Strategic marketing is used by an organisation in order to develop best of their market plans which can fulfil needs and demands of customers. With the help of this strategy, company can increase their performance and therefore maximise their profits. It also aids company to become more innovative and creative and also facilitate better penetration in different and new markets (Wilson and Gilligan, 2012). Arcadia Group is multinational retail company which deals in clothing, accessories and footwear. It was founded in 2002 and is headquartered in London, United Kingdom. New beauty herbal cream name “Elegant” is introduced by Arcadia Group in the markets of Germany. Arcadia has chosen Germany for its business expansion due to renowned infrastructure, innovation power and presence of excellent workforce which will definitely improve economic outcomes. Compared to other country such as Spain, they does not have good research facilities and capable workforce, this is the reason for choosing Germany over Spain.
Arcadia is a retail company which is recently dealing in three sectors and they are accessories, clothing and footwear. In this report, Arcadia has come up with new venture to start a new herbal cream name “Elegant” which is a beauty product that will be launched in Germany.
PESTEL analysis is the best tool to analyse and identify different macro factors that can influence business. Marketers of Arcadia use this framework in order to monitor different factors that pose great impact on profitability and smooth functioning of company (Babatunde and Adebisi, 2012). With this analysis, leaders of the referred enterprise will come to know about possible threats and different opportunities that will be present in the selected country for the new product. Brief description of vital elements of PESTEL analysis is given below:
Political factors: This factor mainly focuses on political environment and legislative bodies that are present in Germany. Arcadia can analyse their political environment and measure the influence posed by different political regulation on their new venture. As company is expanding their business by launching new herbal cream, so they have to analyse all legal set ups and policies regarding opening and expansion of business (Davis and et al, 2011). This will ensure better establishment and smooth functioning of business operations. It will provide them with several opportunities as it has stable political environment and they can run their operation smoothly.
One advantage of operating business in Germany is that, they are free from regulations and have no restriction on day to day business as they are being part of EU (GERMANY: ECONOMIC AND POLITICAL OUTLINE, 2018). They don't differentiate between Germans and foreign people related to investment and opening up a company in their market place.
There are two political parties governing in Germany, there might be a situation, where other party can come into power and because of that, rules and regulation related to business might change. This will ultimately pose a threat to company and by having flexible organisational policies, they can encounter this situation. They can implement new regulations within enterprise and run their business accordingly.
Economic factors: These factors are one of the crucial parts as they greatly influence profitability of a company. GDP of Germany is mainly contributed by three sectors, they are service sector (70%), agriculture (0.9%) and industry (29.1%). Current GDP of Germany is around $3.684 trillions (2017) and annual growth rate is 2% estimate (PESTEL Analysis of Germany. 2018).
As they have largest population in Europe, there will be better chances for profits and revenues. One of the advantage for company is that, economic condition of Germany is stable and is less affected by fluctuations.
Growth rate is merely 2% which may cause a threat to company and they might grow slowly. Another threat to company is that, labour cost in Germany is increasing every year and this might become expensive for Arcadia to employ labours in large number (Economic factors in Germany, 2018). In order to rescue from this, company can hire freshers as they don't demand high salaries and can work at minimal wages .
Source: Germany Labour Cost, 2018.
Social factor: As mentioned above, Germany has the largest population in Europe and its population is greatly diversified by different lifestyles. Social factor mainly includes people, their lifestyles, beliefs, values, attitudes, habits, etc. and people living in Germany value their culture (German Culture: Facts, Customs and Traditions, 2018). It has rich diversity and culture and in that country, Arcadia can expand their business and attract people towards their new herbal cream. They have developed this beauty product which will focus on both men and women and people of any age group can use this products as it has less side effects and is manufactured by using herbal ingredients .
Due to increase of chemicals in cosmetics and beauty products, customers are switching towards herbal and organic products. This is a great opportunity for Arcadia to develop this herbal product and entertain profitable results. Due to the herbal nature of product, customers will be attracted towards them and this will result in more profits.
