Chapter 5: Marketing Considerations

Transcription

1 Chapter 5: Marketing Considerations This chapter discusses marketing related issues, such as selecting target customer segment, deciding how amber jewelry has to be positioned and choosing correspondent to it pricing method, and lastly defining the appropriate elements of promotional mix. Since it has been already decided for Lithuanian firm to export offering through sales representative or distributor, this chapter can be useful for Taiwanese party or Lithuanian company can refer for the future procedures. 66

2 Marketing Considerations Target Customer Segments Product Positioning Lower Cost Differentiation Pricing Factors Influencing Pricing Pricing Methods Selecting Pricing Strategy Promotion Figure 5.1: Chapter Contents 67

3 Section 1: Target Customer Segments Segmentation is often the key to developing a sustainable competitive offering. A successful segmentation is the concept, which states that despite the reduced market space, it is possible to create a dominant position that competitors will be unwilling or unable to attack successfully. Segmentation strategy should be able to answer three important questions: 1. Can offering be developed and implemented that will be appealing to the target segment? 2. Can appeal of the offering and the subsequent relationship with the target segment be maintained over the time despite competitive responses? 3. Is the resulting business from the target segment worthwhile, given the investment required to develop and market an offering tailored to it? Defining the segment it is important to choose the segment-defining variables for the offering. In the below table depicted most suitable variables for the selected product offering, which in this case is amber jewelry. Table 5.1: Defining segments Segment Characteristics Geographic Taipei city Sex Young and senior women Age From around 20 to 50 Occupation Students, business ladies Taipei City was chosen as a market entry location due to the before mentioned reason as it is the largest city in Taiwan with the highest number of income recipients, furthermore the income level is higher compared to other locations. Obviously, the competition is imminent, but the right product positioning, pricing, sales channels it can be bypassed since here trying to be designed the offering to fulfill missing potential customers needs. 68

4 Probably if there were be no women, many businesses would never be developed. In general, women more than men like smarten up, wear make-up, jewelry. Not surprising that the selected sex segment targeting women, furthermore, since starting from around 20 to 50 years person is considered employed and earning the most of his/her income, thus, from this age segment can be expected the highest portion of customers. The last part discusses occupation. In connection with the age segment, can be projected segment group occupation, which is likelihood starting from students to business ladies, maybe even women taking managing or executive positions. In summary, the selected customer segment is women living in Taipei, who are around years old, that are working or having income from other parties. 69

5 Section 2: Positioning of the Offering Product positioning is the allocation product in the market alongside key competitors in the mind of consumers. It refers to the place the product occupies in the consumers perceptual map in the market. This section focuses to create the future image and attitude of the consumers towards the Lithuanian amber jewelry. The first step is to find companies strengths. Porter (1980) described a category scheme consisting of three general types of strategies that are commonly used by businesses: cost leadership, differentiation, and market segmentation (or focus). The following table illustrates Porter s generic strategies. Table 5.2: Porter s generic strategies Target Scope Advantage Low Cost Product Uniqueness Broad (Industry Wide) Cost Leadership Strategy Differentiation Strategy Narrow (Market Segment) Focus Strategy (low cost) Focus Strategy (differentiation) As discussed in the previous chapter Market Entry Strategy, it has already been decided that the best tactics to enter is the Strike Force strategy, which focuses on narrowly defined market. Compliying with this decision the upper segment of the above table must be eliminated leaving a discussion to the lower segment and here there are two options: low cost and differentiation. 70

6 Section 2.1: Lower Cost Comparingly lower cost can be achieved employing simplier to other competitors distribution scheme, which is depicted Figure 5.2. Exporter Exporter Distributor Sales Rep Importer Retailer Distributor Wholesaler Retailer Figure 5.2: Comparison: Lithuanian company s versus competitors distribution scheme. It is very evident that competitors has more complicated distribution scheme resulting in a bit higher price. Eliminating one or two blocks in Lithuanian company s scheme leaves more flexibility adjusting the price to the market demand so as to increase the sales volume in order to gain more profits. In addition, to bypassing some blocks in the distribution scheme there is one more advantage compared to other competitors, which are usually Taiwanese companies buying from foreign firms (mostly Polish). When there are foreign companies doing business, it is almost impossible avoid culural differences between two parties. Those differences often result in 71

