Trends in Consumer Behaviors - Example

Situation Analysis Introduction to Marketing Semester 2 2013 Topic: 3 Student Name: Kai Jiang Student ID: u3067043 Tutor Name: Carla Huetter Tutorial Time: Tuesday 16:30-18:00 Tute Number: 10 Executive Summary This report is about the situation analysis of the cosmetic industry. It analyzes the approaches which would facilitate the meeting of the needs as well as the preferences of the clients as well as the strategic goals of the organization. Precisely, the paper evaluates the factors relating to both internal and external environment, and how these factors would influence the achieving of the strategic goals. While the factors relating to the internal environment are within the control of the organization, the organization lacks the control of the external ones. The paper does also address the issue of target marketing and segmentation, and this is meant to ensure that the stakeholders concentrate on the sections of the market which have the capacity to deliver optimally. In any business endeavor, appropriate pricing strategies are important. A pricing strategy ought to, among other things, address the issues relating to the overall budget, breakeven points, competition, and a variety of other market factors. Pricing strategies are closely associated with promotional strategies, and this is why the issue of promotion is addressed as soon as pricing is discussed. This explicates the most appropriate promotional activities based on the review of literature. Consequently, it does lead to the designing and implementation of the distribution strategy that is believed to have the highest chances of achieving profitability. Situation Analysis: The Cosmetic Industry 1. Industry Review Stakeholders in the cosmetic industry have been endeavouring to meet the varying needs and preferences of their clients. The situation is compounded by the clients’ need to lead luxurious lifestyles as they remain healthy. The issue of health in relation to cosmetics became prominent as researchers proved that some of the ingredients may be associated with common health challenges, especially to the skin. Among the products which have been on the limelight in the Australian market include a variety of bath cosmetics. This paper presents a market analysis which focuses on bath cosmetic. The goal is to offer reliable information to an organization referred to as Kate Flower. Kate Flower is seeking to venture in the production of bath cosmetics which will then be sold to gift shops as well as pharmacies around the country (West et al 2010, 8-9). The Size of the Entire Industry There have been several entrepreneurial endeavours towards the manufacture of bath cosmetics. This means that Kate Flower is bound to be faced with extreme competition, especially from the established organizations. Currently, the leading manufacturers of this type of cosmetics in Australia include Procter and Gamble. L, Oreal has also been recognized as a rising star in the industry and, as such, it proves to be necessary to assess the market exhaustively (Euromonitor International 2013). Other key manufacturers include Philosophy Skin Care, Molton Brown Australia, Lush Australia, MOR Cosmetic, as well as Crabtree and Evelyn Skin Care (Lush, 2013; Molton Brown, 2013). According to IBIS World (2013), the cosmetic industry has been able to generate revenue which is in the tune of $ 4billion during the 2012/2013 financial year. There are a significant number of businesses which rely heavily in on the manufacturing of cosmetics. Reliable statistics indicates that the number of such businesses is at least 1, 640, and they employ over 28, 750 individuals throughout Australia (IBIS World 2013). According to latest projections, the cosmetic industry is anticipated to grow by at least 2.9% during the 2013/2014 financial year. As such, this will result into a significant rise in revenue. Indeed, over $ 3.6 billion is expected to be realized during the financial year in question. Comparing this figure to the amount realized during the 2008/2009 financial year, the industry will have registered a 3.2% rise. This is based on the fact that a total of $ 3.1 billion was realized in the 2008/2009 financial year (IBIS World 2013). Emergent Factors Shaping the Industry In every industry, there are unforeseen factors which influence performance. While some of the factors may be arising from the internal environment, many of them are associated with the external environment. Factors emanating from the external environment are challenging to deal with since they are not within the control of the stakeholders. Emergent factors assume various forms, and this depends on the nature of the underlying premises. The factors may be political, social, economic, legal, or even technological. There are instances where all, or several of them, jointly influence the performance of an organization (Enz 2009, 53). Economic statistics indicate that inflation in the Australia has been averaging at 5.27% since 1951 (Trading Economics 2013). Nevertheless, that is an average figure for several years, and breaking down the statistics into short periods may indicate a varying scenario. For instance, during the global recession which was experienced in 2007/2008 accounting period, the Australian purchasing power was significantly eroded. The sudden increase in prices resulted into a scenario where there was a great reduction in the purchase of such luxury commodities as bath cosmetics (Trading Economics 2013). Had Kate Flower ventured into the business during that time, it would have been faced with numerous challenges considering that it would have been a new entrant. The organization would have found it difficult to secure financial resources, pay its employees, and indeed sell the finished products in the market. Households were focusing on necessities, and since bath cosmetics are not necessities parse, selling the products would have been a challenge (Euromonitor International 2013). Another important issue to consider is the fact that the Australian dollar is a strong currency. Its strength means that most