Positioning and Segmenting Positioning Penfold in China

In this assessment, you will continue to use the country and focus organisation you worked on in Assessment 1. Here you will develop the next steps in their international marketing plan.

Part 1 of Assessment 2 requires you to evaluate all realistic market entry options for this organisation in your target country market (typically at least three, including your preferred option). These options should be discussed, covering advantages and disadvantages, how they might work and reasons for adopting or discarding each one, within the context of your company and the chosen market.

In Part 2 of Assessment 2, it is now necessary to identify potential market segments (target markets) in the chosen country and consider how they might be serviced by your organisation. You must show your understanding of the concepts involved and your ability to think through and express marketing strategy options. In justifying your choice for the STP strategies, you must:

·        Explain the strategic approach you used to segment the market, and justify why you have selected particular target market segment(s) in the chosen market. These may be within the B2B sector, B2C or a combination; and

·        Identify your recommended positioning strategies for each target market.

Positioning and Segmenting Positioning Penfold in China 

Introduction

International marketing is one of the different levels of marketing. Marketing is divided into a domestic market, global market and international market. Global and international market are having similar characteristics and common crossovers are shared by them. Although domestic marketing and international marketing are very different and a lot of work and thought is required by the firm when they shift from domestic marketing to international marketing (Doole & Lowe, 2008).

In this assessment, the Chinese market is being evaluated for Penfolds. Recently, China is one of the fastest growing markets of consumption and development. The Chinese market is huge and very versatile. Hence, Penfolds needs to make a proper assessment of their target market and their positioning in the Chinese market (Schiffer, 2005).

Recently, researchers are paying attention to the marketing entry strategy of the organizations. Bishop and J.A.C.Q.U.I. (2006), stated that this research can be divided into three categories, direct exporting, direct investment and indirect exporting. According to them the most expensive form of the entry is direct investment whereas the cheapest strategy is indirect exporting.

Each company entering the market of China has to choose their own appropriate strategy. Their strategy depends upon a number of things which are unique to them, such as the potential for growth, resources of the company, their commitment, timeframe etc. All of these factors are to be considered and assessed while choosing the strategy of any company entering the Chinese market (CBBC, 2016).

Market Entry

According to Doole & Lowe, (2008) the most significant decision that any company makes while entering a new market is how they are going to enter the market. This decision affects every aspect of their business in the long run. There are various ways through which a company can enter the market. All these strategies have their own advantages and disadvantages of entering the market (Chung & Enderwick, 2001).

There are various ways through which any company can enter the Chinese market. Those market entry options are:

·       Direct sales/export

·       Agent or distributor or licensing

·       Franchising

·       Representative Office (RO)

·       Joint Venture (JV)

·       Wholly Foreign Owned Enterprise

·       LaunchPad

The three entry methods through which Penfolds can enter the Chinese market are Wholly Foreign Owned Enterprise (WFOE), Joint Venture (JV) and by using Agent/Distributor.

Using Agent/Distributor

An agent is hired to be a direct representative of your company and is usually paid either a monthly fee or commission fee for helping in representing the company and selling the products of the company whereas a distributor is not hired by the company. The distributor buys the products from the company and then they further sell it to the customers through a third party or directly. The income of the distributor is the difference between buying and selling cost.

This phenomenon is known as indirect exporting. It is a common practice for companies to export their products in China through Agents or distributor (EU SME Centre, 2013). Getting your products sold in China by some domestic agent or distributor is the cheapest way for any company to enter the Chinese market (Doole & Lowe, 2008).

There are various advantages as well as disadvantages of using agent/distributor for entering the Chinese market. Those advantages and disadvantages are listed below (EU SME Centre, 2013 and CBBC, 2016).

Advantages

·       Local presence of the exporting company is not required

·       The company can get access to the existing network of the agent or distributor

·       After-sales support can be easily provided through domestic agents or distributors

·       They can help the company in launching new products as well as in gaining the insights of the market.

·       The company is not obliged to keep the stock for the Chinese market instead agents and distributors are responsible for keeping the required stock.

·       The company only needs to keep the account of the agents and distributors, the account of the customers will be handled by the agent and distributor.

Disadvantages

·       Companies have almost no control over their representation to the target market.

·       The work of agent/distributor is to be reviewed and their queries have to be solved by the company. It increases the responsibilities of the company.

·       Having an agent or distributor requires a lot of communication and miscommunication can create disputes.

