Market Orientation and Company Profitability: Nivea - Case Study Example

Marketing Planning Contents Introduction 3 Marketing Audit 3 Changing perspectives in marketing planning 3 Porter’s five forces 4 Analysis of External Factors 5 Barriers to marketing Plan 7 Assessing the main barriers to marketing planning 7 Removing barriers to marketing planning 8 Marketing Plan 9 Importance of Marketing Plan 9 Marketing Mix 10 Marketing Implementation 11 Ethical Issues 12 Influence of ethical issues in Marketing Planning 12 Examples of how organisations respond to ethical issues 12 Ethics and the effect it has on marketing planning 13 Summary 13 Reference List 15 Introduction The NIVEA brand has become one of the most recognized one in the world of beauty care products. Beiersdorf, a German company owns NIVEA and the NIVEA brands was established a little more than 100 years in 1911 and presently the company operates 14 product lines that range from face creams to deodorants and from shower products to moisturizers. NIVEA for men was initially launched in 1980 and had generated significant stir in the consumer market as the products did not contain alcohol. The acceptance of the skincare products in the markets led NIVEA to launch a broad range of products for men in 1993 which were positively accepted in the market. NIVEA for men filtrated the U.K. market in 1998 and the total sales of the male skincare products accounted for £7.3 million. The sales of products have increased rapidly since then and in 2008 the sales for male skincare products was £49 million. This particular report is to consider only the male skin care products of NIVEA and the strategies that can be adopted by the company to increase its market share in the U.K. market. This report uses the academic framework of PESTLE, SWOT and Porter’s five forces to compile the marketing audit. The barriers to marketing that can be faced by NIVEA will also be discussed in the report. The third section of the report deals with the marketing mix that can be considered by NIVEA in pursuit of re-launching products. Finally, the concluding section of the report addresses the ethical issues in implementing marketing plan. Marketing Audit Changing perspectives in marketing planning Marketing planning is one of the most widely accepted technologies that have been used in the marketing literature. Traditional marketing planning looks to satisfy only the profit maximizing objective of the firms by considering only on the production perspectives and revenue stream. New marketing planning perspectives are based on customer orientation approach that seeks to maximize the customer satisfaction and customer welfare (Cravens, 2000). According to researchers like Kotler and Armstrong (2013) societal marketing has become an integral part of marketing planning by focusing on the specific needs of the consumers and coming up with strategies to fulfil them. Marketing plan helps in conducting an evaluation of the business by assessing the brand’s position in the market and the competitive position of its rivals. Porter’s five forces In case of NIVEA the first step would be to understand the present industry forces that are shaping the market for skincare products in the U.K. Porter’s five forces is a comprehensive tool to understand the competitive environment. Threat of competitive rivalry: The level of competitive rivalry is high among the existing market players. NIVEA faces stiff competition from L’Oreal, Estée Lauder Cosmetics Ltd and Beiersdorf UK Ltd. The market value of sales is £210 million for L’Oreal, £208 million for Estée Lauder Cosmetics Ltd and £204 million for L’Oreal (EuroMonitor International, 2014). These figures show that NIVEA shares a formidable market position among its competitors in the skincare market. Threat of buyers: Threat of buyers can be measured in three different aspects namely concentration of buyers, switching cost and buyer’s nature. Buyer’s power is medium because considerable product differentiation among companies allows brands to retain their loyal base of consumers. Innovation in product creation of cosmetic brands makes the overall threat of buyers medium. Product innovation is one of the key techniques that is used by companies to differentiate products from rivals. Threat of suppliers: In the U.K. market, suppliers of the cosmetic products are highly concentrated. However, major players in the market like L’Oreal and Beiersdorfs have their own set of suppliers and developing strong relationships with suppliers is one of the core aspects of the business strategies. Economies of scale and control over the market strengthen the positions of the companies. The strong brand names in the cosmetics market including Beiersdorf have control over the market which makes threat from suppliers medium. Threat of new entrants: The threat of new entrants is medium in the cosmetics market in the U.K. Barriers to entry comes from the safety regulations that are imposed by the government can act as a deterrent for new entrants in the market. New entrants are also threatened by the fact that existing companies have