Social issues may rise and sometime they can influence the business without any reason. In order to develop herbal cream, company has to cut down trees and plants which will ultimately effect the nature and this might cause aggression in parties who works for protection of environment. This can be a threat to the company as this will impact on the goodwill of their company. Reputation is necessary for company to maintain in order to attract customers and operate successfully. By caring about beliefs and values of people, company can maintain their goodwill in the market and avail improved results (German business culture, 2014). Solution for this threat is that, company can organise various activities in which every member of the firm can plant trees in a month in order to repay the loss to environment which was caused by cutting down the trees for the production of herbal products. This will also lead to proper balance of nature.
Technological factor: Arcadia is launching Elegant herbal cream that is of herbal nature so they require proper research laboratories which is equipped with latest technologies which can check the quality of product and provide customers with best quality (Proctor, 2014). There are national laboratories where company can perform their research part. Germany support national science and technology at many levels. They give full assistance to any type R&D. There is a Ministry for Science and Technology which coordinates and set priorities for entire national science and technology program for Germany (PESTEL Analysis of Germany, 2018).
One of the major chance or opportunity for Arcadia is that, they can develop this product by performing research and can use latest technology. This will help them to provide better quality product to customers which can maximise their sales. The reason is that Germany being a renowned innovator possess a favourableness towards technological advancement (The German approach to Tech Investment, 2018.). Company have to upgrade their technology with time in order to stay ahead of other organisations. As they are starting a new venture, they needed to establish a good image in market, so to achieve that, they have to implement best and latest technologies.
When a new machinery is adopted, huge investment is required. In case of technology failure, great loss may be suffered by the enterprise which may make it difficult for Arcadia to recover on financial grounds. Apart from this, it can sometime become difficult to adopt new technology at initial stage of establishment. In order to resolve this threat, company can buy expensive machine on instalments or by taking loans from bank. This will become more easy and feasible for company to establish necessary machines within organisation.
Environmental factor: This factor has great impact on nature and environment of country as Germany is world 6th largest and European largest carbon emitter. There has been an increased emphasis on the environment factor when looking to establish operations in a relatively newer market.
Germany is also focusing more towards green business and are highly concerned for environmental performance (Germany: Environmental Issues, Policies and Clean Technology, 2018). Company can use eco-friendly procedures and techniques in order to prevent pollutions and this can be a great factor to attract customers toward their herbal cream. By using these techniques and procedures, they get necessary assistance from government side, which can be a great opportunity for company to establish eco–friendly procedures. With this, they can contribute towards healthy environment .
As every company is manufacturing something and directly and indirectly emitting carbon and other harmful fumes and gases in the air which are directly impacting on health of people. In order to reduce this, Germany has signed an international agreement known as Kyoto Protocol which is linked to United Nations Framework Conventions on climate change (A PESTEL Analysis of Germany, 2015). So it is necessary for Arcadia to follow the guidelines of Kyoto in order to form a credible reputation in the market.
- Legal factors: It include legal policies and regulations made by legislature of Germany. Their legal system is dependent on the principles laid out by Federal Republic of Germany. It is mainly composed of public and private law. Public law is related to the relation between a citizen and the state or any two bodies of the state (it includes criminal law) and the private law regulated relation between two people or companies and the criminal law.
Arcadia has great opportunity in Germany as there are less legal complications which provide them with fewer number of restrictions while running business. There is strong protection related to trademark and patents which is being undertaken by the organisation (Nandakumar, Ghobadian and O'Regan, 2011).
Company should follow legal regulations related to cosmetics and herbal products and non obeying can lead to major consequence and penalties. Regulation (EC) on cosmetics sets binding requirements for cosmetic products which are available in the market within European Union (A PESTEL Analysis of Germany, 2015). Company has to follow this regulation in order to avoid illegal action against them .
Above were different macro factors which can influence expansion of Arcadia business. In order to run smooth operations and successful business expansion, marketers should analyse every detail of these factors and plan their strategies accordingly so that there major risks could be eliminated.
Market Entry Modes
Market entry mode provides approaches through which an organisation can successfully venture in the foreign markets. Following are some aspects of market entry modes:
Strategic Alliances: This strategy is basically an agreement between two or more parties in order to pursue some business objectives such as manufacturing, development, sales of products or services, etc (What are strategic alliances, 2018). In this, both organisation share their resources and partnership but run their organisation independently. It is less binding agreement as compared to joint venture. Company join with other company in order to perform common business goals and this alliance agreement can be made with its suppliers, customers, competitors, etc. for a certain duration of time. This agreement offers great advantages to both parties as it increases the profit and revenue level and lowers the risks (De Villa, Rajwani and Lawton, 2015). It also provides company to learn other company's techniques and skills and can implement within their work environment so that objectives are being fulfilled (The Five Factors of a Strategic Alliance, 2018). It also reduces business costs by distributing them among different members of alliances. This agreement is also used in order to get access to different and latest technologies. One of the major advantage is that, by making agreement with foreign company, it provides access to foreign markets and reduces legal entry barriers .
