In your role as a Marketing Consultant, you have been asked by Wiggo*: a fictitious European supermarket (food retailer) chain (similar to Aldi and Lidl) to research and report on the feasibility of them launching in a new international market (this can be a country or economic zone of your choice and/or one you are familiar with).
1 Executive Summary
Wiggo is a hard discounter based in the Europe. So far it has proved to be a challenger even for the big retailers with its rock-bottom prices, efficient store operations and growing global network of limited assortment stores (Sachon and Mitchell, 2005). Wiggo has already made its presence in Europe, Australia and USA.
The company is now mulling over entering into new market to expand its private labels as the domestic markets are saturated and competitive (Euromonitor, 2013).
Burgeoning Indian retail market
Retail market is rapidly expanding in India and is estimated to be growing at a CARG of 13% by 2018 touching a total size of $950 billion from current $520 billion (Mishra & Rajagopalan, 2014). It is still a nascent market and hence provides ample opportunity for international retailers to expand.
Indian Govt. opens door for FDI in MBRT (multi brand retail trading)
In 2012, Indian government has allowed up to 51% Foreign Direct Investment (FDI) in multi brand retail. After the announcement India is now attracting considerable interest among international retailers (Yu, 2012). But because of the 51% cap in multi-brand retail Wiggo has to look for a Joint Venture with a local retailer to make entry into India market. In a JV mode entry the cost and the risk of the venture will be shared by the local partner and hence Wiggo will have “limited risk exposure” (Ovcina, 2010). The JV mode entrance will also help Wiggo to acquire market knowledge of the host country much more quickly and may also be more politically acceptable. Therefore, JV will be a smoother entry route for Wiggo to launch into Indian market.
The market segment
Indian retail market is broadly segmented into organized and unorganized sectors. The organized sector is estimated to grow from 7.5% (2013) to 10% (2018) at a CAGR of 19-20% (Mishra and Rajagopalan, 2014). By 2015 around 65 million household will patronise organized form of retail amounting over 300 million shoppers (McKinsey&Company, 2008).
In the food and grocery segment presence of organized retail is more on the dry grocery sector whereas the wet grocery segment is more dominated by the unorganized retail (Chandak, 2011).
In terms of income Indian consumers are divided into Globals (income >US$22,000 per annum), Strivers (>US$11,000 – 22,000), Seekers (>US$4,000 – 11,000), Aspires (>US$2000 – 4000) and Deprived (<US$2000) (McKinsey&Company, 2008).
The uprising middle class
The urban middle class of India is more and more moving towards the organized retail in search of value and convenience of purchase. Indian young (25-35 age group) are developing more and more global taste of purchasing and looking for global quality.
The target market
Wiggo should target the young (25 – 35 age group) urban Strivers (>US$11,000 – 22,000) and Seekers (>US$4,000 – 11,000) who aspires for the global quality at a reasonably low price, who has a means to travel for shopping and are willing to go an extra mile for better quality.
Wiggo has a competitive advantage with its well proven private labels. Limited product offer at a 20-30% lesser price is going to be its strategic advantage particularly in India where customers are very much price-sensitive (Sachon and Mitchell, 2005).
Moreover, in Indian retail market there are vast number of retailers who have very limited bargaining power (Chandak, 2011). Because Wiggo deals in far less number of products (average 1000 products in European market) than any big retail house, it has very high bargaining power and hence can offer an incredibly low price to customers.
In terms of brand value it already has established itself as a well trusted international retailer. Trust is a very big factor for Indian customers. Hence Wiggo will enjoy an added advantage over other national retailers.
- Wiggo should follow look for a reasonably slow but steady growth in Indian venture. In the first year of operation, it will target only chosen Tier II cities in India where organized retail has just started to expand and the competition is not yet cutthroat as in the Tier I cities. It will open 2 retail stores in 6 out of total 26 Tier II cities in the first year (McKinsey&Company, 2008).
- However, in the first half of the year it will operate through only 1 store in each 6 cities. In the second half of the year it will open a second retail store in each city subject to customer response in the market surveys.
