Promotions Campaign for a Zingo - Product to Be Launched in a Foreign Market - Case Study Example

1. Introduction Today, with the rapid globalisation process the Free Trade is increasing and some of the economies, which were closed in the past decade have opened up for foreign goods as well as foreign direct investments. These developments in the world market is producing extremely attractive business opportunities in terms of new and emerging markets in countries such as India, China, Brazil and Russia. With rapidly growing GDP figures and increasing disposable incomes, countries such as India is now among the top priorities in international expansion plans of companies seeking to launch their products in to foreign markets. This marketing plan covers the planned launch of Zingo Instant Noodles manufactured by NutriFoods Company Ltd, (NFCL) in the Indian market. The company is the market leader in the pasta and spaghetti categories and Zingo is currently number two in the UK and a host of other European markets, closely behind the market leader Blue Dragon 3 Minute Noodles. The product retails at £0.35 per pack in UK. The current UK sales is 7 million packets per month while the international sales are over 17 million packets per month, with over 8 million packs being sold in Vietnam with local production operations. 2. Host Country Environmental Analysis India today is one of the most attractive markets with its vast population accounting for over one sixth of the human race. Having practiced closed economic policies until late 1980,s the country embraced open economic policies in 1990s and have steadily gained prominence in the global market place with its large market size as well as production capacities (Hill 2003). Following Environmental scan uses PEST analysis to profile the host country market conditions which will allow to identify the opportunities and threats as well as the compatible organizational strengths which will allow to exploit such opportunities. It will also allow the company to identify internal weaknesses which needs to be strengthened to counter threats from the environment as well as optimize the opportunities. 2.1 Political Factors Although the Indian society traditionally took a nationalistic stance towards foreign imports and foreign investments, the trends have reversed today. The open economic policies and relaxed FDI policies have encouraged import of goods as well as establishing foreign businesses in the form of joint ventures. However, bureaucratic red tape still surrounds the import-export regulations, foreign exchange policies as well as customs procedures. One of the key business risks lies in the political instability. Nutri Foods has born these factors in mind when deciding on the mode of entry to the market and has selected a joint venture partnership option with one of the major consumer food product distributor – Partel Group Ltd. 2.2 Economic Factors Although India’s population of over 1 billion people offers a vast market, an estimated 73% of these people live in rural areas and within close parity to the poverty line which makes this market a highly price sensitive market (Doing Business in India 2006). However “there is a growing middle class, with numbers varying between 150 million and 400 million, depending upon how "middle class" is defined” (Shelton 2002). With over 8.5% growth rate sustained across the past couple of years, the Indian economy is booming and the impact is favourable on the improving living standards of the people. Small pack sizes are common in the Indian market to meet low levels of disposable spending power. 2.3 Social Factors Some of the emerging market trends worth noting include the growing pester power in the Indian society. Zingo Instant Noodles with its appeal in the children market segments will therefore expected to perform well in the Indian market. In considering the secondary target segments of Zingo including young adults, bachelors and small families, this category too is increasing in India with new social trends favouring small families and households instead of the traditional extended families. The changing tastes of the new generation as well as increased exposure to foreign tastes is taking the breads and noodles in to the plates of the Indians in place of traditional rice and “chapattis”. Although the country provides attractive potential in terms of market size, the vast diversity in cultures, religious and over hundred languages and dialects present, it a challenge for international firms to enter and succeed in the Indian market. 2.4 Technological Factors With the Indian economy being widely boosted by its massive software development industry and Business Process Outsourcing operations, the country is becoming a hub for international dealings, and the life styles of the new generation of Indians are affected by global products and global trends (India and The Global Economy 2006).With cable TVs in over 40% of the urban houses, the exposure levels of children to advertising has become increasingly high and their demands of preferred products are increasing. These trends will carry opportunities which Nutri Foods will plan to exploit to their advantage. 