Market Segmentation of Porters Five Forces - Assignment Example

? Marketing: Case Study Table of Contents Answer 3 Introduction 3 PEST Analysis 3 Political 3 Economic 4 Social 5 Technology 5 Porter’s Five Forces6 Bargaining power of the customers 6 Bargaining power of the suppliers 6 Threat of Substitute 7 Threat of new entrant 7 Rivalry within the industry 7 Conclusion 8 Answer 2 8 Introduction 8 Country-of-origin effect 9 Conclusion 10 Answer 3.a 11 Introduction 11 Market segmentation 11 Geographic 11 Demographic 12 Psychographic 12 Behavioural 12 Conclusion 13 Answer 3.b 13 Introduction 13 Product 13 Price 14 Place 14 Promotion 14 Conclusion 15 Reference List 16 Answer 1 Introduction Macro environmental analysis becomes important for any business organization since it helps the firm in identifying the impending threat and opportunities that the firm may face in future. The macro environmental analysis is identical to all the industries and firms and that makes it inevitable for defining the parameters and the boundaries within which the competition can take place at a micro level (Baker, 2012). PEST is one of such mechanism that is used for the analysis of the macro environmental factors. Apart from this the internal analysis of the industry is also important to understand the profitability of the industry and factors impacting it (Graham, 2008). The study also focuses on Porter’s Five Forces analysis of the luxury car market of India. PEST Analysis PEST focuses on four important environmental factors that are to be scanned like political, economic, social and environmental. Each of these parameters are defined via this analysis and it influences the scope and activity of the organization. By having a broad view related to the categories that are studied under PEST the managers will be able to bring out innovative ideas and frame strategies that can fit into the situation most appropriately (Reddi, 2013; Solomon, Marshall and Stuart, 2009). Political The political factors signify the government rules and regulations that are framed and the company needs to work under that rules (Waters, 2006). The Indian automobile industry has been under the strict rules of the Indian government. In 1940 the assembly plant opened by the foreign manufacturers had been closed by the Indian government for not manufacturing car in India. The government even framed regulations regarding what type of car the manufacturers should design to protect themselves from the competition. During the period of 1950s and 1960s the industries along with the support from the government made significant effort towards the manufacturing the components to be supplied to the auto manufacturers. However, owning a car was considered luxury due to the restrictions from the government over granting licence and restricting both production and import that hampered the growth of the industry. The industry at that point of time was facing high sales tax, excise duties and custom duties on imports. In 1980s government policies and regulations were liberalised and further liberalization occurred in 1990s that allowed cars to be manufactured without licence but import restrictions remained intact. In the year 2002 new policy reforms were announced, which allowed 100% FDI in the automobile sector. In 2007 the sector emerged as a buoyant industry (Parmar and Thadamalla, 2008). Economic Until early 1980s the growth of the automobile sector was restricted. After that liberalization was initiated by the government. In 1990s economic liberalization took place that initiated growth in the sector. After the liberalization many players entered the Indian automobile market like Honda, Daewoo, Volkswagen, Toyota, Hyundai etc. Apart from the government regulations, availability of retail finance and low interest rate were the major reasons that lead to the development of the automobile industry. During the period of 2001-2006 the Indian automobile sector has shown a growth at CAGR of 18%. In 2006-07 India was at the fifth position in production of commercial vehicles. During the same period the production of passenger vehicle and commercial vehicle was 1544800 units and 520050 units respectively (Parmar and Thadamalla, 2008). The growth in the automobile sector was also due to over 9% growth in GDP. The penetration of vehicle financing was due to the growth of vehicle financing (Reuters, 2013). Social Fast growth was experienced by the automobile sector by 2007 due to the huge demand, growing purchasing power and tendency to spend. Due to the huge population of India, automobile sector became a booming sector. Previously the luxury cars were only used by the Maharaja’s but gradually they were sold to vintage car collectors. In 1970s the luxury car customers were satisfied by limited numbers of cars. In 2006 there was 37% rise in the number of Indian millionaire that instigated growth in the super luxury car segment. The number of luxury cars sold in India experienced a huge growth and was estimated to reach 10,000 units by 2013 (Parmar and Thadamalla, 2008). After the government liberalised its policies, the affluent segment of India shifted dramatically. The families having income of more than $230,000 was seen to be