International Marketing Strategy

Introduction

Research data from 2006 to 2013 from the Walden (2013) study reveals a new trend in the global marketplace over the past few years wherein consumer spending has significantly decreased within the markets of the U.S., U.K. and Western Europe (i.e. Spain, France, Italy, Germany, etc.) yet has significantly increased within China and other Asian countries (Walden 2013). This state of affairs has been connected by the Jacobe (2013) study as being due to the current popularity of Asia as an outsourcing destination which has resulted in positive economic benefits for the various economies in the region, particularly China, Taiwan, South Korea, India and the Philippines (Jacobe 2013). Since consumer demand within present day “traditional markets” (i.e. countries where multinational companies have normally derived the bulk of their earnings) has been waning, it thus necessitates the debate as to whether a company should expand into new international markets such as those in Asia (particularly China, India and the Philippines) in order to take advantage of this new market opportunity (Schulaka 2009). As such, this paper will explore the current problems within traditional markets for expansion such as the U.S. and will delve into the advantages found in new markets in Asia such as China and the Philippines. It is expected that through this analysis a proper market profile can be created which will help in developing a strategy for penetrating the desired consumer segment in the selected country.

The Macroeconomic Situation

Examining Current Consumer Markets in the U.S., U.K. and Europe

Ever since the 2008 financial crisis, the current U.S. and U.K. consumer market has stagnated, even until the present, with low levels of consumer purchases as compared to previous years. Alber (2012, p. 54) explains “…..while there are signs of recovery in some sectors (mostly in food purchases and mobile gadgets), the fact remains that reliance on government aid programs is still at an all time high” this has resulted in a consumer market that is far too unstable and lackluster in demand to justify continued expansion.

It is based on this that companies would be justified in scaling back operations within the U.S. and U.K. markets due to slow economic growth which is indicative of a deterioration of consumer spending which makes expansion far from ideal since it is unlikely that consumers would continue to patronize products at the same level that they used to. Not only that, there is a significant degree of market saturation within the U.S. and U.K. with numerous well established brands that would make it difficult for a company to establish a sufficient foothold to gain market dominance (Ludvigson 2004). A similar situation can be seen in Europe at the present where countries such as Greece, Spain, Ireland, Italy, France and Germany have also been adversely affected with issues such as Greece’s sovereign debt issue, Spain’s housing crisis, the near collapse of the Irish banking system as well as the political turmoil in Italy all contributing towards decreased levels of consumer confidence resulting in lower levels of spending.

With low consumer spending and an atmosphere of economic uncertainty which pervades the domestic market within the aforementioned countries, any attempt to expand into such areas would result in wasteful operational costs and no guarantee that a company that attempts continued expansion would be able to obtain a significant portion of the local consumer market share (Soman & Cheema 2002). The fact is that the U.S., U.K. and European consumer markets at the present are not conducive towards expansive sales attempts; rather, they are more conducive towards maintaining or even reducing the current marketing initiatives of companies in such countries (Cotsomitis & Kwan 2006). As such, companies should look towards other markets for expansion. One possible avenue of approach is to shift resources towards foreign markets which have not been as adversely affected by the current economic downturn and focus efforts there instead of in cathartic local markets (Cotsomitis & Kwan 2006).

Examining the Chinese Market as a Destination for Expansion

From 1990 to the present, China’s economy has grown to such an extent that it is now ranked as the second largest economy in the world in terms of manufacturing capability and local consumer demand (Hong 2012). The outsourcing industry in particular has contributed to this rise with hundreds of international brands and retailers relocating their factories to China in order to take advantage of the cheaper corporate tax rates and low cost of labor (Hong 2012).

Not only that, China’s success has resulted in the creation of a prevalent upper and middle class whose spending habits have been increasing as of late and is increasingly oriented towards consuming various types of western goods and resources. In fact, based on studies such as those by Hong (2012, p.562), “the sale of goods from the west (particularly from Europe) has been increasing exponentially within the country with numerous brands clamoring to penetrate into the Chinese market”.

This has resulted in an unprecedented level of demand for Western goods and brands making the Chinese market an ideal location for the expansion of numerous established brands within the U.S. and Europe. When taking into consideration the decrease in consumer spending within the U.S. and European market and the unprecedented level of demand within China marked by increased consumer spending, it becomes immediately obvious that a company looking to increase its consumer base should look into expanding its operations into the Chinese market.