huge scale of operation and capital which is difficult for them to match. It is also difficult for the new entrants to acquire customers as the existing players in the market already have a loyal customer base. Threat of substitutes: Threat of substitute products is relatively high as there are multiple brands in the market which offers similar products for men. In case of cosmetics products it has been observed that majority of products related to skincare, aftershave and facial care have very close substitutes. Companies can only strive to remain competitive in the market by introducing innovative products to compete against the substitutes. Analysis of External Factors The PESTLE analysis can be used to analyze the external forces that can impact a business in its functioning. The business has no control over these external forces which can be classified as political, economic, social, technological, legal and environmental. Political: The political environment of the U.K. is one of the most stable ones which mean it is unlikely for NIVEA to face any business loss due to political turmoil. The government of the county have amended the Cosmetics Products Safety Regulations of 2008 introduced a variety of new clauses that must be used by the cosmetic companies to sell their products. The regulations are related to the use of ingredients in the product, displaying information on the containers and displaying of warning and statements of precautions. Additionally, policies of taxation introduced by the government have a direct impact on the company profitability. The U.K. government have reduced corporate taxes to 27% in 2011 from 28% in previous three years. Economic: The economic growth of the U.K. has been quite impressive in the early 2000 and it had continued till 2007. The global economic recession has reduced the rate of economic growth of the U.K. which have affected consumer spending in an adverse manner. The consumer spending on bath, shower products and facial cosmetics had shown considerable decline. In case of men’s products recession had however not produced any significant impacts. The market for male grooming products has continued to grow twice more than the market for female products in the U.K. (L’Oreal, 2010). This provides ample opportunity for NIVEA for men in the U.K. Social: The social preferences of men in the U.K. are highly favourable for cosmetics industry. In a report that has been published by L’Oreal (2010) it has been observed that 84% of men have confirmed that they have a tendency to buy personal care products for grooming. The report had described the new breed of men as “retrosexual” who combines the features of masculinity with that of personal care. The rising preference towards male grooming products has caused a 2% growth of the market. Technological: The technological factors have a big role to play in the cosmetics industry as the key market players have to constantly create new products to remain influential in the market. According to a report that has been published by EuroMonitor International (2014) it has been observed that technological advances in skincare products create possibility of creating multi-functional products. NIVEA has always been a key player in creation of innovative products. Beiersdorf has constantly committed itself to the creation of products that can be used by people with sensitive skin. Legal: The U.K. government had introduced consumer protection laws that affect the cosmetics industry working in the U.K. Few acts which can particularly affect NIVEA for men in the U.K. are Consumer Product Safety Act (1972), Fair packaging and labelling act (1966) and Federal Trade Commission Act (1914) (Crown Copyright, 2013). All these laws ensure that the cosmetics companies operating in the U.K. must comply to them in order to survive in the market. Furthermore, labour laws of the U.K. can significantly impact the cost of operation of Beiersdorf. Environmental: The government in the U.K. has introduced number of regulations to ensure that the adverse impacts of the cosmetics industry on the environment can be reduced. The Waste & Resources Action Programme aims at reducing the wastage from packaging. Furthermore, the government have also banned animal testing of products. SWOT The SWOT analysis can be used by NIVEA for men to assess the present strength and weakness of the company as well as identifying the external opportunities and threats for the company. Strength: The major strength of the company lies in the brand name it has created in the market over the last 100 years. The company is among the leaders in men’s grooming products in the U.K. market. Well developed R&D department of the company is committed to assessing the needs of men and developing products accordingly. Presence of competent staff in the company who can sell the products and financial base to support promotional activities. Weakness: Stiff competition from major players like L’Oreal and Estée Lauder Cosmetics Ltd in the market. The target audience of the company may be diverted to the use of superior products in the market. Opportunities: