Business Report Direct Exporting of Beauty Products from the UK to Australia

International Dimensions of Marketing: London “Skin & Tonic”

Skin & Tonic (hereinafter alternatively “the company”) has enjoyed sustained growth over its comparatively short but eventful 7-year history. This success has been attributable in large part to the vision of its founders for the future of the company as well as their marketing strategies which are intended to help them achieve these outcomes. The fact that the company has managed to sustain its 100% year-to-year growth in spite of the ongoing Covid-19 pandemic and a corresponding global economic downturn underscores the effectiveness of these marketing strategies in Skin & Tonic’s domestic target market. In order to continue its sustained growth, the company’s top leadership is assessing the opportunity for expanding into an overseas market. The purpose of this business report is to provide an overview of the company and its products which are most suitable for overseas expansion into the Asia Pacific region in general and Australia in particular, as well as an analysis of the most important factors that support this decision. In addition, a profile of a typical consumer in the Australian market, including segmentation and cultural differences, which influence consumer behavior is followed by a critical analysis of the market entry strategy recommended to enter the Australian market today. Finally, a discussion justifying which elements of the marketing mix should be adapted or standardized for the Australian market is followed by a summary of the research and important findings concerning this business report in the conclusion.

Company Overview (Task 1)

Founded in 2015 and headquartered in London, the company is a small but rapidly growing enterprise that is described by its founders, Sarah Hancock and her partner, “Josh,” as an “ethical skincare brand” (as cited in Hoggard, 2021, p. 52). Further, the “ethical” reference is valid since the company manufactures all of its own products in the UK, using cruelty-free and certified organic ingredients. Moreover, Skin & Tonic packages all of their products in recyclable materials and even plants a tree for every order (About Skin & Tonic, 2022). The company flagship product, “Calm Balm,” was an instant success and remains its best-selling product today. In fact, even after being forced to switch to an all-online marketing format during the height of the Covid-19 pandemic, the company still sold more than 70,000 units of Calm Balm and made a substantial contribution to National Health Service workers as a result (Hoggard, 2021).

The company’s sustained success can be attributed to its high-quality products, its ethical business model as well as its savvy use of highly cost-effective marketing tools. For example, Skin & Tonic has received a number of celebrity endorsements, been featured in major beauty and fashion magazines such as Vogue and enjoyed center-stage placement in retailers such as Whole Foods, Urban Outfitters and Anthropologie (Hoggard, 2021). Although the company already competes in 20 global markets, its top leadership team believes that it is ready for expansion into new foreign markets. Based on the company’s business model and culture, it is recommended that Australia should be selected for its next overseas venture as discussed further below.

Analysis of most important factors (Task 2)

Australia shares a common heritage, values, language and culture as the UK. Beyond its status as being the world’s largest island nation, Australia is unique in some other important ways as well that have important implications for the company’s potential expansion into this market. First and foremost, Australia was founded by the British in 1901 as a as a self-governing commonwealth of the British Empire, albeit under suboptimal conditions, and these two nations have shared a similar culture ever since. In this context, the term “culture” refers to “concepts of ethnicity, race and shared identity, and is often based on factors of differentiation such as nationality, religion, language, to name a few” (Gopalkrishnan, 2019, p. 29).

Although they are not exactly mirror images of each other in terms of cultural dimensions, the UK and Australia are close cultural cousins as depicted in Figure 1 below.

Figure 1. Comparison of Australia and UK cultural dimensions

Note: Australia = light blue (left column); UK = purple (right column)

Source: https://www.hofstede-insights.com/product/compare-countries/

As can be clearly discerned from the cross-cultural comparison depicted in Figure 1 above, the only cultural dimension that Australia and the UK differ substantively on is long-term orientation. The long-time orientation dimension refers to the manner in which different societies maintain a link with their past in order to better respond to the challenges and opportunities today and in the future (Hofstede, 2022). According to the sociological analysis by Hofstede (2022), Australians “exhibit great respect for traditions, a relatively small propensity to save for the future, and a focus on achieving quick results” (Country comparison, para. 5).