This will mean in the first year Wiggo should be looking for 2 stores each in 6 Tier II cities i.e. total 12-16 store in the first year. The rentals per sq.ft. p.m is approximately Rs. 80 (McKinsey&Company, 2008). Wiggo typically operates in store size 1000 square meter standalone stores (Sachon and Mitchell, 2005). Hence, estimated rental coast per month for 12-16 stores will be
12 x 80 x 1000 x 10.7 = Rs. 10,272,000.00 i.e. US$166,343 per month
Total for the first year = 12 x $166,343 = US$1,996,116.
- In the first half of the year convert 30% of the new customers into loyalty customers.
- In the second half of the year convert 60% of the new customers into loyalty customers through loyalty programs (loyalty store card).
- At the end of the first year Wiggo should have captured 2% of the target market share.
- Add up to three new private label product across all the stores every month based on the local (changing) demand.
Positioning and Differentiation
Wiggo should position itself in the minds of the urban, price sensitive middle class customers as a value provider (global high quality product) at an exceptionally lower price through its private label products and other cost effective operational measures. The company should adopt a “Cost Focuser” strategy in terms of positioning itself in Indian market.
Main competitors are domestic retailers like Big Bazaar and Food world. These retailers are targeting the Globals and upper middle class (Strivers) in the Tier I cities because of their unprecedented growth in the last couple of years, and there has been quite significant increase of income in the Globals and upper middle class segment (Sharma, 2014). Moreover, the market is still under-penetrated (Chandak, 2011). Whereas Wiggo will target the upper middle class (Strivers) as well as the lower middle class (Seekers) because the competitive pricing strategy will attract both the segments in Tier II cities where the market is much more under-penetrated than in the Tier I cities.
Key national players
Big Bazaar and Food Bazaar (Future Group)
More (Aditya Birla Retail Group)
Reliance Retail runs food and grocery retail stores across the country in various formats
Key International Players
Carrefour at the moment is operating through one store in India
Tesco has started a Joint Venture with Tata group’s Trent (Star Bazaar)
Walmart had until recently Joint Venture with Bharti Retail and operates through Easyday (Datamonitor, 2012)
- Selling through private labels so that company can determine the price.
- Generating customer loyalty. Wiggo marketing should focus on generating loyal customers through various loyalty programs like loyalty points for repeat purchases. May consider loyalty schemes such as store loyalty card and loyalty points.
- Consider offering limited credit to customers maybe through store credit card and based on loyalty benefit. One of the many reasons customers go to the unorganized retail shops (“Kirana” stores) is the availability of the easy credit.
- ‘Like Brand’ Campaign: Wiggo’s ‘Like Brand’ campaign in European market should also be replicated in India. Customer should perceive Wiggo products as equal to any other brand in term of quality but at a lower price. Blind taste campaign should be conducted across various target buyers in the market.
- Limited distance free home delivery above a threshold purchase level for loyalty customers.
The budget for promoting the brand Wiggo in Indian market has been estimated to $2.7million in the first year based on a first year sales forecast of $176.8 million. The budget will be allocated to various media channels, in-store promotion programs and celebrity endorsement contracts throughout the year.
2 Mission Statement
To provide “daily basic food items” at the lowest price possible to the low and mid-income Indian customers (Sachon and Mitchell, 2005).
3 Situation Analysis
3.1 External Analysis
3.1.1 PESTLE Analysis
- Recently a new government came with a strong mandate. The strong and stable central government has instil hope for the business (Deloitte, 2014).
- New government pro-trade and pro-business unlike its predecessor (Kronstadt, 2014).
- Complex tax system which is often a concern for foreign investors (Economic Times, 2014).
- State government levies taxes on products sold within state whereas Central government imposes tax on inter-state sale of goods (The Retailer, 2014).
- Government proposed revamp in Goods and Services Tax (GST) by 2015 (Economic Times, 2014).
- However, the overall tax burden of doing business in India is lowest in the world (HSBC Global Connections, 2014).
- Complicated labour law, focuses mainly on the organized sector and perceived as overtly pro-worker (Jafar and Ghosh, 2013).
- Maximum of 51% Foreign Direct Investment (FDI) in multi brand retail (MBRT) subject to government approval (Mishra & Rajagopalan, 2014).
