Option: Market Expansion
Country: PERU
In this option of the Portfolio, imagine yourself as an international business consultant for a major foreign company that is not already present on the American market. This company has chosen you as a consultant to help them enter the market.
You are required to:
Select a real foreign company.
Prepare a thorough analysis of the foreign business: marketing mix, target segment, and major competitors.
Prepare a broad overview of the American market (market Intelligence).
Determine key national characteristics that will affect marketing of the product (business environment analysis).
Analyze market entry options (FDI vs. export vs. joint venture; opportunities for market entry). Determine entry strategy on entry mode, management structure, marketing and distribution strategies, management of resources, and human resources or HR (market entry strategy analysis).
Solution
Introduction: Gucci
Business expansion is a need of every business in this contemporary business era. The company needs an effective market entry strategy to depict the strongest entry in the new country. However, it seems necessary to analyze the internal and external business situation of the firm before making the final call. The emphasis of the study is on a particular company which intends to expand the market. The main elements of the study are the company’s background, market intelligence, business, environmental analysis, market entry analysis, market entry strategy, recommendation, and a contingency plan.
Gucci Background
Gucci is an Italian sumptuousness fashion brand. Guccio Gucci established this company in 1921. Gucci has 278 stores in several regions. Gucci used “Franchising” as a key market entry strategy (Kapferer and Bastien, 2012). It has been included in Forbes’s valuable brand list. Differentiated fashion outputs have helped to generate an affirmative perception in the global fashion market. The Company’s revenue is US$ 4.3 billion (Adegeest, 2018).
· Offering
The brand is increasing the product line. The extensive product line enables several choices for customers in the fashion market. The main products of the organization are Bloom Nettare, Ophidia, Dive, Print, Dionysus, Marmont, jacket, and loafers.
· SWOT Analysis Gucci
Market Intelligence: Gucci
Marketing intelligence is a need for the company to make a better market entry strategy. For Instance, based on different market insights, the company can assess the whole market situations, including customer and market trends. It sets the ground for the management to prepare itself to enter the new market. The elaboration of the market intelligence is below.
· Overview of PERU Market
PERU is a country in South America. The state has sustained the growth level and reduced poverty. It opened ways for foreign investors to make investments in different industries. The urban middle class has been developed in this country, and it made it a potential market for Gucci. PERU is developing the mall culture. For Instance, in 2000, the country contains only seven major shopping malls. However, in 2012, the nation observed 57 shopping malls. According to expectations, the state will increase these numbers. In 2012, the land was expected to contain 135 shopping malls (Eiu.com, 2015). It depicts the change in attitude. People in this country want to integrate with fast fashion trends, and it seems an excellent opportunity for Gucci to make a relevant decision. In 2014, several US retailers made the triumphant entry in PERU. Also, foreign brand such as H&M planned to exist in PERU’s capital. However, these firms were looking to make some changes in the marketing strategy to deal with new customer segments (Eiu.com, 2015).
The market potential is quite visible due to growth in textile and cloth export. PERU is looking to develop the apparel industry by $3 billion in exports and generating over 200,000 jobs by 2014. It has been observed that the country exports 65% to 75% Pima Cotton and Alpaca Wool to the United States, Germany, Italy, Spain, and many other countries. Gucci aims to reduce the cost of shipment and enter this country to buy fresh Pima Cotton and Wool in the production process. Thus, regarding the product and market, PERU is a potential market for this fashion giant (Freeman, 2017). Also, due to the needs and trends in the PERU fashion industry, a 8 % increase in the growth rate in 2018 is expected (Lima, 2018).
· Component of the Microenvironment
Competitors: Gucci
Hennes & Mauritz (H&M), Zara, and Ralph Lauren are three major fashion brands in PERU. These companies have targeted Lima as a critical location to start business and increase customer traffic. These are one of the top fashion companies in the world. Also, major fashion retailers intend to make a successful entry into this market. On the other hand, local designers such as Mozhdeh Matin, Jessica Butrich, Lorena Pestana, ESCUDO, Claudia Jiménez, and Project Pietà are quite visible (Dupre, 2017). Thus, Gucci may face stiff competition in this market.
Customers: Gucci
PERU is the 43rd populous country in the world. The emergence of millennials is quite visible. Based on different customer segments, especially youth, the company may enhance the visibility of targeting and positioning. Customer satisfaction, loyalty, and assertiveness will be some key measures to assess growth and success.
Suppliers: Gucci
As mentioned above, local companies are contributing to the export of the company. Cotton and wool are to be procured by the company from these local suppliers to save cost and time. Local suppliers are the best options to keep the profit margins high.
Marketing Intermediaries: Gucci
The company aims to design, control and execute the marketing process. The company does not need to integrate with any distribution channel because of its well-directed and organized Brick & Mortal business model. Thus, the marketing intermediary cost can be saved.
