Strategic marketing is a way that assists an organisation to effectively differentiate itself from major competitors in similar industry. These kind of activities assist in providing consistently better services to customers than other rivalries (What is Strategic Marketing, 2018). The strategy can be developed for market expansion, product development and customer relationship planning that aid in maximising business profit opportunities. This report is based on OYO group, which are offering services in hospitality industry that is hotels. Now this company wants to expand their business/market in South Africa with its restaurants. For the implementation of these ideas, organisation needs to analyse market condition of the particular country as well as requirement of those services. Therefore, this report is going to cover macro environmental factors that can affect business operations. For further, it considers mode of market entry that will determine best possible option for business expansion. This report also includes description about market segmentation and targeted market for expansion. At last it discusses about new porter's generic strategies which helps fir
Overview of the company
OYO group is a hospitality company which was founded in the year of 2013 by Ritesh agarwal. Main objectives of this organisation is to provide budgeted hotels for family and individual's who wants better services on an average cost. Through average cost strategy, OYO group has grown with over estimated 8500 hotels in around 230 cities in numerous countries (Oyo, 2018). Now the organisation is planning to expand their business operations. For this, Oyo group is expanding its business by opening hotel along with the restaurant services in South Africa on the ground of Durban. For this expansion, firm needs to make a strategic planning in order to establish their business in Durban, South Africa.
Macro environmental analysis
PESTLE analysis is a part of macro environment which is helpful in analysing market on the basis of few factors that have influence over business (Zalengera, 2014). In context to Oyo group, the company is expanding its business by opening Oyo hotels with value added service that is restaurant facility in Durban, South Africa. With the help of PESTLE analysis, Oyo group can evaluate relevant understanding over their new business in South Africa. Therefore, PESTLE analysis of South Africa has been conducted in order to evaluate relevancy of Oyo group in this country. All of these factors are described as below:
Political factor: This factor is normally related to government stability, legislative bills, health and safety law and many more legislation which are related to political condition of operating country. Government of South Africa is liberal which is beneficial for alien companies to get permission from the government to establish their business in South Africa in less period of time. which allows organisation to take approval of licenses in order to establish their business legally. Apart from this, South Africa is highly corrupted country as its citizens are using bribe for converting decision of the government in their favour. As Oyo group expanding its business in Durban(South Africa) with new services restaurant, opportunity and threat of this factor is described as below:
Opportunity: Oyo group can take liberation of government as opportunity as they can make their business license within 2 months only. This will save time of the company as they are not required to wait for performing their business activities in South Africa. As a result, they will get more time to persuade interest of customer by conducting interest activities for grabbing their attention. This will help in increasing profitability of restaurant services as customers are aware of about the Oyo group and its services. It will increase profitability of the company.
Threat: Excessive involvement of corruption is itself a threat for Oyo group. As the way through which this company have grabbed governmental support, then there are many more companies available at market place that might adopt same pattern. And as a result, it will create huge competition for Oyo group in future. In order to overcome this threat, Oyo group should update its services at regular basis which will give a genuine reason to customers for remaining loyal to the company for long period of time.
Economic factor: This factors includes inflation rate, taxes and recession. In context to the South Africa, the country is ranked on 4th position in 47 countries of Sub-Saharan Africa region. The economical condition of this country is not so good as its increasing instability of political condition is reducing growth the company within the country.
Opportunity: 4rth positioning among 47 countries of Sub-Saharan Africa region is considered as the opportunity for Oyo Group, as if Oyo group will establish its hotels with restaurant facility in Durban, then they can easily grab attention of maximum number of customers with the popularity of country. This will result in maximisation of profitability of the Oyo group in South Africa. It will help organisation in sustaining a better position at market place.
Threats: Instability of political condition is a major threat for Oyo group, as the country will not be able to convince investors to invest in their business in South Africa. Because, this country is not stable and there are probable chances that rules and policies related to taxation policies might change, as a result investors will not invest in the company. This will create problem for the company in maintaining its flow of capital for operational activities at workplace. This will impact negatively on the growth of the company. In order to overcome this threat, Oyo group can make an contract with the financial institution's available in Durban as if in case Oyo group will not get any investor in future, then these financial intuitions will provide them desired amount which is mentioned in the contract. In return of this, Oyo group will give them interest to financial institution with which they have entered into the contract.