Franchising: Franchising occurs when product or service is marketed by Franchise which is developed by franchisor under an agreement and license to do so (Definition of Franchise, 2018.). This is based on marketing concept and in this, owner grants the authority to other party to use their trademark as well as their business systems and procedures in order to produce and commercialize good or services into market (Franchising, 2018). In this, the owner is known as franchiser and the party who will take the advantage is known as franchisee. Another party can use business of franchiser and its system for certain period of time in order to gain financial benefits, merchandising, marketing etc (Laufs and Schwens, 2014). There is no need business experience to run a franchise as franchiser provides necessary training that is required by franchisee to operate their business models. Franchising provides higher rate of success than start up venture.
Mergers & Acquisitions: This is an effective and most commonly used approach for organisation. Merger is an agreement which is made between different exiting organisations in order to form one single company. This is done in order to enhance the financial and operational strengths of organisation. On the other hand, acquisition is done when one company takes the ownership of another business stock's assets, share, etc. (Merger and Acquisition – M&A, 2018). They perform this in order to get control and access over another business. The main motive behind merger and acquisition is to enhance their competitiveness and growth in the market. When two business combines into bigger firm, the value of new organisation will be more than the combined value of companies running separately.
Arcadia can make agreement with another company that can provide them with herbal ingredients which will be required by Arcadia company to produce herbal cream and also helps the company to expand their business by supplying their products to other clients and company. Bionaturehouse is an import / export and trading company in the Business to Business area of herbal cosmetics. Arcadia can make alliance with this company in order to get herbal ingredients and provide customers with best cream. By making alliance with this company, they can get access to different markets of Germany and can attract customers of Bionaturehouse. This will maximise their profits and ultimately would make a better image in the market. This approach is beneficial for Arcadia as this will provide them necessary assistance from Bionaturehouse Company and they can maximise their profits and revenues for their company.
With alliance they can give better competition to other company and will get access to different untouched markets (The Five Factors of a Strategic Alliance, 2018). Strategic alliance divide possible risks and forming economies of scale. Control of the business will be less that is why franchising is not a feasible option for Arcadia. Merger and Acquisition is less appropriate as compared to strategic alliance because, both company cannot work as an independent entity and have to follow each other rules and regulation. In merger and acquisition, company has to work according to dominating company and inferior company cannot market their products with their brand name. Due to these reasons, strategic alliance is best and most feasible option for Arcadia.
In order to get access to different markets, Arcadia made an agreement with Bionaturehouse which are facilitating company with supply of organic ingredients and necessary equipment and tools. Strategic alliance is the best way to make agreement with different company, so that they can achieve their goals while running their business separately.
This section will enlighten different segments of markets which are divided on the grounds of several factors. It is mainly classified into four main segments which will be elaborated under this section. According to (Kotler, 2012), Market segmentation is the division of market into homogeneous small sections of customers, where any sub section can be selected as a main target and can achieve marketing objectives. This is most widely concept used by companies in order to divide target markets and segments in order to focus properly and providing them with best products and services. In other words, market segmentation is a process of dividing the marketplace into different groups and segments on the basis of some characteristics. Generally, customers of these groups share similar traits and characteristics which is kept as a base to make distinct groups. This segmentation is performed by considering different elements such as demographics, lifestyles geographic location, buying behaviours of customers, etc (What is Market Segmentation? 2018). Following is the brief description of different market segmentation strategies among which selection of best suitable can be made by Arcadia while operating in new country:
- Behavioural Segmentation: This segmentation divides population according to their behaviour, decision making patterns, etc (Behavioural Segmentation, 2018.). Company implement this strategy in order to categorise customers into different groups on the grounds of above mentioned factors (Weinstein and Cahill, 2014). This help marketer to focus on potential and desired customers and can manufacture products in that direction. Arcadia can focus on desired customers before expanding their business in Germany as this will assist them to concentrate on preferences and behaviour of customers. In this, Arcadia can choose young and adult generation for their Elegant cream as they prefer herbal product more as compared to children and old people.
