Market Analysis of Royale Ltd in Australia - Case Study Example

Market analysis; Australia (Institution) (Course) (Name) (Instructors name) Date of submission Executive summary Royale Ltd is a fictitious French based LED television manufacturing company considering venturing into the Australian market. The firm has commissioned a research into the Australian market to understand the requirements, opportunities and challenges that the firm could face in entering the new market. The research has used two major tools of market analysis; Porters five forces analysis and the Geert Hofstede’s cultural dimensions. The research makes some major findings. Among them is that Australians are very culturally very different from the French. This calls for a different approach in managing Australian operations and also in handling the marketing aspect. This report makes some recommendations to the Royale management. Among the recommendations is that Royale should use a horizontal organisational structure in its Australian operations headed by an Australian assisted by French expatriates. Additionally, the report recommends a mixture of cost leadership and product differentiation strategy to meet market needs. The report concludes that the firm stands a real chance of succeeding in Australia if all the recommendations are put in place. Table of contents Market analysis; Australia 1 Executive summary 2 1.0 THREAT OF NEW ENTRANTS 4 1.1 Economies of scale 4 1.2 Brand Loyalty 4 1.3 Capital requirements 5 1.4 Analysis 5 2.0 THREAT OF SUBSTITUTES 6 2.2 Buyer loyalty 7 2.3 Analysis 7 3.0 BARGAINING POWER OF BUYERS 7 3.1 Number of customers in the market 8 3.2 Availability of substitutes 8 3.3 Analysis 9 4.0 BARGAINING POWER OF SUPPLIERS 9 4.1 Degree of supplier concentration 9 4.2 Availability of substitute inputs 9 5.0 EXISTING RIVALRY 10 5.2 Demand for product 10 5.3 Analysis 11 6.0 RECOMMENDATIONS 11 7.0 HOFSTEDE'S CULTURAL DIMENSIONS 12 References 1.0 THREAT OF NEW ENTRANTS 1.1 Economies of scale Royale Ltd has in the last decade established its name in the European LED television market alongside traditional market players such as Sony, Panasonic, Sharp, LG, Phillips and Samsung. Operating in such a huge and growing market has seen the firm increase its production capacity to meet growing demand. High technology levels in France have allowed efficient and effective production capacity for the firm thereby lowering production costs. The domination of the market by the large players and competition amongst them has seen the players move towards competitive pricing and lowering of costs. Large scale operations also afford the company a vantage point in negotiating with suppliers for raw materials. This has effectively locked out new entrants who have to contend with the high costs of setting up production lines and marketing their brands. 1.2 Brand Loyalty A number of experts in marketing agree that brand loyalty is a pressing concern both for players venturing in new markets and those already established in those markets. Consumer loyalty to existing brand determines the successful of a new brand in the new market. In this case, Panasonic and Samsung dominate the Australian LED television market which Royale has to challenge to win a share of the market. This will greatly depend on the consumers’ loyalty to existing brands. A study conduced in one of the Australian state capital cities shows that country of origin among Australian consumers is a great determinant of consumption decisions. Pappu, Quester and Cooksey (2007) write that brands originating from certain countries conjure intangible assets of liabilities in consumers’ minds shared by other brands from the same country. However, television brands had minimal association with country of origin in the consumer decision making process (Pappu, Quester and Cooksey 2007). Rundle-Thiele and Bennett also acknowledge that brand loyalty among consumers across the board in Australia is declining. This trend presents both an opportunity for Royale in challenging existing competitor and also a challenge in retaining customers. 1.3 Capital requirements The creation and development of new brand of LED television requires a relatively higher capital input than the development for the old model cathode tube television. It is for this reason that the LED television market has a relatively small number of players. The main reason being the capital requirements for the purchase and installation of high technology manufacturing plants to produce the TV sets that will sell competitively in the market. However, Royale Ltd has immense resources in human resources, finances, technology and machinery for the development and production of high quality LED television sets. 1.4 Analysis The fact that capital requirements in this industry are high implies that competition from new players is minimal. Royale possesses the financial muscle that other willing new entrants do not possess. For this reason, the firm has a unique opportunity to explore the new market. Furthermore, Australian consumers display little loyalty to brands opting for quality and value for money. This implies that if Royale enters the market through high quality products, it has a real chance on succeeding in the market. 