Examining the Philippines as a Destination for Expansion

Similar to the case of China, the Philippines has enjoyed a considerable boon due to effect of the global outsourcing industry. At the present, the country has well over 350,000 workers in the various call centers and business processing centers that have opened up within the country resulting in greater levels of purchasing power. Combined with recent data citing that the Philippines has continued to grow in terms of manufacturing capability and investment potential, this makes the country a viable location for expansion given the relatively low levels of market penetration by international brands into the country and the higher levels of consumer spending within the country.

Choice of Airedale Air Conditioning Company

The Airedale Air Conditioning Company is one of the most successful British air conditioning manufacturing companies in the world (Johnson 2001). Since its inception, the company has acquired considerable experience in the provision of I.T. cooling solutions, precision air conditioning and chillers for its various consumers. The company was formed in 1974 and since then has been able to expand into numerous global markets. In 2004, it made sales of up to £ 38.2 million from air conditioning products (Johnson 2001).

The market selection for this case study is China and the Philippines given the increasing levels of consumer spending in such countries which creates a considerable level of market potential.

A diagram showing an alpha cool product from Airedale Company.
Figure: A diagram showing an alpha cool product from Airedale Company.

The products of the company include: precision air conditioners like the Alpha Cool, EasiCool and Smart Cool cooling systems. I.T. products such as the Echo, InRak and OnRack which help to maintain the temperature of servers and various machines. Lastly, the company also has chillers which include the Delta Chill Free Cool, Opti Chill Free Cool and Turbo Chill Free Cool.

n EcoChill 6-46kW R410 product by Airedale Company.
Figure: a diagram showing an EcoChill 6-46kW R410 product by Airedale Company.

Porter’s five factor framework for competition

The following is an examination of the potential problems that Airedale may encounter over the course of its expansion into China and the Philippines. This examination utilizes Porter’s five factor framework in order to help the company devise a proper method of entry into the chosen markets.

Substitute Threat

When examining the possibility of substitute threats, what must be understood is that a large percentage of Airedale’s own parts for its cooling solutions actually comes from manufacturers that are located within China and several parts of Asia. This presents a considerable dilemma since such products can easily be obtained from local suppliers at a quarter of the cost. In order to resolve such an issue, it is recommended that the stocks the company will sell within China focus more on high end goods from European based factories (Villar, Di & Segev 2012). The reasoning behind this is connected to the influx of the “newly rich” within China and their preference for branded Western goods which they consider as superior to local products. By focusing on the sale of high end products with superior performance, aesthetics and capabilities, the company will be able to distinguish itself from other local cooling solution providers and become a hub for wealthy Chinese consumers to shop for their everyday needs (Villar, Di & Segev 2012). In the case of the Philippine market, while there are numerous consumers, the fact remains that the “newly rich” are not as prevalent within the Philippines as compared to China. As such, it is recommended that the company implement a form of brand customization in order to make a product more appealing to a local culture.

This is similar to the case of Whirpool and its branding strategy in the European markets it attempted to penetrate wherein it focused on a strategy that utilized a high end brand (Bauknecht), a mass-market brand (Whirlpool) and a value brand (Ignis) (Ronkainen 1996). By positioning itself in different points in the market with a branding strategy that enabled it to encompass different types of consumers, this enabled the company to develop a better pan-European positioning in terms of being able to penetrate multiple markets under different branding methods (Ronkainen 1996).This method of brand customization is in part due to the company’s desire to be able to appeal to multiple consumer segments through brands that are more inclined towards their end of the consumer market. A similar strategy can be implemented in the case of Airedale where it could focus on the sale of a high end brand of its products in China while selling a mass market or even a value brand to the Philippines. Utilizing a diversified branding strategy with different types of products instead of standardized brand and product types would most likely result in better levels of market penetration.

Entry Threats

Entry threats for Airedale come in the form of the ease of entry into the Chinese domestic market for foreign and domestic competitors alike. While the country’s lax regulatory measures would make it easy for Airedale to establish itself within the country, the same ease of entry can also work against the company given the potential for other competitors to similarly try to enter the market. Since it would take time to develop a loyal consumer base, Airedale would not have the capacity to be able to control the market especially when taking into consideration the presence of numerous local suppliers. Not only that, due to the presence of a plethora of factories within China that normally supply some of the largest cooling brands within the U.S. and the U.K., this ensures that Airedale cannot compete in terms of cheaper prices or having a more diverse product lineup. The best solution, as advocated earlier, is to focus on developing a brand strategy that specifically focuses on high end cooling products for the upper income markets within China. By doing so, this can appeal to the desire of the Chinese for quality western goods while at the same time helps Airedale to develop a niche market that does not directly compete with local or international cooling competitors. As for the Philippines, there are relatively few international competitors within the local market with Carrier being the cooling solution of choice for many local businesses. By providing a cheaper cooling solution, it is likely that Airedale will be able to establish itself within the Philippines as a value based brand.

