International Marketing - Term Paper Example

Part Two – Preliminary Marketing Plan 2 I.Executive Summary 2 II.The Marketing Plan 2 A.Marketing Objectives 2 1.Target market (s) (specific description of the market) 2 2.Expected sales year 2010 3 3.Profit expectations year 2010 4 4.Market penetration and coverage 4 B.Product adaptation or modification : 5 1.Core component 5 2.Packaging component 5 C.Promotion mix 5 1.Advertising 6 2.Sales promotions 8 3.Personal selling 10 D.Distribution : from origin to destination 10 1.Port selection- 10 2.Mode selection : 11 3.Packing 11 4.Documentation Required 11 5.Insurance Claims 11 6.Freight Forwarder 11 E.Channels of distribution (micro analysis) 11 1.Retailers 11 2.Wholesale middlemen- the company intends to use wholesale 12 3.Import agents- 12 Exports agents will be Taizhou Logistics Co., Ltd. 12 4.Warehousing 12 F.Price determination 12 G.Terms of sale 12 H.Methods of payment 13 iii.Resource requirements 13 13 References 14 Part Two – Preliminary Marketing Plan I. Executive Summary The China market is the largest of all cigarettes markets. In fact, the China market can accommodate about 2 trillion cigarettes annually. This is the reason why the company has decided to enter into the market. However, the market for foreign cigarettes is a mere 3 percent. Indoci Company anticipates selling about 102, 874,300 cigarettes. This will give the company annual net profit of about 10,058,970 CYN. II. The Marketing Plan A. Marketing Objectives The Indoci Company is one of the companies in Indonesia that produces assorted cigarettes. The company intends to enter the China market because it has the potential with its over three hundred and fifty million smokers. However, it will enter the market through local wholesale distributors. Azzure brand is one of the assorted company’s products that will gain wide acceptance in China because of the benefits the product offer to the users. For example, Azzure is herbal cigarette which has therapeutic qualities. 1. Target market (s) (specific description of the market) The Chinese smokers are many and increasing each year. Women smokers smoke an average of 11.6 cigarettes a day while the male smokers smoke an average of 15.5 cigarettes a day. More specifically, it is discovered that young male adults smoke an average of ten cigarettes daily, while middle aged adults smoke the highest number of cigarettes daily standing at an average of 17 cigarettes per day. The old male adults smoke he lowest number of cigarettes daily standing at an average of 10.1 cigarettes per day. The number of women smokers are increasing as the advertisement, promotions and production are tailored to appeal to the female adult population. The smoking rate in China is one of the highest in the world. It is estimated that 1.7 trillion cigarettes are smoked in china each year. The reason for this high smoking rate is due to the social culture of the Chinese people who fancy cigarettes in most of its social interaction. Cigarette smoking is considered as social activity and is normally given as gifts to friends, government officials and foreign guest especially when one is soliciting for favours. This behaviour fuels the demand of cigarettes across the adult population and ensures that the consumption rate is maintained throughout the year. Most Chinese prefer the cigarettes brands that are produced in the home country. However, foreign cigarettes are often considered as status symbol. There are over three hundred and fifty million cigarettes smokers in the whole of China. Therefore, there is a steady market for about two trillion cigarettes in China annually. Most cigarettes sold in China are of very low quality (Class D) yet they are the most produced. The biggest challenge to the sell of the foreign cigarettes in China is counterfeits. Foreign cigarettes are considered status symbol and most Chinese fancy them and can buy them at any price. Consequently, counterfeits have been produced by people who want to make quick money in china. Most people (75 percent) live in rural farms of China and could not afford mid priced cigarettes leave alone the highly priced ones. 2. Expected sales year 2010 The China’s market for foreign cigarettes such as azzure cigarettes, 555, Mild Seven, Lucky Strike, Marlboro, Dunhill, KOOL, Camels, Hedges and Benson is considered to be 51 billion. With the increase of the number of new smokers each year, the number of cigarettes that is likely to be demanded by the Chinese smokers will rise to 51.4 billion cigarettes. Of the 51.4 billion cigarettes to be demanded, the Indoci Company’s expects to acquire 0.02% of the market by the end of the coming year. Therefore the company intends to sell over 102, 874,300 cigarettes translating to 5,143,715 packets of cigarettes in the coming year. The above target is reasonable and can easily be achieved with hard work. 3. Profit expectations year 2010 The Indoci Company expects to sell about 5,143,715 packets of azzure cigarettes by the end of the first year. The company predicts a total net profit of 10,058,970 CYN from the sales of the azzure cigarettes in China market. This figure is arrived at by considering the china’s market size, cost of producing the product, taxes and incidental costs. The first year will be extremely difficult because the product will be new in the Chinese market and setting up distributional channels will be more difficult than anticipated. However, condition