The report aims to address the issues facing the firm seeking to internationalise its operations. The firm in question is Nike. The report considers the issues of market segmentation, market entry methods and also the most effective marketing mix to utilise. In addition a number of recommendations are made as to how the organisation should proceed in such a situation. Finally conclusions as to how to internationalise marketing operations are made.
The aim of this report is to discuss the best means by which an organisation can reach its target market when it seeks to internationalise its operations. There are three main areas this reports seeks to address, these are; the target markets the firm should prioritise within the chosen region, the most suitable means of entry to the attractive market and finally, how best the marketing mix can be managed to reach the target market. These three issues will be considered in subsequent sections prior to any conclusions or recommendations being made.
The organisation to be considered is Nike. Domiciled in the United States of America, Nike design and manufacture a wide range of sports apparel and footwear. Sportswear can be split into three main categories, these are; menswear, womanswear and kidswear. The kids range is one which the company aim to grow strategically over the next five years. Each category can be further subdivided into a number of ranges and seasons. Sports shoes also earn the company a great deal of revenue as both professional and fashion footwear is produced. In addition, Nike have a number of strategic partnerships with high profile firms and individuals, all aimed at enhancing their image and, in turn, marketability.
Other companies form part of Nike’s portfolio, these include Converse, Bauer Hockey and Cole Haan. However, for the purpose of this report the main Nike brand shall remain the focus.
Nike’s aim is to be the ‘best sportswear company in the world’. In order to fulfil this mission they are looking to internationalise their activities and successfully break into a new market. Whilst Nike themselves expressed an interest in conquering the Middle Eastern market, due to volume, the initial recommendations of this report are that Nike should focus their attempts on breaking into the European market. This is primarily because the market is thought to be similar in demographic terms to their domestic US market. Successful internationalisation depends on a great deal of market knowledge, whilst more in depth knowledge will be required through further research, Nike already have a preliminary understanding of the European market through an understanding of their domestic market.
Target Markets within Europe
According to Hollensen (2004) information is a key ingredient in the development of a successful international marketing strategy. Therefore prior to the decision of which market to target being made a thorough understanding of the geographical market must be gained along with a grasp of the available markets and also the most effective means to enter and manage marketing within these markets.
In the first instance macro-environmental figures that are specific to the country in question need to be considered. One of the most common means of determining these is through conducting a PEST analysis of the country in question. The environmental factors identified in the PEST analysis will affect the viability of internationalisation in the market in question. Even if a market is thought to be similar to the domestic market it is still vital to determine macro environmental factors as these will enable any differences to be identified, thus enabling the formation of a successful marketing mix at a later stage.
Industry specific, micro environmental factors also need to be determined at this stage as they too will affect entry into new markets. Porter suggests the use of a ‘five-forces’ framework to determine industry specific factors, the five forces identified by Porter are; rivalry, the threat of substitutes, buyer power, supplier power, and barriers to entry. Hollensen (2004) suggests that it is possible to use a systematic approach to market selection; this is also backed up by Yip et al (2000) who believe that the utilisation of a systematic approach to internationalisation has lead to better performance.
Once the initial basis for market segmentation, namely geographical location, has been selected, it is then possible to further subdivide the market into different consumer groups. A number of factors can be used to identify differences between the population, thus allowing them to be segmented into particular groups or divisions that the firm can then market its products to. These factors, as proposed by Hollensen (2004), are listed below. In addition Hofstede (2001) suggests that there are four key criteria that can be used to successfully segment the market; these are geographic, demographic, psychographic and behavioural variables. The above factors can help to divide the market into certain consumer groups, some of which are more attractive to certain firms than others. Three specific groups have been identified as being of potential interest to Nike in the European market.
The first group is that of the 18-25 year old market. This group of individuals is concerned about their appearance and has a high degree of spending power. On the whole they do not have a large number of financial commitments and spend a large amount of their income on clothes. In addition they are concerned with keeping fit. They would, at this age, be more likely to purchase Nike goods for their sportswear properties as oppose intending to make a fashion statement. However, there is a certain proportion of this market that would be attracted to large logos and sweatshirts produced by the company, these would appeal primarily to 18-21 year old men. The main drawback of this demographic is that as they move into their twenties they have a growing number of financial commitments and so may be likely to cut their spending on clothes.
