Introducing a New Car in the Chinese Market - Report Example

Marketing of a product/ car in the Chinese market Table of contents Executive summary 3 2．Introduction - Product introduction 3 3. Method Entry – PESTLE 4 4. Limitations and challenges 4.1 Short term limitations 6 4.2 Long term limitations 6 5. Communication strategy 5.1 Advertising 7 5.1.1 Marketing mix 7 5.1.2 Promotional tools 8 5.1.3 Sales promotions 8 6. Pricing strategy 9 7. SWOT 10 8. Conclusion and Recommendations 11 References 13 1．Executive summary The development of successful marketing strategies can be characterized as a challenging task especially during periods of strong market turbulences. Marketers can ensure that their plans will be welcomed by the public/ target market by emphasizing on the local needs of customers without violating ethics. On the other hand, there are markets that are quite popular, in terms of marketing, due to their performance but also due their future perspectives. The Chinese market is such market. The entrance of a new product, a car, in the Chinese market is explored in this paper. The various aspects of the relevant marketing plan are presented and explained trying to show how the characteristics of each market can influence the structure and content of the marketing plans related to the particular market. It is proved that the specific strategic initiative, i.e. the entrance of a new car in the Chinese market, would have many chances to succeed but only if the whole process would be carefully designed and monitored through all its phases. 2．Introduction - Product introduction Automotive industry is a quite successful industry in the context of the global market. In fact, according to a report published in November of 2012, last year has been quite important for auto sellers worldwide since the sales in the industry were quite high (CBS News 2012). For this reason, the industry’s analysts have estimated that 2013 will be a year of record profits for the automotive industry (CBS News 2013). In 2013 the profits of the industry’s major competitors are expected to reach the ‘$61.4 billion US’ (CBS News 2012). The area that gives the highest profits per vehicle worldwide is North America, with ‘a profit per vehicle of $2,000’ (CBS News 2012). In Asia, the industry also shows signs of significant growth; in the particular region ‘the profit per vehicle reaches the $1,300’ (CBS News 2013), which is the second highest globally. Another report published by Forbes also highlights the continuous growth of the automotive industry worldwide. In the above report it is noted that ‘the sales of 2012 have been the highest since 2007’ (Henry 2012), a fact that reveals the industry’s strengthening, after the damages that the industry suffered in the context of the global financial crisis. The increase of car sales in USA has been related to the following phenomenon: it is not the number of vehicles that has increased compared to the past, but the profit achieved (Boudette 2012). This means that by developing effective strategies auto car makers in USA have managed to increase their profits, despite the global financial turbulences. The introduction of the new car in China is expected to be followed by high sales, even if not immediately. The country, being part of Asia where auto sales are quite high level, as explained above, has many perspectives as a target market for new cars. However, the review of the market, using PESTLE analysis, would help to identify areas on which the new car’s marketers would possibly focus so that the risks involved with the project are minimized. 3. Method Entry – PESTLE analysis Before entering the global market, a firm needs to review the conditions in the global environment. A strategic tool is available for evaluating the potentials of a market to secure a high performance for a particular product/ service: PESTLE analysis. The specific framework is based on the idea that industry environment is highly affected by six factors (Murray-Webster 2010). After checking these factors, especially as of their effects on industry’s performance, managers can decide whether the entrance of a product in a particular market should be attempted or not (Haberberg and Rieple 2007). Using the PESTLE analysis, the Chinese market would be evaluated as follows: a) Political; Chinese political environment can be characterized as stable; the new government of the country, as resulted from recent elections, aims to emphasize more on economic growth and the strengthening of the country’s position in the international community (Edwards 2013); b) Economic; the economy of China is quite powerful; in fact for a series of years, the country’s economy has been highly profitable, a fact that increases the prospects for firms that wish to enter the particular market; In a recent report it is noted that the economy of China could be possibly first within the next 20 years (Zakaria 2013). Indeed, due to its impressive performance, the Chinese economy has been highly appraised by economists worldwide (BBC News 2012). In another report, a different aspect of the Chinese economy is presented: it is noted that the country’s economy has been affected by the recent global crisis but it has started to recover, while other economies globally still face significant problems (Bradsher 2013); c) Social; in the past, social conflicts in China were a common phenomenon; the country’s government has managed to face the above challenge by emphasizing on economic growth (Edwards 2013); in this way, the conditions of life of millions of Chinese have been highly improved the last decade (Edwards 2013); d) Technological; for China technology is a core advantage; the country has emphasized on the continuous improvement of technology used in all aspects of economy, especially in infrastructure and production; a firm that would aim to enter the Chinese market would be able to respond to the continuous advances of technology in all industries (Zakaria 2013); e) Legal; in the past, strict regulations have prevented the economic development of China, at the level that foreign investors considered investing in China as an activity of high risk due to the numerous legal barriers; today, this problem has been resolved (Edwards 2013); in addition, the country has aligned its trade rules ‘with the rules of WTO but minimum requirements of capital for foreign investors remain’ (APCO Worldwide 2010, p.14); f) environmental; up today, China has made significant efforts to enforce environmental laws across its territory; still, the extremely high level of production sets obstacles to the success of these efforts. In the automotive industry of China, cars which promote sustainability have become quite popular. The new car that would enter the Chinese market would have more chances to succeed if it would include certain features related to sustainability (Zakaria 2013). 