Foreign Market Entry - Dissertation Example

Foreign Market Entry Introduction The choice of country or foreign market, as well as the suggested product has not been a wild, impromptu guess or selection, but rather specific thought has gone into the selection of the product, as well as the country of South Africa. These deciding factors and issues will be broken down within the following foreign market analysis as well as the product analysis and resultant marketing and implementation plan suggested for this market entry analysis. Foreign Market Analysis: South Africa The country selected here for the market entry plan is that of South Africa, which offers an opportunity of entry based upon a reduced labour cost, due to the country falling within the classification of being a developing country or nation (Robbins 2009). The most recent, and available statistics provided by Robbins reflects figures according to the 2007 consensus figures of the country. Within these statistics there are a number of key factors that require serious consideration within the development of a market entry and marketing plan, according to these specific demographic facts. These facts and figures include the population distribution, the ethnic makeup of the population, and the specific social and economic issues relevant to the country specifically. Additionally, and as provided by MacDonald (2006) analysis of the effect of such race and ethnic origin is required to implement the necessary action steps within the marketing planning and implementation within the diverse backdrop of the South African consumer profile. Bhorat, Lundall and Rospabe (2002) provide that South Africa has a diverse constituency within her borders, the movement from an oppression based political power to that of a free democracy has provided a number of opportunities and development within the country. Additionally this has arguably laid the platform for focus upon growth for the economy in South Africa, which has in turn been successfully implemented via the new regime and visa “orthodox economic management” which has lead to the fact that South Africa is seen as an emerging economy by international investors, based upon their foreign exchange policies, monetary policies and more importantly according to the authors, their trade policies (pp. 2-3). It is amongst these issues that make South Africa arguably more attractive to invest in and target a specifically defined demographic within the marketing, branding and sales of the Kofola product. Specifically in terms of the economics and demographics of the country of South Africa, Robbins (2009) provides that the country is “classified as an upper-middle income country”, however the past of the country, being that of Apartheid and oppression rule has resulted in a significantly skewed proportion of wealth within the country itself, hence the preceding mention of the country’s history with respect to politics. This “skewed” income distribution translates to “approximately 3 million households” living in poverty (p. 35). However the concentration of wealth remains largely within the areas of the country that are seen as “population concentrated”, and not so much in the rural areas, where it is said that such poverty is more prevalent (Tait & HSRC 1996). To this end the following figures have been obtained for representation and determination of the key focus areas within South Africa, in terms of targeting with respect to this product and marketing plan. Figures represented here are South Africa’s “Mid-Year Population Estimates: 2010” as provided by the official Statistics Authority in South Africa (Robbins). Total Population By Population Group Population Group Total Number Percentage African 39,682,600 79,4 Coloured 4,424,100 8,8 Indian / Asian 1,299,900 2,6 White 4,584,700 9,2 Total 49,991,300 100,0 Table 1: Population of SA According to Population Group (Source: Statistics South Africa 2010 Estimates) Table 1 serves to illustrate the vast majority of African people in South Africa, as compared to that of the White, Coloureds and Asian groups respectively, thereby highlighting the importance of taking such population groups into account when formulating a marketing entry and implementation plan. Table 2 below illustrates the geographic distribution of the population of South Africa, across the nine provinces of the country. Province Population Estimate Percentage Gauteng 11,191,700 22,4 Kwazulu-Natal 10,645,400 21,3 Eastern Cape 6,743,800 13,5 Limpopo 5,439,600 10,9 Western Cape 5,223,900 10,4 Mpumalanga 3,617,600 7,2 North West 3,200,900 6,4 Free State 2,824,500 5,7 Northern Cape 1,103,900 2,2 Total 49,991,300 100,0 Table 2: SA Population per Province (Statistics South Africa: 2010 Estimates) The reason for representing the population distribution in terms of geographic terms is to highlight the concentration of population amongst five of the nine provinces of South Africa. These provinces will form the basis