doubled and was seen to spread in 14 cities and inclined towards dual car ownership. Therefore the rise in affluent people and increase in purchasing power was added advantage for the luxury car market (Reuters, 2013). Technology The technological advancement in India is not only leading amongst the world but also offers challenges to some of the developed countries in the world. It is not only globalization which is great but also the technical capability and the technological development that will help the luxury car market to foster (The Economic Times, 2013). Figure 1: Sales and production trend of automobile sector (Source: Parmar and Thadamalla, 2008) Porter’s Five Forces Porter’s Five Forces is a generic framework that breaks the structure of an industry into five variables or competitive forces. The economic or competitive position of the industry is due to these five forces (Nemati and Barko, 2004; Solomon, Marshall and Stuart, 2009). The five forces are discussed below in context to the luxury car market. Bargaining power of the customers The numbers of luxury car manufacturers have increased in India due to the economic liberalization and reduction in the restrictions provided by the government. Apart from this the proportion of affluent society has also increased due to which the demand has increased (Parmar and Thadamalla, 2008). Thus the bargaining power of the customers is high since the number of choices has increased. Bargaining power of the suppliers Suppliers in case of automobile industry are the steel and plastic suppliers who provide the raw material for the manufacturing of the car. Most of the luxury car manufacturers that are dominating the market of India are based from Germany like BMW etc (Parmar and Thadamalla, 2008). They already have their own suppliers, who are generally reputed. Moreover, the luxury car needs to have the spare parts and other accessories of very good quality. So they preferably choose a reputed supplier and they pay them a good amount. Thus the bargaining power of the supplier is moderate for luxury car manufacturers. Threat of Substitute The luxury cars are bought by the affluent society who aims toward maintaining a distinction from other general class of people and to showcase their position in the Indian society. When people go for buying the car they look for brand name and price does not plays a very important role. Thus, threat of substitute is low since designing a substitute will require heavy investment. Threat of new entrant The manufacturing of luxury car requires very high investment and established brand image. Thus, the entry barrier is high. But the established international car manufacturers may get attracted towards the market of India owning to the increase in the number of high net worth individual, creating threat for the existing players. Hence the threat of new entrant is high. Rivalry within the industry The Indian Automobile industry is having a large number of players in the luxury car segment. Audi, Bentley, BMW, Rolls-Royce, DaimlerChrysler’s Mercedes Benz MayBach, Porsche and Jaguar are the major players. Thus the rivalry within the industry is high (Parmar and Thadamalla, 2008). Figure 2: Luxury car brands in India (Source: Parmar and Thadamalla, 2008) Conclusion The study shows that liberalised government policies, healthy economic environment, consistent growth in affluent society and advancement in technology has provided huge opportunity to the luxury car market to grow in India. The number of participants in this market has increased dramatically in the recent times. The competition within the industry is high and the players are trying their level best through various ways to attract the potential customers. Answer 2 Introduction The significance of country-of-origin effect is to provide an explanation that the evaluation of the product is influenced by the country from where the product has been originated. The country-of-origin has been developed from the idea that people are seen to make stereotype judgement regarding other people, country or products. A study was conducted by Schooler who tested the influence of country-of-origin on the success and acceptance of the product; found that the products are assessed by the customers in different ways that have same attributes but differed ‘made in’ labels (Lindgreen and Hingley, 2009). This section focuses on the country-of-origin effect in relation to the luxury car industry of India. Country-of-origin effect The whole idea of country-of-origin effect is based on two main concepts related to ‘made in’ label and ‘country image’. The ‘made in’ label is seen to affect the stereotype, image and reputation that the consumers or the buyers associates with the product of a certain country. It is seen that the national characteristics, culture, history, tradition, political and economic characteristics of the country, are treated as the representative of the product. On the other hand ‘country image’ is the perception made regarding the product in the country. The ‘country image’ is the total informational, inferential and descriptive belief that the customers have regarding the country. ‘Country image’ also takes into consideration