Market-Based Management-Strategies for Growing Customer Value and Profitability - Case Study Example

International Marketing Name: Tutor: Course: Date: Country Analysis The product Jia Duo Bao (JDB) is Chinese herbal tea produced in mainland China and exported to countries in Western Europe. In this report, emphasis is laid in JDB export to Singapore and United Kingdom. The part will explore the political, economic, social, technological, environmental and legal aspects identified with United Kingdom and Singapore. Source: Socma Trading Ltd Figure 1: Jia Duo Bao tins Political factors United Kingdom (UK) comprises the lower and upper house involved in legislations that affect trade, consumer patterns and commodity prices. The UK parliament has huge influence on performance of companies especially those from abroad. The government insists on trading with countries that respect human rights and healthy practice of business ethics. The government conducts an audit on political relations with Asian countries and evaluates on the basis of healthy competition and trade agreements (Rogers 2009). The UK legislated control measures to products like cigarettes and alcohol with strict packaging laws. Similar to the UK, Singapore is a member of the Commonwealth where most of its citizens speak English and Chinese. The country has a strong bilateral relationships and almost 200 years of British establishment in Singapore and has the Westminster system of parliamentary government. The cabinet of Singapore wields executive power while the legislature consists of MPs elected through parties. The relationship saw the UK waive the import duty of beverages to 4.8% from 5% and tax rates of lowered to 20%. Both UK and Singaporean governments have a strong policy on subsidies but especially to motor vehicles and agricultural machinery for the UK and electronic and refining in Singapore (Euromonitor 2010). World trade agreements with further expansion of the EU has seen more Asian and especially Singapore products like sports ware and beverage increased. In Australia, politics are characterized through federal and state legislation which is different from that of the UK parliament with lower and upper house. Economic factors The UK is rapidly picking from the recession of 2008/09 with the Gross Domestic Product expanding by 0.7% towards the end of 2013. The UK office for National Statistics shows that the UK economy has been increasing since 1973 becoming the seventh largest economy in the world. The service sector the biggest contributing more than 75% to the total GDP (Euromonitor 2010). JDB herbal tea is served as a beverage in the service sector particularly the hotel industry and household consumption. The service industry is characterized by huge spending on health, education and government at 20% followed by restaurants, hotels, transport and distribution. Production is also huge and constitutes about 10% of the country’s GDP. The purchasing power of the British people is high and has high prevalence for herbal tea. The economy is driven by a huge population of middle class who are heavy consumers of beverages. The consumer prices index showed a 2.7% inflation rate reduction from 2.8% (Euromonitor 2010). Unemployment rates were 7.7% in mid 2013 with youth unemployment standing at 21%. The trade deficit doubled in July in both goods and services of about 6.8 billion pounds (Rogers 2009). In Singapore, the GDP growth is 15% as at 2010 with reliance in the service sector. Unemployment rate is 2% with more than 80% of the workforce employed in the service industry. The Bank of England reinvested 2 billion pounds of cash flows relating to gilt held in Asset Purchase Facility. Australia’s economy of growing at 7% with youth unemployment rates of 25%. Socio-Cultural factors The UK population has a fixed taste and prefers tea that is often taken as a light meal in late afternoon with a cup of Assam tea. British people prefer taking a thirst quenching beverage especially during a hot evening while Singaporeans prefer taking it in the morning. They enjoy making visits and appointments to offices and functions which have drinks and beverages commonly served (Beaumont, 2011). People in the UK and Singapore prefer quality and originality in which case Jia Duo Bao having an original taste and formula provides an herbal drink for daily consumption. In Singapore, people’s lifestyle is trendy with the youth preferring current tastes in clothing, food and entertainment just like in the UK. With increased disposable income owing to increased employment a large segment of the population can afford to buy Jia Duo Bao which is a medicinal plant as well as stimulant. The older population owing to failing health are advised to take beverages with little sugar and nicotine content (Best 2005). The