Answered: Assess risk adjusted opportunities vs.…

Principles Of Marketing

17th Edition

ISBN:9780134492513

Author:Kotler, Philip, Armstrong, Gary (gary M.)

Publisher:Kotler, Philip, Armstrong, Gary (gary M.)

Chapter1: Marketing: Creating Customer Value And Engagement

Section: Chapter Questions

Problem 1.1DQ

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Assess risk adjusted opportunities vs. the operating environment in the two target markets of Poland and Bulgaria based on the following documents.

Transcribed Image Text:Bulgaria Report Country Background Bulgaria's population is 7.2 million. Its GDP is $56 billion, and its per capita income is $7,853.⁹ Market Background The Bulgarian furniture market is $350 million but may grow rapidly over the next several years. There are 11 companies in Bulgaria that hold a market share between 3% and 10%, and these comprise 70% of the market. These furniture companies are predominantly national brands, as international brands like IKEA have not contested this market due to the excise taxes and size of the market itself. Channels of Distribution More than 80% of Bulgarian consumers shop in one store for their furniture. They purchase almost all their furniture via retail stores; e-commerce was less than 1% of sales. Single-brand retail stores, which are owned by a manufacturer or have exclusivity contracts with a specific manufacturer, accounted for 65% of retail sales. The other 35% of furniture is sold at multi-brand retailers. Consumer Insights Bulgarian consumers focus on functionality and durability and gravitate toward well-established brands that have a long history of furniture manufacturing. Forecasts Forta Branded Entry. In the Bulgarian market, forecasts suggest that Forta could build a 1% market share in year one, an additional 3% in year two, and an additional 4% in year three, totaling an 8% market share as a branded entry. Based on Forta's cost of capital, all revenue streams in years two and three should be discounted by 10% annually. Retailer margins are 25%. To reach this level of market penetration, Forta would need to spend $3 million in marketing expenses over the three-year period and another $500,000 in design and production improvements. It is estimated that Forta's product would have an average retail price of $90. Forta Private-Label Entry. Forecasts suggest that Forta could build a 1% market share in year one, an additional 1% in year two, and an additional 2% in year three, totaling a 4 % market share. Because products are already priced quite low in the Bulgarian market, Forta would find it difficult to have BRIEFCASES | HARVARD BUSINESS SCHOOL 6 Forta Furniture: International Expansion | 918-547 private-label price points that would satisfy the local brands. Forta would have to pass through 25% of revenues to the retailer and another 20% to the consumer-facing brand. The retailer would charge an average price of $90. Forta would require $500,000 in marketing expenses and $500,000 in design and production improvements. Abilit Branded Entry. Forecasts suggest that Abilit could build a 1% market share in year one, an additional 2% in year two, and an additional 3% in year three, totaling a 6% market share as a branded entry. Retailer margins are 25%. To reach this level of market penetration, Abilit would need to spend $5 million in marketing expenses over the three-year period and another $1 million in design and production improvements. The challenge for Abilit is that its brand is modern and young; it does not have the history and tradition that the Bulgarian market desires. It is estimated that an Abilit product would have a retail price of $130.

Transcribed Image Text:Poland Report Country Background Poland's population is 38.2 million. Its GDP is $545 billion, and its per capita income of $14,340.7 Consumers in Poland are culturally a blend of eastern and western Europe. Market Background The Polish furniture market is $3.2 billion and has consistently grown at least 5% annually over the past several years. Nine companies in Poland hold at least 3% market share. The largest brand is IKEA, which has been grown rapidly there for the past three years, sold just under $700 million in Poland in 2014, and has a market share of 22%. Channels of Distribution More than 70% of Polish consumers shop for furniture across multiple stores, looking for the best combination of price and style. Polish consumers purchase over 80% of their furniture in retail stores. E-commerce in Poland accounts for about 9% of category sales. Single-brand retail stores account for 30% of retail sales. The other 70% of furniture is sold at multibrand retailers. Consumer Insights Both durability and aesthetics are important to Polish consumers. Interior design is a growing phenomenon in Poland, so trendy products are valued. The most successful companies release new styles of furnishings quickly. However, many companies produce trendy products that have lower price points, but these products are not very durable. Forecasts Forta Branded Entry. In the Polish market, forecasts suggest that Forta could build a .5% market share in year one, an additional .5% in year two, and an additional 1.5% in year three, totaling a 2.5% market share as a branded entry. Retailer margins are 30%. To reach this level of market penetration, Forta would need to spend $20 million for marketing and another $6 million in design and production improvements. It is estimated that a Forta product would have a retail price of $110. Forta Private-Label Entry. In comparison, forecasts suggest that Forta could build a .5% market share in year one, an additional 1% in year two, and an additional 2.5% in year three, totaling a 4% market share as a private-label entry. The large private-label forecasts are due to Forta's ability to underprice competition to gain a foothold, which in turn is due in large part to lower labor costs and excess capacity. As a private label, Forta would need to pass through 30% of revenues to the retailer and 25% to the consumer-facing brand. The retailer would charge an average price of $110. Forta would need to spend $5 million for marketing and $6 million in design and production improvements. HARVARD BUSINESS SCHOOL | BRIEFCASES 918-547 Forta Furniture: International Expansion Abilit Branded Entry. Forecasts suggest that Abilit could build a .5% market share in year one, an additional 1% in year two, and an additional 1.5% in year three, totaling a 3% market share as a branded entry. Retailer margins are 30%. Abilit would need to spend $17 million for marketing and $3 million for design and production improvements. It is estimated that an Abilit product would have a retail price of $199. 5

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