To: Marketing Director
From: International Marketing Manager
Subject: Critical Discussion on Factors Influencing Prices and Distribution
Marketing entails effective communication between a business entity and its current and potential customers. It is a helpful tool for a company when it comes to introducing its products in a new market. The aim of this analysis report is to evaluate the factors that Iceland Company needs to consider before setting the pricing and distribution marketing mix in China.
Iceland is a UK based food company with over 850 stores around the United Kingdom that was founded in 1970 by Malcolm Walker and his partner Peter Hinchcliffe (Iceland 2015). It specializes in frozen food in addition to ready meals and vegetables. The company has played a forefront role when it comes to offering ‘quality products to its clientele’. In 1986, Iceland was the first supermarket to remove artificial colouring and non-essential preservatives from its brand products in addition to banning mechanically recovered meat.
As a result of the continuing success in the UK market, the company now targets on the international market with the aim of expansion of the market command. The first step in the international market is the expansion of operations into the Chinese market. Dealing with different cultures in different countries brings forth huge challenges when it comes to marketing undertaking. Therefore, introduction of new products and services requires an in-depth analysis of the target market to ensure the correct marketing mix is utilized. In the same spirit, there is need to analyse the food market in China to ensure Iceland can come up with the relevant marketing mixes.
Rationale behind Expansion into Chinese Food Market
China has continued to experience increasing economic growth that has resulted in an increment in consumer income. This has led to a conspicuous change when it comes to food consumption. Notably, there is an increasing demand on a range of high quality food products and ‘away-from-home food consumption’ among consumers in the Chinese market, which should be of the greatest interest to Iceland (Zhou et al. 2012). Another important phenomenon for Iceland is that in the Chinese food market, the problem lies in quality rather in the accessible quantity of goods (Zhou et al. 2012). Quality is a phenomenon that the company has been upholding in all the years of its operation in the UK and thus an opportunity it can exploit in this market. There is an increased demand mostly in foods of animal origin. These include dairy products, poultry, aquatic and fruit products that are heavily present in the Iceland’s products list. It is also evident that the food types that create an increased demand are those offered by Iceland. It is, therefore, viable enough for the company to expand its operation to the Chinese food market. In addition to increased urbanization in China and the country’s population of 1.3 billion (Zhou et al. 2012), this presents a great opportunity for a food company.
Key Factors of Pricing and Distribution
Having proven the existence of opportunities for expansion into the Chinese market, there is the need to ensure that Iceland enters the market in a manner that is not only effective but also sustainable. This can be attained via utilization of relevant marketing mixes. The report at hand utilizes the 4Ps theory in analysing the factors for determining Iceland’s marketing mix, namely pricing and distribution (place).
Pricing is one of the major components in any marketing strategy; this is because it forms the basis for a company to succeed or fail in any market (Kotler et al. 2010). It is also an important variable when it comes to sustainability in any business undertakings. Therefore, it is an important variable that needs comprehensive and thorough consideration before its determination. If the set price is too low, then Iceland is most likely to suffer in terms of profitability due to expansion into the Chinese market. On the other hand, if the set price is too high, the demand for new products will be considerably low, which means low sales volume in the new market. To set the right pricing of their frozen food in the Chinese food market, the following factors have to be considered.
The cost of a product is the total value of inputs used for launching a product or service into the market. It incorporates all the accumulated expenses from production and distribution of the product at hand. To sustain operations, there is a need to ensure that the revenue attained via the price set meets the cost of doing business in the market (Ghauri & Cateora 2010). In appreciation of the sensitivity of the pricing marketing mix, Iceland should ensure that its operations are very cost effective to cut down the cost of doing business in China. In the context of Iceland, there is need to ensure that the cost of freezers and business premises are properly evaluated and then acquired at the lowest cost in order to ensure that the price is set above the break-even point and is still competitive in the Chinese market. With the per capita income being on the rise in China, charging a luring and competitive price will place Iceland on a very good start in this market with a huge potential.
Competition is the evaluation of the company’s products or services relatively to those offered by other firms operating in the market in terms of quality and pricing. It helps a firm to understand on which grounds it would gain a competitive advantage over its rivals. Setting prices higher than those charged by competitors creates the risk of having very low sales due to low demand. On the other hand, if the set price is lower than that charged by the competitors, it might lead to higher demand and there a very small profit margin, which will reduce the profitability of operating in the market. For Iceland, there is a need to analyse the price charged by big players like Shuanghui Foods and Bright Food Group. This will be helpful in coming up with the right pricing marketing mix.
These are the sources of basic inputs in the production of one unit of a good such as labour and raw materials. A thorough scrutiny of the available suppliers is crucial because the price charged by suppliers forms a part of the cost of production, which in turn determines the price of products and services. The Iceland Company’s first consideration would be the labour market in China as well as suppliers of sea foods in China such as Blue Gulf Seafoods Co. Ltd. This is helpful in relating the cost incurred for labour and raw materials to the existing price in the market, which brings out the picture of whether the business will be profitable or not.
Demand is directly proportional to the price charges. The higher the demand, the higher the price charged and vice versa (Ghauri & Cateora 2010). In case of the Chinese food market, there is an increasing demand for high-quality products with some rich people consuming exclusively imported food products. There is also an increasing demand for the ‘away-from-home’ products. Besides, Iceland has been at the forefront in terms of quality products. It was the first food company to ban the use of food colour in its products in addition to mechanically recovered meet. Therefore, in appreciation of the named traits of Iceland, not to forget the improving per-capita income, there is a huge possibility that the company will enjoy a high demand for its products However; there is a need in sensitivity to the price elasticity of the product at hand. Iceland should ensure that there is a thorough analysis of the respective demand for the company’s products to ensure the optimal price is set for the products.
Intermediaries are the links between the company with its product and the customers. These are mostly sales agents or distributors of the product. They mostly facilitate in marketing the product, and the success of their services determines customers’ response to the new product. The Iceland Company should ensure it reaches out to the best sales and marketing team in China as well as advertising agencies to ensure effective and positive entry into the market.
Distribution marketing mix is responsible for ensuring that the products of a company are easily accessible to the customers (Bowman & Gatignon 2010). Over its operation in the UK, Iceland has been serving its customers via store and acquisition of small chain freezer stalls, which has enabled the company to bring its products closer to the customers around the United Kingdom. However, to ensure its success in the Chinese market, Iceland should be mindful of the following factors.
This mostly depends on the market nature in terms of the population distribution of the customers, which influences the channel used to bring the products to the customers. If the number of customers is small and concentrated in one place, direct sale presents the best distribution undertaking. However, if the operational area is vast, there is a need to exploit the services of middlemen or sales agents. China is a vast country, and thus there is a need to use distribution points/stores (middlemen) who better understand the Chinese market across the country to ensure bigger reach in terms customers served. This ensures that the company is a step ahead in ensuring efficiency in product delivery.
These are customers’ expectation about the company’s products in terms of quality and product diversity. They may also include factors that make up customer’s desire to consume the availed products. Iceland needs to uphold its continued culture of quality in the UK into the Chinese market. This will ensure that the products are available at a convenient point and in the demanded range across China. The food industry is very sensitive in terms of quality. Therefore, the distribution utilized should ensure that customer’s standards are met. One way of meeting customer’s expectations is familiarizing them with the industry’s ‘culture’ and acting in a manner that respects the set standard of doing things (Bowman & Gatignon 2010).
The technical nature of goods plays an important role in determining the mode of their distribution. There is a need in constant freezing for the products at hand. Therefore, it is better to supply them directly to consumers. Language barrier may also hinder successful entering a foreign market. It is, therefore, advisable to make a good use of the experienced middlemen to ensure full exploitation of the huge potential in the Chinese market.
Product lifecycle comprises the stages a new product goes through from the moment it is produced in terms of its demand by consumers. It is related to the changes in the marketing environment, which then affects the marketing strategy that includes distribution. When entering a new market, many companies lack the needed experience to exploit better the market at hand. Since goods offered by Iceland are not entirely new in the Chinese market and there are already other companies conducting the same business, the distribution patterns are not likely to vary over time.
This is heavily independent of the financial capacity of the company at hand. Wealthy companies have the ability to set own distribution stores across the market without seeking external help. Iceland has continued to experience sales growth and increased its sales value to more than £2.7 billion in the fiscal year 2013/2014. (Iceland 2015). This financial health better places Iceland in terms of exploiting the won distribution points across China. Iceland should ensure that they do a diligent analysis of its financial capability in order to utilize the most viable distribution marketing pattern. In the case at hand, Iceland Company requires more sophisticated distribution channels that support constant cooling of the goods. It is, therefore, advisable to set own distribution channels.
In conclusion, paying attention to the above mentioned factors in terms of distribution (place) and pricing marketing mix strategies will ensure that Iceland makes a profitable, sustainable and prosperous entry into the Chinese food market. The research-based actions discussed above should be the backbone of any undertaking in the new market. This will ensure that Iceland serves the Chinese food market best, thus profitably exploiting a huge potential in the market.