3. Host Country Constraints 3.1 Customs requirements The import licenses are issued from Delhi and (Export Procedures 2006) takes up to two months to acquire the permits. Special packaging requirements such as marking of vegetarian and non vegetarian products with a green or red circle on the pack is present. Zingo noodles will carry this special symbol indicating that the products are non vegetarian and include animal based ingredients (Vegetarianism 2006). Packaging requirements also stipulate that two or more languages should be present. With a different language being spoken in almost all states, packaging is advised to carry Hindi and English along with two to three other regional languages as Tamil and Kanada and Thelegu. . 3.2 Import and Foreign Exchange Regulations. The Indian import and foreign exchange regulations have become less stringent over the past decade since being liberalised but still subjected to a high level of scrutiny. Those items which are restricted for imports through licensing requirements or banned from importing are mentioned in the restricted list of ITC(HS). As Instant Noodles does not fall within such restricted lists, the product can be freely imported in to the country. However all importers must register themselves with Regional Licensing Authority is a pre-requisite for import of goods. The Customs will not allow clearance of goods unless. In terms of country of origin restrictions, imports are allowed from any country other than Fiji and Iraq. All foreign exchange transactions are closely scrutinized by the Reserve Bank of India which is the Central Bank of the country. India ranks 118 in the index of economic freedom (Economy of India 2005). Most feasible payment mode for foreign exchange is establishing letter of credits with stipulated transaction terms. The letter of credit funds should be acquired by the beneficiary within a period of 6 months or the money is automatically credited in to the RBI’s scrutiny accounts. As the product is a low price item and the value of each shipment will be moderate, establishment of LCs will be fairly straightforward for the importing party- Partell Group which will be Nutri Foods importer for the Zingo noodles. 4. Market Size and Competitor Analysis The main players in the Instant Noodle market are Maggie, Top Ramen, Mamma and Prima. Maggie, which is the market leader is manufactured and marketed by Nestle India while Top Ramen is imported from Nepal under preferential tariff rates. Prima too is imported from Sri Lanka under zero duty rates under INDO SRI LANKA Free Trade agreement. Mamma is imported from Indonesia. Maggie holds close to 80% of the market share with over 16 million packets per month sales in terms of both 70gram and their mini pack, which is 40grams. While some of the middle and upper middle class households consume up to 20 packs per month, the average consumption is 2-3 packs per month by mainly urban households with children and young adults. Total instant noodle market is estimated to be around 20 million packets per month. Past growth rates indicate an acceleration in sales growth over the past two years, mainly fueled by national level advertising campaigns being carried out by Nestle and localization of the product through use of Atta flour (Hard wheat flour being used in making traditional Indian foods as Nanns and Chappatis) in and Indian flavours. The market is expected to expand widely at a rate of 7-8% over the next five years. 5. Internal Analysis – Nutri Foods SWOT Strengths Weaknesses Established brand name from Europe Financial stability to support losses and high promotional costs associated with launching in to large markets of the scale of India. The well established reputation and experience of the appointed agent, PArtel Group of India. Availability of the Vietnamese production unit which may be able to export to India. High cost structure of European production locations. Low market awareness and cross cultural barriers Opportunities Threats Growing young population which is the key target segment. Exposure to global products and changing lifestyles which are busy and seeking convenience and speed in food preparations. Late marriages and small families which tallies with Zingo noodle’s customer profile. Cheaper imports from neighboring countries with preferential tariff rates. Nationalistic views promoting national food as rice and chapatti vs. wheat based foods. Increased awareness of healthy eating habits and detrimental effects of MSG (Mono sodium Glucomate) which is a key ingredient in the noodle seasoning sachet. 