Introduction
Kids Market Consulting (KMC) was established in 2002 by Natalie Berezovskaya. The company has similar characteristics described by Tsoy (2005) for medium and small companies. Tsoy (2005) discusses that these companies rely on the top manager’s skills for their strategy and success. They hire employees with technical skills to perform other duties.
KMC has relied on Berezovskaya’s expertise in children, and experience in the media industry for its success (Taylor & Vynogradov, 2004). KMC also attributes part of its success to the partnership it shares with Dynamic Development and Innovation Group (DDI). The current situation is that KMC is threatened by potential competitors who offer undifferentiated products in the Ukrainian market research industry.
KMC has created consumer confidence for its product. Customer loyalty is not guaranteed if competitors develop a similar product. Competitive pricing is the strategy that is most likely to be used by competitors because the market segment appears to have a low growth rate.
Russia has a larger market research industry with revenues that amount to about $300 million (Klimenko & Harrison, 2013). The Russian market is the most viable expansion location for a small-sized or medium-sized company located in Ukraine.
Market attractiveness of Ukraine’s marketing research industry
Market attractiveness refers to the market size, growth possibilities, and potential for profits (Cant et al. 2009). The factors to be considered in market attractiveness are market/customer factors, economic and technological factors, competitive factors, and environmental factors (see exhibit 1).
Market/consumer factors evaluate the market size, potential, and growth rate. It also considers the product’s stage in the life cycle, customer loyalty, bargaining power of customers, and seasonality of demand (Cant et al., 2009).
Stage in life cycle and customer loyalty
The life cycle of KMC’s product appears to have reached maturity. If KMC does not find potential expansion areas, its market share can decline because of new rivalry. Firms that offer undifferentiated marketing, advertizing, and branding services consider engaging their services in KMC’s target market (Taylor & Vynogradov 2004). KMC has the advantage of customer loyalty.
Its association with Dynamic Development and Innovation Group (DDI) has gives it an advantageous mark of quality. It may be able to withstand competitive forces as a result of the brand image (Taylor & Vynogradov 2004). KMC success will also rely on price elasticity in the market. If competitors offer lower prices, customer loyalty may not be guaranteed.
Porter’s five forces
The market’s profit potential and customer’s bargaining power can be analyzed using Porter’s five forces (McDonald & Wilson, 2011). When KMC was developing its product, there was no competition. Children were considered to lack purchasing power. KMC’s successful entry has attracted new rivalry. The market research industry has several large firms offering similar products.
Intensity of competition in the industry is high. If the same rivalry that the entire market research industry experiences is transferred to the kids’ market research, KMC is likely to lose a portion of its market share. KMC has to expand geographically. It can intensify its presence in other cities within Ukraine or globally.
The threat of substitute is unlikely because kids and adults have different perceptions (Taylor & Vynogradov 2004). This makes it necessary to conduct market research that specifically targets children. The market is more attractive because the product lacks potential substitutes.
The threat of new entrants is determined by the resources that a company needs to start operating. KMC made a successful entry because it relied on DDI resources such as offices, and personnel. KMC had to “spend 50% of its first year revenue on computers, and project planning activities” (Taylor & Vynogradov 2004, p. 6).
KMC also has several years of reinvestment. Market entry for a completely new company may be limited by lack of familiarization with the market, and the size of capital. KMC benefited from contacts that the founder had after working in the media industry for several years. New entrants may lack such advantage. However, the large companies that already exist may decide to offer similar services that target kids’ market research.
Suppliers have a strong bargaining power if they are a few in the industry. KMC uses psychologists, and other professionals who may be costly to hire. From KMC’s expenses, it is reported that “70% of the expenses consist of payment made to 5 full-time employees” (Taylor & Vynogradov 2004, p. 6).
Suppliers appear to have strong bargaining power. It is also evident from the revenues of the large firms. Their net income is a small percentage of total revenues (see exhibit 2). This is because of the high cost of supplies. Market attractiveness is reduced by the high cost of human resources.