The second target market likely to earn rewards for the organisation is that of the teen market. The teen market consists of the 12-17 age group and has a large amount of spending power. According to a recent report teens are wielding an increasing degree of influence over household purchases and also have a large amount of spending power of their own. Although they enjoy fashion and feel a need to be affiliated with members of the same age group they also want to purchase clothes that have been ethically produced. The teen market is in attractive one, due, in part, to their spending power. The attraction is increased further when one realises that attracting consumers whilst they are teenagers can lead to lifelong allegiance.
The third market segment is one which has emerged relatively recently but has quickly grown at a phenomenal rate. It is that of the ‘tween’ market. The tween market is so called as it consists of children between the ages of 8-12. Individuals making up this market are not yet teens but not children anymore. Caught in this hinterland between childhood and adolescence, they are keen to exert themselves in terms of what they were, watch and play. This market is highly attractive to organisations as they are not as media savvy or jaded as the other market segments discussed above. They are easily impressionable and keen to conform to the standards that they perceive to be ‘cool’ or adult. In addition they have a large amount of disposable income, perhaps higher than that of the other two groups, mainly given to them by their parents. They have little else to spend it on than clothes, games and toys. Life for this market segment has become one long round of consumerism.
Whilst this market segment is attractive to firms seeking to internationalise there are also a number of ethical issues connected to marketing specifically to this age group. Recent scientific findings would suggest that it is thought that market directly to this group can result in a number of related unwelcome behaviours. Advertising aimed at this group is often explicitly adult, with sexual overtones. It can cause confusion among preteens and also lead to later body issues and dilemmas. Therefore for this reason it is advisable that Nike do not specifically pursue this market as part of their expansion policy. When seeking to internationalise it is good to minimise any potential negative publicity that could arise.
Having considered the above it would seem that the most attractive market segment that Nike could target within their new market location would be the teen market. The teen market has a large disposable income coupled with both time and independence, thus enabling them to shop for their own goods. Capturing this market will also hopefully lead to brand loyalty, meaning that the teen market will continue to buy into the brand as they reach their twenties and beyond. The teen market also has far less of the ethical issues that surround the tween market, thus making them a safer marketing option in terms of public relations. Although the teen market has a large disposal income they are by no means an easy group to market to. They are increasingly media savvy, perhaps more so than any other group and also switch loyalties very quickly. Nike needs to be aware of this if they are to market to this group effectively. One growth area within this market is that of technology, according to the Observer newspaper girls in this age group have overtaken boys in this area, and now spend more on technology than clothes. Such a trend is anticipated to continue. Nike is already in partnership with Apple, developing technology for the iPod nano. This is one area of opportunity for the organisation that could be exploited further.
Strategically the most attractive market has been identified as being that of the teen market. As a general rule organisations seeking to internationalise should seek to enter the markets in question strategically through planning and information seeking, instead of assuming that all markets are homogenous.
By enlarge the type if entry mode selected by an organisation is dependent on market forces. Internal and external market forces were discussed in the previous section. Hollensen (2004) suggests that there are four groups, or factors, which influence the mode of entry to a country;
- Desired mode characteristics, and;
- Transaction specific behaviour.
2.1 Internal Factors
Internal factors are firm specific and include firm size, previous international experience and also the product mix of the firm. If the firm is small with little previous international experience it is likely that they will seek to internationalise in the way that carries the least risk. The product mix also influences the decision to internationalise, when products are highly differentiated, or branded, it is likely that firm will seek to keep this advantage when internationalising. Nike are a large organisation with differentiated products, therefore they should select the market entry mode most suited to this type.
2.2 External Factors
External factors lie out with the remit of the firm and make up the macro-environment within which the firm operates. According to Hollensen (2004) external factors include the socio-cultural difference between the domestic and the host country, country risk coupled with demand uncertainty, market size and growth, direct and indirect trade barriers and intensity of competition.