The market conditions in the U.K. are extremely well for NIVEA to re-launch new products. Changing outlook of men towards the use of skincare products provides ample opportunities for expansion. Recession has not impacted the cosmetics industry and consistent growth has been observed. Threats Consumers may show a preference towards using expensive skincare products for better results. New entrants in the market have become quite popular among consumers. Consumers have become extremely demanding expecting best results and meeting consumer expectations can become difficult. Barriers to marketing Plan Assessing the main barriers to marketing planning Works of researchers have shown that there are many impediments that can affect implementation of marketing plans like lack of support from the executive management, hostility in line management, failure to integrate marketing planning with the overall corporate planning of the organization and failure to relate planning process and outputs. These factors had hugely dominated the research works of 90’s. A synthesis of the existing literature reveals that there are five main components that hinder the development of marketing plans. They are barriers related to operational activities, managerial efficiency, organizational inefficiency, dysfunctional working environment and externalities in the market are the main factors which affect effective implementation of marketing plans. According to the research conducted by Hogg, Carter and Dunne (1998) it has been observed that lack of communication was one of the strongest factors that affect effective marketing planning. It has also been found that ever evolving consumer needs and dynamic marketing environment also makes it difficult to organize marketing plans. It has also been observed that lack internal marketing can also become a cause of hindrance in effective product launches. This is because often companies fail to convince their internal target audiences, create sufficient internal and external awareness about products and remove communication barriers. Poor marketing planning can occur on account of a number of external and internal forces. The external forces are the ones related to unfavourable and unpredictable political and economic forces. Internal forces are the ones which mainly affects the overall efficiency of the marketing planning. For instance, inadequate market analysis undertaken, poor grasp of the marketing knowledge and reluctance of sharing information often results in poor planning (McDonald, 1989). Removing barriers to marketing planning Multinational companies have huge financial resources and receive adequate support from senior management so the problem of resource and time constraints can be taken into account. Organizations have to focus on issues of internal marketing in order to develop a customer-focus image to ensure coherent marketing planning can be ensured. According to the research conducted by Simkin (2002) it has been found that communication is a key strategy that helps in the removal of issues of internal marketing. Effective communication can help in developing a unified sense of responsibility among employees and removes any type of organizational barriers. Complete information sharing between employees in the organization and staff motivation are key ways of removing impediments to effective marketing planning. There is a growing consensus among researchers that recommendation regarding effective implementation of marketing planning needs to be followed by organizations. A coordinated effort on the part of the senior management, external facilitators and senior management is required for overcoming the hurdles that occur in the implementation of marketing. It is now being increasingly accepted that longer-term commitment customers is a critical factor that must be considered by management for developing marketing plans. Greater focus needs to be provided the customer focus of companies to integrate the corporate strategies with the commitment to organizational success. In case of Beiersdorf, the company which owns NIVEA it can be said that the organization have considered multiple aspects before going ahead with the product re-launch. The company has taken care about the external forces in the U.K. and the changing social preference of men in favour of skincare and grooming products. Extensive market research has been carried out before the product launch based on a customer-centric perspective. Beiserdorf have realized that in order to make the product launch a successful affair it is imperative that corporate communications strategies are well developed. The company has recently merged its corporate communications and corporate sustainability departments. This can be considered as an attempt to improve the internal communication strategy to ensure that the marketing plan is successful. Beiersdorf is a multinational company that have considerable financial resources and market research data that have allowed NIVEA to overcome the problems of resource constraints. Marketing Plan Importance of Marketing Plan Marketing