The Function of International Marketing Strategies - Assignment Example

The Function of International Marketing Strategies INTRODUCTION Background In 1993, graphic designer brothers Markus and Daniel Freitag (2011) were searching for a suitable messenger bag. This was because citizens of Zurich mainly travel by bicycle, and thus the Freitag brothers needed a sturdy, waterproof bag, which they could carry their designs in while travelling in the rain. They ended up making a bag themselves, cutting the material needed from an old truck tarpaulin. This choice was inspired by the bright-colored Lorries found on the Zurich highways. For the belt of the bag, they made use of a used car seatbelt webbing, and made an edging for it out of a bicycle inner tube. This creation was the initiation of their business, transforming their solution to a personal need into a small business, which works with over 120 employees. The Freitag brothers have, in the course of this business, designed and sold numerous bags for both men and women. The first of their two lines is the classic FUNDAMENTALS, which now has over 40 models of bags. The second line was added in September 2010, the new FREITAG REFERENCE Line, one that displays the seasonal collections of this company. Besides these lines, the major concept of FREITAG brand is to offer values of quality with durability by using tough stuff, such as “truck tarpaulins, seat belts, bicycle tubes, airbags, etc” (FREITAG, 2011) that distinguish these bags from other product lines existing in the Brazil. Regarding international experience, the Freitag enterprise is now a booming success, selling bags from 350 locations across the world in Berlin, Cologne, Davos, New York, Hamburg, and Zurich (FREITAG, 2011). They also have an online shop, which adds to their revenue massively. The factory in which these bags are made is situated in Switzerland, near the cross-city highway, which was part of the initial inspiration for the first bag in 1993. This brand has become well known and loved in several locations across the world, especially Japan and England, all in a span of just a few years. The main headquarters is in Zurich, in the country to which it not only belongs but also one with one of its highest number of consumers. Like every business, Freitag has had its setbacks and shocks during periods of recession. The solution it chose to such problems was diversification and expansion in geographical markets, rather than reducing the existing operations. For such expansion, the board of directors is currently searching for the right locations. As a Freitag employee, I would like to suggest the Brazilian market to them. There would be several benefits of entering this market, of example the high population and further expected growth rate, the free market economy, their exchange rate, highly developed telecom sector, and finally, Brazil’s elevated purchasing power parity. Initially, Freitag will capture 8 to 9 percent of the market, a goal that it plans to achieve by the time their second year-ends. After this is achieved, it will move on to establishing itself as a fashion brand. The cities it will initially be introducing its product to will be the large cities of Brazil, for example Brasilia, Sao Paulo, Salvador, Rio de Janerio, Manaus, Curitiba, Belo Horizonte and Rio de Janerio. It will offer these new customers a retail price of 100 Brazilian real, and will present its product as being innovative, refreshing, and tailored according to the specifications of the young, lively customers. The promotion of this brand will be done through various modes of advertising. These will include television advertisements, radio ads, banners and billboards as well as promotion through educational activities and other public relation activities. Furthermore, it would have to plan its immediate expenditures carefully. According to the plan, 20 percent of its initial revenue would go into R & D, which would be pertinent especially to the first two years. If the company performs as planned in this new market, it would be able to break even within the first three years. This of course, would be contingent on their success with their 2.5 million connections, and having costs and revenues as budgeted. This would then give it the green light to expand business further to more parts of Brazil. Reasons of Selecting Brazil Foreign fashion providers previously did not meet with optimistic future prospects in Brazil. The retail sector was highly divided and thus weak. Additionally, there was also a shortage of capacity for storage, which further dimmed their prospect. These aspects have recently seen a positive change, in addition to the liberalization of trade, improved infrastructure and several other factors, all of which combined have greatly facilitated the economy. These reasons facilitate the entry of new products as well as the development of existing brands. Currently, Brazil offers a very profitable market to fashion business (Lymbersky, p. 83, 2008). The market for fashion, such as FREITAG bags is also seeing a similar positive turn due to many factors, such as increasing number of emigrants, young population, and the rising income per capita. All these factors are creating such a demand together that bag suppliers from all over the world look to satisfy this demand leading to tough competition. Understanding these conditions can be a helpful step towards understanding the prospects of Freitag brand in the region of Brazil, especially in terms of the opportunities and threats to this enterprise from the concerned environment. Thus, the report has been compiled using mostly localized and regional data, which studies the individual markets of Brazil. It aims to find and explore the market strategies, which are pertinent to this region and which of these would be the most helpful for Freitag. Furthermore, the report