5 billion (a$28.2 billion) in 2008 (IKW, 2009). The Germans have a long history in the business, with "eau de Cologne" being invented in Koln 210 years ago (IKW, 2009). The German market is continuing to grow slowly, despite economic challenges, recording 10.5% growth since 2004 (Ibid.).
There are approximately 525 firms in the industry in Germany, ranging from large international enterprises to small boutique cosmetic and fragrance houses. The industry is centered in Frankfurt. These companies are among the world's leading exporters of cosmetics. The industry association coordinates efforts with respect to both marketing and research and development functions at German firms.
The German cosmetics market is relatively saturated with competitors. Most major international brands have a presence in the market, as do scores of boutique brands. A multitude of channels are used, with indications being that mainstream mass retailers are the preferred channel for Germans in general. These tend to be department stores, of which there are a wide range of chains. Although the size of the market alleviates competitive pressure to some degree, the multitude of competitors makes the German market a difficult one in which to operate. In addition to a wide range of name brands, private labels have a strong market share in the neighbourhood of 25%, and compete based on price.
Our company competes domestically as a name brand, utilizing national distribution channels. We have a strong product and have built a good brand name in our current markets. The brand is unknown in Germany, however, and would need to be established. We would also need to develop distribution networks in order to attain market penetration. We are a strong competitor in every market in which we operate, but none of these markets are as large or as saturated as the German market.
The implications of this situational analysis are simple. The German market has strong potential, more due to its size and characteristics than due to growth. The main growth segments of men's cosmetics and anti-ageing cosmetics do not fit with our current core product line. However, women's cosmetics is the largest component of the German industry, to the point where the IKW breaks the category down into multiple component parts (skin care, decorative cosmetics, bath & shower, etc.). The German market has significant potential for us, but there are many challenges as well. If our production processes meet the environmental and animal testing requirements of the EU and Germany, the marketing department feels that it can develop a strategy to enter this market.
3.0 SWOT Analysis
The SWOT analysis is a popular tool for analyzing a firm's internal and external situation. The basics -- strengths, weaknesses, opportunities and threats -- are analyzed to help the firm determine the core competencies that can help it to take advantage of opportunities in the marketplace and the weaknesses that make the firm vulnerable to threats (Coman & Ronen, 2009). The SWOT allows managers to understand what aspects of the firm create value and adapt this knowledge to strategy that is focused around the current opportunities and threats in the marketplace.
There are several opportunities. The first is the German market's vast size. If we choose to enter Europe, Germany is a strong choice due to its position as the number one market in the Union. Another opportunity is to move into anti-ageing cosmetics. Australia's demographic situation is not unlike that of Europe, so a move into Germany could encourage us to develop competencies that would ultimately help us improve our market position domestically as well. Further, our expertise in developing cosmetics that combat the influence of strong sunlight on the skin can be adapted to create anti-ageing products.
There are a wide range of threats, however. The first is the intense competition. Response from the larger competitors may be swift and brutal, due to the commanding presence the largest firms have in the German distribution chain. We could find ourselves fighting for market share from a distribution perspective rather than an advertising perspective, which is a major threat. Furthermore, Europe's stringent environmental laws and animal testing regulations could tighten without notice, putting us in the position of redesigning our research and development and production processes.
In order to take advantage of some of these opportunities, we can leverage some of our strengths. Among them is our high quality product. The Australian climate is challenging to skin and beauty, more so than the German climate. As a result, we feel that our products are of higher quality than most German products. In addition, our status as a foreign company gives us some marketing cachet. The German market is dominated by domestic competitors, but there is room at the higher price points for foreign players to trade on their international cachet.
However, we must be aware of the weaknesses that we have in the German market. The first is that we have no brand awareness. We will need to build our brand from scratch in order to develop a presence in Germany. The second main weakness is our lack of established distribution. Our current distribution partners have little to no presence in the German market. We would need to build our distribution from scratch. A third weakness is that we have little understanding among our management team of the German market, particularly with respect to consumer behaviour and buying patterns. We will need to overcome this knowledge gap if we are to compete successfully in Germany.
The most important implication of the SWOT analysis is that we must shore up our weaknesses, particularly with respect to our knowledge gap and distribution partners before we can effectively enter the German market. There is opportunity for us in this market, in particular if we can creatively apply our foreign credentials in a market program, but before we can leverage our strengths we must address our weaknesses.
Our company's mission statement is to deliver the highest quality cosmetic products at a fair price to consumers. In order to attain this mission, we follow a differentiated business strategy. Michael Porter described generic industry strategies in his book Competitive Strategy (1980), wherein the differentiated strategy was defined as having a high degree of product uniqueness and industry wide target scope. Our company has built a brand name in the higher end of the cosmetics business through strong marketing and a high quality product. We trade on that name, but we distribute through national channels. In entering the German market, we would adapt this approach to that market, seeking out national channels there and maintaining our differentiated strategy with regards to the high quality of our products and the strength of our brand name.
4.5 Market Strategies
The market selected is Germany, and we intend to enter this market on a national basis. We believe that the best approach is to launch nationally, with a high profile campaign. This method of market entry we believe is the best fit for our company for a couple of key reasons. One is that we have as a model the differentiated strategy, which incorporates a wide target market and national scope. Thus, we want to arrive in the German market with national distribution in department stores and other national outlets. The high profile campaign will support our efforts to establish our brand and built awareness in the German market. We also need to communicate the points of differentiation between our product and those of our competitors.
The recent market trends provide us with insight into consumer behaviour in Germany. The average German spends €134.60 on cosmetic products (IKW, 2009), which combined with 25% market share for private labels indicates that the vast majority of Germans do not purchase high end cosmetic products. The market sees low organic growth, with just 2.2% growth overall reported in 2008 by the IKW. As a consequence, it appears that aside from the growth potential in anti-ageing cosmetics and possibly in the organic sector, the pace of change in the German cosmetic industry is slow. Consumers are brand loyal and not given to spending extravagant amounts.
Our market positioning, however, should be done with an eye to consistency across markets. This is especially important since our target market will be inherently worldly and may have exposure to different markets. Brand differentiation is crucial to the company's business strategy, but this can be scuttled by having different brand images in different markets (Matthiesen, 2004). Consistency is critical, therefore we must position our product at the high end of the mainstream, the same as we do in the domestic market. In the German market, we will also add a secondary positioning as an exotic foreign brand, with the boost in image that this entails.
5.0 Marketing Mix
The marketing mix consists of the following components: product, price, distribution and promotion. If we were to enter the German market, given the aforementioned data and analysis, the following is…