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Concept of Route-to-market Problem Solution Essay


Route to Market

According to Sullivan and Sheffrin (2012), the concept of Route-to-market provides a simple but highly powerful and effective methodology for driving and enhancing profitable growth for organizations. Sullivan and Sheffrin (2012) state that the Route-to-Market (RTM) is itself a strategy that determines the distribution channel that an organization must use in delivering its products or services to the target customers and achieve the desired profits.

A strategy of this kind it used when the company is striving to accelerate growth in the market or reach some objectives in its business. An important aspect of RTM is the process of determining how its key activities are managed in order to achieve the desired value for the company and the consumers.

For instance, RTM’s main activities include logistics, trade marketing, integration and distribution. According to Sullivan and Sheffrin (2012), it is the role of a producing company to determine the best option with respect to these activities.

In delivering the product using the RTM, the producer must perform an analysis of all the options available before embarking on the actual work of distributing the products. First, the issue of logistics provides a challenge to an organization, especially at the planning levels.

In the modern business concepts, developing the right logistic model holds the key to the successful target of the desired market (DeMott 2011). Various options are available for the company to choose. The company can choose to involve producer warehousing, transportation, depot warehousing or key account DD service. In all these cases, data plays an important aspect of the process (DeMott 2011).

Market information data plays a significant role in determining the right channel or combination of routes for the RTM model. According to Sullivan and Sheffrin (2012), the end market information provided by the company’s representatives in the market, distributors and other parties must be integrated within the company’s marketing strategy before reaching out for the customers in the end market (Blattberg Kim & Neslin 2011).

In the modern context, information technology and supply chain are the key components of the integration of data in the development and enhancement of the distribution chain, especially in new market ventures. While the supply chain provides the channel for the products to reach the desired destination, information technology plays a significant role in ensuring timely, reliable and accurate communication between the end market and the producing section, which enhances strategy development and maintenance for the RTM.

According to Blattberg Kim and Neslin (2011), distribution partnership programs provide a good option for start-up as well as established companies, especially in new market ventures. One of the main advantages of this method is the ability of a producer to access a wide and already established market using specific partners who are familiar with the new market (DeMott 2011).

In addition, it reduces cost and time needed to establish new outlet channels in new markets, especially when the company is trying to enter into and establish itself in new countries, regions or continents (DeMott 2011). The issue of risks is also an important factor that a company must consider when developing RTM strategies for new markets.

While some strategies like direct entry are effective in establishing company-customer selling procedures, it is important to note that they are equally risky and requires large capital and work force to establish (DeMott 2011). For instance, competition, poor knowledge of the market conditions and business culture, legal restrictions and other factors increase the risks of failing to achieve the desired outcomes in a new market.

With these considerations, it is important to examine the available options for the MS Technologies Limited and determine the RTM options that will fit the company’s products, size and industry in the target markets.

Analysis of RTM options available for MS Technologies Limited:

  • Direct RTM

A direct route-to-market is one of the most effective channels for accessing new markets. However, it is one of the most risky RTM strategies that are likely to affect the achievement of the market objectives. An important aspect to consider is that direct RTM is good for complex products that require the company to establish its own distribution and market centers in a new market.

In addition, it is good for making personal contact with the customers and creates awareness of the company’s products. However, it is an expensive, risky and time-consuming method. It is not effective for companies that need to benefit from selling relatively new products before any competitor enters the market because it takes time before the company can establish its distribution channels and sale outlets, especially in anew country where legal and promotional barriers are complex.

For MS Technologies Limited, the products are relatively new in most markets. While most people in Europe while most people are aware of the existence of electrical automobiles in their roads, few people have acquired these technologies, despite the current trend towards fuel and environmental conservation.

As such, MS Technologies Limited will need to venture into the market based on a combination of direct and other RTM methods as defined below in order to evade the risks involved.

  • Wholesale TRM Options

Wholesalers provide a good channel for producers to reach out for remote and distant markets. Wholesalers act as the producer’s representatives by stocking, promoting and selling the products. It is important to note that wholesalers are more likely to develop customer-company relationships in the market because of their wide experience.

In addition, the method is good for selling products of lower value that tend to have frequent price shifts. However, wholesale RTM methods attracts low profit margins (PM) due to the division of the profit between the producer and the wholesalers. Since both parties would like to maintain profits, items sold through wholesale method are likely to fetch higher prices, which can be a disadvantage to MS Technologies Limited when competitors establish their direct outlets in the target markets, especially in the UK.