the national, political, food, music, habits and other attitude of the country. The image also represents the prestige that signifies brand reputation, status and exclusivity and workmanship that signifies the production quality, ability, durability and reliability as the dimensions of the country (Solomon, Marshall and Stuart, 2009). The image of a country is regarding the sum of all esthetical and emotional qualities like the impression, idea, belief and experience that the customers have regarding the country where the product is actually being developed. These characteristics believes and the country’s image helps the consumers in understanding the production ability, design skill, style and technological innovations that occurs in the country and are expected to affect significantly the performance of the product. Therefore it can be confirmed that customers uses the country-of-origin as one of the criterions to develop their purchasing decision regarding the product (Ammi, 2013; Wachter, 2003). The success of any product that is manufactured outside the country depends upon how the manager can understand the consumer behaviours and can match their product with that. The products that are manufactured outside, the consumer behaviour are affected by the country-of-origin. In India, the luxury car industry was seen to be dominated by the German car manufacturers. Porsche has been seen to maintain their ‘made in’ tag as ‘Made in Germany’ but developing their assembly line in India. This has been done because people of India are had a stereotype belief that German cars are better than the locally manufactured car. This is because of the technology involvement and the skilled labours working in the factory. As said by Simon Anholt (n.d., cited by Parmar and Thadamalla, 2008) that if Apple, Microsoft, Nike and Coke were not Americans or if BMW, Porsche and Mercedes were not German they would not have been valuable brand. Thus to ensure the brand value and image is retained in the minds of the Indian customers the companies are seen to retain their ‘made in’ tag line and only assembling is done in India. Conclusion The company while entering into other countries apart from judging the macro environmental factors and analysing the industry, in which it is going to enter, has to also look at the consumer behaviour and consumers perception towards the product. In case of luxury cars the consumer will buy it for status symbol and making them separated from the people of common class. Thus it becomes important for them to go with the brand value and the reputation while purchasing a luxury car. Therefore it becomes important for the car manufacturers to consider the country-of-origin effect while entering any country and design their strategies accordingly. Answer 3.a Introduction A market signifies group of buyers with identical needs and requirement. In this context the market can be segregated into subgroups or segments that have users with different needs and demands. Before hitting any market with new and innovative product it is important for the manager to divide the market into groups so that they can be provided with products that caters to their specific wants and needs (Solomon, Marshall and Stuart, 2009). This section deals with the marketing segmentation strategy. Market segmentation Market segmentation is the process of dividing a broad product market into potentially attractive target markets. Segmentation is done by dividing the market into groups of customers who are having same characteristics, needs and purchase behaviour. The segmentation is generally done in four ways: firstly geographic which signifies segregating on the basis of geographic characteristics; secondly demographic, segregating on basis of sex, age and race; thirdly psychographic, segregating on the basis of opinion and attitude of people and lastly behaviouristic (Croft, 1994; Burkard, 2011). Geographic The consumer of luxury goods are seen to be more concentrated in the northern and the western part of the country. In the northern part it is almost 32% and in the western it is almost 31% (Parmar and Thadamalla, 2008). Demographic As in 2006, out of 280 million populations in the urban areas, about 1 million are luxury customers, 6 to 7 millions are very affluent customers, 9 to 10 million are mid-affluent customers and 11 to 12 million are mass affluent customers (Parmar and Thadamalla, 2008). The luxury car manufacturer looks for targeting the affluent and rich people within the age of 30 to 40 years that mainly comprises of young professionals from the segment of finance, IT, legal and medical. The young generation is also a good buyer of luxury cars (Parmar and Thadamalla, 2008). Figure 3: Indian Demographic (Source: Parmar and Thadamalla, 2008) Psychographic The luxury car manufacturers want to hit the market segment that comprises of rich and affluent people who are buys luxury car as a status symbol and showcase themselves different from the common mass (Parmar and Thadamalla, 2008). Behavioural The consumers of luxury cars give more importance to the comfort regardless of whatever price has to be paid (Rao and Krishna, 2004). Conclusion Market segmentation is the key marketing