Social factor: This factor involves social status, demographic areas(location), trends, frequent needs, ethnic background etc. Unemployment rate of this country is high which results in increasing poverty ratio. In addition to this, social culture of South Africa is highly active towards the food which are based on non vegetarian dishes. Citizen of the country prefers barbecue and restaurants while celebrating functions and other get together.
Opportunity: High rate of unemployment is an opportunity for Oyo group as they can hire required staff in less amount. This will directly reduce operational cost of the company as they are not required to spend much money on employees salary. This will increase profitability ratio of company.
Threat: Culture and trends in South Africa is changing rapidly. It is the major threat for the Oyo group, as they are already new in the market and it will consume time to adapt it and perform their business activities according to the culture of South Africa only. And if in any case, recent trend of the country will change then it will take time for to adapt it. Therefore, there are problem chances that Oyo group may not be able to upgrade their working practices according to the changing market condition. As a result, negative condition might develop the demand of shut down of company in Durban (Rastogi and Trivedi, 2016).
Technological factor: Advancement in technology is refer to the major factor which have high influence over growth of business. South Africa is still not developed properly in terms of technology as its organisation and government are not investing money in research related to technology. But it has been identified that this country is improving its command over technology by expanding its number of internet services providers.
Opportunity: More number of internet provider ensures that people of South Africa can use internet everywhere. It is an opportunity for Oyo Group that if the company is availing its mobile application then customer can access to knowledge of restaurant services. This help customers that in actuality what this company is offering and what are its products range along with prices. This will attract customer connecting with them through mobile application. As a result, it will increase popularity of the company with usage of application. This leads increase in profitability and sales ratio of Oyo group.
Threat: South Africa is low developed country in terms technology. As it is a threat for Oyo group, because if they are using latest technology in there restaurant services then they will definitely need some technical resources and expertise like skilled employees who can perform manage the work of restaurant effectively. (Kolios and Read, 2013). These resources may not be available at that place then it will reduce productivity of the restaurant services offered by Oyo Group. So, in order to overcome this OYO can use their existing technical staff that can provide training to new hired employees for developing a better team in new country. These skilled employees will be able to provide high class services to the customers of restaurant by maintaining dignity of Oyo group. As a result, it will increase number of loyal customer for the company in South Africa.
Legal factor: This factor is relatively related to the political factor but it includes recent trends in legal laws too. South Africa imposed different taxes and duties like customs, skill and development tax, capital gains tax and many more. South Africa is liberal country where rules and regulations are very less. The country is not taking any tariff for customers as well as operating companies. But, norms of country are not lenient in every sector. Government of South Africa has applied restriction in quantity of import/ export.
Opportunity: OYO can easily conduct its business activities because legal sector of South Africa is much more relaxed and helps organisation to establish their business in effective manner. In this country tariff barriers are negligible for the investor company. In context to Oyo group, it considered as the opportunity for the company as they are not required to pay taxes. This saves money of the company which can be further used in the other business operational activities.
Threat: Restriction in quantity of export and import of products are the major threat for Oyo Group as it will interrupt the organisation in bringing their some special product from the native country. This legal law might affect company in serving their best food items along with the room services. In order to overcome the same threat, it is important for organisation to represent the requirement of food ingredients in front of government so that they will not able to deny and give approval for the same.
Environmental factor: Environmental factor is mainly based on relevancy of industry in relation to environment (Kolios and Read, 2013). It simply means that how environmental changes impact over the business and its growth. South Africa owns many natural resources which are helpful for country as well as new businesses.
Opportunity: High rate of natural resources is an opportunity as the new restaurant will not face any problem related to availability of fresh vegetables, fruits and other things which are required by restaurant during its processing. As a result Oyo group can provide high quality food products to its customers along with the room services.
