It will therefore be of high importance that the segmentation process is done properly. Vigour must cluster people with similar needs into individual and identifiable groups to reach their target audience.99 In addition, the segment must appreciate Vigour’s product’s attributes and be willing to pay a premium price. It will be more effective to apply psychological factors as basis for the segmentation. Vigour’s segment will most likely be individuals that are health conscious, less price-sensitive and lead a more active lifestyle than the general Singaporean population.
Based on the primary research, it was found that single men and women, between the ages 20-29, were the ones more interested in buying health supplements. This can provide Vigour with ideas on who they should target in their segmentation process.
As mentioned, Vigour’s competitive advantage is their product which they can use to differentiate themselves from competitors. It is crucial that Vigour apply this in a value-creating strategy and thereby satisfy their customer’s needs.100 This will be elaborated on in the marketing mix.
6.4 Business-Level Strategy
According to the model below, there are five business-level strategies companies can choose from. These are used to establish and defend their desired strategic position against
99 Hitt, Ireland and Hoskisson (2007) Strategic Management, 7th edition. P. 158
100 Hitt, Ireland and Hoskisson (2007) Strategic Management, 7th edition. P. 109
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competitors. How the companies integrate the activities they perform within each different business-level strategy demonstrates how they differ from one another.101
Competitive Advantage
Cost Uniqueness
Figure 6.2: Five Business-Level Strategies
Due to Vigour’s small size and low financial resources they are unlikely to achieve lower cost than their rivals and can therefore not compete on price. As mentioned, with regards to the Nine Strategic Windows, Vigour should choose a niche market with the intention to serve the needs of a narrow target customer group. Their competitive scope will therefore be narrow. Furthermore, Vigour’s unique product will serve as a differentiation factor, due to the natural ingredients coming from unpolluted areas and the exclusive profile Vigour wants to project. In conclusion, the business-level strategy Vigour should implement is focused differentiation to effectively defend their strategic position in the Singaporean market.
101 Hitt, Ireland and Hoskisson (2007) Strategic Management, 7th edition. P. 112
Broad
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This implies that Vigour must convince their target customers that their products are different from the other health supplements offered in Singapore. To achieve this perception among the customers, Vigour must have a thorough understanding of what creates customer value.
In order to detect these values, further market research needs to be conducted.
There are numerous ways in which companies can differentiate themselves. Vigour can differentiate themselves on the basis of product innovation and achieve a perception of being a high status product for vigorous people. If the customers perceive Vigour as different, they will tend to be more loyal and therefore become less sensitive to the premium price. In addition, the customer loyalty will assist Vigour in creating barriers for new entrants and also position themselves effectively against product substitutes. This is essential in the
Singaporean market, considering the forecasted increase in competition and substitutes.
On the other hand, it is important for Vigour to know a Focused Differentiation Strategy is not risk free. One of the risks might be that the customers will think the price differential between Vigour and its competing product are too large. A second risk might be that the customers perceive Vigour and the competing products as being similar and will therefore not be willing to pay the additional price for Vigour’s products.
In conclusion, we believe that a Focused Differentiation Strategy is the best suitable strategy for Vigour, if they choose to enter the Singaporean market.
90 6.5 International Corporate-Level Strategy
“International corporate-level strategy focuses on the scope of a firm’s operations through both product and geographic diversification.”102 A company can choose from three international strategies, which are: multidomestic, global and transnational.
High
Figure 6.3: International Corporate-Level Strategies
Vigour is offering standardized health supplements that do not need any significant adjustments to other markets. Some changes in the design on the packaging might be necessary which will be discussed in the marketing mix. Moreover, Vigour’s headquarters will be located in Norway where all the market decisions will be made. The company will therefore most likely have a centralized decision making when the export activities begin.
102Hitt, Ireland and Hoskisson (2007) Strategic Management, 7th edition. P. 114
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Vigour will have the opportunity to transfer innovations developed in Norway and utilize these in the export markets.103 This implies that Vigour has a global strategy.