population is slowly shifting from coffee to tea in terms of preference which is good for JDB. Australians are outgoing and trendy with more aging population similar to that of the UK. Technological factors In the post millennium world, there has been rapid change in Information and Communications technology. Electronic and databases communications has allowed for new products and processes (Beaumont, 2011). The new markets in social media and internet are currently the avenues of reaching many prospective consumers in the UK and Singapore. Similarly, many customers also prefer online shopping, computer aided design and bar coding of products. With respect to these, consumers of JDB prefer it packaged and delivered according to their taste and preference. Use of technology in the UK has enabled improved quality, reduced costs and innovative products. In Singapore, land is scarce hence they lay emphasis on value addition where consumers in these markets benefit from attractive packaging and blended quality tea (Beaumont, 2011). Both countries have improved mobile phone and computer technology ways in which people relate, trade and communicate. Australia like the UK and Singapore has technological power owing to faster diffusion. Environmental factors The weather and climate change have direct influence on trade and commerce in the UK and Singapore. Seasonal heat waves and snow affects tourism, farming, insurance and the hotel sector. Singapore has warm and wet climate interchangeably in the year. The EU has been advocating for greater environmental awareness as a result of global warming. The UK is strict on waste disposal and environmental damage. It has come up with green energy, buildings and industrial processes that respect flora and fauna. JDB is packaged in boxes and polythene bags that advice on best disposal methods. The government has increased taxes on air travel and hybrid cars (Beaumont, 2011). There is a general shift towards environmentally sound processes and products that must be complied with by JDB. Australia has established body handling environmental degradation through the federal government. Legal factors The UK laws on environment, advertising, safety and waste management are stringent. Singapore also adopted the common laws of England and this guides in apprehending and prosecuting financial offenders. The law on promoting subsidies on agricultural and motor vehicle industry has helped to increase the performance of local industry. In both countries, the police and anti-drug units have the mandate to arrest and arraign in court those who violate patent, copyright and trademark laws of beverage and alcoholic products among others. The crown court in England is steadfast in apprehending import of unlicensed goods or the existence of contraband market (Best 2005). However, courts in the UK base their ruling and conviction on common law which also applies to Singapore. Australia also applies the UK common laws and the Crown legislations. Product Market Analysis The size of the UK and Singapore herbal tea market is huge with a great segment of the population window shopping or buying items from stores and retail outlets on regular basis. The British are known to be tea drinkers and have a long history of this natural ingredient. They influenced the people in Singapore who now prefer ‘high tea’. An estimated 165 million cups of tea are taken per day equivalent to 60 million cups per year. This means that the British take about 900 million cups of herbal tea and fruit while 230 million cups are taken in Singapore per month. Tea in the UK and Singapore is taken by a big margin compared to coffee and other hot drinks. Herbal tea consumption has been growing from 2.5 million tons to 3 million tons in 2012 ( Euromonitor 2010) while in Singapore more than 4 million people take herbal tea daily. With increase in women workforce, there has been increased demand for tea in offices and restaurants in both countries. People in Singapore prefer green herbal tea harvested the same day while in the UK, processed and packaged tea is preferable. Single-person household has also grown meaning that the consumers visit vast food sector and purchase on convenience outlets. The aged between 60 and 80 years are becoming health conscious hence the demand for healthier food, organic, low in fat and cholesterol. The British prefer quality and are not price sensitive (Beaumont, 2011). In the UK, consumption of herbal tea and fruit increased from 2005 to 2011 while the purchase of ordinary tea bags declined. Single person families account for 25% of herbal tea while women consume 35% of herbal tea (International Markets Bureau 2011). In Singapore, more than 75% of the population taking herbal tea is at least 60 years old as opposed to the British who appeal to the