elaborates on those issues, which Freitag needs to resolve, and those areas, which it needs to work on in order to be in shape for a successful market entry. These include the main reason for choosing this particular market segment, competitive advantage in the market and plans for maintaining them and the promotion strategies they have planned. SITUATION ANALYSIS Such an expansion seems to be vital for Freitag for several reasons. The effects of the recession have been extremely tough on the world economy. In addition, the local market for Freitag is approaching the point of saturation (Organisation for Economic Co-operation and Development, pp. 21-28, 2008). An advantage multinationals have in such situations is that they are not bound by economy of any one country, and can always take advantage of the economies in other countries in case a few countries are stuck by recession (Brainard & Martinez-Diaz, pp. 3-8, 2009). All these facts give Freitag good solid reason for venturing into the Brazilian market as a remedy to the current recession. This section of situation analysis will give the board of directors plenty of reason why the Brazilian market is a better option as opposed to others. PEST Analysis Political Factors Brazil’s history has not been clear from bad events, but at the same time, it has had quite a few favorable moments as well. This eventful history has now translated into a more civilized present, where the country abstains from political problems and endeavors to improve its trade balance. The US currently has the largest trade relationship with Brazil, in terms of both imports and exports. Thus, entering the Brazilian market is an indirect yet effective way of simultaneously entering the US market (World Bank, pp. 5-9, 2010). Furthermore, Brazil has difficult requirements for visa and immigration from Switzerland despite their being close allies. The foreign trade and direct investment between these two countries also brings the friendliness of their relationship into question. The Brazilian market also shows partialness to a free market economy system, which is free from government intervention as far as possible (Hirst & Hurrell, pp. 10-12, 96-103, 2005). Economic Factors There are also several economic factors, which favor this decision, such as the Brazilian economy being the eighth largest in the world. In addition, its exchange rate is undervalued, which would help exporters take advantage of the situation. The growth rate of the Brazilian economy also adds to these reasons, due to its average 5 percent growth rate. This growth rate makes the country optimistic about becoming one of the five most powerful economies in one of the following decades (World Bank, pp. 5-9, 2010). This is a completely different picture from several other countries, such as Poland, who has almost approached its point of saturation. The country also has a shortage of resources, which is negatively affecting its purchasing power parity (PPP), which consequently leads to a large increase in inflation (Myant & Cox, pp. 325-329, 2008). Another reason that the Brazilian economy is a good choice is because of its large economy and thriving economy. Finally, it is has the ninth highest purchasing power parity in the countries of the world (World Bank, pp. 375-378, 2010). This means that goods are more expensive in Brazil, which would serve as a major advantage to Freitag. Social Factors There are also several social factors, which make this decision feasible for Freitag. It is the fifth more populous country of the world, which would directly increase the number of customers in this country. Furthermore, this would give the company a larger number of potential employees to hire from, and show tremendous growth and progress without reaching the saturation point too quickly (Baskaran & Muchie, pp. 274-276, 2006). The technological education amongst the Brazilian population may be low, but they show high rates of awareness with relation to fashion (Mühlbacher, Leihs, & Dahringer pp. 98-99, 2006). Such awareness would help Freitag greatly in selling their fashionable products. In addition, the anticipated economic growth will lead to the development and enlargement of the fashion industry in this country. Furthermore, analysis has indicated that on one hand, a huge percent of Brazilian population includes people travelling from one place to another and they represent the values of rough and tough. From this aspect, socio-cultural environment of Brazil truly complements the values of FREITAG that revolve around durability and quality. Technological Factors The country also has several fashion companies and bag-making companies, but the real Brazilian market for fashion is yet to be exploited, giving Freitag further reason to begin a venture here. In addition, the lack of technological development does not interfere with this plan, because R & D is not needed there right away. In addition, since Freitag has better technological advancements than the other fashion companies in Brazil are, it would be in their favor to enter this market. These other companies have also been making losses repeatedly, as found by the World Bank (World Bank, pp. 5-9, 2010). This shows how ready Brazil is for more fashion enterprises. SWOT Analysis A SWOT analysis of Freitag is presented below, as it would appear in Brazil. Strengths The biggest strength Freitag will have is its brand name, which is famous mostly in Switzerland, but also well reputed in other countries for providing high quality products (Arestis & Saad-Filho, pp. 316-318, 2007). The technological superiority Freitag has to other Brazilian companies is also a major advantage for this company. Finally, the company plans to capture market share through a pricing strategy, which would mean that it would be able to sell more goods for the same price, from the perspective of the average buyer in