is expected to improve in the second year and profits are expected to grow by about 25 percent in the second year. 4. Market penetration and coverage The Indoci Company intends to acquire 0.02 percent market share by the end of the first year in operation since introduction of its products to the big China market. The company’s azzure products targets major towns and Cities in China. The major towns and cities include are Shanghai, Tianjin, Wuhan, Shenyang Guangzhou, Haerbin, Xian, Chungking, Chengdu and Hong Kong. This is because most of the people residing in the city are able to afford the product as compared to their rural counterparts. Therefore, the above locations will provide adequate market for the azzure cigarettes. However, retail distributions will not be restricted to the mentioned towns and the company will be free to move its products to other markets where there is sufficient potential inside China. B. Product adaptation or modification : It is evident that majority of the Chinese population prefer stronger cigarettes and it may be very difficult for the company to penetrate the market, especially when the government is involved in promoting the locally made tobacco and cigarettes products. Therefore, it is important to develop and sell a product that can easily be accepted by the Chinese population. To adopt the azzure cigarette, it is important to consider the contents of the cigarettes, the packaging component and the support services available for cigarettes promotion and distribution. 1. Core component Azzure cigarette is made up of various products. The azzure cigarette does not contain nicotine. It has therapeutic qualities for the people who are stressed and provide maximum relaxation effect to the user. It also makes breathing easier and is mild to the throat. This is advantageous to people who prefer less strong cigarettes. Some Chinese prefer foreign cigarettes such as Marlboro and 555 because they are tasteful and have lesser phlegm as compared to most Chinese cigars that are very harsh. Mild azzure cigarettes will be more appealing to the female and young male population. 2. Packaging component Azzure cigarettes are packed in packets containing twenty cigarettes. They are wrapped attractively with golden colours to make them highly conspicuous and attractive to the target market. This packaging is consistent with China’s laws and regulations and is uniform across all the cigarette producers and importers. Furthermore, the cigarettes and its packets are slimmer and easy to carry as compared to other foreign cigarettes. C. Promotion mix The company will have to create awareness of its products through various avenues of promotional mix. Promotion will enable the company to create and drive product awareness as well as create and sustain brand preferences. This will enable the company’s product to gain customer loyalty and increase azzure cigarettes sales. It is important to note that advertising cigarettes and tobacco related products are banned in China. This is because of the many lifestyle related diseases caused by cigarette smoke to the smokers and those who inhale the smoke. The use of print media, television and radio for advertising the product is prohibited by the state. Therefore, the company has identified the windows available for advertisement such as the internet, use of live promotions, billboards, point of sale promotion and outdoor advertisement using different entity names. The above opportunities for advertising are effective and quite efficient. Azzure herbal cigarette will be promoted in different ways. Promotion girls would be used to promote the cigarette. Very attractive girls would dress in azzure brand logo and hand out samples and lighters as well as other promotional materials to existing and potential clients at the entrance of bars and clubs. For example, azzure brand will be mentioned in all the activities that will be sponsored by the product 1. Advertising Advertisement refers to a form of communications that informs the existing and potential customer of product existence and make them to buy. The Indoci Company will advertise its products inside and outside China through the internet. a. Objectives i. The advertisement aims at reaching all adult women in Shanghai, Tianjin, Wuhan, Shenyang, Guangzhou, Haerbin, Xian, Chungking, Chengdu and Hong Kong. The women population has the great potential to try out the milder, slimmer and herbal cigarette. ii. The advertisements also aim at reaching young adults in Shanghai, Tianjin, Wuhan, Shenyang, Guangzhou, Haerbin, Xian, Chungking, Chengdu and Hong Kong. Young adults are more adventures and re ready to try out new products as compared to the older counterparts. b. Media mix Advertising cigarettes and related products is becoming a tricky and most difficult task to undertake globally. This is because cigarettes and tobacco products have proven to contain dangerous substances and health conscious organizations and members of the society have been fighting hard to ban use of cigarettes in the world. Luckily, China derives about 10% of all its state revenues from cigarette and related products. Therefore, advertising in China is easier as compared to other parts of the world. There are various advertising channels that the company will use to advertise its azzure herbal cigarette product. The first one includes internet advertising. This is one of the cheapest and most efficient ways of advertising