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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