planning can be regarded as a set of techniques and activities and processes that allows an organization to combine its internal strengths with the opportunities provided by the external environment to achieve long-term organizational goals. Synthesis of the marketing literature shows that the concept of marketing planning has featured in the discussion of most of the researchers who have dealt with the strategic planning process (Wilson and Gilligan, 1997). According to researchers like Dawes (2000) it has been observed that planning is an important aspect in strategic marketing because it helps in comprehensive, objective and rational decision-making process that leads to better resource allocation in an organization which in turn improves the organizational performance. According to the research conducted by Booz, Allen and Hamilton (1982 cited in Lukas and Ferrell, 2000) there are seven sequential stages of product development that must be considered by managers if they want to develop new products namely development of strategy for the new product, generation of the idea, screening and evaluation of products, analysis of the business, development of product, testing and finally commercialization. Development of new products has been equated with critical success factors that are required for the success of the organization. Marketing Mix In case of NIVEA for men the primary agenda was to re-launch the men skincare products in order to enhance the market share in the U.K. McCarthy’s four P classifications can be used to explain the marketing plan devised by NIVEA Product: NIVEA for men has used the concept of product differentiation to introduce products after assessing the needs of the market for men skincare. The products that are to be developed can be considered as an extension of existing line of products based on the needs of the consumers. Innovative products are being developed by using advanced technology in four main areas of product line namely face cleanser, aftershave lotion, shaving and face care for men. Beiersdorf have a dedicated skin research centre where 500 researchers and developers work constantly for the product development (Beiersdorf, 2014). Price: There are three pricing strategy that can be used by businesses namely cost-based pricing, penetration pricing and price skimming strategy. NIVEA can use the price skimming strategy during its product re-launch. Price skimming strategy involves introducing the product at a slightly cost compared to previous prices. This is to convey the message to the customer that the products are of superior quality; uses better packaging; and are more effective formulas than previous versions. The marketing literature also suggests that the use of skim pricing also allows a business to gain maximum revenue before its competitor introduces similar products. Place: According to the report published by EuroMonitor International (2013) it has been observed that the use of internet based platforms for distribution has become very common for the cosmetics companies. NIVEA must consider on two different aspects before focusing on distribution channels: first to maximize the reach of the products to the consumers and second to achieve this in the most cost effective manner. NIVEA is bound to use its traditional centralized distribution channel for distributing to retailers. Additionally, it can use the environmentally compact trucks that use less-fuels to reduce carbon footprint during transportation. NIVEA can also use distribution channels of virtual retailers to distribute products. Promotion: The promotional strategy of NIVEA should be extremely influential in creating a major impact among consumers. NIVEA for men can use both above the line and below the line promotional strategies to promote its products. Above the line promotional strategies can be in the form of television commercials, radio broadcasting, advertising in men’s magazines and newspapers. Blow the line advertising should be in the form of distribution of pamphlets, brochures, handbills and stickers close to the point of sale. The main agenda of the marketing mix is to create a strong brand loyalty for men. PR activities like supporting football events can create opportunities of direct interaction with men improving the brand image of the products. This can help in developing an emotional connection with the target customers providing a boost to product sales. Marketing Implementation The marketing implementation plan of NIVEA for men had been carefully devised to make sure that any type of barriers in the process can be eliminated without any difficulty. The first factor was to assess the need of the marketplace and the products were developed in a manner which could satisfy the needs of the customers in the most comprehensive manner. The customer focus of the company was superimposed with the corporate objectives of NIVEA which is strongly driven by innovation. The company had improved its internal communication and articulated its vision of innovation to its employees. The R&D team has made it their motto come up with products that are