The socio-cultural distance is of prime importance to a firm seeking to internationalise as it largely dictates the subsequent marketing mix employed by the organisation. Countries with a low distance have similar business and industrial practises, common language, comparable education level and similarities in cultural characteristics. The greater the distance the greater the uncertainty, therefore, it is safer for firms seeking to internationalise to, in the first instance, test their operations in countries with a small socio-cultural distance.
2.3 Desired mode characteristics
The suitable mode of entry will be defined by a number of characteristics. The entry mode selected should have a minimal degree of risk associated with it. This is of particular importance when an organisation is first seeking to internationalise its operations. However, it was noted by Hollensen (2004) that a minimal degree of risk may also result in minimal returns due to loss of opportunity. This highlights therefore, that, at some point, it is essential for companies looking to develop an international market to jump and make a definite commitment to their overseas markets.
Other factors that should be also be taken into consideration when an international market is sought are the degree of control over operations that is required as certain entry modes offer more control than others.
2.4 Transaction Specific Factors
Transaction specific factors cover the tacit nature of know-how within the firm. Much of knowledge within a firm is tacit; according to Polanyi (1983) tacit knowledge is that which resides within humans. For this reason it can be hard to transfer knowledge across geographical boundaries and into any third parties. When there is a high level of tacit knowledge within the firm it is often preferable to use a hierarchical mode of entry as people within the firm can be used to transfer knowledge geographically.
2.5 Entry Modes
Hollensen (2004) suggests that there are three possible modes of entry into an overseas market. These are as follows;
Export, combining low risk with a high degree of flexibility Intermediate, shared control and risk;Hierarchical, highest degree of risk and lowest level of flexibility.
Hollensen (2004) also suggests that these entry methods are by no means mutually exclusive; it is possible to use a combination of entry methods. As the export mode combines both low levels of risk with a high degree of flexibility it is advisable for Nike to use the export mode in the first instance to test the waters as it were, without committing a large degree of resources. If operations are successful then it would be more advisable to adapt to a hierarchical mode, whilst there is the highest degree of risk associated with this strategy it also offers the greatest degree of control over marketing the product which is desirable for an international operation. Nike are a large organisation and so should be able to absorb the costs associated with a hierarchical entry mode. They also are seeking to internationalise into a market that has a low socio-cultural distance and so presents a relatively low level of risk to the firm. Tacit knowledge also contributes greatly to their success; again the best way of transferring this is by means of a hierarchical entry mode.
2. Marketing mix
“Once the firm has decided how it will enter the international market, the next issue is how it will enter the global markets” (Hollensen, 2004). This stage can be referred to as the marketing mix. There are four key components in this mix; these are often termed the four P’s and are as listed below;
- Place and;
Let us examine each of these factors in turn prior to making a decision as to how Nike should best proceed with their marketing mix. Before analysing each of these points it is important to notice that the degree to which the marketing mix should be adapted to suit each market or standardised to fit all is a major dilemma facing the international marketer. Three arguments for standardisation were put forward by Meffert and Bolz (1993), these were; the globalisation of markets, the globalisation of industries and the globalisation of competition. However, Hollensen (2004) argues that in reality standardisation and adaptation are not two distinct strategies and that most marketing mixes are a combination of both, meeting somewhere in the middle.
Product encompasses far more than just the physical product or service offered by the organisation, instead, what is of prime importance is the ‘total’ product offer. This includes the product attributes (including the brand name), core product benefits (including image) and also the support services connected with the product. It is important that all of these are marketed correctly to ensure the overall impression of the product is a favourable one.
Prior to determining the product offering of the organisation on an international level the firm must determine to what degree they are a product or service dominated entity. In Nike’s case they are largely a product centred organisation. However, it is important to note that there is some degree of overlap with a service dominated organisation as consumers buy into the brand when the purchase a Nike product. Associated with this is a high degree of intangibility.
When looking to develop a product strategy that works well on an international scale the life cycle of the product along with the product design must be considered in accord with the markets in question. The product lifecycle is a tool designed to enable decisions as to the appropriate product strategy to be made based on the lifecycle of the product. In today’s fast paced, ever changing international markets the product life cycle is getting shorter than ever before. This is especially true in the fashion apparel market. For this reason the product life cycle tool is becoming less dependable and should be used in connection with sound research of the market coupled with faster product development. In fashion terms this means increased seasons with fewer product lines. Also the time to market for a product should be reduced. The other components of the marketing mix need to support the product function; the subsequent 3 P’s should facilitate rapid design, development, production and delivery.
