Today international companies aim at expansion to new markets, looking for ways to increase their profit and to become global leaders. In order to accomplish world’s leadership marketing departments should conduct very careful and accurate process of planning, forecasting possible threats and new opportunities. One of the main instruments of planning process is marketing plan, which helps define the goals and objectives of international company, research the situation in the current environment and ensure that company will succeed in the market.
One of such ambitious companies aiming to become global leader is Coffee Buddy. Coffee Buddy is USA company, a well-known producer of coffee-making machines. This product has already gained its popularity, significant market share and stable profit in the country of its production- the USA. So, Chief Executive Officers took a decision to look for new potential markets and it was ascertained that Russia is one of the most attractive markets for this company.
Situation Analysis
Coffee Buddy is company which primary focus is the production of coffee-making machines, with four plants in the USA. The level of demand for this product in the USA is growing due to its convenience of usage. Coffee Buddy is the third largest company in the USA according to its share of market.
The short term goals of Coffee Buddy are to expand its goods to an attractive market of Russia and gain leadership position there. Meanwhile, long-term goal is to find other potentially attractive markets in other countries, in particular in Eastern Europe. The reason why this market was chosen as a future global target market lies in the similarities between Russian environment and its neighbors in Eastern Europe.
This region has experienced similar problems of recovering from the crises after USSR collapse, the same issues of building effective market environment and democratic values’ adoption. So, it can be forecast that if Coffee Buddy enjoys success in this country, it will be able to position itself successfully in former Soviet –Union countries too, and operate there profitably.
Markets presence of this company is rather stable in the USA, where Coffee Buddy enjoys economies of scale and accumulated production. However, in new market of Russia this company might face certain obstacles on the way of gaining significant amount of market share.
Product and Industry Analysis
Describing Coffee Buddy’ product, it is important to highlight that it possesses a number of benefits for its potential consumers. The main advantage of coffee-making machine is its small size, light plastic container, so it can be easily carried; and one more advantage is the fact that it is non-electric kitchenware, so it can be used during picnics, or outside the building.
This machine can be used for making other substances and its convenience lies in the freshness of final substance, which is reached by special filter inside of machine. And one more undeniable advantage is a reasonable usage of the coffee, because it requires only one teaspoon of substance in order to produce one cup of coffee. So, the described innovational features of product will help Coffee Buddy to position itself as a successful innovational company in Russia.
At present time the industry of coffee-making machines is rather globalized and Coffee Buddy faces a high level of competition. Its main competitors in this industry are Pavoni, a strong competitor, which operates in the market for over one hundred years with a great variety of product assortment and rather low price, and Polti, a producer of different household items, Rowenta, a producer of coffee makers well-known in the world for its innovations, and last but not the least – Siemens, a company with reputation of high quality and durability of its goods.
Analyzing one of Porter’s forces –barriers for the entry in this market, it can be concluded that barriers are rather high, because all companies have captured their shares, and all of them are operating profitably without a significant threat of losing their leadership positions.
To understand better performance of Coffee Buddy, it is essential to find out in what stage of Life Cycle of Product this company operates at. After researching company’s sales and profit, it can be ascertained that Coffee Buddy is at its growth stage. There is a proportionate climb of the sales and profit of this company, which means that if the right marketing plan is worked out Coffee Buddy will enjoy further rise of both sales and profit.
Global Market Analysis
Researching the target market of Coffee Buddy- Russia, it should be said that its Market of household appliances has undergone a significant transformation, these reforms were caused by collapse of USSR, and adoption of innovations in this market was inevitable.
So, today Russia can be considered as a completely new market with good perspectives. Its size is rather large and its entry barriers are still low due to the fact that this industry is not highly developed in Russia. However, the potential of market is exceedingly growing because of the increasing number of coffee consumers and relative rise of level of life in this country.
Russia’s market of coffee-machines is not developed enough, mostly leaders of household appliances’ production are also manufacturing coffee makers. However, if Coffee Buddy with its narrow specialization enters this market, it will be able to compete with such companies through low costs of economies of scale.