for the market entry and distribution of the product, and consist of, in order of perceived importance, Gauteng, Kwazulu-Natal, Eastern Cape, Limpopo, and the Western Cape. The preceding five provinces are home to in excess of 78% of the country’s population and will form the basis of focus within product presentation and distribution. It furthermore becomes necessary to identify and report income and expenditure according to the targeted provinces mentioned above, and the following table provides such analysis. Annual Income and Expenditure per defined and targeted province, with identified areas of expenditure per product target market (Income and Expenditure in ZAR)+ Province Ann. Income Expenditure (Identified and relevant categories of expenditure) Total Expenditure Exp on Drinks Exp on Bars / Restaurants Exp. On Recreation / Sport Gauteng 51,817 776 38 649 1,463 Kwazulu-Natal 33,600 450 15 281 746 Eastern Cape 24,697 259 12 248 519 Limpopo 21,406 318 17 81 416 Western Cape 63,001 989 20 979 1,988 Averages 38,904 558 20 448 1,026 Table 3: Income and Identified expenditure within targeted categories (Statistics South Africa) + Notes to Table 3: All statistics based upon household income and expenditure for the respective provinces, based upon statistical collection and analysis in 2000, released by Statistics South Africa in 2002 Rationale behind the selection and presentation of the above data, and more specifically the chosen sectors of expenditure is based upon the fact that these specific areas of focus can be seen as directly related to that of beverages, via expenditure on Drinks and Restaurants and Bars, with the third criteria representing Sport and Recreation. The inclusion of the third criteria is based upon consumers purchasing beverages after or during sporting events, and the fact that Kofola is a non alcoholic beverage the targeting of this expenditure is justified within the quenching of one’s thirst, whether participating in the sport or merely attending a sporting or recreational event. These figures allow for the estimation of sales within the marketing plan and projected income accordingly. In terms of National percentages within the identified categories in so far as expenditure is concerned, Statistics South Africa provides a more up to date report within “Income & Expenditure of Households 2005/2006” and represented by the identified provinces and levels in Table 4 below. Although some of the categorizations have been changed somewhat, the reported ones within the table stand to reflect the potential of the market, in accordance with the targeted market share, and identified demographics with respect to geographical location, which are also affected by the respective income reported within the table and across the identified groups. Percentage distribution of annual household consumption expenditure by main expenditure group and province Province Consumption Expenditure Total Expenditure as a % Food and Non-Alcoholic Beverages Restaurants & Hotels Recreation & Culture Gauteng 12% 2,4% 4,9% 19,3% Kwazulu-Natal 16,9% 1,6% 4,6% 23,1% Eastern Cape 17,8% 1,8% 3,4% 23% Limpopo 22,1% 3,0% 3,6% 28,7% Western Cape 12,6% 2,3% 5,3% 20,2% Averages 16,28% 2,22% 4.36% 22.86% Table 4: Income and Identified expenditure within targeted categories (Statistics South Africa) In order to establish what sort of “generalized” market there is within these identified sectors, one has to take the total income of the respective provincial markets with the expenditure taken from there will in turn provide an estimated market value of these broader expenditure categories. However one cannot expect to secure 100% of these categories based upon the diversity thereof, and a more conservative approach will be discussed within the marketing plan and implementation phase. Important notes regarding Table 5 include the following, Average Annual income is expressed in South African Rands (ZAR), and refers to the averages of the samples taken by Statistics South Africa; Annual percentage expenditure is based upon the three sectors of expenditure mentioned above being that of Food & Non-Alcoholic Beverages, Restaurants & Hotels, and Recreation & Culture due to the fact that the product in question, being a soft drink may well fall within all three of these categories; and finally the Generalized Market Monetary Value is the calculation of the percentage of expenditure in relation to income, and represents the value of expenditure per household on an annual basis and encompassing the abovementioned sectors which are relevant to the product in question. Naturally the full amount of such monetary value cannot be expected in terms of market value specifically for one product, however it provides a starting point for projections in terms of targeted demographics, and resultant income from sales and supply of the Kofola product. Additionally it is important to point out the fact that these are per household figures, and provide a market