When KMC entered the market, customers did not have strong bargaining power because of less rivalry (Taylor & Vynogradov 2004). With more firms willing to offer similar products, customers have gained stronger bargaining power. When customers have stronger bargaining power, profit margins may reduce because of competitive pricing. Low profit margins reduce market attractiveness.
Market growth rate, size and potential
KMC is experiencing slow growth. It is also threatened by potential competitors from firms offering undifferentiated services (Taylor & Vynogradov 2004). KMC should consider matching its growth rate with that of the whole marketing research industry.
It can be used to evaluate possible growth. The growth rate can be estimated using “average annual growth rate of revenue in that industry” (McDonald & Wilson, 2011, p. 180). The Ukrainian market research industry lacks accurate estimates to calculate growth rate.
However, a projection can be made using the market leader growth rate. Gfk is the market leader in Ukraine. In 2001, its revenues were 5.07 million hryvnia.
In 2011, its revenues were 100.4 million hyrvnia (Gfk Ukraine, 2012). Gfk has experienced an average growth rate of 38.8% in the last ten years (see exhibit 3). KMC could grow at the same rate by investing the same amount of resources. A high growth rate increases market attractiveness.
KMC Ukraine can also consider its concentration in the other 6 cities. It can offer specific market research for each city to increase potential for growth. It can also consider that 80% of the population lives in rural areas. According to Taylor & Vynogradov (2004), only 20% live in urban centers.
The market size is estimated using total accessible revenue generated in the industry less inaccessible revenue (McDonald & Wilson, 2011). The inaccessible revenue represents the customer base that cannot be captured despite additional investment. The size of the Ukrainian market research industry was between $5 million and $20 million (Taylor & Vynogradov 2004).
The main reason for lack of a more accurate figure is the existence of firms that do not submit their financial records to the government. KMC should consider venturing into the Russian market which is estimated to be 10 times larger (Taylor & Vynogradov 2004).
Economic and technological factors
Economic and technological factors consider the “investment intensity, level of technology, ability to pass through effects of inflation, barriers to entry/exit, and access to raw materials” (Cant et al. 2009). Barriers to entry have been considered in the Porter’s five forces. Ukraine is considered to have a low inflation rate (see exhibit 4).
Reports indicate that Ukraine is likely to experience deflation this year (Ukraine Inflation Rate, 2013). The Heritage Foundation reports that Ukraine has an inflation rate of 8% (Index of Economic Freedom, 2013). Other reports indicate lower inflation rates. Companies operating in Ukraine are unlikely to lose value through inflation. A low inflation rate increases market attractiveness.
The market research industry elaborates mature use of technology. KMC spent 50% of its revenue on computers, and other projects in its first year. This is about $50,000 considering that it generated about $100,000 annually during its initial years.
It also invested an additional “15% to 20% in subsequent years” (Taylor & Vynogradov 2004, p. 6). The industry appears to be investment intensive especially on human resources, and technology. A high cost on new technology reduces market attractiveness.
Competitive factors
Competitive factors consider the product differentiation among competitors, industry structure, and competitive groupings among other factors (Cant et al. 2009). There is a great possibility of new entrants in the kids’ market research. KMC benefits from operating under DDI as a competitive grouping.
The group may face rivalry from other large groups operating locally or globally. KMC has the advantage of perceived product differentiation. It is also associated with high quality as a result of differentiation.
Environmental factors
Environmental factors evaluate the “regulatory climate and degree of social acceptance” (Cant et al., 2009, p. 131). The formation of the Ukrainian Marketing Association (UMA) ensures that companies within the industry use fair practices. UMA is a self regulatory organization (Taylor & Vynogradov 2004).
It indicates industry maturity. KMC has carried out extensive activities to increase customer awareness. New entrants are likely to find an industry where customers are knowledgeable. Knowledgeable consumers increase market attractiveness. Kids’ market research significance has been accepted by the industry.
Analysis of Kids Market Consulting
The major reasons for KMC’s success are the strengths and the competitive advantage. The strengths of the firm are internal factors that give it a competitive advantage. The potential risks are the threats it may face that come from the external environment (Ferrell & Hartline, 2010). These factors can be analyzed using the SWOT analysis.