·       Partner training might be required for using agents or distributors.

·       Agents and distributors might be selling products of the competing companies to your target market.

Joint Venture (JV)

Joint Venture is to combine the value chain activities of at least two organizations for gaining the competitive advantage (Ireland et al., 2002). While making Joint Venture a company has to carefully analyze the approach which will be adopted for the alliance. In joint ventures ownership as well as the profits are to be shared by the company with the partner company (Doole & Lowe, 2008). If Penfolds chooses to form a joint venture in China then they have to first choose a company with which it would like to join hands and then it has to proceed further. Moreover, choosing a partner is a very critical process, Penfolds has to see the compatibility of their business with other companies.

According to Doole & Lowe, (2008), EU SME Centre, (2013) and CBBC, (2016) following are the advantages and disadvantages of Joint Venture:

Advantages

·       If Penfolds goes for joint venture then they will be able to benefit from the connections and resources of their partner companies.

·       It is one of the low-cost entry methods.

·       This gives more control to both the businesses involved in the joint ventures.

Disadvantages

·       Confusion can occur regarding the managerial responsibilities of the partner companies

·       If for any reason Penfolds decides to exit the market then it will be difficult for them to do so in a joint venture. Creating exit strategies is complicated in Joint Ventures.

·       Joint Ventures also gives a lot of limitation in the business operations of the Penfolds.

·       When two companies work together then they are bound to have conflicts and disputes in the management, this will create a lot of disturbance in the operations of the venture.

Wholly Foreign Owned Enterprise (WFOE)

This is one of the forms of direct foreign investment. In this method of entry, Penfolds is going to acquire assets in China and start their business operations over there. (Moosa 2002).  Penfolds will be having limited liability if they enter Chinese market through WFOE. Furthermore, they stated this is the most expensive strategy among other strategies for entering the market. It is a traditional direct investment method; it offers the benefits of getting total incomes and full control over the foreign subsidiary. This strategy takes a long time in developing and their stability rate is also higher than the other methods.

Advantages

·       Wholly owned foreign enterprise has the whole control on the operations of the organizations, they have to give no consideration to any other partners or stakeholders except for the ones they already have in their organization.

·       100% profits are taken by the firm

Disadvantages

·       Costly and time-consuming

·       Talented is to be recruited by the firm for the new enterprise

·       Penfolds will not be getting any assistance from any partner since they are alone.

·       Owner of the Penfolds and their key employees might have to shift to China. (CBIZE, 2018 & EU SME Centre, 2013)

Market Entry of Penfolds

There are three realistic options for Penfolds to enter the Chinese market. Among all three of them, Penfolds should go for a joint venture. Joint Venture is the recommended option because it gives control to the firm. Moreover, Penfolds itself is going to represent their products. Equity joint venture and cooperative joint ventures are the two forms of joint ventures which are usually formed in China. In the equity joint venture, profits, risks, and losses are shared among the partners according to the equity stakes of the partners whereas the cooperative joint venture is more flexible and the sharing of profit, risk, and losses is according to the contract, made by firms for the joint venture (PwC, 2018).

Potential market segments

Market segmentation is a central concept in marketing. Most of the marketing activities are depending upon the market segmentation of your business (Wedel & Kamakura, 2000). Marketers know that all the customers of their target audience of a specific product are not similar. They all differ in different terms, such as demographics, location, attitudes etc. Segmentation of the market allows firms to focus on the needs and wants of those segments and deliver those appropriate products or services (Pickton and Broderick, 2005).

Wine market of China is huge and is not a unified market because China is owning the second largest territory in the world. China has people of different culture, religions, nation and their wine market has significant differences among the people. It is very important for Penfolds to choose their market segments and focus on them (SÜMEGI, 2011).

Wine market can be segmented in several ways. According to Jain et al., (2012), most commonly used way of segmenting your market is according to seven factors, demographic factors (income, age, gender, etc.), consumption patterns (casual, rare or heavy users), geographic factors, psychological factors (lifestyle, traits of the personality etc.), socio-economic factors (social class, family etc.) , perceptual factors or brand loyalty patterns. Moreover, the wine market is mostly segmented on the basis of the benefits gained from the produce, usage of wine, demographics, and lifestyle of the consumer (Bruwer et al., 2002).