Therefore, it is suggested that MS Technologies Limited consider using wholesale RTM method in combination with other methods in its European markets.

  • Importer RTM

Working with importers provides a company with a reliable, efficient, cheap and easy method of entering foreign markets. It is the easiest route for companies producing retail products. In addition, it requires a minimal control over branding. The producer does not have to have an in-depth knowledge of experience with the market because the importers will be required to make prompt payments before they are supplied with the products.

In addition, it is the role of the importers to distribute, appoint wholesalers or marketers, promote and advertise the products in their markets. In fact, MS Technologies Limited will use this method in the UK and Europe in general because the number of people willing to experience the relatively new electric car technology is increasing, which means that importers will be looking for the companies that produce the electric engines and other gadgets at the best price and quality (Balducci 2008).

Therefore, the importer method will be the main RTM strategy that MS Technologies Limited will apply in the UK and Western Europe because the tendency of the market to move towards the electric engine technology is relatively higher than in other markets such as Asia and Africa (Balducci 2008).

Strategic partnerships

According to DeMott (2011), strategic partnership is one of the most effective market entry methods for multinational organizations that are seeking to expand their markets to foreign nations where other local companies are willing to partner with multinationals to distribute and benefit from their unique products.

The application of multinational consultancy practices and system integrators is highly encouraged because both partners are likely to be looking for innovative solutions. In addition, the local partners are likely to have a desire to demonstrate to their local or regional clients that they have a significant influence on the availability of the product DeMott 2011). In most cases, the strategic partners will be looking for an absolute license to be the only dealer of the products in the market in order to achieve a competitive advantage over the competitors.

MS Technologies Limited will use this RTM method in the most of the western European nations like the UK, Germany, France, Italy, Spain, Netherlands and the Scandinavian countries because the competition between the local dealers in the electric car technology is likely to increase in the coming years (Balducci 2008).

In fact, Europe is one of the regions in the world that have a high rate of switching towards green technologies to reduce cost of fuel as well as the rate of carbon emissions (Davis, Diegel, Boundy & Moore 2013). Therefore, MS Technologies Limited will ensure that the competition between the local companies will be considered and the least number of strategic partners used in each nation to ensure that the partners do much of the advertising, wholesale and promotion of the products.

Online RTM

The final but most important RTM in the modern context is the use of the internet technology toreach out to a large market within a short time. The internet technology and the associated business frameworks such as the e-commerce are increasingly becoming popular marketing methods due to their ability to save time, costs and conduct business throughout the day (Blattberg Kim & Neslin 2011).

In addition, they reach a wider market than the other channels. Nevertheless, it is difficult to establish trust and draw traffic using this method due to the fear of fraud that is associated with the internet communication technologies.

However, MS Technologies Limited will not lose the chance to apply the modern technologies to reach out for the market. The online RTM method will be applied in all the regions the company is trying to reach. It will be used mainly for advertisement and communication with the partners, wholesalers, company outlets, importers as well as the individual consumers.

Potential Customers

In identifying the potential customers, a business must consider the target market, the uses of the product, the item that customers are looking for and how they are expected to use the product. According to Child and Faulkner (2008), the company must also seek to know the customer behavior in terms of how the choose products and why they prefer a product to the others.

Moreover, an analysis of the customer’s method of responding to the market changes and programs is imperative in examining and identifying the potential customers for a product. The 5-W model provides MS with an important program for identifying the potential customers for the electric motor engine. First, the company will need to know who its current and potential customers are (W1).

In addition, this represents the former customers (Stein & Sloane 2013). In this context, it is important to note that the company’s current customers are the automobile makers who are interested in producing small vehicles, mostly for the pilot studies before they decide to roll out a program mass production Child and Faulkner (2008).

However, most of the companies are implementing new systems to start the mass production of the electric cars because analysts predict a mass shift from the petroleum fuelled engines to green energy such as electric driven vehicles. As such, it is important to note that MS Technologies Limited must look for the potential buyers who will remain loyal to the company’s products in the future.

W2 represents “what the customers do with the product” (Stein & Sloane 2013). In this case, MS Technologies Limited produce products that seek to satisfy consumer demands for cheap, reliable, cost saving and energy efficient vehicles.