tool and the base of strategy formulation for many companies. The main objective behind segmenting the market is to analyze the market, find the opportunities and capitalize on the position. This objective can be achieved by selecting one or more target market and designing marketing activities and programs specific to the prime prospect of the business. Answer 3.b Introduction For a designing proper marketing strategy, marketing plan is also important in order to attract the customers towards the product and providing them with the competitive edge. In this regards product, price, place and promotion plays the leading role (Solomon, Marshall and Stuart, 2009). In this section the marketing plan related to product, price, place and promotion has been discussed. Product The product that is been studied in the case study is the luxury car. Buying a luxury car signifies status symbol and creating a distinguished place in the Indian society. Rich and affluent people are more inclined to buy these products. Previously luxury cars were used by the Maharajas but as time passed away and number of rich and affluent people increased and a growth in the demand of luxury products was noticed. Not only the middle age group but now the youngsters are seen to incline towards the purchase of luxury cars. Porsche began its operation in India by launching a sports utility vehicle, Cayenne and sports car, Carrera and Boxter. Price Price is an important part from the purview of marketing effort. It is the amount paid by the customers for the product (Hayes and Miller, 2011; Schultz, et al., 2009). The pricing should be done by keeping the manufacturing cost and the profit margin in mind. Proper control over price helps the company in attaining profitability and gaining market share. In 2003 Porsche first started their business in India. The sports utility vehicle was priced differently for its three different versions. The V6 version was INR 4.7 million, the S version was INR 1.6 million and Turbo was INR 8.6 million. On the other hand the sports car was priced at INR 4.7 million and above (Parmar and Thadamalla, 2008). Place Porsche used to import completely knocked down kit (CKD) from the factories located in Germany for sales in India. This was done keeping the country-of-origin effects in mind. People might not like to buy Porsche if the company manufactures the car in India and does not use the tag of ‘Made in Germany’. In 2006 they opened their first store in Delhi. Before that the company used to operate through agents. Later on they planned for expanding their business in the cities of Chennai, Bangalore, Hyderabad, Chandigarh and Mumbai. Promotion Porsche promoted their cars through Hindi movie stars. An initiative was also launched by American Express cards especially for the card holder in order to promote the cars of Porsche. The popular cricketer of India, Yuvraj Singh was presented with Porsche by the senior official of the company. Porsche also made arrangements for the customers to have a test drive of the car in Amby Valley, Pune. Safety campaigns were launched with the school children in Delhi. All these efforts were taken by the company in order to promote the car. Conclusion Here the company Porsche has examined the market very closely and then penetrated it by designing appropriate strategy. The product, pricing strategy was done keeping the consumer behaviour in mind. The promotion strategy was design by keeping the nature and culture of Indian people into consideration. Thus Porsche aims to thrive in the market by holding the emotional appeal. Reference List Ammi, C., 2013. Global consumer behavior. New Jersey: John Wiley & Sons. Baker, M., 2012. The marketing manual. Florida: CRC Press. Burkard, N., 2011. Market segmentation and branding in the hotel industry with special references to Hilton cooperation. Munich: GRIN Verlag. Croft, M.J., 1994. Market segmentation: A step-by-step guide to profitable new business. London: Routledge. Graham, T., 2008. Management accounting business strategy. Burlington: Elsevier. Hayes, D.K. and Miller, A., 2011. Revenue management for the hospitality industry. New Jersey: John Wiley and Sons. Lindgreen, A. and Hingley, M.K., 2009. The new cultures of food: Marketing opportunities from ethnic, religious and cultural diversity. England: Gower Publishing, Ltd. Nemati, H.R. and Barko, C.D., 2004. Organizational data mining: Leveraging enterprise data resources for optimal performance. London: Idea Group Inc (IGI). Parmar, D. and Thadamalla, J.S., 2008. Porsche’s Expansion in India: A Catch 22 Situation? [pdf] Available at < http://www.ibscdc.org/Case_Studies/Strategy/Market%20Entry%20Strategies/MES0079A.htm> [Accessed 27 June 2013]. Rao, V.S.P. and Krishna, V.R., 2004. Strategic Management. New Delhi: Excel Books India. Reddi, C.V.N., 2013. Effective public relations and media strategy. New Delhi: PHI Learning Pvt. Ltd. Reuters, 2013. Research and Markets: PESTLE Analysis of India 2012. [online] Available at < http://www.reuters.com/article/2012/12/11/idUS73089+11-Dec-2012+BW20121211> [Accessed 27 June 2013]. Schultz, D.E., Barnes, B.E., Schultz, H.F. and Azzaro, M., 2009. 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