4. Limitations and challenges 4.1 Short term limitations When developing a marketing plan, a series of limitations can exist. These limitations can be related to all phases of the marketing plan, being either short term or long term limitations. The lack of adequate figures for evaluating the status of a particular industry/ market is such limitation (McDaniel and Gates 1998). Potential failures while trying to enter the product in the new market can cause delays in the plan and significantly increase its cost. Therefore, the cost of a marketing plan can be considered as a short term limitation (Lantos 2010), at the level that this cost obliges marketers to avoid failures when designing/ implementing a marketing plan. 4.2 Long term limitations Apart from the short term limitations, long term limitations can also highly affect the development of a marketing plan. The need for recall of a product a long time after it is sold, is a critical long term limitation (Lantos 2010, p.442). If the product is well designed and its production process has been closely monitored this risk would be minimized; the above issues should be taken into consideration by the marketers promoting the new car in the Chinese market. Innovation is also considered a long term limitation; a non-innovative product would have fewer chances to survive for a long time in a particular market (Yeshin 1998). In addition, the level of sales within each market is not standardized. Consumers may choose to buy more products of a specific type for a long period, but afterwards, they may decide to seek for other products of similar characteristics (Yeshin 1998). This means that the success of a product in each market cannot be quite long, unless the product’s characteristics/ benefits are periodically reviewed and updated (Yeshin 1998). For the new car that will enter the Chinese market, emphasis would be given on innovation, so that such problems are avoided. 5. Communication strategy 5.1 Advertising 5.1.1 Marketing mix Since the target market related to a particular product is identified, the development of marketing mix needs to follow (Gitman and McDaniel 2008). In the context of marketing mix, the strategy that will be followed, in regard to the product’s entry in the new market, is defined. This strategy needs to address four issues: ‘a) product; b) price; c) place and d) promotion’ (Gitman and McDaniel 2008). In the case under examination, the strategy that will be used for the new car is the following one: a) product; the new car will be unique, in terms of specific of its features, such as the technology available for controlling the environmental conditions and for notifying the driver in regard to the conditions in the external environment/ position of the vehicle; b) price; the product will be offered at its common price, which is at average level, if taking into consideration the levels of the industry’s prices; advanced versions of the car, with a series of additional benefits, will enter the Chinese market in the near future and will be more expensive; c) place; China has been considered as an ideal market for entering a new car, due to its prospects for the industry’s products but also due to the high growth of its economy; d) promotion; the promotion of the car in the Chinese market will be based on advanced promotional tools, ensuring the success of the product since the first instance of its appearance in the Chinese market. The promotional tools involved in this car’s marketing plan are described below. 5.1.2 Promotional tools A high range of promotional tools is available to marketers in all industries. In the case of the automotive industry a similar phenomenon appears. Promotional tools such ‘public relations, promotional print, advertising and direct mail’ (Briggs 2001, p.89) are used for securing the success of new products/ services in the target market. Still, the continuous development of technology in regard to all aspects of human life has resulted to the limitation of the power of the above, traditional, promotional tools and the strengthening of Internet, as a tool for promoting marketing plans in all market areas (Lamb, Hair and McDaniel 2011). Particular emphasis is given on social networking sites and blogs (Lamb, Hair and McDaniel 2011). For the particular product, the new car, such promotional tool, related to Internet, would be preferred. Of course, traditional marketing tools, especially public relations and advertising would be used for making the product known to the Chinese market. However, social media will be extensively used for supporting the car’s promotion, at the level that social media has become a quite popular means of communication. 5.1.3 Sales promotions The strategies used for sales promotions are considered as part of a firm’s communication strategy, which is also known with the term ‘communication mix’ (Trehan and Trehan 2009, p.45). In order for sales promotion to contribute in the increase of sales, it would be necessary to be aligned with the other elements of the communication mix, as for the example, ‘the direct marketing and the internet marketing’ (Trehan and Trehan 2009, p.45). The sales promotion of a product/ service can have certain implications: a) it could have ‘negative side effects’ (FitzGerald, M. and Arnott 2000, p.459) and b) its effectiveness could be harmed by ‘complementary trade promotions’ (FitzGerald, M. and Arnott 2000, p.459). When using this tool for increasing sales of the new car in China, emphasis should be given on the following fact: a) the advertising used for the car ‘should not have similarities with advertising schemes used by competitors’ (FitzGerald, M. and Arnott 2000, p.459), b) the potential side effects of the sales promotion would be taken into consideration; for example: scenes showing the car to run at extremely high speed with children inside would be avoided since such practice would not be welcomed by most of consumers. 