Threat: Main threat may arise for Oyo group with the thought of high dependency on natural resources. As the company is giving more preference in using organic food ingredient for the restaurant services. This will directly increase the prices of food items which are offered in the restaurant. It may impact negatively on the purchasing power of the customer they might not able to afford these expensive food. It may reduce sales of Oyo group and also minimise its profitability ratio. In order to overcome this threat the company can avail both kind of food to the customers that is prepared with the pure organic as well as normal food ingredients. As a result, it will reduce prices of offered services as products are going to be available to customers on the basis of their required. With the help of this, customer can order for the food which is preferred by them according to their purchasing power.
Modes of market entry
Oyo group is expanding its business in South Africa by introducing room facility along with the service of restaurant. . It is considered as an value added service for Oyo group which they are expanding in South Africa in order to increase its command in new country. Presently, the company offers hospitality services to its customers in India, as well as other countries too. But opening restaurant is completely new area for this organisation. Thus, it creates needs for the organisation to adopt one suitable market entry option which will help them in establishing their own business in South Africa. It can be evaluated that, market entry options helps organisation to enter into a new country in order to expand their business with less chances of loss. Some of the best suitable market entry options are described as below:
Direct Investment: It is an investment made by an individual or firm in one country with the interest of investing in business which are located in another country. It is differentiated from the concept of foreign portfolio investment with the notation of direct control on the business activities (Blonigen and Piger, 2014). For example: if OYO group is expanding their business operations in South Africa and they are directly investing into their new restaurant services which will be offered to the resident of South Africa. Market entry is beneficial for Oyo group as by opting this option company will have full control over their financial and other operational decisions. Because through this option company is individually arranging their own infrastructure and other required resource at their own. So, they dont have to involove other person in decision making process. On the other hand, major drawback of this entry mode is that it might be riskier as if planned strategy does not work then the company can lose its invested money.
Strategic Alliance: In this, two organisation binds between an contract in order to work together by using their resources, assets etc. for mutual benefits. Strategic alliance is best suitable option for Oyo group, as the company can tie up with already existing restaurant in South Africa. The main advantage Strategic Alliance for the mentioned company is that the organisation can easily access to the skilled employees (Shi, Sun and Prescott, 2012). As both the companies can take advantage of each other’s resources for performing their business activities. For example: Oyo group can hire some of the management staff from strategic partner’s company. This will save the time of recruitment of Oyo group as at the time of expansion they will definitely require good staff who can manage their operational activities. Major drawback of this market entry strategy is that it creates chances of loosing confidentiality as both the partners are using their asset resources and many trade secret too.
Joint Venture: It is a business agreement between two or more companies in order to formulate one new company. In relation to Oyo group, the company can tie up with another company for the purpose of establishing their business in Durban, South Africa. In this, both companies shares profits, losses, expenses etc. on the basis of their sharing ratio which was agreed by them in the starting. Joint venture is a short term commitment which do not bind participants for longer duration (Chang, Chung and Moon, 2013). In context to Oyo group, the company can take advantage of being part of Joint Venture as it will help in accessing new market with specialised human resources, finance, technology etc. It is simpler as partners entered into a joint venture can use resources of each other for performing business activities in effective manner. This entry mode shares risk as well as costing among respective partner.
As per the above mentioned mode of market entry it has been identified that Joint Venture is best suitable entry option for Oyo restaurant while expanding their business in Durban, South Africa. It can be said that Oyo group can tie up with Malis Indian Restaurant as this food provider already belongs to India. This will be helpful Oyo group as they will get support of a business which is familiar with the city as well as similar kind of business too. As a result Oyo group can establish a new restaurant with the stated Indian restaurant.
Concept of market segmentation, targeting
Market segmentation is termed as the activity through which whole market or customers are divided into some parts or sub groups. This division is totally based on characteristics of overall market (Weinstein, 2013). In context to Oyo group, the company is expanding its business in South Africa for which they are segmenting their whole market. Main suitable type of market segmentation is described as below:
Demographic: This segmentation divides market on the basis of age, income, race, nationality, family, gender, education and so on. It can be said that while expanding businesses organisation often target its customers among the stated segments of market. In relation to the Oyo group, the company can segment its customers on the basis of these segmentation. Demographics are helpful in segmenting market in order to target its customers according to their needs and requirement.