of the domestically manufactured products, and especially cosmetics, are more expensive than those imported from such sources as China (Euromonitor International 2013). The fact that this is a cosmetic industry means that cultural and social factors play a significant role in its success. Cultural and social factors are way beyond the control of the stakeholders. As such, it is important to assess and comprehend such factors with precision so as to avoid waste of resources on investments which may not be realizable. Nonetheless, the Australian society is mainly westernized, and this means that individuals may find nothing unusual with cosmetics. It is a progressive society, and it can embrace varied developments in the cosmetic industry (Jones 2010, 58). In addition to the above aspects, the Australian society craves for a lavish lifestyle, but many people require that such lifestyles be coupled with health aspects so as to minimize the chances of contracting diseases. Lately, there has been an expanding middle class, and this is the most promising market that Kate Flower ought to be focusing in. This is because the demand for bath cosmetics, especially the organic ones, may outstrip the current supply (Startup Nation 2012). Therefore, it is important for Kate Flower to venture in organic products since most of the customers are insisting on such, as opposed to those which are chemically manufactured. Businesses, especially the new entrants, are required to assess the political situation of the jurisdiction where they are planning to invest. Politically, Australia is stable, and the country is relatively corruption free. The country is a multiparty democracy with a parliamentary form of government. Parliamentary forms of governance have the advantage of mitigating political tension since the Prime Minister and his cabinet are required to visit parliament regularly to explicate their take on a number of pertinent issues. Nonetheless, Australia has its own political challenges, just like is the case in many other democracies. The leadership of the country at the national level has been changing in a relatively quick succession, and this may end up eroding the confidence that individuals have in their leaders. This is because having a stable government would instil stability in all other aspects of the economy. It is also important to note that there has been the challenge of integrating a number of communities into the mainstream society. Various political leaders have been genuine in addressing the challenges that the natives face so as to mitigate tensions (Jones 2010, 56). Main Competitors With regard to investing in the cosmetic industry, two of the main competitors that any new entrant is bound to face are the L’Oreal Australia Pty and Procter and Gamble Australia Pty. These two organizations command the most significant control of the market. They are reputable and experienced by virtue of being in the industry for a significant period of time. They are financially endowed since the stakeholders have been able ensure profitability, and they can also secure significantly large amounts of money from financial institutions when they deem it to be necessary (Delwig 2012, 75). These two manufactures have been launching products constantly and consistently, and this has enabled them to win the consumers’ trust. Indeed, they have not been exhausting demand with respect to some of their products, especially where effective marketing makes clients eager to acquire the new products. An example of such a scenario is when Procter and Gamble Australia Pty launched a bath cosmetic that was said to have deep cleansing capacity. Even before the products had hit the shelves, clients were already anxious to purchase them. This did put significant pressure on the manufacturer as well as the traders (Euromonitor 2013). The scenario described above was repeated in 2011, when Procter and Gamble Australia Pty launched another bath cosmetic which was said to encompass anti-ageing benefits. Consumer demand did result into a situation where some of the traders could not secure enough products. This shows that the manufacturing of quality products, building reputation, and marketing effectively are the most important techniques of achieving profitability and growth in the cosmetic industry. L’Oreal Australia Pty has equally been enhancing its productivity, quality and marketing in the recent past. For instance, they launched such unique products as the BB Cream in 2011, and they also came up with an oil free offering during the following year. Since then, L’Oreal Australia Pty has launched such other products as Nude Magique, and the product has been unique in the sense that it comes incorporated with a self adjusting colour technology (Delwig 2012). Trends in the Industry As it has already been indicated, the tread as well as technological development in the industry indicates that the future of the production of bath cosmetics is in the manufacturing of organic products. This concept has been fitting within the aspirations of the wider Australia society. The scenario is the case since the campaign of going green and ensuring sustainability has been adopted in all aspects of the society. Even if concentrating on organic and natural products may cause a increase in the price of cosmetics, many middle-class and high income households would still purchase them. Indeed, some stakeholders in the industry have been arguing that this is the surest way of fighting cheap chemically manufactured from abroad (Jones 2010, 57). In addition to the above point, research has indicated that consumers feel more confident with the locally manufactured products than with the imported ones since it is easy to hold local manufacturers accountable in case there is a problem. That confidence means that Kate Flower should concentrate of outdoing the local manufacturers as opposed to wasting time assessing the global cosmetic industry. In order to achieve the highest level of success possible, Kate Flower ought to commence by segmenting the market so as to ensure that the stakeholders do not waste