Demographic segmentation of the market

Wine consumption is influenced by the complicated and culturally bounded factors. Heaviest wine consumption is done by the people who are well educated, having high incomes and are living in urban areas (Felzensztein et al., 2004). Furthermore, in most of the studies, wine buying is linked with the masculine behavior and is used for building a business relationship (Richie, 2007). Moreover, wine is associated with the older consumers (Charters & Pettigrew, 2006; Ogbeide & Bruwer, 2013).

In a study, it was found that in Chinese wine market women are more aware and knowledgeable about wine than males (Li et al., 2011). However, another study was conducted by Liu and Murphy (2007), in which they found that wine buying is perceived as a role of man and it is said to be more masculine (Bretherton & Carswell, 2001). Wine consumers in China are usually well educated and wealthy. (Gong et al., 2004; Balestrini & Gamble, 2006). Furthermore, Camillo (2012) stated that the age of Chinese wine consumer is between 19 and 35 years old.

Benefits sought segmentation of the market

Wine is a complex product and different attributes are utilized in wine buying behavior, such as taste, the content of the alcohol, age of the wine, color, brand, and country of origin.  (Geraghty & Torres, 2009; Goodman, 2009; King et al., 2012).

Red wine is the most popular in Chinese wine market because it is considered healthy as well as due to the association of the red color with happiness and celebration in Chinese culture (Jenster & Cheng, 2008). Moreover, they prefer red wine because it contains a low amount of alcohol content in it and they are also linked with the traditional Chinese medicines (Pettigrew & Charters, 2010). Along with that, country of origin was also found to be a significant influencing factor in the purchase of wine in the Chinese market, especially when they are purchasing wine for special occasions (Hu et al., 2008).

Yu et al. (2009) stated that Chinese wine buyers prefer brand names and origin along with the fact that they have tasted that wine previously. Moreover, Chinese people are sensitive to the prices of the wine as well. Three segments were revealed based on product benefits sought. There are three market segments of Chinese wine market divided on the basis of benefits sought by the wine. The first segment is the external values seeking consumers, intrinsic values seeking consumers and then the last one is alcohol level seeking consumers.

Target Market

Penfolds is a premium brand. Their target market has always been the people, falling high and medium income groups, having an active lifestyle, heavy users of wine, brand loyal and aware of the wines in the market. The aim of Penfolds is to serve those customers who are demanding high-quality wines (Jade, 2010). Since Penfolds is already a premium brand their target market in China will also be the people having high income and education level. Furthermore, their age would be ranging from 19 to 35 years old. Moreover, Penfolds is going to target the people who prefer red wine. Since Penfolds is already having a good and prominent brand identity, it would be easier for Penfolds to target the brand conscious people.

Positioning strategies

 The positioning of Penfolds will be the act of designing and creating a distinct image in the minds of the target market (Kotler & Keller, 2008). Positioning strategy is made by utilizing the marketing mix variables, which are 4Ps of the marketing, Place, promotion, product, and price (Jain et al., 2012). If the Penfolds positioning in the Chinese market is successful then target market will be aware of the values of the company and is more likely to be loyal to the brand (Kotler & Keller, 2008).

            Since Penfolds is a premium brand and have that image in the mind of the consumers. It must keep the same positioning in the foreign markets. Penfolds was called “International Red Winemaker of the Year” twice in the 2000 International Wine Challenge. They have to continue this image of their red wines in the Chinese market. Since Chinese markets are red wine lover so they should make their red wines as a unique selling product. Moreover, they must keep their image as a premium brand, having higher cost and keeping the constant quality of the wine. While entering Chinese market they have a huge advantage of their logo being in red color because red color is considered as a happy and lucky color in Chinese culture. They do need to make changes in their operations and their way of doing businesses and make them in accordance with the Chinese culture but other than that their product and its positioning will remain the same.

Conclusion

There are various methods through which a company can enter the Chinese market. Some of those methods are Joint Venture, WFOE, Direct investment, indirect investments etc. Each company has to choose a method of entry according to their own preferences and business operations. Penfolds should enter the market through Joint Venture because Joint Ventures have fewer costs associated with it as compared to WFOE, and having an established partner in the market provides the company with a lot of benefits. Penfolds can leverage their partners in establishing their businesses in the market.  Moreover, China has a huge number of people. Hence, various market segments are made in the Chinese market. The two bases on which Penfolds can divide their target market are Demographics and Benefit sought segmentation.

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