MRKT4177 MRKT1299 Contemporary issues in marketing and Consumer Behavior.
Entering global markets can be quite rewarding as well as risky for companies looking to expand and increase their market share in the face of shrinking domestic markets especially in the food, beverages and tobacco industries to name a few. While many entrants overseas have met with phenomenal success a fair number have failed to come to terms with the vagaries of operating and understanding consumer behavior in a foreign culture.
For one, companies are wary of over adapting their strategy to an extent where they lose their originality and identity as a global brand, and on the other forcing their brand upon the local populace without considering local tastes and cultural context. In many cases glocalization, a balanced approach of the above two strategies is much better suited to their success overseas.
Focusing on two well known companies Starbucks and IKEA that have gone the global route, it is beneficial to learn from the experience they faced contemplating the Indian and Chinese market with product, location and pricing decisions. Firms can learn lessons on how they may overcome these dilemmas and challenges while seeking to enter overseas markets.
It is important to know the background and history of hot beverage drinking in India, which has historically been known as a tea drinking nation dating back to British colonization being preceded by the entry of the East India Company in the mid 18th century. The British introduced tea agriculture in a big way, leading to mass consumption after a successful advertising campaign by the tea board in the 1920’s.
Starbucks while considering entry into the Indian market, thoroughly researched consumer habits and behavior for six years before confidently making an entry. Starbucks opened their first store in October, 2012 in an upscale area of downtown Mumbai. Howard Schultz commenting , “It is perhaps the most elegant, beautiful, dynamic store we have opened in our history.”
A great advantage to Starbucks was their carefully selected partnership with the Tata Group a giant Indian conglomerate and one of the largest coffee producers in Asia. This partnership provided them with some of the most valuable and prime locations to set shop in Mumbai and Delhi with the Elphinstone Building and the Taj Mahal hotel sites getting them off to a great start. The menu featuring a blend of western and local delights in the shape of mouth watering murg(chicken) tikka panini, tandoori paneer(cheese) rolls and cardamom (Elaichi) cookies.
In comparison in China Starbucks went with the Chinese need to relax in more spacious surroundings, building bigger stores 3,800 sq. ft. and upward. Menu items include chines teas and moon cakes.
A Frappuccino is priced to a growing middle class in India at $3.35 compared to products being priced 20% higher in China than other markets.
Starbucks went with a glocalization strategy (a combination of a global and local strategy) to succeed in both India and China, adapting the product catering to local tastes at the same time maintaining its Western image globally thru offering its original service and product concepts as well.
IKEA’s entry into India has been more slow and on the cautious side, having to consider several key issues, they do not expect to have a store launched before 2018.
One key lesson they can learn from their China experience is that DIY (do it yourself) will not work in India for locals are not keen to assemble and would rather have a do-it-for-me model in place which Home Depot did not practice in China and paid the price having to close down their remaining operations in 2012.
In China IKEA started with a higher price model which subsequently had to be lowered by 50% for the PPP (Purchasing power parity) may have been higher but income levels were quite lower for the intended target market, each potential Chinese customer earning $400 a month.
After initial experience IKEA realized that if they built bigger stores the crowd would come now eight of their 10 biggest stores in the world are in China where their outlets have 40% more traffic than other countries with customers treating them as destination stores spending a a significant part of the day, exploring, relaxing and dining their time away.
IKEA also had to come to terms with its positioning strategy in China initially focusing on the 20 to 35 year old market and then repositioning to include the wealthier 35 to 45 age segment with children.
Undoubtedly when entering India IKEA would look upon their experiences entering other emerging markets including China and adapt to local customs and tastes. It already faces challenges in seeking changes to a rigid single brand retail policy for foreign firms investing in India and for the Government to allow foreign retailers to be able to sell online.
Q 1. Could IKEA and Home Depot have avoided some of the mistakes they made while entering the Chinese market. Explain how they might have done a better job of under- standing and applying consumer behavior.
Q 2. How might a firm increase their chances of success while entering foreign markets. What steps did Starbucks take in this direction in India and China.
Q 3. Howard Schultz commented at the store opening in Mumbai, ” It is perhaps the most elegant, beautiful, dynamic store we have opened in our history”. What aspects of consumer behavior do you feel were in his mind while making that that comment.