Channel Strategy of WD Electrical Appliance - Essay Example

Based on the principle theory of international marketing channels, this paper made an empirical analysis on the channel selection and transformation of WD Electrical Appliances, deeply studied the channel strategy of the company, and then concluded the basic principle and method of selecting the channel mode for a corporate to participate in the international marketing. In addition, the paper gave a creative proposal: to expand the international channel by brand building, to improve the R&D procedure by custom classification system to maintain and optimize the channel mode and giving precious reference and practical guidance to the corporate who is going to enter the international market. Keywords: WD Electrical Appliance (WD), marketing, channel strategy, research I. Overview of KYO Electrical Appliances (1) Introduction of WD WD Electrical Appliances Co. Ltd. was built in 1999, locating in Cixi City, Zhejiang Province, which is called the hometown of small household appliances. It is a company of manufacturing small household appliances integrating R&D, production and marketing. The main products are electric kettles, coffee pots and electric steamers, with the annual output of 2 million units of small appliances. WD owns its self-operation export and import rights and the products passed GS/CE Authenticate of TUV and were exported to countries and districts such as Europe, Middle East and Australia. The company covers 8,500 square meters and over 170 employees, including 55 managers. It manufactures as per the order and mainly as the OEM. The annual production value and sales in 2002 was USD 3.47 million, about CNY 28.73 million. II.Analysis on the industry environment of KYO The industry environment of KYO was analyzed based on Porter’s 5 Forces Modal: 1. Entry of new competitors The entry barrier for the electric kettle is rather low because the universal production equipment (injection model) can be widely applied in producing kinds of household appliances with injection molding. It can be switched easily with low cost. The mold manufacturing is the main restriction. The cost of a set of mold of the kettle is about CNY 0.8 – 2 million, which is not too much for investors; the economical efficiency of scale is not obvious and can be operated on small scale; with low technique and fewer components, the technical difficulty is mainly achieving the appropriate temperature controller and connecting pieces design according to the aesthetic appeal; customers are particularly sensible to the style and quality, so if the manufacturer can design a popular style, it is not difficult for them to receive orders and marketing channels by means of product development and exhibition. Therefore, the channel is not the problem. 2. Existing competitors As the competition enters a new stage, price competition is not the only competitive method. Many enterprises have realized the importance of discovering fashion trends quickly and adapting to the new direction. So they tried to reduce the development time and production cycle to manufacture products as per the market demand. Since coming into the new century, because of the changes in customer’s concepts, these competitors have switched focus from products to the system which provides product – manufacturer. Those manufacturers must equip with perfect operation mechanisms and management systems to adapt to customers’ demands such as rapid development, timely and stable supply, good presale, sale, after-sale service based on reliable quality. They have to compete at a higher level and maintain sophisticated corporate cultures and mechanisms because their competition is growing more intense. 3. Bargaining power of suppliers There is a key element in the electric kettle, the temperature controller, which insures the electrical supply is cut off within 1-3 minutes after water begins boiling based on the principle of different ductibilities of metal strips. This simple element has great market value and, at present, British STRD is the leader. The sales of temperature controllers for STRD had been over 0.1 billion pcs by July, 2002, most of which were sold in China, reassembled with “three processing and one compensation”, and then sold abroad. STRD owns patents of multiple temperature controllers and holds a good reputation among foreign kettle customers. One of the basic requirements of customers who emphasize good quality is that the kettle should use the STRIX temperature controller when they inquire. The electric kettle with STRD temperature controller has been the representative element of the high quality and stability of the electric kettle in recent years. 4. Bargaining power of buyers Buyers have strong bargaining power because of three reasons: 1) Due to numerous electric kettle manufactures on the market, the buyers often make their decision after comparison. In this case, the buyers may bargain with multiple suppliers and grasp the initiative in hand; 2) In the international market, Chinese manufacturers are familiar with most big customers, whose stable orders play a decisive role in the survival of suppliers. Because the destiny of suppliers is based on their cooperation with big customers, they try their utmost to satisfy the demands of these big customers in order to keep and build the relationship. Thus, the buyers have strong bargaining power; 3) Regarding small household appliances, the white goods market has developed into a buyer’s market either in the national or international market, the competition among those manufacturers (suppliers) reinforces the bargaining power of buyers. 