Rivalry

One possible threat faced by the company comes in the form of the production of local Chinese companies of not only cheaper products but cheaper services as well. What must be understood is that there is a certain degree of technology stealing being done by local Chinese companies wherein the processes, brand, style and means of production brought in by foreign companies are in effect copied, replicated and utilized by Chinese based companies and then subsequently appear in markets rivaling their original counterparts yet being marked at barely 1/3rd of the cost (Rules of the game 2008). China has increasingly learned from various foreign businesses that had established themselves within the Chinese market resulting in the proliferation of not only copycat manufacturing companies but also copycat service industries as well. Several of these companies have actually entered into various international markets (i.e. Latin America, the Middle East, and South East Asia) and subsequently challenged the market share of the companies that they copied. They do this by presenting the same type of product and service yet at an invariably lower cost which companies at times cannot match. This presents itself as a considerable threat to Airedale’s market position in several of its key future markets within China and, as such, does not bode well for the company. On the other end of the spectrum, the Philippines actually does not engage in such actions and has relatively strong intellectual property right laws in place. This would enable Airedale to sell its products in the local market without fear of having them subsequently copied and compete against their own products.

Supplier Power

What must also be taken into consideration is the fact that due to the low cost of doing business in China, local manufacturers that copied the technologies and processes of companies that had outsourced to the country were able to undercut prices resulting in situation where more local consumers chose to buy from these new companies due to the relatively lower prices for the same product. The Economist (2004) states that it was the culmination of these events that brought about the development of a new Chinese upper class composed of businessmen and entrepreneurs that increased local demand for high end real estate development as well as high class foreign goods (Safe as houses, 2004). In the short term, Airedale may be able to utilize brand and product leverage to distinguish itself from local competitors, however, over the long term it is possible that local entrepreneurs may copy the aesthetic appeal of the company’s products and provide cheaper imitation goods resulting in a loss of consumers and profit. Unfortunately, there is no applicable solution to this potential dilemma given the fact that China’s intellectual property protection laws are rather “lax” to say the least. The best means by which this could potentially be countered is by placing a greater emphasis on product and service quality that cannot be matched by local suppliers. When it comes to the Philippines, there is no problem whatsoever and operations can proceed without such a threat.

Buyer Power

To better understand the current wage situation within China and the Philippines, an analysis of the study of Wang & Gunderson (2012) was conducted in order see the difference between wages of a British worker and a Chinese or Filipino worker. It was shown that the average Chinese or Filipino minimum wage consisted of 190 to 380 pounds when converted using current exchange rate data (Wang & Gunderson 2012). Considering the fact that the average salary of a worker in the U.K.’s manufacturing industry is 2,000 pounds, the gap seen represents a considerable salary problem given the type of goods that Airedale normally stocks. For Airedale, the wages of local Chinese workers are far too low given the company’s predilection to stock mid-range to high end products (Wang & Gunderson 2012). Thus, a vast majority of local Chinese consumers are more likely to patronize small local establishments that source their products from local sources as compared to buying from Airedale. Given the description of China’s competitive scene which was stated earlier, this is further evidence that if the company is to expand into China, it would need to focus on the rich and middle class since the lower class within China have barely enough money to afford the company’s products and would most likely turn towards local suppliers that Airedale would be unable to compete against (Wang & Gunderson 2012). In the case of the Philippines, there is the distinct absence of a large manufacturing sector that produces the same products as Airedale. As such, the company could focus on the sale of a value based brand that would be affordable to local consumers without having to worry about direct competition from local competitors that would be able to sell the same product at a much lower cost.

Foreign Market Entry Strategies for Entry into China and the Philippines

Distribution and Sales Strategy

At first, it would be necessary to increase people’s awareness about the products of Airedale. This news could be spread through social networks within China and the Philippines which is the least expensive method of promoting the product and attracting customers. Additionally, fliers could be distributed in the venues where there are shopping centers and will act as the main distribution channels for the company (Ataman, Van Heerde & Mela 2010). Overall, the main advantage of this approach is that it will allow the company to increase its customer base within a short time. Furthermore, word-of-mouth can also greatly benefit the venture as this communication channel will become particularly important at the initial stages when customers are not aware of the products on offer. In order to implement this aspect of the project, the company will need to form alliances with local media outlets and consumer groups in order to increase the amount of “hype” associated with the arrival of the Airedale into China and the Philippines.