- This means Wiggo can hold 51% of share in a Joint Venture with an Indian retailer. Joint Venture mode will beneficial for the company as it will have an advantage of knowing the culture much more easily and adopt to the new market dynamics.
- Indian economy till FY2010-11 witnessed robust 9% GDP growth. Recently, it is going through a sluggish growth in Industry, agriculture and service sector (Deloitte, 2014). The figure below shows a year-over-year GDP growth (%):
Source: MOSPI in Deloitte
- Economy is recovering after the new government came to power. Economy grew by 5.7% from June to Aug 2014 (BBC, 2014).
- 7-8% GDP growth anticipated over the next couple of years. Measures being taken for macroeconomic stability, lowering down inflation and lowering fiscal and current account deficits (Majumdar, 2014).
- India is estimated to become the third largest economy of the world by 2020 with a total GDP of $9.6 trillion from current $2 trillion mark (Forbes, 2011 cited in Rapoza, 2011).
- Reserve Bank of India (RBI) has raised the benchmark interest rate to 8% which is higher than the average interest rate 6.66% (Trading Economics, 2014).
- Consumer price has risen by 6.46% in Sept, 2014 which is a five year low (BBC, 2014).
- Food price has fallen significantly (BBC, 2014).
These facts and figures certainly indicate a slowly improving economy which has the potential to grow at a high rate promising great opportunity for business in the country in years to come. With a pro-business government at the centre this will perhaps be an ideal time to enter the market and try maximize market capitalization.
Effect: Opportunity with caution
Age distribution Highlights
- 5% population in 18-23 age group (Forbes, 2014).
- 65% of the population is of age 35 or under (The Guardian, 2014). Large young population is greatly contributing to India’s retail consumption boom (Harjani, 2012).
Source: CIA World Factbook
- The income level of Indian middle class is increasing at a “two-digit” annual rate (Kawazu, N., Ishizaka, E., 2008).
- With the increasing disposable income the Indian middle class particularly the working class youth (25 – 35 year age bracket) are becoming more and more “aspirational consumer” (PwC, 2011).
- Rural population decreased from 82.1% (1960) to 69.9% (2010). Urban population increased from 17.9% (1960) to 30.1% (2010) (The Guardian, 2014).
- Rapid urbanization and growing brand orientation amongst customers helping organized retail sector to achieve an “unprecedented growth” (Mishra and Rajagopalan, 2014).
- Non-availability of transportation facility for large part of the population – one of the reason why unorganized neighbourhood retail shops are popular.
- Transportation and willingness of the customer to travel for shopping will be a key factor in the growth of organized retail.
- Wireless handheld devices help reducing checkout time in retail stores. Studies show that 10% customers abandon the queue while waiting for long time (Aruba, 2012). Fully “mobile Point of Sale (POS)” can be setup using electronic wireless devices for more efficient customer check out.
- Retailers are using special software to monitor stocks and sales periodically.
- CRM (Customer Relationship Management) is being used to manage and analyse customer profile for better understanding of buying patterns and segment specific targeting (Chandak, 2011).
- Foreign Direct Investment (FDI) is regulated by Foreign Exchange Management Act (FEMA) (Moghe, 2010).
- The proposal on FDI is looked into and approved by Foreign Investment Promotion Board (FIPB) (Moghe, 2010).
- Joint Venture: Foreign retailers can enter into Joint Venture with a local retailer to operate business in the country. Bharti-Walmart, Dairy Farm-RPG entered into the market through this route (Moghe, 2010).
- Various climatic regions – Tropical (South India) and Alpine (North India) (Attri and Tyagi, 2010).
- North India has severe summer and cold winter (Attri and Tyagi, 2010).
- Two seasons of rain (Attri and Tyagi, 2010).
- 75% rainfall between June to Sept. (Attri and Tyagi, 2010).
- Annual raise of temperature 0.56 degree C (Attri and Tyagi, 2010).
- Rainfall in major part of the country has decreased in last few years (Attri and Tyagi, 2010).
- Country is also affected by occasional flood, draught and tropical cyclones (Attri and Tyagi, 2010).