time in dealing with the unprofitable markets (Delwig 2012, 75). In order to ensure that the products fit within a framework which can be considered to be a healthy lifestyle, the manufacturers must make use of the ingredients that have been proved to be antioxidants. The manufacturers should also utilize the essential oils as these it has been proved that such oils facilitates the creation of a rejuvenating feeling every time an individual utilize them when taking a bath. Some of the other technologies which have gained prominence during the manufacturing of bath cosmetics are those which have the capacity to create unique sensory stimulation. A number of clients have noted that there are instances when bath cosmetics have motivated them to take showers on multiple occasions in a day (Hodge et al 2010, 27). According to Rau (2004), products which have the capacity to stimulate a higher amount of senses are more likely to delight the clients than those which do not achieve such a feeling. As such, it is more profitable to deal with such products since they can enable a company such as Kate Flower to take of quickly and also manage its growth. Indeed, this paradigm has resulted into a situation where manufactures have been incorporating several sensory cues while devising their formulas for their products (Rau 2004). It is important to note that the exact price of a certain bath cosmetic cannot be determined with precision. Various companies do sell products which appear to be similar on the onset for varying prices. The fact that all of them are able to make profits and sustain their business endeavours means that price is not the most important factor in the cosmetic industry. The main factor that determines the price at which the products will be sold is the technology that has been utilized in manufacturing them, the target market, as well as the current level of demand for the same (Hodge et al 2010, 27). Trends in Consumer Behaviours The behaviours of consumers with regard to the purchase and use of luxurious goods is dependent on a number of factors. These factors include their relative safety, the financial capacity of the targeted market, as well as the strategies which are utilized in marketing. Most of the clients value the purchase of products which facilitate a healthy lifestyle. This is especially because of the new health challenges which are believed to be related to lifestyle. A significant amount of products are sold through referrals. This is where a satisfied client is able to invite friends and relatives in to trying them out and the new clients become acquitted in their use (Delwig 2012, 75). Statistics have indicated that most clients insist on having the manufacturers incorporate holistic features in their products. This is meant to avail what is commonly referred to as cross category benefits which then drive the value of the items upwards. Organic products are valued by a significant number of clients due to their multi-functionality, and this aspect is not associated with harmful chemicals (Euromonitor 2013). Recently, the Australian cosmetic market has witnessed a drastic change in consumer preferences. This has been the case for all cosmetic products, and not just the bath cosmetic. Previously, the most sought after products were those that were relatively cheaper. This was the case since most of the clients were not as financially endowed as they are at the moment. Now that the situation has improved significantly, individuals have begun seeking quality products which avail much higher benefits. More specifically, bath cosmetics which are most preferred are those that have a significantly deep cleansing capability (Delwig 2012, 75). In addition to the issues discussed above, many clients value products whose use has an anti-aging effect. This is especially the case with middle-aged ladies. Men and younger generations are not concerned that much with their appearance with regard to the perception of age. As ladies grow older, they also tend to value relaxation ahead of the anti-aging effect. These are some of the issues which Kate Flower needs to consider while planning on investing in the cosmetic industry. Considering these issues carefully would enable the organization to incorporate the aspect of consumer preferences in the strategic policy. Consumers are the most important stakeholders since they are the ones who pay for the products which are manufactured. Profitability depends on these stakeholders, and it is always important to keep their views in mind (Hodge et al 2010, 27). There will also be significant profitability since with the aging population; baby boomers will be having an adequate amount of money at their disposal. Other age groups will also be having enough money to spend on such luxuries as cosmetics, especially when in search of rejuvenating as well as anti-ageing aspects. With the financial capacity in the offing, Kate Flower should undertake an exhaustive feasibility study so as understand what fits the organization appropriately (Rosen 2005, 89). According to Euromonitor (2013), the aging population in Australia means that there will be an increased demand for healthy products since there will be an aspiration for wellness amongst the consumers. This is actually the surest indication that with a unique strategic policy, Kate Flower would be able to jump start its business endeavours, make headways, and manage growth. This is in spite of the increasing competition from both the established as well as new entrants into the industry (Euromonitor 2013). 