SWOT analysis
Factors that led KMC to succeed
KMC succeeded because of external opportunities which came from the discovery of a new product. Kids’ market research was a segment that was despised for lacking marketability. Kids were considered to lack purchasing power (Taylor & Vynogradov 2004). KMC had to carry out awareness programs to create a market niche for kids’ market research. KMC was able to change customer needs and tastes to match its product.
Other external factors that led to its success are the large proportion of children in the population. Taylor & Vynogradov (2004) report that 25% of the urban population consists of children. This made it significant for KMC’s customers to consider their potential for sales. KMC was able to succeed by offering a new product that firms in Ukraine thought lacked potential.
Ukraine’s economic growth rate is another external factor that led to the success of KMC. It has been between 4% and 8% since 2000 (Taylor & Vynogradov 2004). The average monthly wage ($86) is higher than the living minimum wage ($64). Ukraine may appear to have the purchasing power for more consumption.
Ukraine’s unemployment rate has been lower between 2005 (7.185%) and 2008 (6.363%) than it was in other years (Ukraine Unemployment Rate, 2013). Its location in Kyiv gives the company an advantage of a larger customer base than in other cities.
The knowledge about the Ukraine kids’ market is another external factor that led KMC to succeed. Market unfamiliarity has slowed down international firms with a similar product from venturing into the Ukrainian market.
Strengths are the internal factors that give a company competitive advantage (Ferrell & Hartline, 2010). Differentiation is one of KMC’s strengths that led it to succeed. Specializing in the kids’ market gives it time to produce quality products that have created a strong brand image. Its brand is also reinforced by having partnerships with DDI.
Ferrell & Hartline (2010) explain that an alliance with other firms has potential for internal strength. The founder’s experience, expertise, and contacts made it easier for KMC to reach out to potential customers (Taylor & Vynogradov 2004). The founder’s expertise and experience were significant in the success of the firm. As a result of this, KMC success may be attributed to superior management skills.
Another internal factor that led to KMC’s success is the ability to share costs with DDI firms (Taylor & Vynogradov 2004). KMC was able to share offices, and human resources reducing its operational costs. The partnership made it less costly and easier for KMC to venture into the business. KMC was able to hire researchers who conduct surveys with assistance from DDI.
It was able to produce quality products because of the alliance with DDI. There is mutual benefit where firms under DDI group are able to sell different products to the same customers. KMC is able to reduce costs by selling one product to several buyers (Taylor & Vynogradov 2004).
In the consolidated research strategy, the cost of developing the product remains constant while the revenues increase because of more buyers. The KMC reinvestment strategy has enabled it to obtain new technology. New technology enables the company to compete with large firms.
Threats and weaknesses
KMC main weakness is the lack of a strategic direction to increase growth and profitability. KMC market share appears to be consistent on a narrow product line (Ferrell & Hartline, 2010). KMC relies only on one product.
KMC should consider broadening its product line to include specific manufactured kids’ products, and specific manufacturing firms. It may increase product relevance to customers. It may increase their need to purchase its services, and documented products.
Another weakness is that KMC has a few full-time employees compared to potential competitors. Taylor & Vynogradov (2004) discuss that KMC has only 5 full-time employees. Gfk reports that it has 170 full-time employees in the Ukraine market research industry (GfkUkraine, 2012).
A lower number of employees may reduce costs but it may also be the cause of the slow growth rate. A company is able to broaden its services with more dedicated employees. Employee commitment also increases the quality of product.
Threats develop from external factors such as the firms offering undifferentiated products may choose to offer a similar product. For example, Gfk has a large number of employees and other resources (Gfk Ukraine, 2012). It may find it easier to dedicate some of its resources to develop a similar product.
It is a market leader and has a strong brand image. It is likely to capture a larger market share than KMC in the kids’ market research segment. The KMC product life cycle could face a decline stage if new rivalry develops before it finds new market or new strategy (Taylor & Vynogradov, 2004). If other firms venture into the kids’ market research, it is likely to be saturated within a short period.