The effect of culture on the market can be considered as positive, the Russians are usually consuming coffee in the morning and during the day. Coffee is one of the most popular drinks in cafes and restaurants. Studies have shown that market of coffee is approximately 15 000 tones per year, and the level of consumption is relatively low compared to other European countries, however there is a tendency of consumption’s increase.
Since markets of coffee and coffee makers are tightly connected- the traditions of coffee consumption will have a positive impact on performance of Coffee Buddy.
Another positive factor for future development of Coffee Buddy is the liberalization of trade: there are no sever import controls, and the licensing system is not very complicated right now. Moreover, if Coffee Buddy adopts the principles of megamarketing with both positive effect on the development of society and interaction with government, it will not experience restrictions or limitations from the side of government.
Undoubtedly, Coffee Buddy will experience the impact of certain macro forces; however the most significant of them will be the influence of economic, demographical and social – cultural environments. As it was mentioned earlier, the impact of political-legal environment should not be negative if company practices social responsibility in the region where it will operate.
Economic environment will probably have the most significant and to certain extent negative impact: Russia is still struggling to overcome crises in various spheres, so the level of life in this country has not reached the level of developed European countries, level of salary of the average Russian citizen is rather low, especially in the country regions. So, to decrease this negative effect, Coffee Buddy should focus on the large cities, where population has a stable source of income.
If we view the current situation in the demographic environment, it will not have any negative effect on the performance of Coffee Buddy. Russia is one of the countries with the largest number of population, so consequently the number of potential consumers is rather high. However, there is a tendency of population’s aging process, which is negative, since the source of income of pensioners is much lower than the average income of permanently working Russian.
The impact of social environment is mostly positive, since the lifestyle of busy, energetic person, who should stay active during the day, is very common today in Russia. Many young people are looking for products, which will help them lead the following way of lifestyle and coffee machines will be a good way of making energy- producing drink.
Global Market Strategy
One of the most influential and common perspective of global marketing strategy is the standardization perspective, and there are many publications written in support of this strategy. The following perspective is based on the idea that all preferences and needs of customers around the world are similar, so multinational company should implement standardized programs and produce similar products for all its markets. Through standardization of all processes international company will enjoy economy of scale and reduction of costs, consequently strengthening its leadership position in the market. So, Coffee Buddy should ascertain which processes implemented in Russia must be similar to the ones adopted in the USA.
Analyzing current situation in Russia and comparing it with conditions in the USA, it can be concluded that marketing objectives, product, promotion and distribution, as well as pricing strategy will differ form the ones adopted in the USA; however the general framework of these elements should remain the same.
So, Coffee Buddy should mostly focus on the combination of two perspectives, which include the coordination of firm’s value chain and integration view. In particular, Coffee Buddy should optimize its coordination efforts with resources and comparative advantages of a new host country – Russia. As it was mentioned earlier leadership of this company can be achieved through specialization in its field, producing coffee-machines only and enjoying economy of scale.
Regarding integration view it should be outlined that this perspective of global market strategy should be implemented as one of the long-term goals. When Coffee Buddy gains its stable leadership positions in Russia, its expansion to other Eastern Europe markets should involve interdependent operations, meaning that countries with high potential of low cost resources should serve as the “resource centers” for Coffee Buddy. However, this should be one of the future steps which would be made by Coffee Buddy.
Marketing Objectives
One of the most common market metrics is marketing objective, which help to measure overall performance of the company, compare achieved results with ones stated in the marketing objectives and understand better the position of this company in the market. Marketing objectives include both quantative and qualitative data, in order to conduct more precise analysis of company’s performance.
So, Coffee Buddy marketing department is ought to set the most realistic and accurate marketing objectives, covering all levels of hierarchy like corporation objectives, marketing objectives, distributional, promotional and pricing objectives.