3.1.2 PORTER’S Five Forces
3.2 Internal Analysis
- Wiggo specializes in cost efficient logistics and efficient operational system which provides a 12% gross margin (Coriolis Research, 2000).
- Wiggo has a strong “investment horizon” and large capital (Coriolis Research, 2000).
- Wiggo’s winning strategy is to focus only on the necessary part of operation and give the resulting savings to the consumer (Sachon and Mitchell, 2005).
- Low cost high quality private label is Wiggo’s key strategy (Coriolis Research, 2000).
- Wiggo follows its store format and limited number of product offering strategy religiously.
Wiggo’s retail sales portfolio in Europe
Source: Coriolis Research, 2000
3.3 SWOT Analysis
4 Marketing Objectives
4.1.1 Target Market Objectives
18.104.22.168 Market Share Objectives
- Acquire 2% of the urban upper middle class (Stivers) and lower middle class (Seekers) customers amounting total worth of $265 million sales in the first year.
- Strivers: Total House Hold = 6 million
Two third living in Tier II cities i.e. 4 million (McKinsey&Company, 2008)
2% of 4 million = 80000 House Hold in the first year
- Seeker: Total House Hold = 55 million
Two third living in Tier II cities i.e. around 36 million
2% of 36 million = 720000 House Hold in the first year
Total = 800000 House Holds in the first year
New: Acquire 30% new customer every quarter
Retained: 30% of the new customer every quarter
- Volume of purchase
From market research it has been found, the average purchase is expected to be 90% of the total sales (Future Retail Annual Report, 2013-14).
Total purchase amount throughout the first year = $160 million (approx.)
Quarterly purchase volume = $40 million (approx.)
- Rate of Purchase
Weekly purchase of $3.5 million
4.1.2 Promotional Objectives
22.214.171.124 Brand awareness
- Quarterly surveys across 6 chosen cities where Wiggo has stores.
- 75% of the surveyed people should have heard and remembered the name Wiggo by the end of first year
- 50% of the surveyed people should have visited or participated in promotional campaign by Wiggo at least once by the end of first year
- 25% of the surveyed people should have bought at least one product from Wiggo by the end of first year.
- 10% of the surveyed people should have liked Wiggo and speaks strongly in favour of the brand.
- 5% of the surveyed customers should be Wiggo loyalty card holders.
126.96.36.199 Traffic building
- Minimum 100,000 footfall per store per quarter
- Total minimum 600,000 footfall per quarter across all the stores in the country.
188.8.131.52 Web traffic
- 1 million hit on Wiggo website by the end of first year – convert 30% surfers into buyers
- 1 million people should have liked Facebook Wiggo page by the end of first year
- 1 million follower in twitter of brand Wiggo by the end of first year
184.108.40.206 Product Trials
- 5 ‘Blind Test’ campaigns conducted per store per week.
- Minimum target of 1000 people being taken part per campaign.
- 5 ‘Try Wiggo’ promotional events per month across all the 6 cities to demonstrate products and invite people try the various products in promotional quantity.
- Minimum target of 1000 people being taken part per campaign.
4.1.3 Market Research Objectives
220.127.116.11 Market studies initiated
- 1 new market study related to customer behaviour, footfall pattern, loyalty pattern, analysing the survey reports, sales forecast, opportunity and threat of new entrant will be initiated at the beginning of each quarter.
18.104.22.168 Studies completed
- A market research study initiated in the beginning of the quarter has to be finished by the end of the quarter and presented to the management with recommendations for sales increase.
4.1.4 New Product Objectives
22.214.171.124 Product Development
- New product and customization of existing product according to the local demand and tastes. At least 5 new products development proposal per quarter should be placed to the management.
- Add up to 3 new private label product across the stores every month based on the local (changing) demand.
126.96.36.199 Packaging and Branding innovations
- Creative branding and innovative packaging ideas will be researched and reviewed by the top executives every quarter.