Currently, most of the customers at MS Technologies Limited are companies that use the products to fit into their electric automobiles before offering them for sale in the market. In the United Kingdom, electric driven automobiles have already hit the roads, with various consumers seeking to experience the product (Brons & Nemry 2010).

Although few people are familiar with these technologies, it is worth noting that the consumers are seeking to use the cars for personal and family use in order to cut the cost of fuel, reduce maintenance cost and improve their environment (Brons & Nemry 2010).

The issue of the location of buying the product is an important aspect of the customer identification procedure. The question “where” represents the customer’s convenient location of obtaining the product. In the UK and other European nations, customers are seeking to obtain vehicles within their neighborhoods, places of work and local cities or towns (Brons & Nemry 2010).

This means that the MS Technologies Limited must look for the partners, distributors and importers that will reach out for the consumers in their local neighborhoods or place of work. Thus, the company will look for the companies that are producing and distributing the electric vehicles at the most convenience location for the consumers (Stein & Sloane 2013).

The issue of “when” the customers are purchasing the product is important in determining the potential customers for MS Technologies Limited. According to Brons and Nemry (2010), most analysts predict an increased rate of growth in the market for electric powered automobiles in the next six years. It is expected the market will be growing by more than 20% by 2020 (Brons & Nemry 2010).

In addition, it is expected that Europe, North America and Japan will be the regions with the biggest markets for these technologies. Therefore, MS Technologies Limited will seek to collaborate with companies that are willing to sell or already establishing markets for these products in these areas.

With this in mind, it is important to note some of the potential customers that have been considered under the 5W model above. The corporations that are currently producing electric motor vehicles for sale in the European market are recognized as the potential buyers for MS Technologies Limited.

In Germany, the Robert Bosch GmbH of Stuttgart is one of the companies producing electrical drives for motor vehicles as well as other machineries. With a total global automotive production worth more than $40,000, the company is a potential customer for MS Technologies Limited (Brons & Nemry 2010).

Also in Germany are the Continental AG and the Mahle GmbH that produces powertrain electronics and powertrain engineering products respectively. In Spain, the CIE Automotive Company produces engine and powertrain components. It will be the target customer for MS Technologies Limited in the country. The Italian company Magneti Marelli produces powertrain transmission and systems in the country.

It is also a potential customer for MS Technologies Limited while GKN of the UK has similar products and is expected to roll out a number of other products that use electric engines. Therefore, the company is also a target customer for MS Technologies Limited (Brons & Nemry 2010).

In North America, the United States and Canada have a number of companies that have been listed in the top 100 producers and suppliers of OEM. Among them are the American Axle & Mfg Holdings (USA), Delphi Automotive (USA) and Magna International (Canada). They will be the initial target market for MS Technologies Limited.

Technology companies in South-East Asia, especially Japan and Korea, will be included in the first marketing phase alongside North American and Europe. In addition, some companies in these countries have been included in the top 100 companies that produce and supply OEM parts.

MS Technologies Limited will target Hyundai Mobis of Korea and Hitachi Automotive Systems of Japan as potential customers in the area because they produce and distribute powertrain systems in the region.

Potential Partnership Options

According to Child and Faulkner (2008), the need for large capital, technology, manpower and numerous legal restrictions in foreign markets means that modern companies are forced to venture into new markets based on partnerships with local or regional organizations to mitigate risks and reduce costs.

In this view, it is important for MS Technologies Limited to consider entering into the prospective markets based on partnerships as opposed to direct entry. However, it is clear that partnership exists in various forms and each may be suitable for one market but not for other markets (Sullivan & Sheffrin 2012).

Therefore, MS Technologies Limited is seeking to collaborate with the potential customers identified in the previous section in order to mitigate risks, reduce costs, improve the efficiency of market entry and reduce the time needed to reach the market (Sullivan & Sheffrin 2012).

Equity partnerships

Equity partnership is important for MS Technologies Limited because it will ensure that the two parties enter into a co-ownership business mission (Doz & Hamel 2011). In this case, both partners will be entitled to a proportion of the distributable profits of the venture (Child and Faulkner 2008).

MS and her partners will have some underlying interest in the business in which MS Technologies Limited will produce and export the product while the partners will stock, distribute, promote and advertise them in their countries or regions (Sullivan & Sheffrin 2012).

Joint ventures

Joint venture is the best partnership option for MS Technologies Limited when entering into the new markets. This partnership method is set for a given time through a business agreement in which two companies agrees to contribute equity in selling a product and thereafter share expenses, assets as well as revenues (Child and Faulkner 2008).