middle aged. Furthermore, 40% of the aged population prefers herbal tea than ordinary tea bags for health reasons. Herbal tea in the UK and Singapore is in the maturity stage while ordinary tea is on the decline phase. This is because herbal tea recently became a stimulant as well as medicinal plant. In the maturity stage herbal tea is set to reap more than ordinary tea and other substitute products like cocoa and coffee. About 75% of the tea consumed in the UK is sourced from tea producing countries in Asia, Latin America and Africa while 90% of herbal tea in Singapore comes from China. In the UK, herbal tea consists of a paltry 15% sourced from Asian countries especially China, Malaysia, and Korea (Harari, Mellows-Facer & Allen 2012). The common markets distribution methods are B2C in the UK and B2B in Singapore which means businesses and consumers buy herbal tea directly from stores and retail outlets. The B2B distribution channels are great since most stores in the UK prefer to source directly from the factories in China. Competitive Analysis In the UK, major competitors are company and product based selling premium and own private label products. The major product competitors are Tetley, Typhoo and PG Tips with the later specifically showing higher sales. Most leading food retailers prefer own labels for competition with premium products in Fair Trade and organic products (Hague & Morgan 2004). Private labels seem to be declining as realized in the last 10 years. In Singapore, the leading company is Unilever Singapore Inc. with 28% market share then Nestle at 18% value share while The Wellness Group (TWG) with 23% market share. In 2009, the UK’s major companies trading in tea were led by Unilever with 25%, followed by Tata tea Ltd at 22% and Associated British Foods plc (ABF) at 12%. There are about 15 product based competitors while company based competitors are about 10 (Beaumont 2011) in the UK. PG Tips brand belongs to Unilever at 25% market share, Tetley belongs to Tata Tea Ltd at 22% and Twinings for Associated British Foods ltd at 12% market share. 8 of the 15 brands or products are UK brands while 6 out of the 10 companies are UK owned (Harari, Mellows-Facer & Allen 2012). In Singapore, companies are differentiated and not products. The differentiation strategies employed by the leading brands are based on price and quality. The leading group Unilever positions itself through pioneering in herbal and blended tea in the UK and Singapore. They were the first to introduce tea bags making their game up on technology and innovation. Fortunately, JDB Herbal tea can capitalize on the health conscious population in the UK to position it as medicinal brand and ageing population in Singapore. Jia Duo Bao has favorable pricing, devoted workforce and effective organizational structure reflecting norms and values of Singapore. The workforce in the in the UK alone is 650 involved in distribution and marketing of JDB. They are well remunerated with excellent welfare. In Singapore, the workforce is 310 which compete in a relatively smaller population of 5 million people. Buyer Analysis More than 4 million people take tea in Singapore while 18 million consume tea in the UK. Restaurants and hotels in the UK buy 40% of the herbal tea followed by individual persons at 33% while 53% of Singaporeans take the drinks in cafes and rarely at home. Homes for the aged account for 18% of herbal tea sales in the UK and 46% in Singapore. The major consumers of herbal tea being hotels and restaurants are motivated by all natural, organic and free from tea levels. Orphanages buy the product most of the time and are a regular buyer as compared to individual shoppers (Hague & Morgan 2004) in both cases. The target market segmentation strategy is based on price and incomes of the buyers. Since herbal tea comes in a single quality, differencing based on price equates to quantity and type of packaging done. The demographics used influences age, gender and income groups at different levels especially to middle income groups. Market Selection and Opportunity Statement Selecting the market in this respect depends on the composition of that segment. For instance, targeting the higher income segment and the aged in Singapore is advised. The middle income group and individuals are targeted in the UK and may require a unique packaging which appeals to the higher income group. Product selection is based on quality and price but uniquely medicinal which is seen in the trend the demand for ordinary tea has dropped. Health consciousness among the UK and Singapore consumers has provided an opportunity for JDB to increase its production and sales in the coming year (Best 2005). Consumers now know that health is important hence the needs to maintain the level of antioxidants. Consumer choices