Future of the KMC
Large companies may develop similar products to KMC. If they may target the same market segment, KMC market share is likely to reduce. The founder should continue with the plans to expand geographically to ensure growth of the company. The first geographic location the company should venture into should be the Russian market. It is 10 times bigger than that of Ukraine (Taylor & Vynogradov 2004).
Klimenko & Harrison (2013) discusses that the Russian market was about $300million to $310 million in 2008. KMC is likely to grow 10 times if it invests the right amount of resources.
In Russia, the top six market research companies had total revenues that amounted to about USD 40 million in 2003 (Tsoy, 2005). The medium sized companies that earn between USD 0.3 million to 1 million were about 25 companies in 2003. KMC may fall into this category. The industry appears saturated but KMC can perform better because of the uniqueness of its product.
In Russia, the medium and small market research companies owned about 30% to 35% market share in 2003. Demand in market research products was expected to grow between 30% and 50% (Tsoy 2005). KMC is likely to create a market segment that fits its product.
The Ukrainian social environment is almost similar to that in Russia. As a result of market similarity, KMC may have a lesser challenge coping with a new market. There is an expected growth in demand that may keep large companies focused on their product mix rather than venture into KMC’s product line.
KMC has developed a strong brand image. It focuses on specialization and product quality (Taylor & Vynogradov 2004). It also has a loyal customer base. As a result these factors, KMC should be able to face rivalry with its current market position. It can maintain its customers if it ensures accuracy of surveys to develop quality products. It can also limit rivalry by having most of its employees working full-time.
It can avoid having the same employees working for competitors. If the same employees work for competitors, product qualities are likely to be similar. The competition would go to competitive pricing. With higher quality products, KMC can manage to maintain the same level of market share while competitors look for new customers.
KMC should also consider increasing the length of its product mix. It can be done by broadening to services that are closely associated with understanding children’s behavior. KMC can also develop products that target specific manufactured products, and then market them to the companies involved in the manufacturing of the products.
Conclusion
KMC should keep its product quality to be higher than the other companies to maintain the same level of market share, and to overcome competitive pricing. If large companies with a stronger brand image such Gfk enter its market segment, KMC is likely to lose part of its market share. However, it can still maintain higher quality than Gfk because of its complete product differentiation.
KMC should consider venturing into the Russian market because it has a higher demand growth forecast that firms may be unable to satisfy. Its product uniqueness also favors its entry into many other countries. If KMC expands in Russia, there is a large space to fill before its market segment is saturated.
The Ukrainian research market appears to be attractive because the market leader, Gfk, has an average annual growth of 38% for the last ten years (Gfk Ukraine, 2013). It shows that with more resources KMC can grow even without venturing into new geographical locations.
KMC is likely to continue benefitting from the manager’s expertise, and experience in the industry. KMC may appear a small company, but DDI as a group is a large company. KMC may benefit from the alliance through brand image, and ability to sell different products to the same customers.
Reference List
Cant, C. M., Strydom, W. J., Jooste, J. C., & Du Plessis, J. P. (2009). Marketing Management. Cape Town: Juta & Company.
Ferrell, O., & Hartline, M. (2010). Marketing Strategy (5th ed.). Mason: South-Western Cengage Learning.
Gfk Ukraine. (2012). Growth from Knowledge. Web.
Index of Economic Freedom. (2013). Web.
Klimenko, T., & Harrison, M. (2013). Business-to-Business Market Research in Russia. Web.
McDonald, M., & Wilson, H. (2011). Marketing Plans: How to Prepare Them, How to Use Them (7th ed.). Chichester: John Wiley & Sons.
Taylor, S., & Vynagradov, O. (2004). Kids Market Consulting. London: Ivey Management Services.
Tsoy, Y. M. (2005). The Analysis of Marketing Research Industry in Russia, KORUS. 6 (1), 953-956.
Ukraine Inflation Rate. (2013). Web.
Ukraine Unemployment Rate. (2013). Web.
Appendices
Exhibit 1
Factors considered in market attractiveness (Cant et al. 2009).
Exhibit 2
The net income of global companies for the year 2003 as reported by Taylor & Vynogradov (2004)
Exhibit 3
Exhibit 4