Coffee Buddy is to achieve at least 5 % of market share during first three years after the entry in the market. However during the next two years it is expected to increase market share by 10 %. The next objective is to achieve at least 10 % of product sales in the market during the first three years, and more than 20 % during the next two years. The third objective is to establish brand awareness and enhance the image of Coffee Buddy at 30 % of the target consumers during the first two years and at 50 % – during the next two years. Furthermore, regarding the distributional hierarchy level Coffee Buddy is planning to conduct policy of selective distribution, which will involve 5 reputable distributors of this Buddy’s products. And the pricing objectives of this company is to achieve economy of scale during the first five years, and through cutting costs of production to decrease price of coffee-making machine, by at least 5 percent.
Marketing Mix Strategy
Marketing Mix Strategy is rather complicated plan, which involves product, promotion, distribution and pricing strategy. All these strategies are integral components of Coffee Buddy Marketing Plan.
Product Strategy
Product strategy is based on the process of product management, which includes two essential components – product planning and product marketing. These two elements of product management are closely connected, however they should not be perceived as one discipline as it is mistakenly done by some companies.
So, Coffee Buddy Product Strategy should start with product planning procedure, defining its range of products, then gathering data on marketing requirements of Russia, and finally ascertaining how their products should be differentiated.
One of the advantages of Coffee Buddy is its narrow specialization on production of coffee-machines, so the range of product is limited to the most common and widely used models in Russia. According to the marketing research, it was found out that one of the most popular models of coffee-machine in Russia are drip machines with filters, which are electric and very easy to use and rather inexpensive, and espresso makers with steam method, these devices are widely used in bars and cafes.
Received information was carefully analyzed and marketing department has come to the conclusion that Coffee Buddy should start from narrow production of one coffee-machine, which is non-electric and has a variety of ways of application. If the volumes of its sales reach desired level, then production should be widened and popular drip machines and espresso machines added into the production cycle.
As it was stated above, products of Coffee Buddy are in their growth stage, and in spite of the fact that in the beginning Coffee Buddy may have to adopt a strategy of survival and the level both sales and profit may not reach the desired level during the first year, however Coffee Buddy will struggle hard to launch its innovational for Russian market non-electric coffee-machine.
In order to differentiate and position its product Coffee Buddy is going to use following message: “To meet Russian consumers needs in enjoying the taste of real coffee Buddy is producing rather inexpensive, high quality coffee machine, which does not require using electricity and let our consumers drink hot cup of their favorite drink any where they want. “ So, the key feature, which will differentiate this coffee-machine, is its non-electric nature and light weight of this device.
Promotion Mix Strategy
Promotion Mix Strategy is a complex integration of personal selling, advertising process, sales promotion and finally public relations, which should all be implemented by Coffee Buddy.
Personal Selling
Personal Selling can be very effective way of promoting products, however, there are number of reasons why this way of promotion will not succeed in the market of Russia. First of all, the cost of implementation of personal selling is rather high due to the fact that sales people who will sell coffee-machines should receive significant percentage of every sale (more than 20% of every sale). Secondly, it was ascertained that products which are sold through personal selling have an image of low quality and cheap products, however Coffee Buddy would like to position itself as “high-quality and inexpensive producer of coffee-machines”, so apparently this method may have a negative impact on the brand image of Coffee Buddy.
And the last but not the least problem which Coffee Buddy may face is necessity to train Russian sales people. This issue will lead not only lead to the increase of costs; however language and cultural barriers may become significant drawbacks on the way of successful training process.
So personal selling should not be used as the leading method of implementation of Promotion Mix Strategy.
Advertising
In spite of the conclusion made by marketing department of Coffee Buddy, that personal selling is not effective method in this particular environment, advertising is much more attractive tool of promoting Buddy’s coffee machines.
There are many publications and articles regarding the emergence of new advertising markets in Russia, China and some other countries. The advantage of advertising for Coffee Buddy is a great variety of methods of advertising. However, one of the most important things is not to choose less popular sources of advertising.
Buddy Coffee marketing specialists have found out that one of the most popular tools of advertising are television commercials, billboards and World Wide Web. Comparing both expenses on and benefits from using each tool, it can be concluded that 40% of total promotion mix budget should be spent on television commercials, since this will be the most effective method of contacting target consumers. Then 20 % of the budget should be used to cover expenses of paying for billboards’ ads, which should be placed in the cities of Russia, like Moscow, Saint-Petersburg, Rostov, Voronesh and some others. 5 % should be invested in creating websites, which describe Coffee Buddy products and tell its target consumers about benefits they will receive by purchasing this coffee-machine.