Having a global strategy involves less risk than the multidomestic and transnational strategies.104 On the other hand, Vigour needs to be aware that having this strategy might cause the company to overlook possibilities of growth in local markets because of the centralized decision making. Vigour might fail to recognize opportunities in the export markets and additionally it can be difficult to coordinate strategies and decisions across borders.
To reduce these risks, Vigour must focus on establishing an efficient operation when the export activities begin. This will include sharing of resources, facilitating coordination and cooperation across borders which all require headquarter control.105 This will be elaborated on in Channel Management.
6.6 International Entry Mode
“International expansion is accomplished by exporting products, participating in licensing arrangements, forming strategic alliances, making acquisitions, and establishing new wholly owned subsidiaries.”106 Due to Vigour being a small and newly established company, that has not yet started its exporting activities, they should apply exporting as an international
103 Hitt, Ireland and Hoskisson (2007) Strategic Management, 7th edition. P. 238
104Hitt, Ireland and Hoskisson (2007) Strategic Management, 7th edition. P. 240
105Hitt, Ireland and Hoskisson (2007) Strategic Management, 7th edition. P. 240
106Hitt, Ireland and Hoskisson (2007) Strategic Management, 7th edition. P. 245
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entry mode. This mode is commonly used by Norwegian companies when first expanding internationally.107
When Vigour starts their exporting activities there are several contractual arrangements they can choose from, such as confirming house, importer, agent or sales department.108 As mentioned, choosing the right distribution channel is considered a critical success factor for Vigour if entering the Singaporean market. To identify what is the best alternative for Vigour, the different contractual arrangements will be discussed in the following section.
6.6.1 Confirming House
A confirming house is a firm that is located in Vigour’s home market Norway, which would act as an agent and guarantor for an importer, and pay Vigour’s invoices on behalf of the importer, thus eliminating the credit risk.109 The confirming house would use its own name when reselling Vigour’s products in export markets and in addition they would provide feedback to Vigour through market reports.
The positive aspects of engaging a confirming house for international expansion is that the confirming house does all of the financing, which will be positive for Vigour due to their limited financial resources. In addition, the confirming house has a broad market network which makes them able to detect attractive opportunities and often has more local knowledge that Vigour can leverage on.
107Solberg, Carl Arthur. (2005). Internasjonal Markedsføring, 7th edition P.126
108 Solberg, Carl Arthur. (2005). Internasjonal Markedsføring, 7th edition P.194
109 http://www.businessdictionary.com/definition/confirming-house.html (entered 11.04.08)
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On the other hand, Vigour will not gain much experience because of lack of contact with, and control of, the export market. This will reduce their internationalization ability. In addition, Vigour will not gain a reputation in the export markets as the export activities will be under the confirming house’s name.
This option would most likely not be the optimal solution for Vigour as an entry mode.
Although the financial risks will be reduced, Vigour will not gain experience or control, which is a desire within the company and additionally important for success in an international market.
6.6.2 Importer
The importer operates in Vigour’s export market and under its own name. Furthermore, the importer is the direct buyer of the products and undertakes the responsibility for marketing on behalf of Vigour. In addition, the importer will have all the financial responsibility and cover many important functions in the distribution, such as promotion, sales, storage and transport.
One positive aspect of engaging an importer for international expansion is reduction of financial risk. The importer also exhibits a broad knowledge of the local market. An importer would enable Vigour to get entry in Singapore, without any particular costs. The biggest players in the Singaporean market, such as GNC and Nature’s Farm, also perform as importers of health supplements. Cooperation with these would enable Vigour to get their products into a chain of health food stores.
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However, this contractual arrangement makes Vigour lose control over the marketing, and they will also be financially dependent on one customer only in the export market, the importer. If Vigour in the future should choose to change representation in Singapore, the importer will remain in control of the customer portfolio. Moreover, it will be difficult for Vigour to get access to the big health food chains, due to their low financial resources. In addition, chains like these could claim Vigour’s product as a private label, hence Vigour gains no brand equity among end consumers.