Internationals pricing strategies also need to be developed. The final selling price of the product needs to incorporate a number of additional factors, including the price of export. Pricing needs to be determined in line with the other components of the mix, the selling price of the finished good needs to be determined in line with the desired market position.
Prices are not decided in isolation, there are a number of other factors that affect the pricing decision, and these include firm level factors, product factors (including the cost of export), environmental factors and market factors.
Usunier (1993) highlights that price is a cultural issue that needs to be considered carefully in international markets. He believes that are three important components to price in an international context. According to Usunier price should be considered as an object of interaction between people (reorganisations) , through bargaining, between a consumer and a product; as an instrument for comparisons; and finally as an object of interaction between a company and its various (national) markets.
The above well highlights the intangibility of price; it needs to be viewed as more than just an economic construct. Pricing strategies can be used as a means to enhance the overall brand image; this is a particularly useful component of price when considered in the international context.
Place factors are concerned with the distribution of the international organisations products or services. According to Hollensen (2004) distribution channels typically account for 15-40% of the retail price of goods and services within in an industry. This shows the importance of selecting an appropriate and cost effective means of distribution as mistake could be costly to the organisation. According to the work of Hollensen there are two main determinants of distribution channel decisions, these are internal and external determinants.
These factors are of a similar nature to the nine criteria for choosing foreign distribution channels listed by Usunier (1993). His criteria were stated as being;
- Consumers and their characteristics
- Capital necessary
Both of Authors highlight the importance of a number of distribution factors that are internal and external to the firm. Perhaps one of the most important external factors that is listed by both is the role of customer characteristics or culture. This is of such importance as the product must be distributed according to their needs.
One of the overriding internal factors, in terms of importance is the level of integration required depending on the degree of control needed. There are two types of integration:
Vertical integration: seeking control of channel members at different levels of the channel;
Horizontal integration: seeking control of channel members at the same level of the channel (Hollensen, 2004). Simply put a horizontally integrated operation owns the means of production whilst vertically integrated operations contract their manufacturing. Whilst horizontal integration allows for a high degree of control there are also a number of risks associated with this strategy. For this reason therefore, it is to be recommended that Nike remain vertically integrated when they first seek to internationalise their operations.
The final component in the mix is promotion of the organisation and their product. Muhlbacher at al (2006) argue that all markets are fundamentally the same; however an analysis of the individual market still needs to be made prior to promoting products within a new market place. Communication strategies in the international market are more complex than ever before due to the global nature of competition.
According to Hollensen (2004), all effective communication strategies contain four common elements, these are; a sender, a message, a communication channel and a receiver, or audience. However there are also a variety of factors that influence the degree of effectiveness of the communication. In the international context the message may be distorted by a number of factors including differences in language and culture. In addition ‘noise’ from competitors may work to block the message.
It is essential that an organisation communicates effectively with their target market if they are to be successful in their chosen market. Nike are well known for their well planned and executed communication strategies. As long as they understand the market and the means by which they can communicate with them they should have few problems in this regard. There is however, one key point to remember, this is that their target market of 12-17 year olds is more media savvy than ever before, they are the lead users of new technology.
Having considered all of the above it can be stated that there are a number of complex components that need to be considered if an organisation is to successfully internationalise their operations. In Nikes case they are seeking to internationalise for the first instance in Europe as it was thought that the European market is similar in demographic terms to their domestic market as the socio-cultural distance is low. They have chosen to initially tackle the teen market, consisting of 12-17 year olds as this has age group has a large disposable income with few financial commitments.
It is recommended that they first enter this market through utilising an export strategy as this carries a minimal degree of risk. However, there is the danger that minimal risk leads to smaller financial return, for this reason it is recommended that, if the export strategy proves to be successful, Nike pursue a hierarchical entry strategy in the long term.
The marketing mix is also an essential component in successful internationalise, Nike need to balance the four P’s of product, price, place and promotion. In terms of product the offering can be similar in all markets as markets, especially the teen one, are becoming increasingly global.