As per the above mentioned market segmentation, it can be said that while expanding business in South Africa, Oyo group can segment its customers on the basis of Demographic segmentation. This can further target income zone in demographic (Hassan and Craft, 2012). According to the overall analysis, the company is mainly targeting middle class and below middle class people. Because, middle class people of South Africa is not giving preference in buying expensive products and services. For this, Oyo group is providing reasonable room services along with restaurant facility in order to attract middle class people. This influences interest of people in visiting Oyo restaurants as they are availing services at reasonable prices. So, it can be said that by opening restaurant with high quality of services will definitely influence interest of targeted customers. As they will be able to experience good services in their budget only.
Porter's generic strategy
Porter's Generic strategies roams around four major sections that helps in expanding business at large level.
Cost leadership strategy
Cost leadership strategy mainly emphasises on targeting large market place with lowest price. In this main focus of the company is on increasing its number of customer by availing them best class services at lowest prices. In relation to Oyo group, the company influence interest of its customers by offering low cost restaurant services without compromising with the quality in South Africa. This strategy will not only attract people belong to middle class and lower middle class people but, it will be beneficial in persuading customers of higher class. As the company is not compromising with the quality of food products and other services which are offered in the restaurant (Tansey, Spillane and Meng, 2014).
This strategy mainly associated with driving strategies for OYO group to make diversify strategies and plans according to restaurant scale and scope of business. Potential dealers are requiring finding out for determining the strategies and plans and categorising the product lines and scopes. The restaurants dealers are required to consolidate as per scope and criteria of their organisational scale and offered with different offers to enhance profitability with different strategies. Durability and support system to expand the business in African regions is a challenging task that expands the business scale and reduce the predictability of business.
As OYO Group is planning to expand its business in Durban, South Africa, it is essential that company analyses the dynamics of market and unique needs and preferences of customer. It is imperative that OYO group develops a strategy to deal with the competitors present in the hotel industry. Thus, they use cost focus strategy to provide the products and services of the company at uniquely low cost prices when compared to the rivals within the same industry (Teeratansirikool and et. al., 2013). OYO group along with providing hotels services are opening up restaurant in Durban with a unique marketing and cost strategy so that they can deliver quality services to the customer at lower prices than rival companies and tend to create a strong brand loyalty among people in South Africa.
It concentrates on fulfilling demands of narrow markets. Durban International Film Festival is one of the most renowned festivals of the world. Moreover, people visit from all over the world to attend this festival for the love of films and film-making. OYO can use this as an advantage by providing free tickets to the customers visiting them during their the time of this festival. This unique strategy would allow the hotel to increase its customer base rapidly (Harding, 2017). Moreover, it would help the hotel to associate itself with various creative fields that would definitely contribute towards enhancing the firm's reputation. In addition to this, the firm would also be encouraged to enhance its creativity to attract more customers in Durban.
As per above stated different strategy of Porters Generic model, it has been founded that Cost leadership strategy is best suitable option for Oyo group while expanding its business in South Africa. The stated strategy is adopted as it provides product and services to the customer at lower cost. It can be said that cost leadership is beneficial for Oyo Group as it will helps the organisation in attracting customer’s of new country due its low pricing strategy. This strategy is beneficial for new restaurant, launched by Oyo group as Durban is growing very frequently and it’s citizen are giving more preference towards attaining better experiences. This will attract localize as well as visitor of chosen city of South Africa adapt to food services within their budget.
From the above mentioned report it has been concluded that strategic marketing helps organisation to differentiate themselves from the existing competitors in terms of capital and services. Macro factors are included in order to analyse impacts which can hamper business activities and it consist of elements like political, social, economic, technological, legal and environmental. Other than this, among different modes of market entry Joint venture is best suitable option for new company who are thinking of expanding their business in new country. It has been observed that segmentation of market can be done on the basis of demographic type of segmentation in which customers are targeted on income basis. It has been identified that cost leadership is an effective strategy for gaining competitive advantage while expanding business new country or area.
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