in developed countries like China because most of the population in the urban setting is accessible to the internet. However, some search engines such as Google enacted regulations that prohibit the advertising of cigarettes. To such search engines, the company will develop landing pages that promote the company’s lighters and other relevant accessories as an avenue to market its azzure products in China. Other channels for advertising include direct mail advertisements, sports sponsorship, billboards in areas with no prohibitions and displaying pro- tobacco advertisement at all its point of sales in China. c. Message The Indoci Company will try as much as possible to develop messages that appeal mostly to adult women population as well as young male adults. Marketing messages of azzure will promise existing and potential smokers prosperity, increased networking and a sense of importance in the society. In addition, the messages will be tailored to signify a new bread of aggressive and dependable generation that has never been seen before. d. Costs It is important to note that other cigarette manufactures and distributors are spending billion of Chinese Yuan each year to advertise their products. It is not easy to sell a new product in a new location where there are brand giants and government involvement in marketing its own locally manufactured brands. Therefore, the company will be cautious in its marketing strategy and will spend about 5,000,000 CNY in the first years and increase advertisement costs in the coming year depending on the product performance in the market. This amount is very low as compared to investment that large multinational companies place in China. 2. Sales promotions Sales promotions can be defined as the communication between the buyers and the sellers where the sellers wish to educate the customers about the product. The ultimate goal of sales promotion is to generate immediate sales within a given promotional period. The company identified free samples, coupons and cash discounts as the most efficient way of promoting the azzure cigarette product. a. Objectives i. The first objective of the sale promotion is to generate sells of over 300,000 packets of azzure cigarettes in each of the following towns and cities in China; Shanghai, Tianjin, Wuhan, Shenyang, Guangzhou, Haerbin, Xian, Chungking, Chengdu and Hong Kong. ii. The second objective is to inform and educate the customers about the azzure cigarette product and its related benefits. b. Free samples The company will offer free samples for the first one month where every customer will receive two cigarettes for every packet they purchase. Potential customers who will like to taste how it feels to smoke azzure will be given one cigarette to taste at the point of sale. This will cost the company about 1,088,860 CNY. The company will also offer cigarettes gifts to selected government officials because that is the practice in China. This approach will also help to gain product acceptance in some key cities and towns in the big china market. c. Coupons Coupons were also identified as one of the most effective way of promoting new product in China. Coupons is defined as document or tickets created by the supplier or manufactures to enable the owners to exchange them for relevant gifts or financial discounts. The Indoci Company will create coupons with the help of its wholesale distributors to develop coupons where the owners will exchange them for a cash discount of 20% for every packet of cigarette they purchase. The coupons will be issued mostly at the point of sales and the internet. This will cost the company a total of 406,440 CNY. Depending on the competition, use of coupon in the near future will be increased or reduced. d. Cash discounts Cash discounts appeal to most Chinese residents. Cash discounts involve reduction of purchase prices of goods and services by a given percentage Chinese people are known to be great bargainers. Therefore, the company will provide 3.5% cash discounts for its entire sale in the first one year. The Indoci Company will spend about 9,146,426 CNY for the cash discount arrangements in the first year. e. Costs The company will incur millions of Chinese Yuan during its promotion endeavors. The cost that will be incurred for providing free samples will be 1,088,860 CNY, for coupons will be 406,440 CNY and for cash discounts it will be 9,146,426 CNY. Therefore the total value of promoting azzure product in China for the first year will be 10,641,726 CNY. 3. Personal selling The company will also apply personal selling. The distributors in their respective distribution points will demonstrate the benefits of the azzure cigarette and will be available to discus the various benefits with the customers and any other interested party. Personnel selling strategy is one of the most effective selling techniques that can create sufficient loyalty. However, it works best when the customers will have experienced the benefits that accompany smoking of azzure cigarettes. The company wishes to adopt this word of mouth method in the near future. D. Distribution : from origin to destination 1. Port selection- The cigarette consignment will be loaded at Jakarta Surabaya Indonesia and prepared ready to be shifted to Shanghai China. It will take approximately ten days to transport the consignment from Indonesia to China by sea. Shanghai is chosen because the key agent of the company situated in Shanghai and has adequate warehousing facility. However, if better ports of entry are identified later they will also be considered. 