5. Threat of substitute The only element that does not present any immense threat in the market is from the substitute. It is difficult to find a product which can satisfy people to obtain hot/boiled water quickly with advantages including cheap, safe, convenient, energy-saving and easy to operate features, let alone to overturn the formative consumption habit of customers by a similar product. Therefore, the electric kettle still has a long product life cycle in the international market. II. SWOT Analysis on WD Electric Appliance (1) Strength analysis The strengths of WD Electric Appliance are: With over six years of experience manufacturing electric kettles, WD well understands the developmental trends of electric kettles and can adapt to the changes in demand in the current market. In the external marketing process, they can make a preliminary contact with potential buyers and know a great deal about them, preparing specific marketing strategies and organizing marketing activities. In the thriving business district of Cixi, WD enables knowledge of supply and demand for product and technical information quickly and collects a cheap labor force, with convenient access to raw material supply and manufacturing techniques. Port advantage, it locates in the coastal area and economic development zones, so it is very convenient and swift to transport and export supplies and products, enjoying preferential policies. (2) Weakness analysis Small scale, WD has over 200 employees, with productivity of 2 million kettles, sales of USD 3.6 million. Although the enterprise with a small scale is flexible to operate and manage, being favorable to change the direction, it is adverse to the development of the enterprise in the long run. The simple structure and style of management increases difficulty in cooperating with customers, because the customers often hope to purchase similar or relevant products (producing correlation) from one or few manufacturers in order to reduce the procurement cost and improve cooperative convenience, but it is presently difficult for WD to satisfy this demand. (3) Opportunity analysis The greatest opportunity exists in the increasing total demand of the market, with the influence of western strong culture and consumption habits. Consumers in Eastern Europe have started to gradually accept the convenient, safe and swift small household appliance, the electric kettle, so there is a great potential market space. Besides the traditional stable markets in Europe, the new increasing market demand provides a good opportunity for electric kettle manufacturers, including WD. (4) Threats analysis of the enterprise (1) The first threat for WD is from its customers. The customer has many choices for their strong bargaining power and complete information on the available products, so they delete those manufacturers who can not satisfy their demand and define the substitute from the alternative list by a set of inspecting procedures. It is a disaster for those manufacturers who have been deleted. (2) The second exterior threat for WD is from the peer competitors. Because of the low entry barrier and switching cost, there are numerous electric kettle manufacturers (over 1,000 peers in China) and the competition is doubtlessly fierce. Those manufacturers are at risk to lose their customers, particularly main customers at any time in this fierce competition for customers between companies. Another threat of peer competitors is the existence of many imitators. In the product development process, although WD adopts leading strategies and takes advice from a large number of customers, this does not guarantee that it will receive the recognition of the market, so it may occur that WD spent much money on product development while not realizing the expected profit. (3) The third threat for WD is from the demand change of the market. WD adopts active product development procedures on the demand change of the market, but the half-year development period cannot keep pace with the rapid demand change of the market. It has a certain product lag on satisfying the consumption needs. III. Market entry strategy of WD (1) Prepare marketing strategy of WD As per the preceding analysis, WD shall adopt the differentiation marketing strategy for the electric kettle and related products. The marketing strategy is an organic composition of the enterprise strategy, so WD must find the breakthrough based on high degree of consensus of the product’s functions. This is required so as to improve the quality of the product and to offer the multiple styles necessary to satisfy the changeable consumption needs of the market. These elements must be addressed if WD wants to be the special manufacturer and leader of electric kettle and related products to achieve cooperation with internationally famous brands. 1. Market segmentation With over six years experience of manufacturing and marketing electric kettles, WD is aware of the demand changes of the market and the segmentation. This includes the standard of segmentation; whether it has the purchasing ability after the segmentation; and the degree of its purchasing ability. WD can make an accurate judgment with low cost on collecting the information. To WD, the standard of market segmentation is based on the cultural and consumption preferences of different countries, combined with the specific requirements and aesthetic tastes of the buyers (importing brokers). For instance, the British are generally conservative, so the products should be simple and smart and give an impression of safety and endurance. Besides the price, quality and time of delivery, AGROS and TESCO in the British market should also focus on whether the quality control system, security system, production environment and social responsibility of the manufacturer can satisfy their demands to the supplier. Regarding the purchasing power of these consumers, although Britain is small, it still has great potential based in the traditional market of WD for their long-term consumption habit. What WD should do is to develop corresponding products as soon as possible to satisfy the segmented market. In the mean time, WD also may adapt to the requirement of market segmentation by adjusting its interior marketing organizations. (2) Marketing strategy combination of WD With the preceding superior conditions in its exterior market environment, interior production and R&D ability, it is an inevitable choice for WD to use differentiation strategy. In the principle of this strategy, WD should carry out the following strategy combination. 1） Product strategy Adopt the product development strategy, because the narrow and simple product structure of WD has become the bottle neck restricting its sale performance. The product maturity of each segmented market has been defined by some market research. Comparatively speaking, the markets in Britain and Continental Europe are between the growth and maturity stage of the electric kettle and consumers are familiar with the products. They need more requirements on aesthetics and taste based on satisfying the function and safety. So it is essential to develop special products to satisfy various demands of the market at maturity stage and make a good preparation for the markets at introductory and growth stage, which is in line with the requirements of differentiation strategy. Therefore, the main duty for the R&D Department of WD is to speed up the product development to follow the market demand. Then, WD can gradually explore a development procedure with tight cooperation among departments