7 also increase cost and/or decrease efficiency of communication. Therefore, two different companies will bear costs associated with the cultural differences. There are many discrepancies between Lithuanian and Taiwanese cultures, but in terms of business, the main barriers exist in language differencies and the way of processing information and tasks. Obviously, it is very hard to find Taiwanese who can speak Lithuanian. On the other hand, there are few Lithuanians speaking Chinese, but sometimes for those people who have studied Sinology 15 and know Mandarin it is difficult to understand business terms and elements, it is hard for that person successfuly implement bargaining. Even if the representatives from two sides can speak English, still their spoken English will be related to their native language and translating directly from native language can generate misunderstanding between two parties. Moreover, Lithuania is considered as a low-context culture, while Taiwan as a high-context, so there are some misapprehensions in terms the way things have to done and the speed of getting them done. Solution to this problem is to employ Lithuanian person to work in Taiwanese company. That person must have business knowledge living in Taiwan experience, preferred working in Taiwan experience, but this is not necessary as the main point here is understanding Taiwanese culture, so to smooth away cultural problems. Section 2.2: Differentiation The nature of product suggests that differentiation is invetable. Amber jewelry comes in various designs and since it is usually made by professional designers, only few similar items could be seen in the market. Considering the fact that this company will be the only 15 The study of Chinese history and language and culture. 72

8 Lithuanian jewelry supplier 16 in Taiwan market, this even more reduces the probability to meet similar design items. What is more important that it will take the time for local companies to copy imported products as they will first have to buy raw amber ship to Taiwan and purchase special equipment in order to process amber. And knowing the fact that the demand for amber jewelry is not high (so far), it is pretty profitless to start. Of course, there can be expected similar fake amber products, but knowledgeable customers can easily distinguish such products and those who are looking for quality and real items are not loath obtaining such. To conclude, Lithuania amber jewelry can be positioned as a good quality jewelry for the middle income consumer, so as to best match the selcted target customer segment. However, to gain the lower cost characteristics so have the advantages compared to other competitors, in addition Taiwanese importer should hire native Lithuanian. 16 Now majority of amber jewellery is imported from Poland, Ukraine and Check Republic. 73

9 Section 3: Pricing Price is one of four important elements of the marketing mix. It is closely related to positioning affecting other marketing mix elements, such as product features, channel decisions and promotion. There is a tradeoff between price and product quality, so the price is an important variable in product positioning. In other words, if the price is set too low, customers might perceive product as the low quality, which can result in their reluctance to buy in the short run. In the long run they will eventually find out, but then the company might face the difficulties to achieve its set profit margin. And in opposite, if the price is set too high, there will be less sales volume since many customers simply will not be able to afford. Hence, it is important to find the middle point to balance the product image and the sales volume. Therefore, first there is a discussion regarding factors impacting pricing decision, second, pricing methods and finally, making pricing decision to balance all discussed factors. Section 3.1: Factors Influencing Pricing There many pricing strategy methods, which must be chosen to match demand curve, costs, environmental factors and pricing objectives. A. Demand Curve of Amber Jewelry Jewelry is considered as a luxury good. Even though a lot of women (and men) wear it every day, but they do not buy it as often as necessity goods, only on some occasions and several times a year, when there is enough amount of money has been saved for this kind of purchase. The elasticity of demand for this category items is greater than 1 and on the plot diagram the 74

10 curve is nearly horizontal, suggesting even minor price changes will result in a large shift of quantity demanded: the price change and the change in total revenue move in opposite directions, that increasing the price will result in the drop of revenue, and in opposite, the decrease of price will lead to the revenue increase. Therefore, it is essential to get as low as possible cost to maintain the set profit margin. B. Costs Since the product already exists in other markets, the price has been determined there and the supplier will approximate price. This is the primary cost and the production costs of the amber jewelry do not has to be taken into account since it is already included in the price set by the jewelry producers. To that price must be added other costs, such as shipment cost, duty taxes, distribution cost and etc. C. Environmental Factors In Taiwan amber jewelry sellers bear the same type of costs, then adding the profit margin to determine the final price. And considering that there only few amber jewelry suppliers in this market, competition is note very intense giving the freedom to choose best pricing method. D. Pricing Objectives Company s pricing objectives must be identified in order to determine the optimal pricing. Common objectives of superincumbent companies include following: 75