This high level of intercultural competence indicates that Australian consumers and local supply chain partners will be highly receptive to the company’s business model, brand and ethical product line (Tam, Sharma & Kim, 2014). For example, according to Gopalkrishnan, the terms “intercultural competence” or “cultural competence” typically refer to “the awareness, knowledge and skills and the processes needed by individuals, professions, organizations and systems to function effectively and appropriately in culturally diverse situations in general and in particular encounters from different cultures” (p. 30). These aspects of Australian culture suggest that a UK-based company such as Skin & Tonic can “hit the ground running” in terms of marketing their products and services to consumers who resemble their target market in their domestic country of operations.

In addition, the Australian and UK culture also share a view of government as being fundamentally responsible for promoting economic growth in order to improve the welfare of all citizens, a priority that has translated into an overall favorable view of these governments by their respective body politic (Abelson, 2019). Likewise, there is also a high degree of congruence between other aspects of Australian and UK culture which make the former a desirable location for Skin & Tonic’s expansion into other foreign markets, including: 1) strong government support for equity resourcing of education, 2) unemployment benefits that do not require previous employment history, 3) an independent public broadcasting corporation, 4) a substantial compulsory private retirement savings scheme (which also reduces public spending) and 5) corporate tax dividend imputation (Abelson, 2019, p. 283).

Furthermore, increasing numbers of young Australians are acutely aware of the geopolitical sphere and how it affects their lives, a trend that has resulted in the Australian government’s recent efforts to expand its international trade beyond its traditional major trading partners (Abelson, 2019). Taken together, these trends indicate that the similarities in UK and Australian cultures, including national priorities and worldviews, make Australia an especially favorable country for Skin & Tonic’s next overseas expansion.

Australia has a mature national economy and logistics infrastructure as well as a growing middle class. Although Australia’s increasing integration into the global economy has resulted in some periodic downturns in its economic performance, the country has enjoyed comparatively general overall growth in recent years due in part to the government’s emphasis on providing a business-friendly competitive environment. In this regard, U.S. intelligence analysts report that, “Australia is an open market with minimal restrictions on imports of goods and services. The process of opening up has increased productivity, stimulated growth, and made the economy more flexible and dynamic” (Australia economy, 2022, para. 4). Nevertheless, ongoing trade disputes with China have caused some disruptions in Australia’s exports, but national leaders are actively seeking new trade relations with other Southeast Asian nations as well as New Zealand and Pacific Island nations (Tan, 2021).

It is also noteworthy that the Australian federal government’s approach to economic development is generally strictly bipartisan with an overarching focus on promoting the wellbeing of all Australians without the severe rancor that characterizes political debate in many other Western nations today. This bipartisanship has been especially important over the past few years in view of the horsewhipping that the global economy has suffered due to the ongoing Covid-19 pandemic and its seemingly endless stream of increasingly virulent variants. For example, according to Bennett (2020), the Australian government “appears to be balancing its support for the ‘demand-side’ and ‘supply-side’ of the economy, providing a lifeline to both the Australian people and Australian businesses. Although not without its failings, the bi-partisan backing for these packages has enabled much-needed support in these times of uncertainty” (p. 213).

The demand for skin care products is increasing in Australia. Although some Western consumers, exhausted by the ongoing Covid-19 pandemic and its associated restrictions on their lives, have adopted a “goblin” lifestyle in recent months in which they forego basic hygiene in favor of eating cookies and binge-watching Netflix (Litterst, 2022), global demand for skin care products is estimated to increase from its current level of $134.7 billion to reach $188.24 billion by 2028 as shown in Figure 2 below (Skin care products, 2022). The increased multi-billion-dollar demand shown in Figure 2 below and the fact that the company is focused on producing the highest quality organic skin care products possible suggest that Skin & Tonic is well positioned to take advantage of these trends through an expansion into the Australian market.