Brazil. Weaknesses One large weakness of the company would be that it does not have much brand awareness in the market, and faces a limited target market. In addition, its reputation as a ‘Swiss company’ would take time for the Brazilian market to warm up to, since they will most likely by unfamiliar with it initially (McAuley, pp. 74-76, 2001). Opportunities Some major opportunities for Freitag would be the large and growing population and the technological weaknesses of the sector, as mentioned above. The losses the other related companies have been making are also examples of the opportunity for success that Freitag has in Brazil. Finally, the increasing PPL is also a promising factor for them to sell their product (United Nations Conference on Trade and Development, pp. 11-14, 59, 2007). Threats There are a few significant threats that this economy holds for Freitag. The most important of these are the compressed product lifestyle, which may limit their variety, the competition that will no doubt see an increase and finally the pressure on prices, which may end up decreasing them (Almeida, pp. 176, 188, 203-204, 2008). In addition, few local competitors in the form of local bag manufacturers may pose threats for FREITAG; however, it is an understanding that with its offering of aesthetics, durability, and quality, the new brand will be able to expand itself successful in the Brazilian market. SMART Analysis Scrutiny of resources has indicated that encouraging sustainability is one of the major corporate objectives of FREITAG that specifies the vision of FREITAG to promote the notion of a reusable society with the utilization of recycled materials; however, at the same time, ensuring quality, durability, and aesthetics in its products. The objectives of an expansion into the Brazilian market remain the same, and particularly, in line with the company’s corporate vision and objectives that will introduce the products based on values of durability, aesthetics, and quality in Brazil. MARKETING STRATEGY Objectives FREITAG employees will carefully deal with the delicate conditions while applying the marketing strategies that the company will be facing in its first two years of operation in Brazil. For these reasons, they will only be opening in the major cities of Brazil initially, like “Brasilia, Manaus, Curitiba, Sao Paulo, Salvador, Rio de Janerio, Manaus, Curitiba, Belo Horizonte, and Rio de Janerio” (FREITAG, 2011). First year objectives By the end of its first year, Freitag will aim to own 5 percent of the market share, for which it will have to sell one million units during the year. Its entry will involve it initially establishing a reputation as a bag-making company. Second year objectives Assuming that the first year targets are achieved, the second year’s aims include owning 8 to 9 percent of the market share by year-end. Also, then it would proceed to expanding its horizons, by also introducing their fashion products. Target Markets The customers that Freitag will target will range from lower middle class, all the way up to upper class. Moreover, the age group will be towards the younger spectrum, as the products are mostly designed keeping the youth in mind. For this reason, the advertising and promotion they would be doing would mostly take place in schools, colleges, and universities (Baumol & Blinder, pp. 244-248, 2008). In addition, from previous international experiences, this time, the company will be depending more on the internet tool through social networking websites that will allow efficient communication with target markets, especially the Brazilian youth. Positioning The positioning of the product in the market will be done carefully, keeping mind the young customers. For this reason, it will present the product as an exciting, lively, and fresh product, designed to attract the youthful and adventurous proportion of the population (Lascu, pp. 334-335, 2008). As mentioned earlier, Brazilian population is already near to the notion of rough and tough, and thus, it will be easier for the FREITAG to introduce its bags in the Brazilian market based on its products’ characteristics and recycling features that will make it easier for the expansion. Moreover, a huge percent of Brazilian population is youth that includes students and professionals, and thus, bags play a significant role in the Brazilian society from its status as something of need, as well as a fashion statement. Strategies Pricing The price of a Freitag bag will be around 150 US dollars, or 233 Brazilian real in a wholesale deal, whereas the retail price will be higher, at 222 US dollars or 340 Brazilian real. These rates will mirror the prices offered by other companies. However, the Freitag bags will come with special offers and seasonal packages during vacations and festival seasons. Product The product will initially be bags, available in several colors, with all their features and uses explained in a brochure. In particular, the first line will be the classic FUNDAMENTALS, which now has over 40 models of bags. The second line will be the FREITAG REFERENCE Line, one that will be displaying the seasonal collections. Besides these lines, the major concept of FREITAG bags is to offer values of quality with durability by using tough stuff, such as “truck tarpaulins, seat belts, bicycle tubes, airbags, etc” (FREITAG, 2011) that will distinguish these bags from other existing product lines existing in the Brazil. Distribution Distribution for the first two years will be in the major cities of Brazil, attempting to place the product in the retail stores situated in these cities. Marketing Mix The product launch will be by mid February 2012, with the following activities being conducted in the first five months: January New Year will bring with it an advertising campaign that employs 0.5 million dollars, and displays banners as well as radio and TV