In conclusion, this option could be a good solution for Vigour as an entry mode due to Vigour’s current limited financial resources. An importer could assist Vigour in identifying a profitable niche within the Singaporean market. Vigour’s financial marketing costs would be covered but on the other hand they would achieve limited export experiences, hence the internationalization ability would not increase.
6.6.3 Agent
An agent is a person who is authorized to act on behalf of Vigour to create sales, promote, and provide Vigour with market reports. In other words, the agent would only act as Vigour’s representative in Singapore and Vigour would have direct control over marketing activities and contact with their customers. Furthermore, all the financial costs must be covered by Vigour, and the agent is paid based on provision.
A positive aspect of engaging an agent for international expansion is that Vigour will remain in direct control of the market activities, and will therefore gain more experience and
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knowledge. Additionally, the agent will have firsthand knowledge of the Singaporean health supplement market. In return, the circle of customers will most likely know the agent’s operations.
On the other hand, the agent might emphasize on volume instead of price and profit due to the provision payment, which is an example of opportunistic behavior. This can lead the agent to sell the products to questionable customers. It is therefore important that Vigour conduct the screening process of the agent thoroughly. Furthermore, agents are usually well protected by Singaporean legislative law and it can therefore be difficult for Vigour to discontinue the relationship without extensive costs, should they wish to do so.
In conclusion, this option would most likely be a good solution for Vigour as an entry mode, if it was not limited financial resources. Even though the use of an agent would mean that Vigour could increase its internationalization ability, and additionally be in charge of the marketing activities themselves, the financial costs would be high. However, this might be a good solution in the future, which will be elaborated on in the final recommendation.
6.6.4 Sales department
This form of representation would provide Vigour with direct contact with end customers and additionally they would be in full control of all the export activities. In other words, Vigour would work as an independent distributor in Singapore.
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The positive aspect of creating a sales department to expand internationally is a complete control over all the marketing activities, which will increase learning, thus Vigour’s internationalization ability.
Nevertheless, creating a sales department would be of a high financial cost and Vigour would need to reach a high sales volume before making profit. In addition, the risk will increase due to the uncertainty of how Vigour would be received by the customers in Singapore. It is important to mention that there exist a lot of other problem areas that Vigour must consider if choosing a sales department as an entry mode.
This option would not be the optimal entry mode for Vigour due to the high costs and risks.
Vigour must gain a foothold in their own market before considering establishing a sales department abroad.
In conclusion, our recommendation for Vigour’s entry mode is to seek an importer in the Singaporean market, as their representative. This is, however, on a short term basis. It is important to emphasize that Vigour must invest time in a proper screening process before making a decision on what importer is the most suitable for the task. In addition, Vigour should negotiate a favorable contractual agreement with the importer. This can for instance be keeping their own brand name and having an influence over the marketing activities.
However, in the long term, it might be interesting to consider an agent as this provides Vigour with more control of the marketing activities, in comparison to an importer.
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6.7 Channel Management
Along with deciding the type of entry mode, Vigour must establish an efficient distribution channel. The distribution channel’s purpose will be to distribute Vigour’s products from production in Norway to the end consumers in Singapore in the most efficient manner.
6.7.1 Distribution channel strategy
As mentioned, Vigour should go through an importer when distributing their products to Singapore. In order to do this in an efficient manner, Vigour has to decide what channel strategy they should apply.
There are two different strategies one can apply when deciding on a distribution channel strategy. These are push and pull strategies.110 The push strategy is when the company is pushing their products through the distribution channel intermediaries and out to the end consumers. This approach is the most common among smaller companies. The pull strategy involves creating a demand in order to get the end consumers to pull the products through the distribution channel. This approach is often used by bigger companies that have financial resources to engage in heavy advertisement to promote their service or products.