11 Current profit maximization only focuses on maximizing current profit, taking into account revenue and costs. This strategy does not consider the long-term situations, so it may not be the best objective if results in lower long-term profits. Current revenue maximization focuses only on maximizing current revenue regardless the profit margin. Maximize quantity seeks to maximize the number of units sold or the number of customers served in order to lower long-term costs as predicted by the experience curve. Maximize profit margin targets to maximize the unit profit margin, recognizing that quantities will be low. Quality leadership price is employed to signal high quality. The objective to position product as the quality leader. Partial cost recovery company that has other revenue sources may seek only partial cost recovery. Survival when the market is declining or has overcapacity, the firm may choose the price, which will cover costs and permit to remain in the market. This objective is temporary as the market situation will change and the company will switch to the price so as to maximize profits. Status quo the firm may seek price stabilization in order to avoid price wars and maintain a moderate but stable profit level. For the discussed company several points has to be mentioned: first, it is the new incomer, so it does not have any customer base; second, Strike Force market entry has been selected suggesting that the company has to be non-aggressive and focused; final, amber jewelry is a luxury good and setting price, which is to low can damage the image. The matching pricing 76

12 objective would be status quo, so the company could penetrate the market without causing any turbulence. Section 3.2: Pricing Methods Companies may make use of several pricing methods in order to achieve their pricing objectives. The main methods include premium pricing, penetration pricing, economy pricing and price skimming; however there are many other important approaches, but here will be mentioned the one related to discussed product: Premium pricing high price is set due to the product or service uniqueness. This is approach is used by the firms that have a substantial competitive advantage. Price skimming high price is charged because of substantial competitive advantage to attempt to skim the cream. However this advantage is sustainable and the high price sooner or later will attract new competitors, and the price will fall to the increased supply. This approach is appropriate when the demand expected to be relatively inelastic; that is, customers are not price sensitive. Penetration pricing this method is used by incoming companies whose goal is to gain the market share. It is appropriate when demand is expected to be highly elastic; that is, customers are price sensitive and the quantity demanded will increase significantly as price declines. Economy pricing the cost of marketing and manufacturing are kept at minimum, so as the product price. This is demand oriented pricing and often practiced by supermarkets that have economy brands. Psychological pricing this method is used, when the marketer wants the consumer to respond on an emotional, rather than rational basis. 77

13 Product bundle pricing combining several products in the same package. This method serves to move old stock or slow buying goods. Promotional pricing applying promotional techniques in order to increase sales. The first four of above mentioned most suit for new products or incoming companies, while the rest generally used for promotional reasons in order to get more customer attention and could be applied by the already existent firms that know their experience curve. Therefore psychological pricing, product bundle pricing and promotional pricing will be included in the later analysis. Beyond the above mentioned, there is one more commonly used by firms cost plus pricing. It is easy to calculate and requires little information. Simply set the price at the production cost plus certain profit margin. After defining all possible pricing methods, now has to be selected the one that best matches company s market entry strategy, target segment, product positioning strategy, product demand curve and pricing objective. Summary of previous mention is presented in Figure

14 Market Entry Strategy: Strike Force Pricing: Elastic demand curve, status quo pricing objectives, costs Strategy Target Segment: Young and senior women living in Taipei Product Positioning: High quality for middle income customer Figure 5.3: Summary points of company s strategy. Following the figure the pricing strategy will be selected. Section 3.3: Selecting Pricing Strategy To choose the pricing strategy, all pricing methods was plotted into the matrix according to the three variables: price, quality and type of demand. Even though price and demand are quantitative measures, but to match the quality variable, which is a qualitative variable, they are also converted to the qualitative ones and depicted in Figure