2. Target Market and Segmentation Whenever an organization equips itself with the information relating to demographics, culture, economic, political, as well as social aspects, the stakeholders are able to understand the most important aspects associated with market. A precise definition of the market is critical since as it has been indicated above, organizations engage in business hoping to leap from the market. Those who are able to understand and exploit the most significant market forces manage to achieve profitability and growth (McDonald 2007, 373). The Australian market is significantly large, and it is not yet saturated with products. a new entrant should take time to segment the market carefully and also cluster others for the purpose of facilitating an effective study of the same. Markets ought to be distinct from each other, and this should be based on the products and services that the organization is hoping to offer. The whole idea is to facilitate adequate investment in markets which appear to possess the biggest opportunity while avoiding those that the stakeholders feel that they are wastes of time and resources (McDonald 2007, 374). Kate Flower should consider segmentation to be one of the most important activities in effective marketing. Indeed, it has been established that profitability in an organization is dependent on segmentation of the market. Segmentation works best whenever it happens to be value based. Being value based means that the whole idea is based on the value of the products in question to the customers. Value based segmentation follows a series of six steps which include (Ibpus.com 2009, 43-44): 1. The determination of the most important segmentation criteria as well as the creation of the most effective natural connections amongst customer groups; 2. The identification of the value drivers which are considered to be discriminating; 3. The determination of the constraints which are considered to be personal as well as the advantages which are related to the value drivers; 4. The creation of primary segments which are based on overlaps of the needs of the customers, as well as the consideration of own internal constraints; 5. The creation of descriptions which are segmented and detailed enough so as to facilitate an easy identification on the field; 6. The development of secondary segments which are based on the important needs as well as the fences and metrics relating to the conceptual segments which are operationally separate Superior value based segmentation is consisted of unique characteristics. The number and the design of the characteristics depend of the market as well as the products in question. For cosmetics, it is important to base the segments on the potential for profitability. The attention and the amount of resources each segment receives ought to be closely related to its operational capacity as well as its ability to service itself. Needs amongst segments have been found to be different, and this is why it is important to design varying offerings (Delwig 2012, 73). The offerings should be priced differently in order to facilitate the creation of unique products which would sell the best in the market in question. Segmentation ought to be based on criteria which is identifiable so as to be in a position to separate segments as the need arises. At this point, it is evident that segmentation enables the managers to come up with enhanced pricing and marketing decisions (Delwig 2012, 78). The above discussion has indicated that segmentation refers to the idea of clustering products and markets into classes which are considerably distinct as far as the customers are concerned. Customers are always in need of varying products and services depending on factors which may be demographic, income level, or just individual states and preferences. The distinct classes of clients ought to be those which bear needs and attributes that are common. While implementing the idea behind segmentation, it is always advisable to depict similar responses with regard to the changes within the market (Karp 1974, 137). Market segmentation is valued by stakeholders of various organizations since it facilitates marketing through such components as promotion, products differentiation, as well as distribution. As it has already been stated, stakeholders are often driven by the urge to satisfy the customers’ needs and preferences. Since this cannot be achieved in an unplanned manner, the different clients’ groups ought to be assessed carefully for the purpose of coming up with the most effective arrangement (West et al 2010). The figure below, Figure 1, indicates the different approaches which are employed while segmenting a market. Figure 1: Approaches to Market Segmentation. Source: (Hill & Jone, 2010, p.162) According to the information availed by the figure above, Kate Flower ought to aim at targeting every potential client; an achievement that can be realized by undertaking an appropriate feasibility study as well as implementing the findings as is appropriate. The product can be utilized by all members of the society irrespective of their age, sex, and economic status. The important thing is to establish the most appropriate techniques through with every section ought to be approached (Jones 2010, 59). Another important finding is that while planning the marketing of cosmetics, it is important to target every member of the household in including the children, the youth, as well as the adults. This is because any member of the household may influence the purchasing decisions of the breadwinners in a manner that is significant. Nonetheless, it is evident that middle-aged ladies are the ones who are mostly obsessed with the anti-aging as well as the rejuvenating aspect of the cosmetics (Hodge et al 2010, 24). Every business organization endeavours to enhance profitability through whatever means which are possible. The manufacturer should, therefore, endeavour to cater for every section of the society by, for instance, packaging products in containers of varying quantities and branding them differently. The manufacturers should also endeavour to utilize different slogans based on the market which is targeted for a certain product. It is always important to remember that amongst the customers, there are the children, the youth, the adults, and the aged. These people have varying levels of income, and some are more informed than others. It is, therefore, to take all these factors into consideration before settling on the most appropriate marketing technique (Philosophy 2012). The SWOT Analysis Internal Focus Strengths Weaknesses Since this is a new organization, not much can be said