significantly different from the offerings of the other competitors. Advanced formulations and ingredients have been used to produce the new products (Beiersdorf, 2014). Another issue in the effective implementation of marketing plan is to guarantee whether the specifications of legal and political authorities have been met or not. It has become mandatory in the U.K. to ensure that the cosmetics companies display all the ingredients in the packaging. The NIVEA for men product lines have ensured that the required precautionary statements regarding allergic reactions and other information are effectively disclosed on the packaging of the new products. The company have also invested a lot of money in stylish packaging of the product. It could have saved money by using simpler techniques. However, the collaboration with RPC Bramlage-Wiko engineers have allowed the packaging team of NIVEA for men to develop packages that is based on “masculine redesign” (Beiersdorf, 2014). This strategy can be considered as one which strives to create a strong brand affinity for men. Another step taken for the effective implementation of the plan is to incorporate the role of virtual or online retailers in the system of distribution. Traditionally NIVEA had always used the physical distribution system to distribute the products to the wholesalers. However, the new marketing trend suggests that online retailing has been widely used by companies to maximize the product reach. NIVEA had realized that setting up own website for selling products may turn out expensive as purchase volume would be significantly small. In order to maximize the reach of the products and keep the costs of distribution low NIVEA have used third party online retailers like TESCO and Wal-Mart. Ethical Issues Influence of ethical issues in Marketing Planning Marketers are often faced with a number of ethical issues in their profession. According to the research conducted by Chonko and Hunt (2000) there are six important ethical issues that can influence the marketing planning process namely honesty, fair pricing, personnel decisions, products strategy, fairness and bribery. Ethical decisions taken in marketing planning is extremely essential as it has a significant impact on the interests of the wide range of both internal and external stakeholders. Marketers’ needs to acknowledge the fact that social responsibility and overall ethical behaviour are part of the overall marketing planning of an organization. The established concepts of business ethics suggests that the concept of morality and ethical responsibility towards the society are the most important factors that should be considered by business (Shaw, 1997). The concept of ethics in marketing is positively correlated to the aspect of creating a good reputation among the stakeholders. Researchers have observed that influencing stakeholders and creating trust among them is one of the main reasons that prompts firms to take ethical decisions while marketing projects. It can be argued that marketing is the most important functional area in the business that is broadly subjected to social criticism (Chonko and Hunt, 2000). Therefore, it becomes extremely important to implement socially responsible behaviour in order to gain the trust from society. Examples of how organisations respond to ethical issues Many multinational corporations are subjected to a variety of ethical issues while they are conducting marketing activities. The case of Coca-Cola can be considered as one of the multinational companies that have had multiple issues in ethics regarding marketing. In 2002 Coca-Cola was accused of altering the results that were obtained from a market research study conducted to test the popularity of a product produced by Burger King. When the news became public Coca-Cola had to pay a fine of $35 million dollars to Burger King and the whistleblower in the event. Immediate impacts were observed in terms of a reduction in the share price of the company and fall in sales. In order from arresting the fall in sales of the products the company had launched 1000 new products in 2005 in an aim to retain the market share (Ferrell, 2008). Global retail giant Wal-Mart has also been accused of following unethical marketing practices by introducing make-up products for nine year old girls. Though the company had introduced environmentally products like eye-liner and mascara for children, critics had claimed that the company had pressurized appearance of children. This can be treated as the case of targeting inappropriate audience. Similarly Nestle had also come under the radar of ethical policing when the company had been noticed to charge higher prices from following cartel practices in Germany. Companies like Nestle and Kraft have been found of price fixing through cartels to raise profits. The companies had to pay a fine of 60 million Euros to resolve the case (Nieburg, 2013). Ethics and the effect it has on marketing planning The issue of consumer ethics is quite important from the point of view of marketing planning. According to the research conducted by Shaw (1997) it has been