Sales Promotion
Coffee Buddy should involve sales promotion techniques in order to succeed in Russian market of coffee-machines, including both customer sales promotion and trade sales promotion. At the first time, Coffee may have a problem of finding the distributors- wholesalers or retailers, so this company should try to attract reputable retailers by offering them trade allowances, providing some training programs and extra commissions. So, more than 20% of total promotion mix budget should be spent on trade sales promotion.
Customer sales promotion will constitute only 10% of the total promotion budget due to the fact that at the beginning Coffee Buddy should position itself as high-quality and not cheap producer, whereas launching the system of coupons and discounts may give Coffee Buddy machines cheap image. However, this money should be used to provide some target customers ( opinion leaders preferably) with free samples of Coffee Buddy machines during contests or some public events, where this company can also advertise itself as a company with social responsibility principles.
Public Relations
Public Relations programs should constitute the last 5 % of total promotion mix budget. These resources should be used to cover expenses of reaching non-profit organizations, universities, schools or hospitals to help them in fund-raising programs or awareness programs. Furthermore, as it was mentioned earlier, Public Relations should involve interaction with representatives of legislation in order to reduce taxes or receive some allowances.
Distribution Strategy
Channel members
Coffee Buddy should implement one-level distribution system, involving only few retailers. Undeniable advantage of this system is its simplicity and rather low costs of involving channel members. And channel membership should be conducted through selective distribution, when Coffee Buddy will be able control limited number of its channel members, also maintaining high profits due to effective distribution process.
Network development process
The importance of distribution members should not be neglected, because without them Coffee Buddy will face a significant problem of providing its products to the end consumers, so there should be a great amount of investment in building successful network development process.
Pricing Strategy
Coffee Buddy marketing department aims to position its products as inexpensive ones, and its pricing objective in the beginning may be to survive, however overcoming temporary drawbacks on its way this company’s pricing objective will be to maximize its market share.
So, to set the final price of its product Coffee Buddy is going to use competitors indexing, setting its price at the first time 4$ less than its competitors. The assumption that competitors already know the market and have estimated the right ratio between the expenses and customers’ demand should be truthful in this situation. However, after the level of brand awareness is rather high – it will set the price which is slightly higher than the competitor’s in order to underline premium quality of the product. Later, when Coffee Buddy has stable position in the market, it will be able to provide price discounts for its customers and distributors, and these expenses will be covered as a part of promotion mix budget.
Global Organizational Structure
Coffee Buddy has adopted divisional structure, which is very beneficial for its overall performance. Coffee Buddy is split up into a great number of units, each operating as self-contained profit center. Each self-contained business unit has own set of competitors, operating with certain products in chosen market. The company headquarters are situated in New York, including Coffee Buddy international marketing departments, which main functions are to supervise the activities of strategic business units and analyzing their profits and markets shares in each location. Russia strategic business unit is going to be one of the most profitable units due to the high level of attractiveness of the market and fast growth of Coffee Buddy’s market share.
Summary
To summarize marketing plan of Coffee Buddy, it should be emphasized that deep analysis of current situation in the market was conducted; moreover, a great variety of marketing tools is going to be used in to implement the plan. So, in spite of the accurate planning process Coffee Buddy should move on to the next stage – the implementation of its Marketing Plan. This stage plays significant role in overall success of Coffee Buddy, so following the timeline and the budget of Marketing Plan is integral parts of implementation of Marketing Plan. And the last stage – control should be conducted by the special department, which main function is to supervise activities, profits and sales of Coffee Buddy.
Global Marketing Plan Budget
Global Marketing Plan is showing the overall profits and losses during the first year of entry of Coffee Buddy in the market of coffee-makers in Russia in 2006, as well as the global performance of Coffee Buddy in 2006.