Development Plan

The key element that needs to be considered at the start of this kind of a business is which location would be the most suitable for the business’s needs. Based on this, sites with a great quantity of pedestrian traffic would be essential in order to obtain adequate levels of revenue. Widespread locations for positioning a successful Airedale outlet would be within the cities of Beijing, Shanghai, Guangdong and Hong Kong due to the high concentrations of upper and middle class consumers within such regions while in the case of the Philippines the best areas would be in Makati, Quezon City and Cebu city where there are high concentrations of call centers and business processing organizations (Michael 2007).

Conforming to Consumer Buying Behavior

It is rather interesting to note that various theories of consumer decision making processes always seem to assume that consumers pass through distinct stages/steps before, during and after the process of selecting a particular product to buy or service to utilize. On the other hand Omar et al. (2010) state that this may not necessarily be the case since not all consumers pass through a particular decision making process and in some instances consumers may in fact skip certain stages all together (Omar et al. 2010). What must be understood is that an average consumer is influenced by a myriad of different factors that affect the way in which they choose to patronize a particular product or service (Brierley 2012). This can range from various psychological reactions such as the way in which they think and feel about different products (i.e. brand perception) to the way in which the market environment they are currently present in affects the way in which they perceive a particular product or service (i.e. local culture, their family, local media influences etc.) (Wagner et al. 2009). In the case of the target market that Airedale is attempting to penetrate in China (i.e. upper class and high income consumers), this comes in the form of a focus on high end goods due to the current demand by members of this particular segment for high end western goods that are expensive. For consumers such as these, price does not matter so long as it carries a level of distinction to own one. Thus, in order to take advantage of this type of consumer behavior, it would be advantageous for the company to market its products as being exclusive, high end, and only for people that can afford them due to the quality of the product. In the case of the Philippines, the complete reverse occurs wherein consumers are often after value based goods and, as such, it would be necessary to focus on a sales and branding strategy that focuses on affordable cooling solutions that would appeal to the masses.

Selling Strategies

Another aspect to take into consideration is the fact that at times certain products become a “tough sell” as a direct result of consumer objections to the product itself. One case where this is evident is changing consumer attitudes in the U.S. towards the use of gas guzzling SUVs. From 1995 to the early 21st century SUVs were considered almost the vehicle of choice for a large percentage of families and consumers within the U.S. however due to increasing gas prices the demand for SUVs has severely plummeted resulting in a significant deterioration the market base for current SUV dealers. Professor Stephen Hoch of the Wharton school of Business explains that in such cases what is needed is to “frame an offer to get rid of the objection. This means to create a buying situation where the consumer observes the perks of buying a particular product and neglects to take into account the possible negative implications of the sale” (Michael 2007, pp. 21). In the case of China, this involves a focus on the exclusivity of the product rather than the potentially massive electricity cost that would come about as a result of a high end cooling solution. For the Philippines, this focuses on the affordability of the product despite the fact that it will not last in the long term (i.e. 4 years or less).

Proper Pricing

The last approach that should be considered by Airedale when approaching consumer relationships in the markets to be penetrated is to take into account business cycles and market slumps and adjust prices accordingly. As explained by Professor Leonard Lodish of the Wharton school of Business “pricing is a critical element of successful marketing, in good times and in bad and many companies do not focus enough on getting their pricing right” (Michael 2007, pp. 23). It is based on this and the cyclical cycle of business that Airedale should consider proper pricing strategies when selling particular hard to move products. This takes the form of taking into account the physical value of the product being sold as well as various non-tangible elements that consumers take into consideration before they will be willing to pay for a product. For example, China at the present is experiencing slight problems with its economy, while it is still holds potential for the sale of high end cooling solutions, pricing should be set at a more reasonable level till the economic situation of the country improves.

Analysis on the company’s operating exposure

In the case of China, Airedale actually exposes itself to a considerable level of operating exposure wherein in the next 3 years as the property bubble of the country “pops”, this would result in a considerable devaluation of the Yuan which would negatively impact the company. On the other end of the spectrum, with the continued expansion of the Philippine economy and the generally bright outlook for the country’s future in the next few decades, Airedale would be well poised to take advantage of the increase in consumer spending that is associated with an expanding economy.