15 Low Quality High Price High Low Economy, Cost-plus Skimming, Cost-plus Penetration, Cost-plus Premium, Cost-plus Demand Elastic Inelastic Figure 5.4: Pricing strategy mix. For new products or new companies that want to win market share or maximize profit margin, skim pricing and penetration pricing strategies often are employed, however, for importing company skimming is not suitable because it does not match the demand firm will face. Economy pricing is related to the low price and lower quality products and often used by the supermarkets to market their brands. This approach is most suitable when selling necessities, but not luxuries, so it does not match product positioning concept. Penetration pricing is referred to large quantities, when companies want to gain market share. This approach might create turbulence in the market and the intense competition can be expected from the competitor side as a response to this pricing. And as Strike Force tactics has been selected as the best, thus, penetration pricing does not comply with it. The last one is cost-plus pricing, which is probably the safest pricing strategy since applying it profit margin can be achieved to ensure the company s survival and it is easy to manipulate by changing the profit margin: if there is a need to increase sales volume, profit margin can be lowered and in opposite, if the sales volume is too high, profit margin can be raised. 80

16 Section 4: Setting Price Bands This section identifies the specific price bands taking into account selected customer segment and that the position offering is considered as good quality. This implies that it would be inappropriate choosing very cheap and lower quality items to import, such as costing 100 NTD or less. Furthermore, the target customer segment is middle income ladies ranging from 20 to 50 years, it is necessary to define class boundaries because years is too big year range and cannot be used to define only one group since within that year interval incomes, tastes and needs for different age women are changing. Therefore, the suggested class boundary is 5 years, the first class interval ranging from 20 to 24 years, the second from 25 to 29 years, and so on, until they have been tallied into 6 classes. The reason for choosing class boundary of 5 years is if looking at the first interval, the lady of years old is still a student, with a limited income; the jewellery she would select is simple, not heavy and comparatively cheap. Later on she starts working, and with the income the needs grow, with the age the tastes change. Usually more mature ladies prefer heavier and more exposed jewellery; this fact implies the higher price. Class intervals and price bands are presented in table 5.3. Table 5.3: Projected price distribution among classes of targeted customers Class Interval (years) Price Band (NTD) , ,000 2, ,000 3, ,000 4, ,000 5,000 81

17 ,000 10,000 From the table, the prices of the imported items should fit the range from 500 NTD to around 10,000 NTD. Of course there might be some price migration within the classes as it is hard exactly to predict the needs, and there might happen that the student would be willing to purchase the product, which was targeted for year old woman. Section 5: Promotion Promotion is very important element of the 4 P s marketing mix; particularly in this case, since many Taiwanese are not aware of the amber jewellery, thus, it is needful to formulate the strategy in order to get people interested in the offering. What is interesting about Taiwanese that they are very curious, this curiosity is very helpful when raising the interest of new product and there is no need for very aggressive promotion. Moreover, the population density in Taipei (and in Taiwan in general) is very high and word of mouth technique often serves as method to promote product and/or services. There are many elements of promotional mix, but some of them do not fit here and the ones should be considered are as follows: 1. Advertising. There are many advertising 'media' such as newspapers (local, national, free, trade), magazines and journals, television (local, national, terrestrial, satellite) cinema, outdoor advertising (such as posters, bus sides). For the time being, the importer should consider very expensive techniques and rather proceed with women magazines and posters. 2. Sales promotion. This is very powerful method because many Taiwanese swallow the bait and has been noticed that many stores apply this technique 82

18 while starting the business. However, each sales promotion should be carefully costed and compared with the next best alternative 3. Trade fairs and exhibitions. This approach is very useful for making new contacts and renewing old ones. Since in Taipei annually there are held several jewellery exhibitions, thus, it is a good opportunity to make Lithuanian amber more exposed to interested parties: sellers and end customers. These promotion methods should be considered just for the starting point and of course constantly applied, so as to raise the popularity and remind customers of the existence in the market. In the long run, if the business appears to be successful, importer (or Lithuanian company, if it sets the business entity in Taiwan) should review the strategy and might include advertising on television and/or sponsorship. However, these two require more financial resources and can be applied if the sales, profit and in general company s targets are met. To summarize marketing related issues, it is recommended start selling Lithuanian amber jewellery in Taipei, targeting year old middle and upper income since the discussed offering is positioned as a good quality and so expensive product. The best starting pricing method to apply is cost-plus method since it is easy to manipulate and it can serve to build experience curve. The importer/distributor should select the items so as the price in Taiwan would be within the range of ,000 NTD and surely implement promotion to let customers know about the product as nescience of amber jewellery appear to be one of the biggest problems for the incumbent companies. 83