(Determine Marketing Objectives, 2014)
5 Marketing plan
5.1.1 India specific strategy
188.8.131.52 Joint Venture Partnership
To do business in India it will require careful scrutiny before choosing a local partner (NexusNovus, 2011). Below is the list of companies Wiggo can look for a partnership:
184.108.40.206 Low cost
Wiggo to leverage its expertise in low cost operation through less spending in marketing, advertising and distribution and efficient “in-store placement and promotions” to fill up the demand for low cost good quality goods (Yu, 2012).
220.127.116.11 Localizing the raw material
Apart from efficient operational practices to keep the price lower Wiggo’s strategy will acquire the raw material and packaging materials from the local market to avoid any hefty transportation cost, import duty overheads (Taneja et al, 2012).
18.104.22.168 Trust Building
Majority of Indian customers have “lack of trust” for the retailers (McKinsey&Company, 2008). Hence, Wiggo’s has competitive advantage because of its yearlong international reputation as a trusted brand. Guaranteed low price and quality will be the strategy to establish itself as a trusted brand in India (McKinsey&Company, 2008).
Indian retail market can be segmented by the below laid down criteria:
5.2.1 Nature of the retail
- Organized retail (Supermarkets, hypermarkets)
- Unorganized retail (mom-and-pop stores)
5.2.2 Income group
5.2.3 Nature of food grocery product
5.2.4 Age group
5.2.5 Size and population of cities
The below diagram categorizes Indian cities according to their characteristics:
Source: The Great Indian Middle Class, NCAER, McKinsey Global, 2001
5.3 Target Market
- Due to high inflation and price rise there is a high demand for low cost quality products.
- The share of Organized Retail is more in case of dry groceries. Hence, Wiggo should target the dry groceries which is more manageable.
- Target the dry goods, refrigerated products and frozen foods market where the organized sector’s presence is maximum.
- Target for the price sensitive customers segment. Consumers who seek quality of the products/services at reasonably lower price (excludes Globals).
- Who seek more and more reliable sources for purchases at low price
- Who seek value, convenience, variety and global shopping experience
- Families who have means to travel – perhaps a car or other means of transportation facilities and willing to travel for better quality – the urban middle class between age 25 to 35 who are aspiring consumer, have more disposable income but are price conscious
- Target Tier II cities (population > 1 million) where organized retail penetration is much low compared to Tier I cities (Datamonitor, 2012).
5.4 Positioning And Differentiation
- Wiggo should position itself as the “daily basic food items” provider at lowest price possible. Low price will be the key strategy to attract Indian consumers (Yu, 2012)
- In India, retailers need to be “Famous For” something (McKinsey&Company, 2008). Wiggo should make itself “famous for” low price.
- While most of the retailers are positioning itself as the Differentiation Leader Wiggo should position as the Cost Focuser in a competitive strategy matrix below with limited SKU at low price (Jobber, 2010).
- With time gradual transition towards Cost Leader position by broadening product line.
Source: Jobber, 2010
However, in the long run “low price” will not be sufficient competitive advantage for Wiggo in emerging market like India (McKinsey&Company, 2008). As McKinsey&Company (2008) suggests the target market should perceive Wiggo as a place where they get combination of the below:
Price: 20-30% lower price than the present market level.
Range: Mix of private labels (90-95%) and popular brands (5-10%)
Service: Efficient and knowledgeable staff
Experience: Family friendly safe shopping experience with availability of global product
Convenience: Convenient store layout, providing global products in tier II cities.
Data Source: McKinsey&Company, 2008
5.4.1 Major Indian Retailers
The below figure shows the major retailers in Indian market:
5.4.2 Competitors’ Market
- Indian major retailers are focusing on providing value.
- Price not prime focus yet.
- Private label not been aggressively promoted yet.
- Private label products have 11% market share (Euromonitor cited in Yu, 2012).
- Major Indian retailer Big Bazaar targets the higher and upper middle class consumers (Sharma, 2014).
- Spencer (Franchisee operation with Planet Retail) targets the upper middle class at a higher price range.
- Indian retailers are gradually focusing on in-house products. In-house products account for 12-15% of sales.
- Market gradually shifting towards innovative packaging, affordable pricing and “strategic in-store placement” to attract customers.