Management of operating exposure

The best way of managing this level of exposure is to focus on its supply chain wherein it would focus on minimizing the amount of products in storage and maximizing the sale of easy to move products. By ensuring that products only arrive when they are needed rather than storing them, this enables the company to be more flexible and minimize its financial losses once the property bubble pops.

Summary and conclusion

Based on what has been presented in this report, it can be seen that entering into the Chinese and Philippine markets comes with both advantages and disadvantages. Disadvantages come in the form of considerable local competition while advantages come in the form of a newly wealthy middle and upper class within the country that have a considerable demand for western goods and brands.

Social Networking tools to Promote the Product

Advertising Through Social Media: YouTube Stars

Various forms of consumable media in the form of print ads, billboards, commercials, online marketing campaigns and a plethora of other types of advertising initiatives are rife with the images of various popular individuals showing just how prevalent product endorsements are in the advertising campaigns of numerous companies (Kalpaklioglu & Toros 2011). The logic behind this particular method of advertising stems from the fact that people are more likely to purchase a product or utilize a particular service if they see someone else happily using it, studies even show that the likelihood of product patronage goes up astronomically if it is seen that a pop culture icon is utilizing a particular type of product (Kalpaklioglu & Toros 2011). This speaks volumes of the influence of pop culture on consumer buying behavior however it is also indicative of the fact that companies are aware of what causes consumers to purchase a particular product and act accordingly in order to exploit it.

Yet, the inherent problem with using popular culture celebrities is the fact that they are often quite expensive and demand millions of pounds in fees. An alternative method that this marketing strategy has devised that overcomes this particular problem utilizes YouTube stars as a means of promoting the products of Airedale to the Philippines and China. On average, YouTube stars such as Ray William Johnson, Philip DeFranco, Shane Dawson, Smosh and others like them often generate millions of views per video, greater even than some shows on cable television. Furthermore, these shows are watched by a global audience encompassing countries such as the U.S., China, Russia, the Philippines, Australia, and various states within the European Union. This would enable any marketing campaign that centers on the use of such YouTube stars to in effect target a wide range of consumer markets at a relatively low cost. YouTube stars in general do not demand a lot of money for placing ads within their show; it is usually the case that by providing a promotional code or a link in the description of the video, the company that created an advertising contract with them usually pays on the basis on the number of clicks.

This averages to around $1,000 or less on select advertising and promotional deals; this is a vast difference when compared to the millions demanded by A-list stars within Hollywood. You also have to take into consideration the fact that YouTube stars can come from a variety of different countries wherein they have a distinct level of popularity with the local populace. Based on this, a marketing campaign could spend half the amount of money that would normally go to an A-list star yet reach 20 times the intended audience demographic by utilizing a select marketing strategy devoted to using YouTube stars from specific regions that cater to the audience demographics that the campaign is attempting to appeal to.

Sponsored Links, Promotional Codes and Banners

The best way in order to fully utilize the viewership of a YouTube star is to have them sponsor Airedale by having them mention it then have them point to either a banner location on the screen, a promotional code the viewers can use to get discounts or a link in the description of the video where viewers can go and visit a website detailing the various packages they can avail of within their country. This is often the strategy Netflix uses on either the Philip DeFranco show or on Epic Meal Time in order to gain a substantial amount of subscribers to their services. The same strategy can be utilized on select YouTube stars from specific regions and through multiple shows. By examining the viewership range and what type of viewers normally watch a particular YouTube star, the marketing campaign will be able to determine what star to use, how long should the promotion period last for and will be able to monitor the overall effectiveness of the campaign via the number of clicks on the link, the number of people watching the video or the sheer amount of times the promotional code is used.

Conclusion

From the above discussion, it is evident that conducting foreign market analysis and articulating effective marketing mix in organizations enables and adequate understanding of markets, designing products based on customer needs, and exploring new market niches. Careful application of marketing mix, product, price, promotion and place enables a great response to consumer needs. It came out in the discussion that for Airedale Company to enter the Philippines and China, the use of proper pricing and branding strategies as well as using social networking tools will provide an important platform for marketing its products. The paper calls for lower pricing in the Philippines so as to meet diverse economic capabilities of Filipino consumers while at the same time advocates the sale of its products in China via high quality brands and higher prices. Through the implementation of such strategies, it is likely that Airedale will be able to successfully penetrate the chosen markets and be able to gain a substantial market share.

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