observed that there are three important aspects of consumer ethics that must be considered by marketers to win the trust of the consumers. Firstly, it is important to consider that the marketers makes honest claim about the products that are supported by the advertising and promotional campaigns. Secondly, it is important to maintain integrity and efficiency of the organization and finally it is important to balance the well-being of the consumers. It is important for marketers to be empathetic towards consumers. It has been observed that making false promises during advertising and overstating product quality are strategies which are short-sighted and cannot be successful in the long run. Consumers are also becoming extremely aware about the nature of the products that they purchase in contemporary times. It has been observed that products that are produced in an eco-friendly manner have a positive public image in the minds of consumers resulting in greater sales for the company. Therefore it is the responsibility of the marketers to respect the consumer ethics while devising marketing plans. Summary Marketing planning has become an integral part in ensuring success of new product launch. Planning before the product launch is crucial to ensure that marketers take rational and sound decision. This report has considered the product re-launch strategy of the NIVEA for men in the U.K. to find that the company must rely on the aspects of product innovation and promotion during the product launch. It has been found that the strategy of product re-launch in the U.K. is a correct one given the fact that the U.K. market for men skincare is one of the most lucrative one. The present market position of the NIVEA brand in the U.K. makes it one of the top competitors beside L’Oreal. The company is concentrating exclusively on product differentiation strategy and its R&D department is committed to meeting the customer needs. The company can follow price skimming strategy to earn high revenues just after launching the product to earn maximum profits. The message of better quality products can be brought across price skimming strategy. Promotional strategies both in terms of above the line and below the line can be followed to maximize the product acceptance. Interacting with the consumers in men’s events like football and cricket can help in creating a better bond with the customers. Finally, ethical practices must be strictly adhered to while launching the products as following unethical practices deeply affects the trust of the stakeholders which can be harmful for the sake of the company. Reference List Beiersdorf, 2014. Company. [online] Available at: < http://www.beiersdorf.com/newsroom/press-news/company > [Accessed 11 October 2014]. Chonko, L. B. and Hunt, S. D., 2000. Ethics and marketing management: a retrospective and prospective commentary. Journal of Business Research, 50, pp. 235-44. Cravens, D. W., 2000. Strategic marketing. Columbus: McGraw-Hill Higher Education. Crown Copyright, 2013. Product safety for manufacturers. [pdf] Crown Copyright. Available at: < https://www.gov.uk/product-safety-for-manufacturers> [Accessed 11 October 2014]. Dawes, J., 2000. Market orientation and company profitability: further evidence incorporatinglongitudinal data. Australian Journal of Management, 25(2), pp. 173-200. EuroMonitor International, 2014. Skin Care in the United Kingdom. . [pdf]. EuroMonitor International Available at: < http://www.euromonitor.com/skin-care-in-the-united-kingdom/report > [Accessed 11 October 2014]. Ferrell, L., 2008. Marketing ethics. [pdf] University of Wyoming. Available at: < http://college.cengage.com/business/modules/marktngethics.pdf> [Accessed 11 October 2014]. Hogg, G., Carter, S. and Dunne, A., 1998. Investing in people: internal marketing and corporate culture. Journal of Marketing Management, 14(8), pp. 879-895. Kotler, P. and Armstrong, G., 2013. Principles of marketing. New Jersey: Pearson. L’Oreal, 2010. The L’oréal UK Men’s Grooming Report 2010. [pdf] L’Oreal. Available at: < http://www.loreal.co.uk/sites/default/files/cms/2010.03.25_loreal_mens_grooming_report_final.pdf > [Accessed 11 October 2014]. Lukas, B. A. and Ferrell, O. C., 2000. The effect of market orientation on product innovation. Journal of the academy of marketing science, 28(2), pp. 239-247. McDonald, M. H., 1989. Ten barriers to marketing planning. Journal of Marketing Management, 5(1), pp. 1-18. Nieburg, O., 2013. Germany busts choc giants for price fixing. [online] Available at: < http://www.confectionerynews.com/Regulation-Safety/Germany-busts-choc-giants-for-price-fixing-ordered-to-pay-60m> [Accessed 11 October 2014]. Shaw, R. B., 1997. Trust in the balance: Building Successful Organizations on Results, Integrity and Concern. San Francisco: Jossey-Bass Publishers. Simkin, L., 2002. Barriers impeding effective implementation of marketing plans – a training agenda. Journal of Business & Industrial Marketing, 17(1), pp. 8 - 24 Wilson, S. R. M., Gilligan, C., 1997. Strategic marketing management: planning, implementation and control. Oxford: Butterworth-Heinemann. Read More