Labor: Gucci
The cost of labor in PERU is less than the United States and many other countries. The firm will be emphasizing on the local employment. However, integrating with PERU labor’s right is essential for successful business sustainability.
Business Environment Analysis of Gucci
Some national characteristics create an impact on the marketing of the foreign product. The illustration of some national features is following
· Marketing of the foreign product
PERU is a politically stable country. It seems to support the business to sustain and expand operations in several regions. Freedom or making strategies and designing campaigns on different media channels can be done by gaining political support. Also, according to a 2018 estimate, gross domestic product (GDP) of the country is $458.389 billion. It is the 36th largest GDP in the world, which depicts moderate to higher-income level of people. People have buying power, and it can go in favor of the company. The firm can enhance the visibility of positioning to attract these potential customers. The upper class of the country exists in Lima. The middle class consists of workers and professionals. The rural class is also visible in rural areas. In the marketing process, several marketing campaigns will be designed for these three major customer segments. People are becoming tech-savvy, and it seems one of the significant national characteristics. For Instance, the country upholds many science and technology research institutes in the capital city and many other regions. PERU’s adaptation is remarkable, which enabled the significant shift in the growth. PERU is an environmentally friendly country. It has the largest rainforests in different regions. Aligning with environmental and legal regulations is imperative. The legal complications trigger business and advertising. For Instance, the value added tax in this country is 18%, which is comparatively high (Reuters.com, 2017).
· Consumer characteristics
Customer characteristics must be observed by the management to make better marketing strategies. For Instance, PERU customers like creativity, innovation, and differentiation in the fashion industry. These traits can increase the assertiveness of customers in the buying decision-making process.
· Competitors
Hennes & Mauritz (H&M), Zara, and Ralph Lauren are significant competitors. In an intense rivalry, Gucci plans to come up with a unique marketing process. For Instance, Hennes & Mauritz aimed to take benefits of mall culture of the country to target men, women, kids, and home. On the other hand, Zara also opened its first store in Jockey Plaza. Local designers are also creating hype by participating in fashion exhibitions.
· Gucci’s SWOT for PERU
· Ethical implications
Fashion brands are looking to come up with some products and services, which are culturally enriching. Making the fashion sustainable is tremendous ethical implications which can help the company to contain the emotional and sentimental attachments with customers. Reduction of mercury emissions and child labor are also critical ethical implications in PERU.
Market Entry Analysis: Gucci
· Market Entry Options
Direct exporting is a market entry option for Gucci. The firm can ship its top-quality apparel to PERU. The firm may acquire the services of agent or distributors, which have access to the PERU’s fashion industry/market. Creating good relations with these agents or distributors is imperative to represent the company in PERU effectively.
Gucci can find a company in PERU, which contains a significant market share and reputation. The company can grant a license to this firm. Transferring the right to use the product in the fashion market is a practical approach. However, some key measures are to be developed to assess the company’s growth (Chris, 2009).
Also, if Gucci’s management aims to carry the repeatable business model, franchising is the best option. It seems a good business expansion strategy to sell products in other countries.
A joint venture is also a good option for the company to gain a quick market share. With a new independent company, joined by two existing firms, the firm may create hype in the competitive fashion industry.
Merger & Acquisition is also a key option for the company. It seems a useful consolidation of assets. The firm may find a local fashion firm or integrate with international brands to get a share of the market.
Market Entry Strategy: Gucci
· Entry strategy on entry mode (Merger & Acquisition)
The best market entry strategy of the company is merger and acquisition. For Instance, Fallabella Retail, which is one of the leading department stores of PERU, is struggling to rotate its fashion products in the fashion market. Interestingly, Gucci can assess the needs of the company and customs. The merger can help the firm to increase the economies of scale. Gucci wants to share the financial resources with this company to give a tough time to all identified competitors. The firm can take over the fashion division of the company, which can create expansion opportunities. In the competitive fashion market Gucci wants to merge the power and take control over the demand. In the presence of top fashion brands, taking control of the market is the right approach to gain a competitive advantage. Another advantage or the rationale of merger and acquisition is the shared marketing efforts. Collaboratively, Gucci can make an effective marketing plan to enhance the visibility of positioning. Merger and acquisition reduce the risk of business failure, and Gucci is going to take this benefit in an intense rivalry.
· Management Structure: Gucci
The management structure of the company seems simple. The management structure includes CEO, general manager, administration, financial, supply chain, human resource, marketing, and sales management. The management structure of Gucci in PERU can be depicted in the below figure.
· Marketing Mix: Gucci
Product
Product differentiation is the primary product strategy of the company in the fashion market. The firm aims to increase its differentiation capability to make products inimitable in the PERU’s fashion market. In different countries such as the United States, Italy, United Kingdom, and many others, the company is triggered by an extensive product line. Based on the customer segments and new fashion trends, Gucci will make some changes in the product line. Apart from the differentiation, an increase in the product line with the time is an appropriate produc6t strategy, and it is also to be streamlined in the different marketing campaigns (Richter, 2012).