value per household and not the entire market value itself. Percentage distribution of annual household consumption expenditure by main expenditure group and province Province Ave. Ann. Income (ZAR) Ann. % Exp. (Table 4) Generalized Market Monetary Value (ZAR) Gauteng 111,079 19,3% 21,438 Kwazulu-Natal 58,511 23,1% 13,516 Eastern Cape 47,930 23% 11,024 Limpopo 36,386 28,7% 10,443 Western Cape 135,029 20,2% 27,276 Averages 77,787 22.86% 16,739 Table 5: Market Value of identified consumption sectors in accordance with annual income as per identified provincial demographics. Marketing Plan In order to successfully enter the South African market, the above described demographics as well as specific population group data needs to be taken into account in terms of targeting the right consumer and more so due to existing competition within South Africa, being that of the Coca Cola company. Coca Cola recently relocated their regional headquarters from London to Johannesburg, based upon the company’s “confidence in the future of Africa” (Mahajan 2009). The fact that Coca Cola within South Africa has been around since 1940 (Coca Cola Sabco) certainly presents a threat in terms of market entry in challenging this longstanding competitor within the South African market. This has been evident in the failings of Pepsi to enter into this market too, as laid out by Kabokoane (1997) and a possibly more strategic and innovative approach should be considered within this market entry and marketing plan to maximize the potential of successful entry into the market in question. SWOT Analysis The relevant analysis of Strengths, Weaknesses, Opportunities and Threats is required to maximize possible market entry opportunities as well as establish contingency and alternatives for the threats and weaknesses within Kofola’s approach to the South African market. Strengths The Kofola company is not a “new” or fledgling company in that as previously provided the company has been successfully marketing their specific cola brand to the Czech and Slovak market, and has proven to be experiencing a resurgence within this market. The brand is in excess of 30 years old allowing to draw from experience, especially during the preceding period of revitalizing the brand as a whole. Specific targeted market, aiming at the higher end ‘Sportsman’ market that has the necessary disposable cash to purchase the product. Targeted geographic campaigns, aiming at the higher income and employed regions within South Africa. Weaknesses New player within the soft drink industry within South Africa, unknown with no real brand awareness and name. Not as financially strong as Coca Cola within the South African market. Possible distribution problems, due to Coca Cola contracting the bottling company for their deliveries and distribution – almost on a monopolistic basis. Opportunities As compared to the traditional on tap availability, similar to that of Draft beer, Kofola stands to introduce a novel concept into the South African market. Directly compared to existing dispensing machines, commonly referred to as soda fountains, have proven to provide an ineffective mix of soda water and the respective syrups for each of Coca Cola’s products Coca Cola remained within South Africa during the Apartheid era, when many other multinational companies had withdrawn, this may carry a perception of the Coca Cola brand amongst the marginalized population, allowing for Kofola to present a “fresh” alternative to the Coke brand. The lower sugar content, and perceived effects of high sugar content softdrinks can be utilized within Kofola’s favour, additionally the fact that the drink is less sweet in taste may well allow for a sector of the existing and opposing markets to be drawn towards the Kofola product. Threats South Africa’s volatile labour market requires specific and necessary attention. Coca Cola’s dominant position may deter from marketing efforts and initiatives within the South African market. Distance between focus areas is relatively large, allowing for an increase expense within the distribution costs within South Africa. The addition of other brands and products within the soft drink beverage market will naturally also stand to threaten the progression of the Kofola brand in South Africa. Although the aforementioned SWOT provides one with the basis of key areas required for focus and possible strategic alternatives, they are in no means isolated within the dynamic South African environment. Testimony lies in the fact of the recent World Cup 2010, held within South Africa amidst the fears of crime and violence, which in effect never really came to fruition. Marketing Strategy Arguably one of the most important aspects of a suitable and effective market entry, is that of strategy, and the necessary measurement of objectives to ensure the focus and objectives of the product launch and market entry are on track and as effective as per the original plans and objectives. The specific marketing strategy must furthermore take into account the market segment that is being targeted, as laid out by the analysis of the demographic information of South Africa, within the targeting of specific areas, which indicate a higher income level, as well as a high expenditure on the defined areas as previously provided. Therefore in terms of marketing strategy and more specifically the targeted segmentation of the South African market, Kofola will be focusing upon a “geo-targeting” strategy, aimed at the key economic areas of South Africa and as represented by the top five provinces in economic standing. As per Table 5 and consisting of the areas of Gauteng, Kwazulu-Natal, Eastern Cape, Limpopo and Western Cape. The natural starting point and base of operations within each of these provinces is represented by their respective centers, being that of Johannesburg, Durban, Port Elizabeth, Polokwane and Cape Town. Each of these cities serve as the respective provinces’ economic centre and capital and make logical sense to establish base operations for the marketing efforts from these locations. In so far as market share is concerned, Kofola will be aiming to secure a set level of sales that will cover the market entry initiatives and objectives and progress once established into a more aggressive marketing and advertising campaign. Full details regarding budgeting and expenditure, with forecasted sales and income are recorded as per the marketing budget below. Marketing Message, Differentiation and Campaign The entire campaign will center on aiming to get consumers to not only try the Kofola product, but appeal to their sense of a lower sugar content and great thirst quenching flavor of the product. Additionally the product is manufactured utilizing natural ingredients for flavoring. According to JMImport.com, a Canadian import company the following is reported on their website: “Kofo syrup, the main ingredient of Kofola, consists of 14 natural ingredients (such as extracts from apple, cherry, currant, or herbal aroma), sugar, and caramel. In comparison with Pepsi or Coca-Cola it contains 30% less sugar, 50% less caffeine and it does not contain phosphoric acid.” (JM Import). These facts serve as the central theme of the marketing message as well as the product differentiation from the Coca Cola Classic product. Hence not only will Kofola be able to concentrate on the lowered sugar, but also the lesser caffeine content, the lack of phosphoric acid and the natural ingredient flavoring of the soft drink. The fact that the product uses natural ingredients within the manufacture of the syrup can also result in slight variations on a year by year basis, as provided by Saer (2008). This fact can serve to highlight the truly unique nature of the product in question and serves to enforce the natural ingredient factors, which are affected by the respective climate within which the base ingredients are produced. Marketing Budget The following issues pertaining to the marketing budget have not taken operational issues such as distribution of stock into account, but rather focus on key elements within the range of marketing and promotional activities. The components of the marketing budget are based upon Point of Sale promotions, sport endorsement and sponsorships, online/internet campaign, print and television promotion. The structuring of the marketing budget further allows for an ongoing campaign to achieve a “top of mind” aim within the beverage industry. Although the use of co-branding has often proven to be successful consumer products, at this point in time the Kofola brand will be focusing on the beverage alone with possible future activities considering such co-branding. The following marketing budget is calculated for the next three years, with a strong emphasis upon the launch of Kofola in South Africa, and within the respective targeted regions. Specific spending can be seen as per the time line representation, and one will further notice the emphasis upon pre and during the summer months of the South African climate. Table 6, and Figure 1, below provides an insight into the allocated marketing budget for the next three years, with the majority of the budget aimed at launch and brand awareness within the first year within South Africa. Additionally a large percentage (37%) of the budget is allocated to Television marketing and advertising, based upon the costs of production and advertising rates within this premium platform, followed by Print (27%), Radio (18%), POS (9%), Sponsorships and events (6%) and Online (3%). Marketing Allocation Amount in ZAR Television 2,000,000 Radio 1,000,000 Print 1,500,000 POS 500,000 Online 150,000 Sponsorships 350,000 Totals R5,500,000 Annual Budget Allocation Year Allocation Market Entry and Launch 2010-11 3,000,000 Year 2 2011-12 1,250,000 Year 3 2012-13 1,250,000 Total R5,500,000 Table 6: Total Marketing Budget and Allocation for 3 year period Figure 1: Budget