6. Marketing Objectives Following marketing objectives are set for the 1st year of launch of the product in the Indian market: Exporting up to 10 containers of noodles a month ( 750,000 pkts) at the end of 1st year Establishing Zingo brand name with national level awareness campaigns and product trial To reach break even at the completion of year one. To develop the current importer – exporter relationship with Partel group in to a strategic alliance with joint venture manufacturing operation in India by the end of 1st year. 7. Marketing Strategies 7.1 Market Entry Strategy Nutri Foods Company Limited will enter the Indian market with an exclusive dealership agreement established with a large scale importer and distributor of FMCG items, Patel Group based in Mumbai with its branch offices and warehouses located in majority of major cities in various states. Their already established network of appointed dealers and the stockists will facilitate smooth physical distribution of the Zingo product. Currently Patell Group does not handle any Instant Noodle items and as such the product exclusivity is assured. Therefore NCL will initially choose appointed agent mode as the mode of entry to the country. However the two companies are exploring the possibilities of establishing manufacturing joint venture in the time to come, should the initial market entry proves successful. 7.2 Positioning Strategy Zingo positioning is based on offering a nutritious fun diet for the kids and young adults who gets hungry easily. The two-minute cooking time coupled with flavours, which are mild and appealing to the young kids have made the product a firm top seller within this primary target group. Secondary target segment includes young adults as college students and single men and women who need a quick meal or snack. The pay off line of the product promotions is “Zingo- A fun meal in a jiffy.” Nutri Snacks have decided to retain the same positioning message for the Indian market but extensively use the Hindi version. 7.3 Product Strategy & Adaptations Zingo Instant Noodles is a 80 grams instant noodle pack with seasoning sachet included. The existing product line carries 6 flavours in terms of the seasoning included within including chicken, roast beef, mushroom, tomato, cheese and seafood. For the purpose of exporting to the Indian market, the company will select 4 flavours initially. While retaining the Chicken, Cheese & Onion and Tomato flavours, from its original line, a new flavour as sweet and sour will also be introduced to cater to elder children who prefer spicy meals, which is common in Indian cuisine. The initial market studies have indicated that brands available in the Indian market are all 65-70 grams. As the market is highly price sensitive, it is recommended for NSCL also to introduce their product in 65 grams size for the Indian market. As packaging has to be done exclusively for the Indian market, this weight change can be incorporated at the initial entry stage itself to facilitate closer price parity with the local manufacturers. 7.3 Distribution Strategy “Most Indian manufacturers use a three-tier selling and distribution structure that has evolved over the years: distributor, wholesaler/stockiest and retailer. As general examples, a company operating on an all-India basis could have between 400-2,300 distributors. The retailers served directly by a company’s distributors may similarly be between 250,000-750,000” (How to Do Business In India: A guide 2006).NCL will largely depend upon the local agent, Partell Group’s already existing distribution network. The products will be marketed through a network of over 430 appointed agents and 8000 stockists reaching over 600,000 retailers. A separate institutional sales team will canvass sales from large retailers such as food world chain of supermarkets where purchasing decisions are centralized. The company will offer 50% subsidy on the transport costs to Agents who purchase over 500 cases, which is the full load for a large land haulage truck. This strategy is expected to encourage the Agents to purchase in large quantities and promote the product aggressively so that benefits of added profitability can be enjoyed. 7.4 Pricing Strategy The pricing strategy is one of the most crucial aspects in launching Zingo in to the price conscious Indian market. Currently a pack of Instant Noodles is retailing at INR 10.00. Due to the extra layers of intermediaries present in the distribution channel, the available margins are further squeesed. The import products face further pressure from high tariffs as well as a number of import taxes. The pricing tactics proposed for Zingo would be to price the product to retailer at par with the competition while offering additional margin to retailers so that the “push” strategy will be at work where retailer will also participate in the promotional effort due to extra profitability of selling a pack of Zingo in place of another brand. Maggie currently offers 10% on consumer price to retailer. Margins to importer will be on a 4% net after covering estimated expenses of IRS 0.50 per pack. NCL will cost the product at variable cost and use a cost plus approach to ensure a competitive price is arrived at. NCL margin will be not on full cost but as a contribution towards overheads. Agents and stockists will receive standard margins of 5%. Please refer to annexure I for price calculation sheet. 