advertisements in the major cities, a campaign, which hints towards the change of year bringing another pleasant change as well. By the end of January, these sources will introduce the name of Freitag. February In February, the promotional teams will also start advertising in malls as well as schools and colleges. The product would then be placed in the market by mid February. March This month will just see an expansion of distribution channels, as well as continuing previous strategies. April The promotion in educational institutions will increase, with focus increasing on young customers and related youth entertainment channels. May The advertising will start employing Brazilian supermodels and other famous celebrities to endorse the product, while at the same time broadcasting messages to the Brazilian public, thanking them for their overwhelming response to the product. Marketing Research Initially, 20 percent of the revenue that Freitag makes will be invested in R & D, to weed out any flaws in the strategies and to streamline the process employed. After two years of this, they will switch to researching with 20 percent of the profit instead of revenue. FINANCIAL PROJECTIONS While accounting for operating costs and revenues as well as fixed cost and income, it is anticipation that a 50 million US dollar investment would be required to maintain the desired networks in the major cities (Grigoriou, pp. 256-259, 2003). It would be earning around 50 dollars per product, leading to 125 million dollars of profit in one year (Czinkota & Ronkainen, pp. 401, 2007). IMPLEMENTATION AND CONTROL The company will be working continuously to fix any flaws and take care of the customer satisfaction levels. Furthermore, the expenses and sales will be under close monitoring for any responses to specific strategies and any trends observable (Frucht, pp. 246, 2005). In the initial stage, the FREITAG will focus on quarterly budgets to make its decisions due to sensitivity of the project; however, as the company will enter the maturity stage of its expansion, the focus will then be on half-yearly or even annual budgeting to take significant decisions in terms of opening manufacturing plants or new flagship shops, etc. In addition, to ensure proper implementation, the company will carry out the control process that will include establishment of standards, assessment of performance, comparison of performance against established standards, and finally, recommending alterations. For this purpose, the company will utilize the sources of observations, statistical findings, and quarterly reports to determine the situation while using both feed forward and concurrent control strategies. TABLE OF CONTENTS INTRODUCTION 1 Background 1 Reasons of Selecting Brazil 3 SITUATION ANALYSIS 4 PEST Analysis 4 Political Factors 4 Economic Factors 5 Social Factors 5 Technological Factors 6 SWOT Analysis 7 Strengths 7 Weaknesses 7 Opportunities 7 Threats 8 SMART Analysis 8 MARKETING STRATEGY 8 Objectives 8 Target Markets 9 Marketing Mix 11 January 11 February 11 March 11 April 11 May 11 Marketing Research 12 FINANCIAL PROJECTIONS 12 IMPLEMENTATION AND CONTROL 12 TABLE OF CONTENTS 13 REFERENCES 14 REFERENCES Almeida, Jorge T. 2008. Brazil in focus: economic, political, and social issues. Nova Publishers. Arestis, Philip, & Saad-Filho, Alfredo. 2007. Political economy of Brazil: recent economic performance. Palgrave Macmillan. Baskaran, Angathevar, & Muchie, Mammo. 2006. Bridging the digital divide: innovation systems for ICT in Brazil, China, India, Thailand, and Southern Africa. Adonis & Abbey Publishers Ltd. Baumol, William J., & Blinder, Alan S. 2008. Economics: Principles and Policy. Cengage Learning. Brainard, Lael, & Martinez-Diaz, Leonardo. 2009. Brazil as an economic superpower? Understanding Brazil's changing role in the global economy. Brookings Institution Press. Czinkota, Michael R., & Ronkainen, Ilkka A. 2007. International Marketing. Cengage Learning. FREITAG. 2011. Official Website of FREITAG. Retrieved on August 01, 2011: http://www.freitag.ch/shop/FREITAG/page/inside_page/detail.jsf Frucht, Richard C. 2005. Eastern Europe: an introduction to the people, lands, and culture. ABC-CLIO. Grigoriou, Nicholas. 2003. International Marketing: a practical approach. McGraw-Hill Australia. Hirst, Mónica, & Hurrell, Andrew. 2005. The United States and Brazil: a long road of unmet expectations. Routledge. Inter-American Development Bank, Organisation for Economic Co-operation and Development. 2006. Competition law and policy in Latin America: peer reviews of Argentina, Brazil, Chile, Mexico, and Peru. OECD Publishing. Lascu, Dana-Nicoleta. 2008. International Marketing. Cengage Learning. Lymbersky, C. 2008. Market entry Strategies. Management Laboratory Press. McAuley, Andrew. 2001. International marketing: consuming globally, thinking locally. Wiley. Mühlbacher, Hans, Leihs, Helmuth, & Dahringer, Lee. 2006. International marketing: a global perspective. Thomson Learning. Myant, Martin R., & Cox, Terry. 2008. Reinventing Poland: economic and political transformation and evolving national identity. Routledge. Organisation for Economic Co-operation and Development. 2008. Brazil: strengthening governance for growth. OECD Publishing. Organisation for Economic Co-operation and Development. 2010. OECD Economic Outlook, Volume 2010, Issue 1. OECD Publishing. Sinkovics, Rudolf R., & Ghauri, Pervez N. 2009. New Challenges to International Marketing. Emerald Group Publishing. United Nations Conference on Trade and Development. 2007. World Investment Report 2007: Transition Corporations, Extractive Industries, and Development. United Nations Publications. World Bank. 2010. Global Development Finance 2010: External Debt of Developing Countries. World Bank Publications. World Bank. 2010. World development report 2010: development and climate change. World Bank Publications. Read More