- Demographic segmentation: This segmentation in one of the simplest and most widely used approach by most of the companies. Different variables like age, gender, income, occupation, religion, race, nationality, etc (Wedel and Kamakura, 2012). are major grounds on which, marketers carry out demographic segmentation. This provide company with crucial information related to right population which can use their product.
- Psychographic segmentation: This segmentation uses lifestyle of people, their interests, activities, etc. It is much more similar to behavioural segmentation. This is an effective strategy for Arcadia as they can differentiate people according to their lifestyles and their interests as company will provide better product according to likings and preferences of customer (Cleveland, Papadopoulos and Laroche, 2011). This will gain customer strength and will prefer them over others.
- Geographic Segmentation: Population is divided on the basis of geographic region and people living in different parts of world exhibit different characteristics (Weinstein, 2013). In this marketers can develop their market strategy by dividing the target market on the basis of different factors such as food habits, clothing habits, languages, traditions, etc.
Above are some market segmentation strategies which can be used by Arcadia but from those, best strategy which can used by them is Psychographic segmentation (Psychographic segmentation, 2018). With this, they can select a group of potential people and provide their herbal cream. As most of the teenagers and youth prefer creams while going outdoors, thus it will be the best target for Arcadia. This will ultimately maximise revenues and profits for company and will able to satisfy their customers in better manner. By focusing certain groups (teenagers and youth) and fulfilling their needs will lead to complete satisfaction of customers. They can also focus on target market where they can get maximum access to customers and can attract them by using strong promotional and advertisement tools. Satisfied customers will prefer their brand over other rival organisation and thus company can build loyal relationship with them. So, this strategy will be beneficial for them in both manner, first, they can satisfy their customers in proper manner and second, they can maximise their profits and revues.
Porter's generic strategy
This strategy is utilised to achieve competitive advantage in chosen market place. In order to achieve this, company sometime lowers their prices as compared to their competitors or by offering its products into different market segments (Tanwar, 2013). According to Michael Porter, sustainable competitive advantage can be obtained by low cost and differentiation. Following is the brief description of various strategies:
- Cost leadership: Main approach of company is to achieve cost leadership in the market. According to this strategy, if a business lowers their cost of production, competitive advantage can be facilitated. In order to maintain this strategy, continuous search for cost reduction is required in all aspect of business (Definition of 'Cost Leadership, 2018).
- Differentiation strategy: In this, company manufactures unique products and services in order to gain competitive advantage over other company (Differentiation strategy. 2018). They implement this strategy so that they can attract customers towards their products and establish a totally different image in market. With better products, customers can perceive them as a good company and will prefer them over others. This will increase their profits and maximise their revenues .
- Focus: In this strategy, company mainly focuses on niche market and manufacture unique and creative products at low cost and provide them to customers. With this, company can develop loyal relationship with their consumers. One more advantage of this strategy is that, market segment in which company is operating become less attractive for other competitors.
From above strategies, the best approach for Arcadia is Focus strategy as this focus on particular segment of market. Arcadia uses differentiation strategy in order to provide unique and quality products to the customers of Germany. The reason being this strategy is been advised si that there is a niche segment in the market which is known to prefer herbal products and are ready to pay premium prices for the same. So such opportunity could be capitalised to expand successfully in the German market.This become easier for them to concentrate on target market. This will enhance their profits and also satisfy their customers in better way by providing them with herbal cream at low price as compared to competitors. If Arcadia become successful in satisfying their customers once with product quality and features, then company can develop better and loyal relationship with customers which will prefer them over others.
From above report, it can be concluded that, environmental analysis is crucial for company in order to establish a successful business in foreign country. Proper analysis and research provide information related to external factors and according to that Arcadia can plan their future operations. It is identified from the preceding discussion that the referred enterprise can even make agreement with other company in order to gain help and access to different markets in foreign company. This provide Arcadia with several benefits and better establishment in market. Lastly it is evaluated that focus strategy can be adopted to manufacture unique beauty products and introduce them at low cost in order to attract maximum customers towards the new products.