- Retail customers are spending above US$100 million on private labels per year and expected to grow up to US$500 million by 2015 (Neilson cited in Yu, 2012).
5.5 Marketing Mix
5.5.1 Product Outline
22.214.171.124 Categories and Product line
Wiggos’s product line will cater to the Indian high demand food and grocery category segment (PwC, 2011) along some varieties in other categories as below:
126.96.36.199 Primary Product Features and Benefits
- ‘Like Brands’ products at very low price (The Times, 2010).
- Primary strategy will be to keep the price exceptionally low but not compromising the quality.
- Quality product will be available at an affordable price to the low and mid-income groups.
- Introduce specific Hindi (local language) words as tag line “Sabse Sasta lekin Sabse Achcha” (Low Price but Best Quality) in the product labelling to make it more appealing to the local customers (Taneja et al., 2012).
- Products will have bar code in 4 different spots to reduce checkout time.
- Products will be available in small, medium and large size packets to make it affordable to variable income groups in the categories.
- Private label products.
(Tactical Decisions: Product, 2014)
5.5.2 Pricing Strategy
188.8.131.52 Market penetration pricing
Wiggo should try to set the price of products as low as possible for a higher volume of sale and higher market share in the new market (Kotler and Keller, 2006).
Everyday Low Pricing
As a penetration pricing strategy Wiggo will focus on Every Day Low Pricing (EDLP) and offer continuous low prices apart from occasional short-term special offers. In this strategy Wiggo can offer 10% lower price than the customers see elsewhere. Wiggo’s yearlong low operational cost would help it implementing EDLP strategy in Indian market (Kurtz, 2008).
184.108.40.206 Promotional Pricing
Loss Leader Pricing
Wigoo should also apply Loss Leader pricing strategy to keep a particular product at priced below cost to attract customers who will eventually buy other regular priced products too (Kurtz, 2008). This can be targeted especially during any occasions such as festivals like Diwali when the Indian customers shop heavily (McKinsey, 2008).
Occasionally prices can be set slightly above the cost for minimal return. This policy will enable Wiggo to offer 5-60% lesser price than that of competitors on a case to basis (Kurtz, 2008).
BOGOF (Buy One Get One for Free)
Occasionally, company should offer promotional pricing like BOGOF to attract exiting and new customers (Kurtz, 2008).
220.127.116.11 Psychological Pricing
Wiggo should follow odd pricing policy to appeal to the price sensitive Indian customers. Rs. 4.99 will psychologically appeal more to price conscious customers than Rs 5 (Kurtz, 2008).
18.104.22.168 Innovation in Packaging
Affordable Small Sized packaging
Wiggo should introduce smaller size packages for Indian market to make it more affordable to motivate buyers to try new brand (Taneja et al., 2012).
The objective of promotional activity can be described using the AIDA (Awareness, Interest, Desire, and Action) model in the below diagram:
The objective of promotional activity can be described using the AIDA (Awareness, Interest, Desire, and Action) model in the below diagram:
Wiggo will use the below strategies to promote brand Wiggo and its products to achieve the goals of AIDA.
22.214.171.124 Above-the-line promotion
This is designed to reach the mass audience to establish brand identity (Winterberry Group, 2006).
Penetration of TV is quite high in India (161 million households) (KPMG, 2014). This implies TV advertisement will a greater impact as it has very wide reach. Srivers get information from TV advertisement whereas Seekers get aspiration for better life (KPMG, 2014). Given the impact it has on the target market and the fact that TV advertisements are comparatively costly a bulk 30% budget will be allocated for TV.
FM Radio Channel advertisement
FM radio channels will be used for advertising brand WIggo and promotional offers in Tier II cities as FM is very popular among the youth. Considering the recent growth in radio industry, its increasing reach and examining the present promotional trends across industries (KPMG, 2014) an initial 5% budget will be allocated for radio channel.
Distribution of pamphlets and leaflets
Distributing pamphlets to promote products and brand awareness is very effective in creating brand awareness. However considering the comparatively higher return on investment, 10% budget will be allocated for this.
Newspapers promotion useful in brand awareness but as newspaper penetration is low (15%) in India (Deloitte, 2014) comparatively lower (5%) budget will be allocated for it.