have grown to be more sophisticated with greater room expanding into the herbal tea market. The expansion of mass marketing and mid-priced of tea has increased with reduced consumption of coffee and cocoa. Women and the aged are realizing the need to prevent lifestyle diseases through consumption of medicinal beverages. Youth frequent hotels especially the single but self reliant in households purchase herbal tea for use at home. The fact that instant herbal tea is on the table has enabled many consumers to make a cup of tea very quickly. The market totaling up to 900 million cups per quarter means that by increasing the target segments to include children, sales will hit the 1 billion mark in terms of cups. With increasing income status among women and youth, more sales will be realized. Increasing supply of 300 million cups per quarter in Singapore increases the market share of Jia Duo Bao. In both countries, the market for herbal tea is selected based on income, age and gender inferring to segments that will drive the sales up. Promotion and advertising of beverage products by competitors has always been weak since they have no content to show besides tea as a stimulant (Best 2005). Lovers of ordinary tea have been reducing which provides a great opportunity for JDB to increase the export of herbal tea to the UK. The government of the UK having lowered tax rates and trade tariffs for goods originating from Australia and China has reduced the shipping and clearance costs for herbal tea consignments (Hague & Morgan 2004). The UK government is conscious over the health of its citizens and as a result lowered the tax regime for businesses operating beverages especially hot drinks. The UK is known to be a country of tea drinkers which provides a humble ground to provide complemented tea with additional benefits. Singapore tea markets are characterized by maturity and decline phases meaning that innovation and process change is required (Best 2005). For JDB to enter into the UK and Singapore market it has to differentiate its products on a health platform. There is an opportunity to sell large cartons of herbal tea to corporate like airlines, hotels and restaurants, schools and households which indeed makes the product a mass market product. Herbal tea is relatively cheaper and sweet compared to coffee and cocoa or ordinary tea. It is usually taken without adding milk which makes it convenient and cheaper to lower income households. The packaging of JDB is attractive in metallic cans which ensures longevity and secured casings. These cans are disposables like other industrial products. There are many other packaging materials used especially paper which is biodegradable and environmentally friendly. Singapore has competitive climate owing to favorable growth and processing of the plant including cheap labor and sophisticated technology. Both UK and Singapore markets are heavy consumers of tea and are ready to try out on a new strain of tea that has more benefits than ordinary tea (International Markets Bureau 2011). The declining sale of Malt-based hot drinks has been a result of customer switching to herbal tea. The fact that Singapore has maintained higher standards of business ethics, environmental claim and good corporate practices has increased the demand for herbal tea. The UK economy is on the increase with annual growth average of 8% with the service sector contributing a huge proportion of 75% while growth rate of Singapore is at 14% consisting of 78% of service sector. In both countries, the hotel industry is the leading in the service sector meaning that more tea will be consumed with the expansion of the hotel industry (Hague & Morgan 2004). Lifestyles of people around the world and particularly in the UK and Singapore are conscious on fat, calories and cholesterol levels. This makes it easier to sell JDB without much promotions and advertising in both countries. Personal sales can account for a greater proportion of JDB revenues through self selling products. Competitor brands earlier analyzed might face stiff competition if they do not differentiate their tea based on use and function. Reference List Beaumont, J 2011, Households and families. Office for National Statistics. National Statistics Publication. London. Best, Roger J 2005, Market-Based Management-Strategies for Growing Customer Value and Profitability. Fourth Edition. Pearson Prentice Hall. New Jersey. Euromonitor 2010. Hague, P Hague, N Morgan, C A 2004, Market Research in Practice. Kogan Page Limited. London. Harari, D Mellows-Facer, A & Allen G 2012, Economic Indicators-March 2012. Research Papers. Commons Library. International Markets Bureau 2011 Hot Drinks in the United Kingdom. Market indicator Report. Rogers, J 2009, Facilitating Groups Management Futures Ltd. London. Read More