Amongst the two strategies, the push strategy would be the most suitable strategy for Vigour to apply. This is due to the small size of the company and the limited resources Vigour possesses. Another reason for choosing this strategy is because they have not yet established
110Keh and Chiang (2004) Strategic Asian Marketing. P. 202
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any reputation in the Singaporean market. Nor is there currently a demand for Vigour’s products. This strategy is also the most common among Norwegian companies when they are operating abroad.
When applying a push strategy it is necessary for Vigour to motivate the channel members, which in this case will be the importer. Channel motivation can be seen as challenging and requires effort. There exist several devices for achieving such motivation, where the most common is providing incentives to the channel members. If possible, Vigour should offer a better margin to the importer, in order to entice the importer in the channel to push Vigour’s products rather than the other products in the portfolio. This can also be achieved through bonuses, affiliate programs, and other types of support. In addition, Vigour should focus on establishing a good working relationship with the importer. This will most likely motivate the importer to make a better effort to sell Vigour’s products. We can again mention the
importance of guanxi in relationship building.
6.7.2 Potential Challenges in a Distribution Channel
There are several challenges that can arise in an international distribution channel. The main one would be the distance to the intermediary, both in regards to the geographical distance and the cultural distance. Communication amongst the different members in the distribution channel can be affected by these gaps, so it is important to be aware of their existence and how to avoid them.
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The cultural gap can arise when people from groups with different cultural values, beliefs, attitudes and social background are communicating. A way Vigour can minimize this gap is to make sure they are well prepared when they enter the Singaporean market, by enhancing their knowledge of the different cultural values and attitudes in the business setting. Having an importer would make the entry easier because he/she will already have knowledge of the market. Still, some difficulties may arise in the communication between Vigour and the Singaporean importer.
The distance gap can be a problem for Vigour because of both the geographical distances in addition to the time differences. This can affect the communication between Vigour and the intermediaries in Singapore.
6.7.2 Concluding Remarks
By applying a push strategy, with a continuous focus on motivating the channel members, and aiming to limit the cultural and geographical gaps, Vigour should be able to distribute their products in an efficient manner.
Chapter 7 –
Marketing Mix
100 Chapter 7
Marketing mix
The marketing mix provides an overview of the elements that contribute to creating competitive advantages for the company, and customer value. The traditional approach of doing this is by using the four P’s: product, price, promotion and place. As mentioned, creating awareness is identified as one of the critical success factors for Vigour’s success in the Singaporean market. This can be done by designing the marketing mix in an efficient way. Each of the 4 P’s will be discussed in the following section.
7.1 Product
As mentioned earlier, the aim for Vigour is to adapt a focused differentiation strategy.
This emphasizes the fact that the product has to be unique and of high quality in order to create a competitive advantage and differentiate itself from the rest of the competitors.
The core product
Vigour’s core product is health supplements that claim to enhance physical health.
The concrete product
The concrete product that Vigour wants to launch in Singapore is the concept, The Arctic Seaweed Complex series (ASC), as mentioned in the analytical part. This is
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communicated to the customers through the product packaging and the overall marketing communication provided by the company.
The extended product
Vigour’s extended product is to give the health conscious Singaporean consumers the opportunity to revitalize and boost their energy. The ASC-series is a set of lifestyle products that is meant to give the customers a sense of wellbeing.
7.1.1 Product Life Cycle
The Product Life Cycle describes the development of a product over a certain period of time. The Singaporean health supplement industry can be identified in the late growth stage, due to the fact that profits are declining along with a high degree of mergers and acquisitions. Vigour has yet to introduce their products to the Singaporean market, therefore their products will be in the introduction phase. This particular stage is
The Product Life Cycle describes the development of a product over a certain period of time. The Singaporean health supplement industry can be identified in the late growth stage, due to the fact that profits are declining along with a high degree of mergers and acquisitions. Vigour has yet to introduce their products to the Singaporean market, therefore their products will be in the introduction phase. This particular stage is