decisions (Euro Monitor International 2008). As the competitive environment had been described previously, it is important to note the indirect competition when it comes to the battle inside the consumers' minds. As confectionery is part of the larger food industry, any alternative to it is an indirect competitor, such as other snack foods such as potato chips, fruits, etc (Thomas 2003). Lastly, it is important to note the insights of consumers. When buying confectionery, the explicit need includes the need to eat or the need for snack food. The implicit insight, from the point of view of the children includes a snack that could give fun and enjoyment, while from the point of view of the parents—something that is good for their kids, especially as regards their health. VI. Market entry and expansion strategies (short and long term) A. Short-term From all the analyses above, it can be seen that direct exports to Brazil is not the most attractive mode of entry, even for the short-term. This is because of the high tariffs levied by imports to the countries. Also, direct exports will not educate The Natural Confectionery Company about the local market if it plans to stay and operate for the long term. If the company chooses to ally with other local companies, in the longer term it can severe its relationship as it becomes one of the competitors in the market. Therefore, one possible mode can be the use of strategic alliances in terms of marketing and distribution of the product. This mode of entry has many advantages, and some disadvantages in the process. Strategic alliances will enable The Natural Confectionery Company to learn more about the market first while the local company takes charge of distribution and marketing of its products. This is very important before the company can decide to go for a subsidiary in the market. Also, finding key talents is an important aspect if the company chooses to have a direct local presence in the Brazilian market. The company will also be able to take advantage of the incentive that the Brazilian government offers to FDIs. For a short term of 2-3 years, this strategy can be employed. B. Long-term By the time the company reaches the third year of selling its product in the market, through its strategic ally, it should have learned a lot about the Brazilian market as well as the industry. Equipped with this knowledge, the company can then go for a subsidiary in the country in order to gain better control in the local market. The Brazilian government encourages foreign direct investments, which is good for the company. The direct subsidiary is a good move for the company to secure a strong base in the local competition. As according to Data Monitor, brand loyalty is strong among locals, therefore in order to encourage people to shift and choose The Natural Confectionery Company (Brazil 2008, 15), the company needs to have a better control in its marketing efforts. Setting up a direct subsidiary entails efforts like setting up another corporation within the geographical area. The company can produce the goods within the country, but it must have established stronger relationships with large commodity suppliers during its short-stay in the country. Apart from logistics, the company must also have made relationships with key distribution channels such as hypermarkets, supermarkets, etc in order to secure shelf spaces. The human resource function of the organization is also important and key to the success of the business. Most of the company's talents must be chosen from the local labor market as they know the market better than expatriates. The decision to employ expatriates is also key in the company's success. Overall, understanding the local culture of the country such as Brazil is key in order to make a direct subsidiary successful. As regards local marketing efforts, the company will have better control with a direct subsidiary. By knowing the market, the company can better assess the attributes that consumers put premium on, therefore incorporating in the total offer of the brand these attributes in order to win in the local market. Or, at the lowest level the company can employ this in its integrated marketing communications effort, if not for the whole marketing mix. VII. International marketing mix A. Brand framework After the consumer's heart is determined in the target marketing section, the brand framework to match the needs of the consumers needs to be crafted. This will serve as the positioning strategy for the brand. The brand's values and personalities include providing fun and enjoyment to people who eat the products under the brand (TNCC.com.au 2009). As apparent in some elements of the brand identity of the company—pastel and lighter colors, caricatures of animals and jolly elements that are portrayed in the company's visual representation of the brands, the company holds this perception. As for the benefits, the company provides functional benefits in the form of great-tasting products, matching the need for a delicious treat for snack. As for the emotional benefit, the company provides the consumers a healthy choice and a chance to pick something that is good for their health without sacrificing the taste, fun and enjoyment part of the experience that comes with eating the treats. The company backs up this claim with a reason to believe—its manufacturing processes as well as the company's materials. The company claims that with the use of jelly made from Australian beef, with no nuts and dairy, the products come as 99% fat-free (TNCC.com.au 2009), without artificial color and flavor. The company's brand essence is 'healthier confectionery', as what its brand name –The Natural Confectionery Company stands for. B. Marketing tactics i. Product Given the needs of the consumers in the Brazilian market, the company can standardize its product offers in the market. It can offer the same line of products to the market. However, while the company can standardize, it is important that it localizes its offer. The labels have to be translated to Portuguese in such a way that the essence of its brands can be retained, and will get the intended impact to Brazilian consumers. Brazil has a strong domestic food sector, where as a new player the company has to deal with. Although the Brazilian economy has been open for quite some time, and the local markets are responsive to imports, it is important for the company to make the products feel like they also come from Brazil, mainly through communications which will be further discussed in the next sections. ii. Price The company's target market is the middle-class urban consumers, therefore the products should be priced at a mid-range in order to make it look affordable, at the same time not sacrificing the perception of quality that a lower-priced positioning entails. The price is also a potent communicator, and one of the attitudes that are associated with the health-conscious trend is that it should come as a bit pricier (Euro Monitor International 2008). This is apparent in Brazilian consumers being willing to pay a premium on healthier products as well as luxury items (Euro Monitor International 2008). iii. Place/Distribution The distribution channels that should be used must also be consistent with the company's target markets. As most of these consumers buy at large retailers, neighborhood supermarkets, hypermarkets, convenience stores as well as specialty stores for food (Price-Waterhouse-Cooper 2007, 16), these channels should be utilized. However, the company must utilize large wholesalers to help it along the distribution chain, such as Martins (Price-Waterhouse-Coopers 2007, 18). By using these wholesalers as links to retailers, the company can cut down the costs to directly transport the products to retailers, on a very huge scale of operations, if the company intends to capture the whole country. iv. Promotion/Integrated marketing communications Since the brand is a new comer in the market, and that confectionery purchase is an impulse purchase among Brazilian consumers (Data Monitor 2008, 15), the framework that can be used is the A-T-R model, or the awareness-trial-reinforcement model of consumer behavior (Pickton & Broderick 2001). This model does not focus on a specific motivation, since consumers are less involved in the process. This is the usual model for habitual purchases like confectionery. In order to achieve awareness, the company can utilize both advertising and PR: advertising to tease the market, and publicity stunts or media-attracting events to further pique their curiosity. In order to induce trial, the company can utilize sales promotions. Then, reinforcing the brand is very important as brand loyalty is one of the trends in the Brazilian market (Price-Waterhouse-Coopers 2007, 10). Advertising can then be used in order to reinforce the brand's values and personalities in the process. VIII. Conclusion Indeed, Brazil is one of the largest confectionery markets across the globe. The increase in purchasing power of the people over the course of the years, with its 180 million population that is significantly young in terms of median age, the country is indeed an attractive market for expansion for a company like The Natural Confectionery Company. By looking at the external factors, the company can expand with strategic alliances as the employed mode of entry over the short-term. As it learns more about the industry and the market, in order to compete in a society where brand loyalty is one of the market trends, the company needs to gain better control over its marketing efforts. This can be done by building a direct subsidiary which will enable it to employ its marketing plan for the local market. References Brazil Ministry of External Relations. 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