Furthermore, the demand for organic skin care products such as those manufactured by Skin & Tonic has increased significant in recent years. For instance, according to analysts at Research and Markets, “Rising awareness regarding the various benefits of using skin care products has resulted in a rise in their demand over the last few years. Moreover, an inclination toward natural and organic skin care products is observed, making it a major sector in the cosmetics and wellness industry” (Skin care products, 2022, p. 3). More importantly for the company’s purposes of evaluating potential foreign markets, the Asia Pacific market, including Australia, currently holds the largest revenue share of the global skin care market and is the world’s fastest growing segment (Skin care products, 2022).

Figure 2. Global demand for skin care products: 2021 - 2028

Source: https://www.researchandmarkets.com/content-images/188/188915/1/global-skin-care-products-market.png

As the company’s founders have emphasized since Skin & Tonic’s founding, their use of all organic ingredients in their skin care products make them especially desirable by consumers today who are increasingly aware of environmental and animal-cruelty issues with many brands. This trend suggests that the company’s products will be especially competitive in the Australian market, even if they cost slightly more. In this regard, the most recent MarketLine Industry Profile for skin care products reports that:

The quality of raw materials is often highly important in this market. The potential dangers associated with the use of synthetic chemicals in the beauty industry have increased consumer demand for safer and healthier alternatives, and driven up interest in product quality and safety issues [and] suppliers who have a proven track record may see their bargaining position strengthened. (2022, p. 19)

It is important to note, though, that this competitive advantage will only be fully realized, however, if the company is able to source its organic ingredient needs locally without resorting to expensive international shipments from the United Kingdom in the event Skin & Tonic elects to establish a manufacturing presence in Australia (see market entry strategy section below).

Expansion into the Australian market would require minimal changes to the company’s existing marketing tools and strategies. The company has succeeded in leveraging a minimal investment in marketing by taking advantage of low-cost and even free marketing strategies as noted above, but expanding Skin & Tonic’s brand into a new country will invariably involve some degree of fine-tuning in order to have the marketing message resonate with local consumers. As Ismail (2021) points out, “Using the same tone of voice with different audiences won't likely get businesses the result they are looking for. Multicultural marketing is all about tailoring your message to the people you are marketing to” (Ismail, 2021, para. 3). The high level of cultural congruence between the UK and Australia, however, means that except for the addition of some colorful Australian slang terms and references to Australian preferences and locales, much of the company’s existing marketing materials can be readily deployed in the Australian skin care market.

Consumer profile and cultural differences/similarities (Task 3)

Australian females. Females currently represent the majority of Skin & Tonic’s customers in the UK and its global markets and this is not expected to change substantially in the foreseeable future. As explained above in the rationale in support of selecting Australia section, there is a high degree of congruence between female consumers in the UK and Australia which can be reasonably expected to promote the rapid uptake of the company’s products in this new market. For example, market analysts advise that, “The female gender segment held the largest share in 2020 and is expected to maintain its lead over the forecast period. Women are increasingly adding personal grooming products to their daily routines to enhance their confidence and appearance” (Skin care products, 2022, p. 11).

Generally speaking, the three main female target markets for organic skin care products such as those marketed by Skin & Tonic are 1) young professional women, 2) new mothers, and 3) women aged 65 years and over (Glaser, 2021). At present, there are approximately 1.5 million women in Australia who may fall into the young professional women and/or new mother categories, while there are also about 2.2 million women aged 65 years and over in Australia (Australia people, 2022). Like many other Western nations, the elderly segment of Australia is increasing faster than other demographic groups, indicating that this target market may be the largest for the company following its expansion. It is important to note, however, that there are growing indications that males are also interested in high-quality organic skin care products as discussed further below

Australian males. A growing number of skin care enterprises are recognizing the burgeoning global market for their products among male consumers. In fact, the personal care market for men is projected to reach $166 billion by year’s end, and approximately 40% of men aged 18 to 22 years old have expressed an interest in purchasing gender-neutral beauty products including those designed for skin care (Warfield, 2019). Some indication of the rapid growth of this market segment can be discerned from its impressive 7% growth in 2021, but there are some current signs that this growth is just the beginning of a much larger sales trend. For instance, Warfield emphasizes that, “For beauty companies which are struggling to find new avenues of growth, it’s a huge opportunity whether men are looking for traditional grooming products, discreet moisturizers and beauty balms or to bend gender norms” (2019, para. 4).