In the case of MS Technologies Limited, the company will seek to partner with the identified organizations through agreements in which MS will produce and export the products while the partners will carry out other activities in order to reach out to the market.

In particular, the company will establish joint ventures valid for 5 to 10 years starting 2015 in order to ensure that the products will achieve the optimal market growth predicted to occur between 2020 and 2025.

Strategic alliances

According to Doz and Hamel (2011), a strategic alliance is one of the most popular and effective partnering methods for multinational organizations seeking to venture into foreign markets. The partnership is based on an agreement between business organizations seeking to pursue a set of objectives at a given time (Child and Faulkner 2008).

It is worth noting that this method ensures that the parties are independent organizations and do not involve merges or acquisitions (Sullivan & Sheffrin 2012). Since MS Technologies Limited is a startup company, this method will provide it with a good foundation and platform for venturing into the already developed markets in Europe and South-East Asia through collaborations with the existing multinational organizations operating in these areas (Child and Faulkner 2008).

In this case, MS Technologies Limited will be involved in the production and exportation of the products while the partners will have the absolute rights for promoting, distributing and selling the products in their areas.

Noteworthy, the joint venture is a profitable form of partnership because it will allow MS Technologies Limited to utilize the already established marketing and distribution channels, assets and market images owned by the partners in these areas (Doz & Hamel 2011).

Therefore, the method is expected to reduce the costs and risks involved, including the cost of establishing marketing and distribution channels, promotion and advertising, warehousing and development of agreements with local wholesalers and retailers (Doz & Hamel 2011).

Potential distribution channels

As part of the conventional 4 Ps model of business, distribution channels play a significant role in ensuring that the relationship between a producer and the consumers is established to assist the producer achieve profitability and the consumers satisfy their needs.

A business to Business (B2B) model, which will initially be adopted in MS Technologies Limited, will ensure that the company can use either direct or indirect distribution channels (Lendrum 2009). Since the potential customers identified in the previous sections are companies, it is important to start with a B2B model.

In this case, direct distribution channels will include direct-catalogue and direct-internet models in which catalogues and the internet will be used to settle the contracts (Lendrum 2009). With these models and the identified partnerships, MS Technologies Limited will involve two major types of distribution channels- selective and exclusive distribution channels.

This means that MS Technologies Limited will rely on a few intermediaries to distribute the product upon arrival at the respective ports (Lendrum 2009). In some countries, MS Technologies Limited will use exclusive dealings in which the intermediaries will carry the products to the potential customers identified above while excluding others.

Business case and projections

Figure 1: Projected sales and cost of sales (short-term and mid-term)

Projected sales and cost of sales (short-term and mid-term)

Figure 2: Long-term projections

Long-term projections

Figure 3: Risk assessment matrix and summary and mitigations

Risk assessment matrix and summary and mitigations

References

Balducci, PJ 2008, Plug-in Hybrid Electric Vehicle Market Penetration Scenarios, Pacific Northwest National Laboratory, Oak Ridge, TN.

Blattberg, RC, Kim, B & Neslin, SA 2011, Database Marketing: Analyzing and Managing Customers, Cengage, Mason, OH.

Brons, M & Nemry, F 2010, Plug-in Hybrid and Battery Electric Vehicles, Joint Research Center, Seville, Spain

Child, J & Faulkner, D 2008, Strategies of Co-operation: Managing Alliances, Networks and Joint Ventures, Oxford University Press, Cambridge,

Davis, SC, Diegel, SW, Boundy, RG & Moore, S 2013, Vehicle technologies market report, National Technical Information Service, Springfield, VA.

DeMott, DA 2011, “Transatlantic Perspectives on Partnership Law: Risk and Instability”, Journal of Corporation Law vol. 26, no. 3, pp. 879-895.

Doz, Y & Hamel, G., 2011, Alliance Advantage: The art of Creating Value through Partnering, Harward Business School Press, Boston, MA.

Lendrum, T 2009, The Strategic Partnering Handbook, A Practice Guide for Managers, Nook Company, McGraw-Hill

Stein, SK & Sloane, RK 2013, Using Customer Needs to Drive Transportation Decisions, TRM, New York.

Sullivan, A & Sheffrin, SM 2012, Economics: Principles in action, Pearson Prentice Hall, Upper Saddle River, New Jersey

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