It is the endeavor of our company to produce an organic face lightening cream for women in the USA, and to sell it in China and Japan. The company will evaluate worldwide marketing opportunities and develop an international marketing entry strategy.
Evaluating Worldwide Marketing Opportunities
For the sake of simplicity, the evaluation of countries would be restricted to Asia.
Preliminary Screening Criteria for Eliminating Countries
The organic skin lightening cream is a premium product, as opposed to mass-market beauty products. While it is a premium product, it needs to be sold in large volumes to be profitable. Therefore, the target markets should have a sizeable middle class population with disposable income to spend on non-essentials like skin lightening. The preliminary screening criteria for eliminating countries would be the number of per capita purchasing power and the number of people in the middle class. Per capita purchasing power would indicate the relative affluence of the country. However, the product being a consumer product, it is necessary that there be more number of middle class buyers for the product. The data is normalized to 100:-
The investment climate of a country is an amalgam of the ease of doing business in the country. It is a holistic appraisal of the time and cost required to get a business set up and running in a country. The indicators to reflect the investment climate of a country are :-
- The number of procedures required to legally start and operate a company.
- The time required to complete each procedure.
- The cost involved in each procedure.
- The paid-in minimum capital required in the form of bank deposits and guarantees.
Based on the above criteria, the original list of countries is compared once again:-
Reducing the global rankings to 100, and then subtracting the result from 100 arrives at the normalized data.
Country Decision and Motivation
The final decision to arrive at the country to start a business in would be arrived at by assigning weights to the factors of per capita income, middle class population and investment climate. The relative weights assigned are:-
- Per capita income: 35
- Middle class population: 40
- Investment climate: 25
Analysis. It emerges that China and Japan are the best markets to enter on the basis of per capita income, size of middle class and investment climate. While India has a large middle class, it has a relatively weaker purchasing power than China. While South Korea is more affluent than China and also has a better investment climate, it does not have a sizeable middle class to drive sales. While Japan is poorer in terms of investment climate than South Korea, it is a better destination in terms of purchasing power and the size of its middle class.
On the basis of the analysis, it is prudent to do business in China and Japan.
Developing an International Market Entry Strategy
Additional Data Related to the Country
Japan. Japan is a developed country. It has a population of 127 million. The macro business environment in Japan is good. Japan trades well across borders. It is expected that Japan would be able to resolve cases of insolvency easily. It would be easy to gain access to infrastructure. Local knowledge in Japan would be hard to come by due to the language barrier.
China. China is a growing economy in the upper middle-income category. It has 1.3 billion people. The Chinese government has made efforts to encourage foreign firms to set up business in China. This is reflected in indices for trading across borders and property registration. However, structural and policy bottlenecks remain in China as compared with developed countries.
Strategy for Entering Market
Japan is a developed market with brands having established their presence. It would be prudent to acquire a local brand with an established network in the country so that the necessary foothold is created in an established and crowded market.
Target Market. As Japan is highly populated, it would be prudent to target the entire population. Special focus would be given to the population centers – Tokyo, Nagoya and Osaka.
Positioning. The Japanese population is well versed with international brands. Naturelle, therefore, should be sold as an international, upmarket and green product, to cater to Japanese sensibilities of quality and ecological responsibility.
Distribution. Space is at a premium in Japan. Naturelle would use the space owned/ hired by the firm it acquires in Japan to store and forward its product to Japan. One base in Japan, preferably in Tokyo, would be adequate. From Tokyo, the retailers affiliated to the brand acquired in Japan would serve as extensions of the brand. Supplies to the retailers would be on a ‘just in time’ model to save on inventory carrying costs.
Pricing. Price is a significant indicator of quality in cosmetics. Therefore, Naturelle would be priced on the same range in Japan as in the home US market. Naturelle would open up partnerships with Internet companies like Amazon, so as to offset transportation costs.
Promotion. The Japanese market is extremely net savvy. Due to the population density, public transport is the preferred mode of travel. Naturelle would be promoted mainly through the Internet in Japan. It would be sold as a futuristic product that caters to the Japanese idea of quality and reduced ecological footprint.
While China is a developing country with a relatively difficult environment for doing business, it has a huge potential due to its rising income and burgeoning middle class. It would be prudent to initially open a liaison office in China, preferably in Beijing, and pursue the state for obtaining permits for doing business. A local firm would be required for setting up a joint venture, as local knowledge would be crucial for success. It would be necessary to maintain open channels of communication with the local firm to ensure that the local firm does not replicate the product being sold illegally.
Target Market. China is more developed along the eastern seaboard. Interior China is relatively poorer. Therefore, the target market for the relatively upmarket and aspirational product would be the eastern region of China, with focus on the cities of Guangzhou and Beijing.
Positioning. China has a tradition of herbal medicine. Local ointments and cures would carry considerable traction in China. However, with increased globalization and opening up of the economy, there would be an aspirational pull of the emerging middle class to try out global products. It would be prudent to give Naturelle a Chinese moniker and position it as a global brand with a local heart. This would increase the acceptability of Naturelle amongst the local population.
Distribution. Naturelle would use the storage space of its local partner to store its product in China. A hub and spoke model would be used to stock a part of the inventory in different cities. The just in time model may not work in China, as modern logistic concepts are yet to be fully imbibed in the Chinese lexicon.
Pricing. China would be a more price conscious market as compared to Japan. Premium pricing for the normal scaled package of Naturelle might drive the product out of the reach of the Chinese middle classes. Therefore, Naturelle would launch smaller sized packages for sale in China. The price per unit volume would not be reduced ; this would ensure that the premium charged by the company is not diluted and the grey market does not take advantage of disparate pricing.
Promotion. Naturelle would be promoted by a local ad agency in China so that local ethos and sensibilities are taken into account. A company appointed liaison officer would be deputed with the ad agency to ensure that the agency does not promote the product in any manner that is contrary to the ethos of Naturelle. Naturelle would also seek state permission to sponsor skin-lightening competitions in China so as to increase brand recall.
Guidelines Concerning Plan Implementation and Key Strategic Moves
As Naturelle is a new entrant in a crowded cosmetic environment, it would require substantial marketing effort to make an initial impact on the market. Around 20 percent of the budget would therefore be reserved for marketing. The marketing effort would be coordinated with feedback regarding sales and traction in the market. Mid term reviews would be conducted to incorporate changes in the marketing focus if required.
Anticipated Future Developments
The Chinese market, while initially confined to the eastern regions, is likely to grow inland. Naturelle must be prepared for this expansion. Suitable local partners in the hinterland need to be identified so that they could be incorporated in the inland push when the Chinese middle class moves inland.
It is possible that a trade war erupt between China and the West due to geopolitical factors. Naturelle must be alive to such a development, even if it is far-fetched. Plans must be in place to remove stock in the mainland before geopolitical indicators manifest themselves into a trade war between China and the West.
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