Allocation per Category The following time line, Figure 2, serves to illustrate the timing and concentration of the various areas of marketing, as laid out above. Q4 Q1 Q2 Q3 Q4 2010 2011 2011 2011 2011 Television         Radio       Print           POS       Online           Sponsorships       Figure 2: Time Line of Marketing Expenditure in Year 1 As per Figure 2 the first year is used as illustration for the expenditure, which can be seen focuses largely upon the summer months of the South African climate, when the weather is warmer, people are enjoying the outdoors, and the traditional consumption of soft drinks and beverages in general seem to enjoy an increased level of sales. The absence of marketing activities during the second quarter allows for the measuring of efficacy of the relevant campaigns, as well as steering of the marketing campaign in general for the following summer season. The following serves as a generalization of marketing activities as per the relevant platform or media type: Television: Television advertising within prime time slots, designed around the message of uniqueness of the product, as well as the mentioned lower sugar, and caffeine levels. The depiction of adventurous, sport and athletic type genres to be incorporated within all media advertising. Radio: As per television, focusing on prime time slots, however with a more regional approach as per the defined geographically segmented regions. Print: Print advertising will also be regionally focused, as per radio. This campaign will progress throughout the year with emphasis upon the unique selling propositions and product attributes. POS: Point of Sale advertising via various retail outlets, as well as restaurants with the view of introducing the unique keg style serving of the Kofola products. Family restaurants will be focused upon, as well as retail outlets serving the defined areas. Online: Online advertising within the South African market, via social platforms and known affiliate networks, such as OfferForge and related avenues. Facebook and related platforms can be utilized to leverage this advertising and is extremely cost effective based upon the viral nature thereof, as well as the fact that this can be done on an in house basis. Sponsorships: Specifically relevant to sporting and outdoor events, as well as consumer exhibitions, focused once again upon the geographically defined regions as well as the family oriented theme and genre within the sports and cultural events. Key issues within the marketing campaigns and objectives is the fact that the budget must remain flexible for not only creating a successful campaign and brand awareness outcome but also to retain the ability to cross subsidize marketing activities and thereby focusing upon activities that are proving to be more successful than others. Measurement of the efficacy of the campaigns and activities can be realized via sales reporting, as well as the use of specific consumer research and focus groups. The added advantage of the latter allows the marketing personnel to manage the campaign effectively and add or take away to that which is providing results or underperforming respectively. References Bhorat, H., Lundall, P., Rospabé, S., & International Labour Office. (2002). The South African labour market in a globalizing world: Economic and legislative considerations. Geneva: International Labour Office. Coca Cola Sabco (Online). Coca Cola South African Bottling Company Corporate Website. Accessed entire website online on August 18, 2010 via http://www.cocacolasabco.com/ JM Import (Online). Kofola. Accessed online on August 29, 2010 via http://www.jmimport.com/kofola-soft-drink-p-163.html Kabokoane, T. (1997). Driven by fear of failure, PepsiCo corks its flat SA operation. Sunday Times: Business Times (Online). Accessed on August 6, 2010 via http://www.btimes.co.za/97/0601/comp/comp9.htm MacDonald, M. (2006). Why race matters in South Africa. Cambridge, Mass. [u.a: Harvard Univ. Press. Mahajan, V. (2009). Africa rising: How 900 million African consumers offer more than you think. Upper Saddle River, N.J: Wharton School Pub. Robbins, S. P. (2009). Organisational behaviour: Global and Southern African perspectives. Cape Town: Pearson Education South Africa. Saer (2008). Coca Cola versus Kofola and Sweeteners. Accessed online on August 20, 2010 via http://saera.blog.cz/0806/coca-cola-versus-kofola-a-sladidla Statistics South Africa (2010). Mid-year Population Estimates: 2010. Downloaded from official Statistics South Africa Website on August 13, 2010 via http://www.statssa.gov.za/publications/statsdownload.asp?PPN=P0302&SCH=4696 Statistics South Africa (Online). Income and Expenditure of Households: 2000. Accessed online on August 16, 2010 via http://www.statssa.gov.za/publications/ Tait, N., & Human Sciences Research Council. (1996). A socio-economic atlas of South Africa: A demographic, socio-economic and cultural profile of South Africa. Pretoria: HSRC. Read More