2.0 THREAT OF SUBSTITUTES Technology growth around the world has increased the channels and means by which people can watch television. Mobile phones and internet and computers continue to be the biggest threats to LED television demand in Australia and around the world. The threat of substitution is highest in developed countries where computer use and internet penetration are high. In Australia, high speed broad band internet connection is readily available in urban areas. Mobiles phones such as iphones also present viable and convenient means for watching television hence lowering the demand for televisions. The Plasma and LCD television models also compete at a very high level with the LED TVs. 2.1 Switching costs LED televisions provide better quality images than can be provided by alternative media. Mobile phones and iphones have very small screens in comparison to LED televisions hence the images are smaller and the resolution too. Consumers have to give up the benefit of image clarity and image size when they opt for alternative media. 2.2 Buyer loyalty The invention of the iphone has revolutionalized communications and entertainment and in the process gaining a wide following. Consumers can access television programmes through the iphones on podcasts and other means. Movies and programmes can be downloaded straight from the iphone for watching. This has increased the popularity of alternate media over LED televisions. Laptops, same as mobile phones provide the ease of portability that LED TVs cannot provide. As such, the younger generation is keen on owning such a device owing to its wide use and application in day to day life. Again, lap tops and mobiles are used as fashion statements and accessories. 2.3 Analysis The younger generation is slowly taking alternative media as a must-have gadget and fashion statement leaving out television. Televisions are viewed as home accessories and not personal accessories. Televisions also do not have the multi-purpose concept that is well covered mobile phones and laptops. Royale Ltd has to address the issue of personalising their product in order to appeal to individual customers rather than households as a unit. 3.0 BARGAINING POWER OF BUYERS Industry reports indicate that households are the core clients for LED televisions. Royale Limited has to address this market segment and also identify other niche markets through product advancement. In Australia, watching television is largely a family affair where television programmes and sports are enjoyed by families rather than by individuals. This emanates from the fact that majority of households in Australia own one television set. 3.1 Number of customers in the market Australia has a population of around 21.9 million people. An average of three people makes up a dwelling/household. Television ownership per household in Australia stands at 98% (Astra 2011). In contrast, mobile phone ownership stands at 22.12 million implying that some individuals have more than one mobile phone. 34% of the population subscribes to pay TV (pay per view) where 35.5% of these subscribers are households comprising of two people. 45.5% of subscription TV households have more than three televisions per household (Astra 2011) 3.2 Availability of substitutes Australia is one of top world sporting nations that have seen the growth of sports pubs. These constitute some of the core buyers of LED televisions. Corporate organisations may also require LED sets for their office use such as during conferences. Premium tourist hotels and motels are also reliable clients who can place the products in their facilities for their clients use. 3.3 Analysis Customers wield very little bargaining power to the industry players. This is because the industry players have used pricing stratification and product line extension to address the different needs and financial abilities of the clients. This implies that Royale has to address the different market segments. Financial abilities is the greatest factor in buyers bargaining power as shown by the fact that households that can afford subscription TV can afford more than three TV sets. Therefore, Royale need to focus on transforming these TV owners into Royale clients. 4.0 BARGAINING POWER OF SUPPLIERS There are a number of television components suppliers in Australia. However, majority of them are contracted to established players such as Sony and Samsung. This alone makes them unavailable to new entrants. 4.1 Degree of supplier concentration Majority of the players are located in Sydney. However they have their reach to other major cities such as Brisbane and Melbourne. 4.2 Availability of substitute inputs The high level of technology and product specification needed in the development of LED televisions limits the availability of substitute raw materials. However, substitutability comes in form of competitors both from the local market and the international market. Countries such as Japan, South Korea, China and Malaysia are home to export based LED manufacturers who supply raw materials and parts to the industry. 