about its strengths. Nevertheless, the search for relevant information is a step in the right direction. It is hoped that the organization will utilize the information precisely. As a new entrant, the organization is yet to establish managerial structures. The organization is yet to recruit employees, and this is may be a challenge for the organization. The organization is yet to establish an adequate mechanism for overcoming economic/market turbulence. The company is yet to make an impact in the market, and this means that the customers are yet to experience its products. The clients may have already established a strong connection with the strong organizations in the industry. External Focus Opportunities Threats The company can utilize its selling point, as it has been identified in this study, to make remarkable profits. The company can make use of the experienced workforce in the industry There is an effective communication infrastructure in the market The market is not yet saturated and with good quality products, stakeholders can make adequate profit. The economy has recovered from the global economic crisis The Australian market can become a gateway that can be utilized for exploiting markets in the neighboring countries Kate Flower will be faced with stiff competition, especially since there are financially endowed manufacturers who have been in the market for long. The market may not be embraced by the society as it is anticipated. It is often costly to venture into a market as a new entrant. The market may be faced with turbulence in the future, just as was the case in 2008/9. Other new entrants may venture into the business and exploit the opportunities available at the moment. Pricing Strategy In order for Kate Flower to succeed in the competitive market place, the stakeholders must utilize smart strategies while pricing their products. The first plan should be pricing products differently. Having identical prices for several products would discourage sales. The histogram below indicates the volume of sales when two products are priced the same and when they are priced differently. In the graph below, it is evident that when products are priced the same, they sell at 46%. On the contrary, when they are priced differently, they sell at 63% (Jones 2010, 59). Prices should also be set based on the research and analysis of the target market. As such, the marketers set prices based on the results of the research. An example of such a scenario is when the competitors price their products lowly. In such a case, it is upon the organization to adjust the prices upward or downward depending on what the stakeholders wish to achieve. The stakeholders do also have to implement penetration pricing, and this includes the setting of prices downwards in order to gain market share and attract customers. Nonetheless, the pricing ought to be dynamic so as to ensure that the organization does not incur losses (Karp 1974, 78). Promotional Strategy Once the target market has been identified, an organization ought to utilize a combination of sales promotional activities such as advertising and public relation approaches. Advertising is a communication strategy that is utilized in persuading potential clients into choosing certain products and services as opposed to others. It is a planned and consistent activity which keeps the brand and the name of the organization in question in people’s mind (Jones 2010, 59). The main reasons why organizations ought to advertise their products include the making of the product and business name popular with the public, creation of goodwill as well as a favorable image, and also inform and educate the public. Advertising does also prompt the customers to seek for more information about the products in question. Specific services and products are also addressed during the promotion endeavors. Promotion as a whole endeavors to aim at the target market, then focus the attention, interest, desire and action. In this regard, promotion succeeds where public relations are effective. The major steps towards the implementation of public relations include the setting of objectives, deciding the effective vehicle for the message, as well as the evaluation of results. Devoting adequate attention to the issue of public relations is important for the promotion to succeed (Karp 1974, 78). Conclusion The aim of this report was to come-up with an outline that can deliver optimally. The goal of the report is to avail important information to Kate Flower so that the organization can utilize the same while marketing and distributing bath cosmetics. Prior the development of the segmentation approach, it is hoped that Kate Flower will consider the report carefully since it has assessed the most critical and relevant aspects relating to profitability in the industry. These factors include the size of the entire industry as well as the external aspects which goes way beyond the control of the industry stakeholders. The aspect of completion, from both established organizations and new entrants have been considered, as well as the emergent trends associated with the industry (Jones 2010, 57). The consumer behavioural trends, especially the factors which influence their purchasing decisions have been considered carefully. This is because the customers are the most important stakeholders in the industry. Finally, this analysis has concluded that Kate Flower ought to target all the segments of the market, and the approach should be driven by an appropriate product differentiation. By doing so, it is hoped that the organization will be in a position to make headways, and also manage growth in the years to come (Hodge et al 2010, 23). References Delwig, G (2012), Active Mind: Failing Heart, Bloomington, Indiana: Xlibris Corporation, 73-76 Enz, A (2009), Hospitality Strategic Management, New York, John Wiley & Sons, Inc Euromonitor International (2013), Country report: beauty and personal care in Australia, viewed 19th Sept. 2013 from http://www.euromonitor.com/beauty-and-personal-care-in-australia/report. 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