This projected growth in demand for skin care products among male consumers is not limited to the United States or Europe, and Australia is among the fastest-growing markets for male skin care products in the world today (Warfield, 2019). These trends have not been overlooked by the major global actors in the skin care product industry such as Chanel which unveiled its first-ever made-for-males line of skin care products called “Boy De Chanel” in late 2016 (Warfield, 2019). In sum, men in general and Australia men in particular represent a potentially massive market for Skin & Tonic’s organic skin care products but it will be vitally important to employ the optimal market entry strategy to take advantage of these trends as discussed below.

Market entry strategy (Task 4)

The selection of an appropriate market entry strategy for the Australia market is a vitally important but fairly straightforward analysis concerning which strategy is best suited for a company’s unique business proposition. For example, according to Dinu (2018), “When a firm decides to enter a specific country, it has to define the best mode to do so and is has a large number of market entry strategies that are available such as direct exporting, indirect exporting, joint ventures, direct investment or merger and acquisition” (p. 20). As noted above, because Skin & Tonic already exports to other countries and outsources its manufacturing function locally, it is well situated to employ this market entry strategy for Australia. This rationale is consistent with the guidance provided by some market analysts who advise, “Companies that sell luxury products or have sold their goods in global markets in the past often choose [the exporting] method” (Ten international market entry strategies, 2021, para. 3). In other words, because Skin & Tonic currently exports to other a number of other countries as part of its marketing efforts, the company already possesses the business acumen and export documentation expertise to readily apply this market entry strategy for the Australia market (Hoggard, 2021).

In addition, Australia and the United Kingdom entered into a free trade agreement on December 17, 2021 which will greatly facilitate UK exports to Australia. In this regard, the Australian Government’s Department of Foreign Affairs and Trade (2022) reports that, “The Australia-United Kingdom Free Trade Agreement (Australia-UK FTA), is a gold standard trade agreement that represents a once in a generation deal for Australia and an historic moment in our relationship with the UK” (Australia-United Kingdom Free Trade Agreement, 2021, para. 2). Although the Australia-UK FTA contains a number of provisions that are intended to directly benefit Australian businesses, it also provides a wide array of mutual advantages including the elimination of tariffs and increased transparency in the export process which are expected to benefit exporters in the United Kingdom as well (Australia-United Kingdom Free Trade Agreement, 2021).

Marketing mix adaptation and standardization (Task 5)

Adaptation. In a marketing mix context, adaptation refers to the need to change existing marketing strategies and materials to develop a new marketing mix that meets the specific needs of a new market (Sramkowski, 2021). While every export situation is unique in some fashion, the research to date indicates that marketing mix adaption is best suited when the following conditions are present:

· Differences between customers/consumers;

· Differences in local competitive conditions;

· Differences in local legal conditions; and,

· High degree of service in the company’s offering (Sramkowski, 2021, para. 4).

Based on the market and demographic research for the United Kingdom and Australia, none of these factors appear to be especially relevant for the company’s current situation in its domestic or global markets. Indeed, as noted above, the high degree of congruence between UK and Australia culture and the recent introduction of the Australia-UK FTA indicate that minimal adaptation to Skin &Tonic’s will be needed to enter the Australia market efficiently and effectively, thereby allowing the use of a high degree of standardization in its marketing mix for this country as discussed below.

Standardization.

Again, in a marketing mix context, the term “standardization” refers to the use of the same marketing mix for all of the countries in which companies compete. For example, Sramkowski (2021) reports that in a standardized marketing mix, “the firm simply replicates, without any changes, the same strategy in the different markets in which it operates” (para. 2). While it is reasonable to posit that some minor modifications to the company’s existing marketing mix may be required to fine-tune marketing strategies for the Australian market due to differences in popular slang terms and other language-related references, such changes will be minimal, requiring only cosmetic changes to Skin & Tonic’s existing marketing mix. The use of standardization for this purpose is also consistent with the guidance provided by Sramkowski (2021) who cites the following factors as favoring this marketing strategy: