Answered: Identify and discuss two modes of entry…

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

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Q 4. Identify and discuss two modes of entry that have been used by Fitbit when entering foreign markets and explain the reasons behind their international strategy. Answer this question in 400 words

Case study attached, Part 1 & Part 2, Part 3 is written down

Part3 case study:

security at risk. 7 Research and Development The fast-paced competitiveness of consumer technology innovation demanded a steady stream of new products. Only through sustained, high-level investment in research and development to fund product design and innovation could companies such as Fitbit, Apple, and Samsung sustain consumer interest and support. In 2017, Fitbit reported that 58% of its employees were involved in research and development, a somewhat high percentage, yet necessary, given that ordinary users only wore a Fitbit for an average of 6 months before losing interest, so that Fitbit needed to add functionality in order to survive. The company also placed itself in the middle of the digital health revolution, 25 and needed to innovate in relation specifically to that revolution to continue to succeed. Many new opportunities: new medical devices, health data collection, platforms for interoperability for other medical devices, were important innovative challenges for Fitbit. Fitbit recognized that the more medical devices and medical data the company captured, the more its market share would grow. Many opportunities and distinctions drove research and design for Fitbit. In 2017, the company was selected as the first wearable device to be used by the National Institutes of Health’s “All of US” precision medicine research program; by United Healthcare and Dexcom as the wearable device provider for its Type 2 diabetes pilot program; by BlueCross BlueShield of South Carolina’s Medicare Advantage plan; and by United Healthcare’s Motion program. 26 Fitbit was also chosen to participate in the FDA’s new digital health software precertification pilot program. In 2017, the U.S. Food and Drug Administration (FDA) selected nine companies, including Fitbit, from over 100 companies based on company size and risk profile of the products, to participate in a pilot program called the New Digital Health Software Precertification Pilot Program to create an inclusive and efficient regulatory path for software as a medical device. 27 The program initiated a radical change for certifying medical devices and products by taking companies through a pre-clearing process. The FDA’s goal was to establish the means to evaluate software development and to do so, the participating companies needed to provide access to the methods they used to develop, test, and maintain their products and data collection. Also, in Q1 2018, Fitbit reported that 18,000 developers joined its Fitbit developer community, creating a synergy between the company and that community, and insights into the needs of the market and potential new acquisitions of intellectual property. Challenges Facing Fitbit From 2008–2016, Fitbit was the leader in the wearable activity tracker market. However, in 2017, the market began significantly shifting toward smart watches that not only traced fitness but had other important functionality. The biggest challenge facing Fitbit was sustaining interest in its products given that the average consumer used a Fitbit for about 6 months then lost interest suggesting that Fitbit needed to add functionality in order to keep the consumer interested in its product. 8 In addition, as of early 2018, Fitbit did not have its own stores or distribution channels, and while the brand was well-known in the US, the company understood that global expansion would require significant investment in marketing. At the same time it was becoming harder for Fitbit to keep its competitive advantage in the face continual reports of the Apple Watch’s lead position in the smart watch market, with 17.7M unit sold. Xiaomi was second with 15.7M. Fitbit shipped 15.5M units in 2017, down from 22.5M units in 2016. 28 However, Fitbit remained the wearables activity tracker market leader, benefitting from its first mover advantage and integrated system that fit seamlessly into people’s lives. The company’s ability to develop partnerships that created brand awareness, visibility, and accessibility also helped it reach new market segments. Contemplating its future, Fitbit faced three major challenges: intense competition from smartwatches; increasing its relevance and integration into the health care market; and keeping consumers interested in wearing the tracker for more than 6 months. The company had its work cut out for it going forward.

Transcribed Image Text:Abstract: Fitbit was set to reinvent the wearable tech market. However, following a survey which revealed that the average customer discards the Fitbit device after only six months of use, the firm needs to find a new way to regenerate itself in an industry that is now packed with newly developing major technological fashion firms. Introduction Fitbit is a US-based company that operate within the fitness wearables industry, offering health and activity trackers that are used in conjunction with smartphones. Its first mover advantage into the wearable industry attracted an $84 million venture capital, which the firm eventually used to become a public company in 2015. While initially intended for middle-aged women who were familiar with technology, by 2018 Fitbit had expanded their target audience to both men and women aged 18-45, through partnerships with organizations such as the NBA, Adidas and Red Bull. Although the firm was one of the pioneers within the industry, and devoted 58% of its employees on Research and Development, Fitbit had to overcome the challenge issue that consumers only used their products for 6 months, and lost interest; especially in a market where tech giants like Apple and Samsung were competing. Company Background Fitbit was started by Eric Friedman and James Park in San Francisco in 2007 with an initial investment of $400,000 from its founders, their families, and friends. 2 Fortuitously for all involved, it was a company that developed the right product at the right time at the right price point in a growing consumer industry in the first two decades of the 21st century. 3 Fitbit's innovation, wearable devices that tracked individuals' health and work-out data, 4 was an immediate and huge success. The company raised $84 million in venture capital before its IPO on June 17, 2015, and by 2018 had four subsidiaries in the United States, one in United Kingdom, and one in Ireland. Borrowing from the Wii Nintendo gaming system that utilized motion sensors to track movements, Park and Friedman recognized that they could modify that technology to provide a similar experience in a mobile package. Their goal was to integrate motion sensors into a wearable pedometer. In September 2008, they unveiled the Fitbit 2 Tracker at the TechCrunch50 conference where tech start-ups display new products to an audience of investors, entrepreneurs, and the media. The Fitbit tracker was a clip-on pedometer that recorded calories burned, steps taken, distance traveled, and intensity of activity. It was equipped wit ha motion- detecting sensor known as an accelerometer to record patterns and track movement. It was the first product unveiled by the co mpany and it took almost a year and 25,000 preorders for the company to ship their first batch. After the launch of the Fitbit tracker, the company developed a range of products targeting different segments of the market. With each new product, the company made it easier for people to move, count steps, track their fitness trends, challenge themselves, and share with others while ming badges, making the company the market leader in portable digital fitness and health technology. 6 Over the course of ten years, Fitbit developed the institutional knowledge to produce scalable products, patenting a sizable number of original devices. In addition, the company's emphasis on data collection helped distinguish it from its competitors. All Fitbit devices focused on three areas: • Basic monitoring of steps and activity, calories burned, floors climbed, clock/time, sleep tracking & silent alarm, sleep stages, female health tracking • Exercise features including smart track, reminders to move, swim-proofing, multi-sport tracking, heart rate tracking, cardio fitness levels, on-screen workouts, built-in GPS, and connected GPS. • Smart features including call and text notifications, quick replies, calendar alerts, apps, store music, makes payments, music control, and guided breathing sessions. Fitbit differentiated itself from its competitors through premium design, and added features that allowed users to customize their Fitbits according to their own preferences, building up a loyal customer base. The only problem was that most people only used their Fitbits for an average of six months, then lost interest, a major challenge for Fitbit. The leading manufacturer of wearable activity trackers, Fitbit, captured 60% of wearable technology market share in 2017, garnering $1.6 billion in sales, even as it experienced a decline of 30% in its return on equity that same year. In 2018 its market cap was $1.276 billion. While Fitbit initially captured a 60% market share it had several fierce competitors, especially Garmin Ltd a nd Xiaomi Corporation, and larger companies with superior market valuation, such as Apple, LG, and Microsoft, that had expanded into the wearable technology market in the past few years. The United States constituted the largest market for wearable technology with 58% of industry revenue, followed by Brazil and Germany. "Fitbit Culture: Don't Sit, Stay Fit!" Fitbit's vision was to help people achieve health, fitness, and a more active lifestyle by designing elegant, easy to use products that fit seamlessly into people's lives to help them achieve their health and fitness goals. 8 As the market leader in connected health 3 and wearable technology, Fitbit's main objectives were to solidify its leadership position by developing a range of products; expand into new markets through mergers and acquisitions; and work har d maintain its edge in an increasingly competitive segment. Its latest round of funding yielded $43 million, and the company signaled its intention to expand into Europe, the Middle East, Africa, and Asia-Pacific 9 which, all told, only accounted for less than 20% of the industry revenue as late as 2018. From the beginning, Fitbit was committed to developing a range of reliable, lightweight computing devices and wearables that targeted different segments of the market. To that end, the company allocated a price to research ratio (the ratio measuring the company market value and R&D spending) that marked its commitment to innovation. This move was crucial for Fitbit in an age of radical innovation and technological breakthrough heavily dependent on investment in R&D. For Fitbit to maintain its leadership position, it had to focus on developing scalable products and cost efficiencies to increase its market share and profitability. Fitbit also maintained its ocompetitive edge by acquiring new companies including Pebble Technology Corp, manufacturers of smart watches in 2016, and Vector Watch Ltd. (United Kingdom) in 2017, designer of wearable technology watches. Recently Fitbit acquired Twine Health with 25 million subscribers, expanding its mission and reach to help people optimize their health across a full spectrum of concerns from prevention to disease management. Most importantly, Fitbit's integrative model created a loyal customer base by enabling devices to wirelessly and automatically upload data onto the Fitbit website for users to access, establish an effective fitness program for themselves, and communicate with other users to collaborate on fitness plans and support each other in living a healthier lifestyle. Cust omer satisfaction through seamless integration and constant interaction with a computing device created value for the company, boosting its competitive edge by increasing its number of premium subscribers. Fitbit's Competitors Xiaomi Xiaomi, a Fitbit competitor, designed simpler, less expensive devices to target lowend consumers. Its devices monitored steps, distance, calories burned, and heart rate. Its total shipments nearly doubled to 5.2 million in 2016, and its market share rose over six% to 15.2%, partly accounting for Fitbit's revenue slump to 26% in 2016 in the Asia-Pacific region. 10 Even though Xiaomi offered a range of products with different prices, the brand was not fashionable and its system did not provide insights into the data collected, unlike the Apple Watch or Samsung. Garmin Most G armin smart watches also did not offer very advanced metrics. However, its analog watch with basic health tracking features was a great product for tracking activities. Also, most of its products used replaceable batteries that lasted up to a year and were water resist ant. On the other hand, Garmin smart watches were big, 4 cumbersome, and expensive, plus the brand lacked sophistication and name recognition, making it even less appealing. Apple, Inc. Apple recently entered the wearable technology industry with the launch of the Apple watch in 2015. In 2017, Apple reported Q1 2018 as the best quarter ever for the Apple Watch, with over 50% growth in revenue and units four quarters in a row, and strong double-digit growth in every geographic segment. Sales of Apple Watch Series 3 models were also more than twice the