7.5 Promotional Strategy . The promotional aspects of the product is also an important issue although the NCL is currently entering the market through an Import Agent. In order to communicate the central message of product convenience, and taste and establish the fun image, Zingo promotional strategy will be a totally integrated communication process. The depict the fun and light hearted brand persona, child and young adults who present a fun and funky image will be used through the integrated marketing communication program. The main thrust of the promotional plan would include a 30 sec. television commercial which will be aired on selected children’s cable TV channels as Nick Junior, Pogo and Cartoon Network as well as some of the trendy youth targeted channels. The ad will aired with high frequency during 1st 4 months of the product launch. The company will invest in outdoor advertising campaign where strategically located billboards in densely populated areas will be used to achieve a high reach at a low cost per reach. Brand and pack recognition is expected from this activity. Further, local product promotions and in-store sampling in larger retail outlets and super markets are also recommended. As the product is in its introduction stage, free sampling in schools in urban areas will be used as a main promotional tactic, which will target the primary customer group of children. The company will invest in 10 mobile promotional vehicles which will have in-house preparation facilities where Zingo sample packs will be cooked and served for free trial at locations such as musical shows and children’s parks. These mobile trucks will later be used as a means of sales generation to sell the cooked product at above mentioned locations. A consumer promotion will be introduced where purchase of 5 packs together will receive a Zingo brand yo-yo toy free. The free gift will be included in the special shrink wrapped 5 in one promo pack. This promotion will be offered during 1st two months and then reintroduced during 7-8th months depending on the effectiveness of the 1st promo period. As Public Relations aspects are also a key component of the promotional plan for Zingo Noodles launch, a press briefing followed by a dinner will be hosted for the media personnel. Press kits containing the press release pertaining to Zingo product launch as well as company background info on Nustri Foods and Partel Group of India will be issued to the attendees. 8. Conclusion In conclusion, it can be noted that while the Indian market which offers attractive potential for a new product such as Zingo also poses challenging tasks in terms of being price competitive, with the burden of successive layers of tariffs as well as the multi layered distribution channels. Another aspect which needs to be taken in to consideration is the competitive nature of the existing market players and the strength of market leader – Maggie which is a Nestle brand. NCL will also have to surmount possible issues surrounding cross-cultural differences in doing business with its Importing agent – Partell Group. However, despite these challenges, NCL is keen to repeat the Vietnam success story in India as well and hope to establish its joint manufacturing facility in India by the third year of the product launch. References Hill, C.W.L. (2003) International Business: Competing in the Global Market Place. 4th ed. New York: McGraw-Hill Publishing Company Ltd. “Doing Business in India.”(2006) [online] Available from “Export Procedures.” (2006) [online] Available from < http://www.import-india.com/export_procedure.php> “India And The Global Economy.” (d.n.) [online] Available from “Vegetarianism.” (2006), [onine]. Wikipedia, The Free Encyclopedia. Available from “How to Do Business In India: A Guide” (2006) [online] Available from Nicholson M, “Dabhol Plant Finally gets Green Light” (1996). Financial Times, January 9. “Economy of India.” (2006) [online] Wikipedia, The Free Encyclopedia. Available from . Shelton, S. (2002) “Entering India's Dietary Supplement Market” [online] Available from Appendix I Proposed Cost and Price Structure – Zingo Instant Noodles 65g pack to Indian Market In Sterling Pounds Variable Cost to NCL NCL Contribution Ex-Factory Price Freight & Insurance CIF Price 0.055 9% 0.0608 0.0050 0.0658 In Indian Rupees (Conversion of Pound – 1 = 77.556) CIF - IRS Duty - 35% Surcharge 3.5% Counter Veilling Tax4% Total Tax Landed Cost Other Costs Total Cost 5.10 1.79 0.18 0.20 2.17 7.27 0.53 7.80 In Indian Rupees (Conversion of Pound – 1 = 77.556) Net Margin to Importer Price to Agent Margin Price to Stockist Margin Price to Retailer Margin Price to Consumer 4% 8.12 5% 8.55 5% 9.00 10% 10.00 Market Analysis Report for Exporting Zingo Instant Noodles to India Name : Course Module : Tutors Name : Date : University Name : Read More