Essay on "International Marketing We Are a Cosmetics Company"

Essay 14 pages (4272 words) Sources: 10 Style: Harvard

[EXCERPT] . . . .

International Marketing

We are a cosmetics company based in Australia that operates a differentiated strategy. The German market is one of our main targets for potential expansion. As the third-largest market for cosmetics in the world, Germany has significant potential, but the market growth is slow and the demographic trends unfavourable. Furthermore, competition is intense, meaning that it may be difficult to gain significant market share.

We have some strengths that we can leverage, however, in order to enter the German market. Our product is of high quality and our company may have appeal as an exotic player in a market dominated by European firms. However, because our brand is unknown we must take steps to build the brand, requiring an extensive promotional program. We also have a lack of local knowledge and will therefore need partners in distribution, retailing and advertising in order to support our launch.

We will enter the market with a national retailer on board, premium product and pricing, and strong promotional support. It is important that we are able to have a national presence immediately because the differentiated strategy demands not only premium positioning but a broad target market, which characterizes our business. Promotion will be extensive, and focused strongly on fashion and lifestyle magazines.

The initial promotion budget for one national retail account will be in the range of €10 million. If we are able to capture our first year target market share of 0.1%, we will earn revenues in Germany of €12.6 million. After three years, we hope to have a 3% share and multiple national accounts, with corresponding increases in promotional budget. We strongly believe that despite the challenges, we can be profitable in Germany even in our first year, and certainly in subsequent years.

1.0 Introduction

The product chosen is a line of cosmetics. The line is positioned at the high end of the mainstream, with a correspondingly high margin for the company. The company is a relatively small firm, but has been growing rapidly. International expansion has been restricted to the New Zealand and Singapore markets to this point, and the management feels that greater potential exists in the European market than in other Asia-Pacific markets.

As international marketing manager, my task has been identified by senior management as developing market information on selected major European markets in order to assess their suitability for market entry. This report concerns the potential our company has with its flagship cosmetics line in the German market. The German market has been chosen as the first in our study by virtue of its position as the largest by population in the European Union. Germany is also one of the EU's wealthiest nations and therefore one of the largest consumers of cosmetic products in the Union. The market, however, is also quite diverse, encompassing the former East, the dense rural population of Bavaria and a multitude of modern industrial and post-industrial cities.

The objective of this report, therefore, will be twofold. The report will be the framework by which international market information is gathered and analyzed. The information gathered in the production of this report will allow us to better understand the nature of the German market. The second component of the objective will be to use the information gathered to make an assessment of our firm's ability to compete in the German market. Potential entry strategies will be discussed and analyzed in the context of the basic market information that has been gathered. The ultimately goal will not be to make a decision with respect to the German market, but to provide senior management with insight into the nature of the market and an analysis into the best means for the company to enter this market and what potential the market might hold if we decided to enter.

2.0 Situation Analysis

The PESTLE analysis is a fundamental tool used to help firms analyze the macroenvironment in which they operate. The six components are political, economic, social, technological, legal and environmental. The analysis in this case is to be focused on the German market, as opposed to the home market. The company needs to fully understand the ways in which these different components of the German market environment can potentially impact the business, even if these impacts are minimal (Gillespie, 2007).

The political environment in Germany is relatively benign for cosmetics companies. The company would be subject to the same regulations as domestic firms, so would not be at a competitive disadvantage due to political considerations. Germany does not rank within the top ten trade partners of Australia and indeed the UK is the only member of the EU to do so. Germany is, however, the third-largest trade partner within the EU, with merchandise exports in 2008-09 estimated at a$2.184. This represents growth over the previous year of 50.6%, one of the highest growth rates in the world (Department of Foreign Affairs and Trade, 2009).

Because Germany is a member of the European Union, the company would be subject to political factors arising from the EU environment. The European Union and Australia have, in general, a strong trade relationship. According to the European Union (2008), Australia exports €17.4 billion (approximately a$29.75 billion) worth of goods and services to the EU. Key exports are agricultural products (notably wine), minerals and energy commodities. There are no considerable trade barriers between Australia and the European Union with respect to cosmetic products. Europe is the second-largest destination for Australian foreign direct investment, so the potential exists for the company to offshore production to a European partner if that route is chosen. This partner could exist anywhere within the EU to serve the German market. More comprehensive specifics regarding the laws governing the sale of cosmetics in Germany can be found at the IKW website, http://www.ikw.org/pages/prodgr_details.php?info_id=115&navi_id=km&page_title=Personal%20Care%20Products.

The economic environment for our product is relatively favourable in Germany. Hit by recession in late 2008 and early 2009, tallying four quarters of economic contraction in the process, the German economy grew last quarter and despite predictions of an overall contraction for 2009, is showing signs of recovery (Dougherty, 2009). If the rebound takes hold, it could reasonably be expected to trickle through to consumer products, which as in many countries have seen a dropoff in demand over the past year. Optimism aside, the German economy has not weathered the economic downturn as well as the Australian economy, a consequence of a tighter credit crunch than we have seen in the domestic market.

The social environment in Germany is favourable for cosmetics, although growth has been hampered by the country's sluggish economy. A compendium of industry reports from trade magazines suggests that the country is most favourable for anti-ageing lines and for men's fragrances, both of which have demonstrated strong performance in recent years. The men's fragrance category has one of the highest penetrations in Europe, for example and in 2008 the market for men's cosmetics was expected to double in the next year (Stone, 2008). Demographically, Germany is ageing rapidly and this has resulted in a surge of demand for anti-ageing cosmetics (Pitman, 2006). Furthermore, organic cosmetics have an approximate market share of 4% (Organic Monitor, 2006), a high figure that indicates a minor social trend towards fully organic lifestyles. Private label cosmetics are the most rapidly growing price category for cosmetics in Germany, where private label goods run at about 25% market share in many consumer categories (Pitman, 2006).

The technological environment in Germany is of little consequence to our company. Firms currently operating in Germany have roughly the same degree of technological capability as we do, and in any case our industry is only marginally driven by technological advances.

The legal environment is relatively favourable. There is little indication that our firm would have any legal difficulty selling our product in Germany. Litigation risk is similar to what we face in Australia.

The environmental environment is slightly more robust in Germany, which is a world leader in both recycling and adoption of organic consumer products. Environmental laws in the European Union in general are stricter than ours in Australia, and may differ between jurisdictions. It is, however, not expected that we would be unable to meet any more stringent requirements because production would either be here in Australia or if offshored to Germany the local partner would already be compliant with the environmental code, which for this industry includes environmental assessments of production facilities by the industry group IKW (IKW, 2009). There are also strict rules regarding animal testing that any entrant into the German market must adhere to. We would need to reconcile our current practices with respect to animal testing with these regulations prior to market entry.

In addition to the PESTLE analysis, there are several other types of analyses that can help us understand the environment we can expect to face in Germany. One is the market analysis. The Germany cosmetics market is the 3rd largest in the world, behind the U.S. And Japan, with a value… READ MORE

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