Transcribed Image Text:volume of Series 2. 11 Apple Watches, priced from $349 to $15,000, targeted a range of buyer segments, though the differences were largely aesthetic. The Apple Watch's competitive advantage derived largely from brand awareness and Apple's loyal user community. However, many were critical of the Apple Watch because it only worked in sync with other Apple products, it was expensive, its battery life was very limited, and it did not have an altimeter to measure the number of stairs climbed in a day. Samsung Samsung entered the wearables market in 2014 with the Simband, equipped with six sensors and a modular design to track daily steps, heart rate, blood pressure, skin temperature, and sweat glands. 13 Samsung watches featured integrated GPS, a heart rate monitor, water resistance, automatic exercise recognition for certain workouts, and sleep tracking in addition to basic all-day activity monitoring of steps taken, calories burned, distance traveled, floors climbed, etc. 14 Samsung used its inhouse application, "S Health," to monitor fitness and create seamless integration. It also brokered an agreement with Spotify to let users download songs to Samsung Gear so they could li sten to music while out for a run without having to carry a phone. 15 However, most Samsung products were expensive yet had limited customization options and a short battery life, and were limited to connectivity with Android devices. Barriers to Entry Even just a few years ago, barriers to entry for the fitness tracker industry were low: any company with access to capital and tracking technology or software could compete, especially as there was little or no proprietary technology in fitness trackers, allowing for increas ed market competition. Fitbit's early successful entry garnered a strong position with a 60% market share, while its integrated system made switching costs expensive. Analysts predicted that the wearable technology industry would be worth $5 billion by 2019: that plus the low barrier to entry spurred a number of competitors to enter the fray over the past few years. Macro Environment Fitbit protected its products by trademarking them, and patented a number of its innovations, induding sensors, devices, wristband cases, methods, and system s. Throughout its history Fitbit's major competitors waged a patent war, constantly trying to gain an edge through technological innovation, and making it crucial for Fitbit to maintain its trademarks and patents to protect against the ruthless competitiveness of the wearables technology industry. 5 Nevertheless, Fitbit faced legal challenges. The company was sued twice for violating patents' rules, by Immersion Corporation in 2017, 16 and Valencell in 2016 17 for its haptic feedback technology. The company also had to recall its Fitbit tracker in 2014 after complaints to the Consumer Protection Safety Commission about some users' allergic reaction while wearing it. 18 These instances created negative PR for the company, threatening its brand. Customers had also become more aware of the downside of big data collection and how companies collected and used their data, and wanted more transparency. As the laws governing data collection differed from country to country, Fitbit, operating in 86 countries, needed to be vigilant to ensure that consumer inform ation was used in strict accordance with its Terms of Service. During the decade after Fitbit's creation in 2008, a health-oriented lifestyle became not simply trendy but fashionable. Fitbi's timing was impeccable, as it had already developed early on an integrated system and innovative products. By 2017, with 60% of the market already cornered, its growth potential was still enormous. Analysts suggested adding value to its products and features by turning customers into subscribers, and creating a solid base of long-term users by establishing strong relationships with corporations which would in turn encourage their employees' use of Fitbits. Many corporations and health insurers 19 had already determined that covering sports trackers in their policies garnered long-term health benefits, and Fitbit was in a position to cash in on this trend, creating space for the company to grow in both the business to consumer (B2C) and the consumer to consumer (C2C) market segments. Fitbit discovered, however, that while customers were willing to invest in their health, they were also very sensitive to price point. In response, the company developed various products ranging from basic or cheap wristbands to advanced smartwatches with many functionalities, each product targeting a specific customer segment. Nevertheless, Fitbit was aware that it needed to continue investing heavily in R&D to remain competitive. Fitbit customers had high expectations: they desired not only reliable devices, but valuable insights from the processed data collected by the data driven company. The data gathered from users such as tracking, personal information, behavioral patterns, and the like were among its most valuable assets, making data protection and security a high priority for the company. Successful, open data management and processing increasingly became a front-line concern in the tech industry, providing an opportunity for Fitbit to be in the forefront, ahead of its competitors, by becoming more transparent and sharing how coll ected data was used by the company. Like companies in many other data collecting industries, Fitbit's Privacy Policies and Terms of Service needed to spell out consumers' rights and clarify how it would ensure that the gathered data was protected, and not revealed or distributed to third parties. Even though the company was focused on protecting this sensitive data, there were a few cases when users' accounts were hacked. 20 Furthermore, experts warned that smart devices could soon be accessible by external software that could access stored data, which could put the company at risk. 21 And most people were unaware that Fitbit shared its 6 data with business partners. Growing public awareness of Fitbit's data sharing policy and data protection shortcomings had the potential to spark a decline in customer loyalty. Financial Performance In 2017, Fitbit Inc. had $1.6 billion in revenue and a net loss of $77 million (Exhibits 1, 2 & 3). The company's income statement showed sales decreased by 24% in 2017, net income decreased by 169%, and its operating margin remained negative. On the other hand Fitbit had no long-term debt as of 2017. Marketing Fitbit's marketing primarily targeted females aged 35-45, tech-savvy people, individuals with an above average income, inactive people who needed motivation to get into shape, and athletically inclined individuals who wanted to track their activity data. To remain a market leader and grow Fitbit needed to increase sales to bo th men and women 18-45. To enhance its marketing efforts and create visibility, awareness, and accessibility, Fitbit pursued strategic partnerships with the NBA and Adidas; corporate sales partners such as Massachusetts General Hospital, that used Fitbits in clinical studi es; corporate wellness agenies like ShapeUp and Limeade; and companies such as Red Bull that encouraged use of Fitbit devices as part of corporate employee wellness initiatives. 22 The growing number of corporate partnerships demonstrated the company's willingness to move beyond retail and the wide appeal of its integrated system to new segments of consumers. By the end of 2017, Fitbit was also selling its products in 47,000 retail stores across 86 countries. In early 2018, Fitbit acquired Twine Health, a proven health-coaching platform that empowered people to achieve better health outcomes at lower healthcare expense. 23 This strategic acquisition promoted Fitbit's integration into the healthcare industry and laid the foundation for further expansion through the inclusion of its product offerings by health plans, health systems, and self-insured employers, and creating opportunities to increase subscription-based revenue. Cybersecurity In 2016, guidelines were created for manufacturers with recommendations for how to tackle the cybersecurity of their devices. As of 2017, however, rather than comprehensive legal protection for personal data, the United States only had pieces of a single legislative data-protection mandate to protect individuals' privacy. 24 The Health Insurance Portability and Accountability Act (HIPAA), the US's primary health privacy and security law, only applied to "covered entities" holding "protected health information." Federal regulators acknowledged that most Americans had no grasp of when their health information was or was not protected by law-or what security standards applied in either case. As many had come to realize, widespread collection of personal information put people's privacy and

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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