2. Mode selection : Sea transport was selected because it is cost less to transport goods through the sea from one point to another as compared to air transport. It is also very possible to transport large volumes of cargo or merchandise through the sea as compared with other modes of transport. It is mot possible to transport cargo directly though rail or road from Indonesia to China. The company will use regular lines because they are regular, frequent and can shift smaller quantities when the circumstances demand. 3. Packing To ensure that correct and adequate quantities of azzure cigarettes are shipped from Jakarta Surabaya Indonesia to Shanghai China, each consignment will be packed in 1x40ft container. The 1x40ft container will contain 520,000 packets of cigarettes. 4. Documentation Required For the consignment to be transported from one port to the other, there are documentations that must be provided. The documentation is commonly called the bill of lading. Bill of lading has three major purposes; the first is that it acts a receipt that consignment has been received by shipping agency, it is a proof of contract and it acts as a certification of the consignment that is being shipped form one port to the other. 5. Insurance Claims The company insured its consignment with Taizhou Logistics Co. and it covers the total value of cargo. 6. Freight Forwarder The company will use full container of Sea freight Shipping Company and have selected Taizhou Logistics Co., Ltd as its freight forwarder. E. Channels of distribution (micro analysis) 1. Retailers There are thousand of distributors in major towns and cities in China. It is the duty of the wholesalers in major cities of China to identify reputable retailers who will sell the azzure cigarette product to the customers. 2. Wholesale middlemen- the company intends to use wholesale The company through its agents in China will identify reputable wholesalers who shall receive the product and supply the azzure cigarettes to the many available retailers. At least four major wholesale distribution points will be identified and supplied with the cigarettes in Shanghai, Tianjin, Wuhan, Shenyang, Guangzhou, Haerbin, Xian, Chungking, Chengdu and Hong Kong. 3. Import agents- Exports agents will be Taizhou Logistics Co., Ltd. 4. Warehousing The company through its agents will identify adequate and secure warehouse space that is set to accept the company’s consignment. The company will employ three people to man the warehouse and ensure that the consignment is distributed to the appointed wholesalers. F. Price determination The retail price of azzure cigarette has be determined by considering the cost of pricing the cigarettes, shipping cost, insurance cost, import duties, container hire, inland transportation, competitor prices, value added taxes, advertisement, handling expenses, various discounts and profit margins of both the company and its distributors. G. Terms of sale The most appropriate terms of sales in China was identified to be through the open account. Open account is simple and will be more friendly to the wholesalers. The company agents in China has identified and already contacted some of the credible wholesale distributors who have agreed to this kind of arrangement. The agreement will be entered into by the company and the wholesalers where the wholesalers will agree to pay the company the agreed value of goods supplied to them within a period of 30 days since the date of receipts of goods. The cost of goods will be valued at cost of consignment, insurance and freight (CIF). H. Methods of payment The payment will be paid through electronic funds transfer or bankers cheque only. Table 1- Pro forma financial statements and budget Cost Centre   Cost of shipment of goods 4131056 Transportation Costs 4181223 Handling expenses 2534867 Insurance costs 7226529 Import Taxes 94077520 value added tax- 44425495 Warehousing 2137766 Salaries 1800000 Van 439885 Cash discounts 13066322 cost of production 60105082 Sales Promotions 10,641,726 Advertising 6,500,000  Total cost 251,267,471 Total Sales 261,326,441 Companies net profit 10,058,970 iii. Resource requirements The company requires some resources to ensure that it operates smoothly in the foreign country. The company requires finances, three employees, and a van. The total cost for all the anticipated expenses are 251,267,471CNY. References Anson, O. & Shifang, S. (2005) Health care in rural China: lessons from HeBei Province. China: Ashgate Publishing, Ltd. Czinkota, M. & Ronkainen, I. (2007) International marketing. 8th ed. New York: Cengage Learning. Earnshaw, G. (2006) China: China Economic Review. China: China Business Guide. Goldberg, R. (2009) Drugs Across the Spectrum 6th ed. New York: Cengage Learning. Gerth, K. (2004) China Made: Consumer Culture and the Creation of the Nation .Harvard: Univ Asia Center. McGowan, R. (1995) Business, politics, and cigarettes: multiple levels, multiple agendas. United Kingdom: Greenwood Publishing Group. Todd, A. (2010) End of tobacco program, rising foreign competition, thrust burley co-op into new role turning Over a New Leaf USDA Rural Development. Retrieved July 31, 2010, from http://www.rurdev.usda.gov/rbs/pub/jan07/turning.htm Tremblay, V. & Tremblay, C. (2007) Industry and firm studies. 4th ed. New York: M.E. Sharpe, Read More