4.3 Analysis The small number of suppliers as compared to the big number of players implies that the suppliers wield immense power on the players. Royale Ltd can adequately manage the suppliers bargaining power through its brand equity and interaction with end consumers. 5.0 EXISTING RIVALRY 5.1 Industry growth rate Panasonic, Sony, LG and Samsung are the largest players in the Australian market by sales volume. Competition amongst these players is mainly based on the technical aspects and prices. Due to the high prices of LED TVs. LCD and plasma TVs have emerged as very potent substitutes and competitors. On the other hand low quality and cheap Chinese models have been gradually making their way in the market. However, due to poor brand recognition and poor quality, their impact has been minimal. 5.2 Demand for product As the world becomes more technological savvy, the demand for LED TVs is growing as more and more people opt to upgrade their TV sets. In fact of majority of buyers are not first time TV owners but persons who are disposing their old models for the new LED models. Again, the green aspect of LED TV in their energy efficiency is drawing demand form environmental conscious consumers. However, critics argue that unless the intense competition forces the prices down, demand may fall down and in the process stifle innovation and investment in research and development in the industry worldwide. 5.3 Analysis Competition amongst LED manufacturers in Australia is very tight. Manufacturers are keen on explaining to their consumers the differences between plasma, LCD and LED TVs. Experts in the industry agree that the minimal technical aspects of the three technologies may not be obvious to the contemporary buyer hence product information is critical in making the buying decision fro consumers. Therefore, Royale should focus on explaining the key technological aspects that differentiate LED TVs from plasma and LCD and also that differentiate the brand from the rest. As such, the marketing communication should be primarily based on informing the market. 6.0 RECOMMENDATIONS Given that the threat of new entrants is low, the bargaining power of buyers is low, the bargaining power of suppliers is high, the threat of existing rivalry is high and the threat of substitutes is high, the recommended competitive strategy is a mixture of differentiation strategy and cost leadership. This is because the buyers in the market are faced with close substitutes in terms of plasma and LCD. Industry critics argue that majority of buyers are not well informed on the technical differences between the technologies. On the other hand, the buyers are interested in upgrading to LED TVs but are prohibited by the high prices. A cost leadership strategy will lead to lower than market prices for LED sets that will attract buyers. This strategy has to work in tandem with a differentiation strategy that aims at building on the corporate and product brand of Royale as a new entrant in the Australian market. A focus strategy is least efficient in this scenario given that LED TV market is relatively homogenous comprising mainly of the household market. 7.0 HOFSTEDE'S CULTURAL DIMENSIONS Individualism vs. collectivism Australia has the second highest individualism index at 90 after USA’s of 91. France on the other hand has a relatively lower index at 55. This indicates that the Australian society values and upholds privacy and unique identity more than the French. Australians are keener on gaining a unique identity through the products consumed as opposed to the French who are keen on association with status and social classes and units. Implications Australians, as is common with other societies that value individualism more as opposed to collectivism, value individual achievements and emotional stability is not hinged on organizations or groups. The management at Royale has to recognize this element which can be applied in the sense that monetary rewards to employees will be more effective in Australia than they are in France while non monetary rewards might be relatively ineffective. Power distance index The power distance index for France is 68 compared to Australia’s 36 and a global average of 55. The high PDI in France shows that inequality is high as compared to Australia. The inequality is evident in government, organizations and family units (Lampel, Shamsie and Kant. 2008). Such a high power distance in France implies relatively lower levels cooperation and interaction between social classes and between those wielding more power in the society and those perceived to possess little power. Implications This implies that Royale has to employ a different management strategy in Australia different from one used in its operations in France. For instance, operations in Australia will require decentralized decision making processes and participative and less direct supervision guided by the belief that Australians love and enjoy working more than their French counterparts. Uncertainty avoidance France has high UAI of 86 compared to Australia’s 48 and a global average of 62. Cultures with high UAI tend to be wary of ambiguity and truth. They therefore manage ambiguity and uncertainty with strict rules and regulations to govern its members. Such members are motivated by inner nervous energy and also tend to be emotional. This is opposite of cultures with a lower UAI such as Australia that are more accommodating to uncertainty (Soares, Farhangmehr and Shoham. 