In store promotions
- Professionally executed in-store promotion is very effective for brand awareness (Kiran et al., 2012).
- Time effective for both customers and staffs.
- The effect of promotion can be measured easily.
- Point-Of-Purchase (POP) displays play a vital role in unplanned purchases (Kiran et al., 2012).
In store Point Of Purchase is stimulated by the below two types of effect (Zhou and Wong, 2004 cited in Kiran et al., 2012):
Some of the suggested in-store promotional measures are as below:
- Centrally Managing Digital Signage for Significant Savings
- Increasing Sales with Consumer-Relevant Information
- Interactive Customer Communication Channels
- Installing Information Kiosks for Internal and External Use
- Product and Price comparing tools
- POP Display
- Store planning and Layout
- Audio, Video broadcasts
- In-store coupons and sampling
- Packaging in itself
- Background music (customized for brand Wiggo)
- In-store displays
- Sales people
Wiggo is known for its efficient, cost effective in-store promotion and will emphasise the same in India. Allocated budget will be 20%.
126.96.36.199 Below-the-line promotion
- Sudden surge in social media usages. 54% year-on-year increase in social media usages – 71 million Facebook users, 20 million Twitter user in India (Deloitte, 2014). For retailers it is a great channel to connect with the target market.
- Retailers can leverage social media databases containing information on consumer demographics, social connections, interests, habits and behaviours.
- Interaction with customers on a one-to-one level to understand them more closely.
- Social networks will provide better facilities in future target marketing and consumer engagement (Deloitte, 2014).
Given the enormous opportunity Social media is presenting before the retailers for advertising and engaging with the target market Wiggo will allocate 15% of the total marketing budget for social media promotions.
Targeted e-mails to customers
Targeted direct e-mail in India has a moderate effect on the customers. Hence, a 5% of the budget.
Online product offering, company website, online purchase facility, maintenance will cost another 10%
Social welfare initiatives
Brand Wiggo will position itself as “socially responsible citizen” by initiatives like “recycling and reusing materials”, “improving the access to health and human services” in the area, avoid using plastic bags etc. (Taneja et al., 2012).
Retailers are moving to tier II cities following saturation in metropolitan cities (Datamonitor, 2012). Wiggo stores should be opened in the Tier II cities where market penetration is still low by other retailers and the cost of realty is low but the urban middle class is growing because of business centres like IT parks etc.
- 12 retail store in collaboration with a local partner in total of 6 Tier II cities.
- Choice of the 6 cities will be consulted with the local partner for better understanding of the ground reality of each of the chosen cities.
- Online presence. Wiggo will offer online services to attract upper middle class urban customers who look for convenience of online shopping and are who have access to credit/debit cards and ready to use it for online purchasing (Datamonitor, 2012)
6 Marketing Budget
Sales Forecast next 5 years (Appendix 10.2)
Promotional Marketing Budget allocation strategy has been discussed in the promotion section (section 6.5.3). The below diagram shows the share of allocation in each media channel:
Quarter wise Allocation of Media Budget (Appendix 10.5)
7 Conclusion and recommendations
We discussed the opportunity for Wiggo to launch its venture into massive Indian retail market which is going to grow at a fast pace in coming years. The vastness and complex dynamics of Indian retail market have often in the past posed challenge to the international retailers. Though there are concerns about the restriction in the multi brand retail, with a pro-business, strong ruling party at the center business environment in India is going to improve in years to come. Also, entering into the market when the international major players have not entered in large numbers will be a strategic advantage for Wiggo as this will give the company a headroom for experiment with their products and fine tuning it depending on the market responses. The first mover advantage is going to be beneficial for Wiggo as in a cutthroat competitive environment there is little once can experiment. Hence, the recommendation is Wiggo should get into the market soon at an early stage, mold its already successful business model according to the Indian market situation and look for better market share in years to come.
9.1 PEST Analysis
The retail trading in India is divided as SBRT (Single Brand Retail trading) and MBRT (Multi Brand Retail Trading).