Price
So far, the management of the company has emphasized the premium pricing strategy. Now, in the growing economy, the firm plans to come up with competitive pricing. Zara and H&M have emerged in this market, and they sustained brand loyalty and customer satisfaction. Thus, coming up with some expensive products may create the hurdle in sales and market growth. Based on the competitive actions, the firm will set the price of different products. This pricing strategy can help the firm to be relevant in the competitive landscape. Thus, the firm can still keep the profit margins high. Competitive pricing strategy can attract customers. However, penetration pricing strategy is another option for low-income customers. For Instance, Gucci can decrease the switching cost for customers by streamlining low prices for a while (Richter, 2012).
Place
Lima is the best place for a company to start business in this country. Lima is an urban city, which streamlined the mall culture. It seems the best place to have access to the customer. The middle class and upper middle class can interact to increase the customer traffic in Gucci’s stores, especially in Jockey Mall.
Promotion
Instead of focusing on traditional media channels, the firm must use digital media channels to increase attraction and positioning. Social media channels such as Facebook, Twitter, and websites will be used to visualize fashion products and target customers. Also, Gucci will design its official website to place all its products online. Celebrity endorsement of traditional and social media channels can also be used in this market to create urgency (Richter, 2012).
· Resource Management: Gucci
Resource management needs better resource management strategies. For Instance, Gucci will understand different short supply resources to maintain its focus. Resource management is an ongoing process for Gucci. Financial, human, and marketing resources are in the limelight. Work with Gucci is to be done systematically, as Gucci will embrace the new working ways across the organization. For Instance, the first initiative of the company is to depict a specific methodology to enable the reporting system in several stores. Technology is a critical resource in marketing, production, and sales processes.
· Human Resources (HR): Gucci
Gucci has a plan to focus on the local workforce in both production and stores. For Instance, Gucci will be hiring for cultural fit. The hiring process will be aligned with the evolving culture of the country. In the interview process, the management will create the right environment to ask the proper questions, assessing the multitude of candidate’s traits, and probing and assessing different responses. Training and development is a crucial HR initiative, which can create some career and growth opportunities for people. Comprehensive wellness plan for employees and work-life balance practices can help the firm to build a robust internal force. The most important thing is to assess the right talent and retain them through motivation (Hendry, 2012).
Recommendations
Being an international consultant to the company, I would like to recommend the change with time. PERU is developing its fashion industry rapidly, and the firm has to evolve with the time to be relevant. Trend integration and further strategic alliances may work for the company to enable long-term business sustainability. It has been observed that the market is less competitive as compared to the United States, United Kingdom, and other fashion markets. In the change process, instead of focusing on the change, the firm must develop the unfreezing and refreezing capabilities to embrace the change and sustain the advantage.
Contingency Plan: Gucci
· Risks and solutions
Increasing tax rates, especially value-added tax, is the most significant risk in PERU. On the other hand, currency fluctuation can create substantial barriers to growth and sustainability. Political change, increasing taxes, and currency fluctuations are prominent risks. The appropriate solution is to observe and adjust selling and costing prices continuously. It can help to reduce the impact of the variations. Change in every aspect of business can reduce the effects of tax and political change.
· Exit Strategy
Selling the business is the effective exit strategy, as it can enable some possible returns despite containing losses in the competitor market. Gucci is a highly reputable brand in the global market, and local or international firms will be willing to buy a PERU’s division of the business.
Conclusion
In the end, it is to conclude that the Gucci’s entry in PERU is a right expansion strategy due to market potential and customer needs. However, some strategic considerations are to be streamlined. The report illustrates these strategic considerations for the brand to make a successful entry. After a comprehensive background of the company, the report emphasized the business environment and several marketing strategies. Recommendations and possible exit strategy have also been elaborated at the end to make the business secure.
References
Adegeest, D.-A. (2018, February 14). Could Gucci become bigger than Louis Vuitton?
Chris. (2009). Market Entry Options: Franchising, Strategic Alliance, Acquisition. GRIN Verlag.
Dupre, B. (2017, July 13). 7 Fashion Designers from Lima You Need to Know.
Eiu.com. (2015, February 6). Fashion picks up speed in Peru.
Freeman, I. C. (2017, July 4). PERU targets $3bn textile exports with new fibers push.
Hendry, C. (2012). Human Resource Management. Routledge.
Kapferer, J.-N., & Bastien, V. (2012). The Luxury Strategy: Break the Rules of Marketing to Build Luxury Brands. Kogan Page Publishers.
Lima. (2018, April 27). Peru expects 8 pct. growth in textile and apparel exports in 2018.
Reuters.com. (2017, July 18). Peru cancels plan to cut value added tax rate as growth slows.
Richter, T. (2012). International Marketing Mix Management: Theoretical Framework, Contingency Factors and Empirical Findings from World Markets. Logos Verlag Berlin GmbH.
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