2007). Such people readily accept different opinions and individuals are not expected to express emotions and are governed by very few rules. Implications Societies with high UAI such as France are characterized by emphasis on loyalty, seniority in the workplace, risk and competition aversion. This is largely opposite of what in observable in societies such as Australia with relatively lower UAI. For Royale, the firm has to contend with the fact that Australians expect employee hiring and promotions to be based on education levels, past performance and ability to adapt to new job demands including job switching (Jaray 2006). This is fundamentally opposite of French employees who expect hiring and promotions to be based on loyalty, seniority and expertise and not individual performance. Long term orientation Australia and France have the same index of 31 in long term time orientation. Long term oriented societies are keener on perseverance, thrift and ordering relationships by status as opposed to short term oriented societies that are interested in preservation of tradition and reciprocation of greetings and favours (Czinkota and Ronkainen 2009). In this regard, the French and Australians share the same values. Implications This implies that Royale has to utilise the same strategies in time orientation in the new market as the same used in France. The management will thus have little trouble in changing its strategies when it comes to time orientation. Recommendations The high individualism index among Australians requires that Royale’s marketing policy be based on product differentiation. Persons in love with unique identities will be attracted to products that are unique and are indicative of their unique identity. As such, Royale’s marketing strategies should strive to communicate the unique aspects of Royale products that differentiate tem from competing brands. Given that Australian consumers are not very loyal to brands, this will be relatively easy to implement. Royale shall adopt a horizontal organisational structure to accommodate the low power distance index among Australians. Teamwork also may not work very well among Australians given that the people are not used to relying of social support structures to achieve their goals. The call for a horizontal organisational structure in Australian operations is also supported by the low uncertainty avoidance index. This implies that Australians do not readily accept vertical organizational structures and strict laws and regulations that are characteristic of societies with low uncertainty avoidance index. 8.0 CONCLUSION Royale Ltd has all the reasons to venture into the Australian market and do it successfully. The market is growing and economically supported to take in the LED televisions in order to upgrade. The industry is well served by existing players though there remain loopholes which Royale can utilise to gain an upper hand over other players. The management must realise the potent threat posed by substitutes and competitors. It is for this reason that the firm should seek to include other elements in LED televisions such as internet access in order to compete with alternative media such as mobile phones and computers. Internet access through television will also go a long way in creating a unique identity that the Australian population values. The operations in Australian should be headed by an Australian with French expatriates playing advisory roles. This will allow easy implementation of the social and cultural aspects that affect management and product movement in the market. References Astra. 2011. Television viewership in Australia http://astra.org.au/pages/stv-in-australia Cupitt, Margaret and Sally Stockbridge. 1996. Families and electronic entertainment. Sydney: Australian Broadcasting Authority. Czinkota, Michael and Ilkka Ronkainen. 2009. Principles of international marketing. London: Routlegde Dainty, Andrew, Stuart Green, Barbara Bagilhoe. 2007. People and culture in construction. Sydney: Routlegde Doole, Isobel and Robin Lowe. 2008. International marketing strategy: analysis, development and implementation. Sydney: Cengage Learning Lampel, Joseph, Jamal Shamsie and Theresa Kant. 2008. The business of culture: strategic perspectives on entertainment and media. Sydney: Taylor and Francis Jaray, Susanna 2006. Marketing; Australia wide. Brisbane: Bates Pappu, R, P Quester and R Cooksey. 2007. “Country image and consumer-based brand equity: relationships and implications for international marketing” Journal of International Business Studies 38, 726–745 Peng, Mike. 2004. “Identifying the big question in international business research.” Journal of international business studies. 35(4): 99-108. doi:10.1057/palgrave.jibs.8400077 Soares, Ana, Minoo Farhangmehr and Aviv Shoham. 2007. “Hofstede's dimensions of culture in international marketing studies.” Journal of Business Research 60 (2): 277–284. doi: 10.1016/j.jbusres.2006.10.018 TV industry developments you'll want to follow in 2011 http://www.ledtv.org/content/tv-industry-developments-youll-want-follow-2011 Read More