Indian government recently has allowed up to 51% Foreign Direct Investment (FDI) in multi brand retail (MBRT) subject to government approval in a measure to revive the economy by attracting foreign investment (Mishra & Rajagopalan, 2014). This means Wiggo can hold 51% of share in a Joint Venture with an Indian retailer. Joint Venture mode will beneficial for the company as by partnering the company will have a strategic advantage of knowing the culture much more easily and adopt to the new market dynamics.
The government has also proposed Goods and Services Tax (GST) which, according to Onno Ruhl of World Bank, can be a game changer to bring down the price by simplifying the supply chain (Economic Times, 2014). However, there are oppositions and differences in opinion regarding GST amongst political parties and state authorities which is a road block for the approval of GST (Mishra & Rajagopalan, 2014).
The present National Democratic Alliance (NDA) government is pro-business and has launched a fresh campaign “Make In India” along with other measures to revive the economy. Standard & Poor has lifted India’s rating from ‘negative’ to ‘stable’, acknowledging efforts by the present government to maintain fiscal discipline while reviving the economy and encouraging investment (ET Bureau, Economic Times, 2014). This is a good news for Wiggo as this indicates a stable government willing to initiate positive measures to help improving business environment in the country.
9.2 Sales Forecast Analysis
SV = Starting Value
FV = Finishing Value
T = Time (in years)
SV = $520.00 billion (total retail market in 2013) (Mishra and Rajagopalan, 2014)
Time = 1 year
CARG (Compound Annual Growth Rate) = 13%
The formula to calculate cumulative cumulative growth for next year
Using this formula we can calculate the cumulative growth of the retail market for the next 5 years as below:
|FV = SV (1 + R) ^ T|
In the above table the below are the assumptions:
Organized retail is 7.5% of the total size in 2013 i.e. US$39billion (Mishra and Rajagopalan, 2014)
Organized sector is expect grow at a CARG of 19%. Hence using the same formulae above, we can calculate the organized sector’s cumulative growth for the next 5 years.
Food and Grocery is 34% of the total organized sector. Hence we can calculate the Food and Grocery sectors share in each year assuming the share remains same over the years.
Tier II cities where Wiggo is launching its business comprises two third of the whole food and grocery market. Hence we can calculate the total size of the market in Tier II cities as shown in the above table.
Wiggo is targeting a market share of 3% in the first year of operation.
The estimated market share in the next years has been targeted to be 6%, 8%, 10% and 12%. This is based on the analysis done on the country’s biggest retailer Future Group’s Annual report for the FY2013-14.
9.3 Marketing Research Cost
Large size business (>$200 million) uses approximately $40,000.00 on marketing research (Frederiksen, L., 2012).
Hence, market research for Wiggo has been estimated to be $35,000.00 for primary research and $5,000.00 for secondary research.
9.4 Estimating First Year (2015) Marketing Budget
Total Retail market in 2015 = $663.99 billion (Ref: Section 10.2)
Organized retail = $55.23 billion (Mishra and Rajagopalan, 2014)
Food and grocery constitutes 34% of the total retail consumption i.e. $18.78 billion (McKinsey&Company, 2007). Hence, food and grocery market size = $15.78 billion.
Wiggo targeting the tier II cities (Strivers and Seekers) in the first phase of expansion.
Tier II cities constitute approximately 2/3 of the organized grocery market (McKinsey&Company). Hence, total size of target market = $18.78 * 2/3 = $12.52 billion.
Wiggo targeting 3% market share in 2014. Hence the estimated target sales forecast will be $375.55 million.
As general rule of thumb companies entering into a new market usually spend 3-5% of their projected revenue (Beesley, C., 2012).
Considering Wiggo’s approach will be slow but careful start and keep the marketing expenditure at minimum estimated marketing budget will be 2% of the total sales forecast i.e. around $7.51 million.
Wiggo is 51% shareholder in the joint venture. Hence, Wiggo’s share of marketing coast is approximately $3.83 million in 2015.
9.5 Quarterly Allocation of Promotional Expenses
As this is a new market the cost of promotion will be much higher in the first quarter. Approximately 50% of the estimated promotional budget will be spend in the first quarter.
Remaining 50% budget will be equally spent in next 3 quarters:
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