and with its own characteristics. Actually, in the common development procedure, there are many characteristics of WD hidden in it. In the design stage, British local design company is invited to give a 3D drawing of the proposed product, which can ensure the cultural identity of consumers initially. In the assessment stage, submit the design to the R&D personnel and mold producer for approval so as to ensure the interior structure and easy creation of the mold, as well as to introduce the concept to existing and potential buyers for assessment to know whether it is applicable for the use and aesthetic demand of the target market. In the development stage, organize a project team, with the leadership of R&D personnel, composed of R&D personnel, mold producers (tooling and injecting) and relevant personnel to draft the R&D schedule, developing the interior structure and producing molds of the kettle and components with rapid speed, asking advice of parties constantly as well. Regulate and modify constantly and seek customers in the R&D stage, then submit the initial hand-made sample to customers for the test immediately after the inner inspection of the company and send it to authorities to authenticate for the need of export. In the mean time, report to the patent office to apply for the patent protection, especially the design patent protection to prevent the imitating of competitors. With its self-development ability, WD can reduce the development cycle of a new products to half of a year or even four months in this procedure, only half the time of its competitive peers. And in the later R&D stage, WD has already received orders from the customers and some styles may have been underwritten by the customer. The reduced development cycle may speed up to expand the product line of WD so that WD could improve the strain capacity of actively adapting to the demand changes of the market. To expand the market, here the author proposes the concept of supplier brand or manufacture brand. Certainly, brand strategy is a key ingredient of the product strategy. WD is OEM in most cases and manufactures with the authorization of buyers, so the final consumers never know WD or the brand name of WD, but the brand name of buyers often equates with high popularity. This is similar to the concept that most teenagers are very familiar with the brands Nike or Adidas, but don’t recognize the manufactures of those products. It seems that the original brand name of suppliers is not important. However, we can see in the circulation process of the product that OEM products often pass two-level market (see the Figure below). Two-level market and brand diagram of OEM products 2） Price strategy WD should enrich its product series constantly to satisfy various market demands, so different price strategies must be adopted on various markets. To the consumers in Europe, due to the long service time, low purchase frequency and cheap unit price of the electric kettle, consumers focus more on its safety, personality and quality grade. Coupled with small elasticity of demand, the price changes make a bit influence on consumer demand. Therefore, the company may use a high price strategy in those districts. Four factors are taken into account when preparing the price strategy for WD: (1) cost comes first. The prices of all products of WD are the lowest by calculating the subtle cost and taking account of comprehensive factors including the rate of exchange and tax rebate policy, while the prices are the key secret; (2) brand cultivating. Although high price does not represent good brand, WD may adopt high price strategy to a new style in order to set up a good “manufacture brand” image; (3) price strategy considering the competitors. WD should adjust their prices immediately as per the feedback of customers and marketing information collected by business personnel to maintain the customer relationship, especially to those mass market products with similar appearance with peers. 3） Channel strategy Channel strategy is the study concentration. 1. Basic methods and procedure of defining the marketing channel (1) Research on match between marketing channel and customers purchasing channel For different products, it shows different channel characteristics because of the consumption habit and purchasing behavior of customers, so it is important to identify the channel preference and purchasing behavior of customers. To do this, finding out their decisive or primary marketing channel and trying to enter these channels is a wise choice. For instance, over 2 million kettles are sold in Britain on average and the amount of sales is about GBP 20 million. From the figure above, the proportion of different marketing channels can be indicated and it clearly reflects the purchase habit of British consumers to electric kettles. Where the supermarket brand stores and mail order are the main channels these are the areas in which to market the product. It is almost as similar as the purchase habit of Continental Europe consumers. Therefore, the supplier should grasp the brand owner, large supermarket, buyers or procurement department of mail order companies. (2) Influence of product nature on channel selection As the daily consumption equipment, its function and structure are simple and easy to use, with low price. Now it can improve the coverage scale to the maximum only by long channel model of brokers (agent, other types of distributors, and then final retail terminal). 4） Culture communication strategy Culture conflict is the barrier of marketing. On the contrary, efficient culture communication can become the main motive power to the success of marketing. Many scholars have proposed a large number of valuable suggestions and the most important one is about culture: find out the differences between two cultures first, and then eliminate the “inappropriateness” in the intercultural marketing by seeking the differences- reducing the conflict – enlarging something in common. In the marketing practice of WD, a more direct and efficient method was suggested, “Seeking common ground while accepting the existing differences” in the intercultural marketing. It means to find out the same and common point of both parties in different cultural systems, then gradually enlarging same and common point by communication, business principle, product application and service, finally understanding and accepting the existing differences to reduce the adverse influence of culture conflict in the whole manufacturing and service process. It is in the reverse direction of “seeking differences”. Word Count: 3,122 Read More