6. Pricing strategy When trying to promote a product in the international market, there are four, possible, pricing options: a) ‘marginal cost pricing’ (Sandhusen 2008, p.463); it denotes a price that includes only the production and marketing costs of a particular product (Sandhusen 2008, p.463); b) ‘market hold pricing’ (Sandhusen 2008, p.463); it is a pricing method used in order to secure the position of a firm in its industry; this pricing method is preferred in periods of high variation of exchange rates, a fact that leads firms to the decision to ‘relate their prices to demand’ (Sandhusen 2008, p.463); c) ‘optional pricing’ (Sandhusen 2008, p.463); this is a pricing option used for products introduced in the global market. This pricing strategy is based on the following practice: in the price of the product, as available in the global market, certain benefits are included, which are not normally included in the product’s prices (Sandhusen 2008, p.463). This practice, which is common in the automotive industry, would be also used in the case under examination. The new car would be offered in its normal price but certain accessories would be included in the price. 7. SWOT In the context of strategic planning, the SWOT analysis can help to control the risks related to a particular plan. In fact the SWOT analysis framework reveals the threats and the challenges that would appear during the development of a strategic plan (Ferrel and Hartline 2010). The specific framework focuses on the importance of four factors on the success of business initiatives: ‘a) Strengths; b) Weaknesses, c) Opportunities and d) Threats’ (Ferrel and Hartline 2010, p.122). After reviewing the characteristics of each plan in regard to the above factors, a manager can ensure that major risks in regard to the plan are avoided and that the chances for the plan’s success have significantly increased (Ferrel and Hartline 2010). Referring to the Chinese market, the SWOT analysis could be developed as follows: a) Strengths; the strong economy, as followed by prospects of further growth, is the key advantage of the Chinese economy, compared to other economies worldwide; in addition, the country’s laws and ethics support FDI and the development of business activities in all industries; b) Weaknesses; in the future, China could face difficulties in facing the global market pressures, as promoted by continuous financial crisis; the country is highly based on exports, a fact that makes its economy vulnerable to unexpected or strong turbulences in the international market; c) Opportunities: the demand for new cars in the Chinese market is at quite high levels, compared to other markets worldwide, with prospects for further increase; the entrance of a new car would be welcomed by consumers in China especially if the marketing tools used for the product’s promotion would be aligned with local consumer trends and culture; according to a relevant report, the sales of cars in China is expected to be increased by a percentage of 7% during 2013 (Flannery 2013). For the period from 2001 up to 2009, the increase of auto sales in China has been continuous (see Figure 1 below), a fact that indicates the continuation of the sector’s high profitability in the future. This perspective is quite significant taking into consideration the performance, in regard to this industry, of other economies worldwide; d) Threats; the high competition that characterizes the Chinese market can be a factor threatening the success of new products; for the automotive market of China, a similar assumption could be made. In order for the new car to secure a long term growth it would be necessary for certain requirements to be met: innovation, price competitiveness, quality and excellence in customer services. Figure 1 – The level of auto sales in China between 2001 and 2009 (Source: APCO Worldwide 2010, p.5). 8. Conclusion and Recommendations According to the issues discussed above, the entrance of a new car in the Chinese market would have many chances to be welcomed by local consumers. In fact, the studies and reports published in this field have proved that the Chinese market offers many chances for high profits to new entrants, under the following terms: a) that the products/ services involved are popular locally and b) that the method of entry chosen is appropriate according to the Chinese culture and legal rules. In China, the automotive industry is highly developed, as proved through the material presented above. Moreover, the prospects of the industry are expected to further increase due to the efforts made by the government for the standardization of country’s growth. In this context, the marketing plan under examination, as based on the entrance of a new car in the Chinese market, would be expected to lead to high profits, even in the long term. Still, the challenges that the Chinese economy has to face cannot be ignored. Despite the efforts made by the country’s new government to keep the economy at high levels, the following threat exists: the continuous decline of the global market could harm the Chinese economy at a particular period of time, a risk that it is higher as the global economic crisis shows no signs of decline. Firms that would decide to enter the Chinese market at this period of time should take the following measures: a) the investment made on the relevant plan would not be too high, so that the damages in case of a failure are limited; b) the plan would be continuously monitored as of the performance of each of its phases and c) efforts would be made for identifying strategic alliances that could help the plan’s initiator to face the challenges related to this plan more effectively. References APCO Worldwide, 2010. “Market Analysis Report: China’s Automotive Industry.” November 2010. 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