South Korea, a market dominated by two major players, Samsung and LG, carries a demand uncertainty that should likewise be considered before launching the product. Regarding the market size and growth, the perspectives seem encouraging with a GDP per capita of $28,100, GDP – real growth rate 2.3% and an unemployment rate of only 3% for South Korea in 2008. (CIA, 2009). The Korean government raised trade barriers on smart phones to protect domestic manufacturers and this probably represents iPhone’s major constraint for entering the market. The strategy used by the government made Samsung and LG the second and third largest makers of cellphones by units in the world and it helped the country to develop one of the broadest markets for cellphones. So, iPhone should consider facing a hard strife, and tailor the necessary strategies in order to win an important market share in the market.
One of the main questions for iPhone is when to enter the South Korean market. The answer may be related and dependent on Korea’s Communication Commission that decided only in late 2008 to open its home market in April 2009 to advanced cellular phones using foreign platforms. A rule set in 2005 forced advanced cell-phone devices to use Korea's Wireless Internet Platform for Interoperability. The move effectively stopped foreign wireless handsets, such as those from Apple entering their market .
Another issue that iPhone has to take into consideration is the legal environment that may seriously delay their entry to the South Korean market. There are a set of regulatory hurdles regarding the location-based services that iPhone provides for its customers (e.g. maps, direction finders) and that are subject to government permission.
As a last aspect that iPhone might consider before entering the South Korean market is the iPhone clones that, in case these are not stopped from popping in the market, will considerably depress its expected sales, as it happened in China.
4. Marketing Mix
After performing a SWOT analysis (exhibit 2), Apple will be able to draw a marketing plan. The marketing mix elements will be discussed below to decide on how to approach the iPhone’s entry into the South Korean market.
The first step Apple need to pay attention to is its global product strategy. Should the company aim for a standardized or adapted product strategy?
Adaptation of the iPhone means considering differences in customers’ needs in South Korea. Consequently, “appropriate changes are made to match local market conditions” (Kotabe et al, 2008, p.353). Apple also has to consider legal conditions in South Korea such as taxation. Adapting the iPhone to local needs will increase customer satisfaction but also leads to higher production costs.
The market is not only characterized by protection of local phone manufacturers (Ramstad et al, 2009), but Apple must also carefully consider technological issues next to South Koreas’ unique environmental and marketplace conditions. Consequently, Apple should consider the product adaptation approach when entering South Korea, taking into account local conditions and wants in order to boost customer satisfaction, and hence increase sales. They might modify the iPhone by augmenting the core product and product attributes with localized support features that cater local market conditions.
Having made the decision about its global product strategy, Apple has to decide on whether to enter South Korea with an advanced version of the iPhone before launching it anywhere else. As a consequence of stiff local competition, time might be a key success factor for Apple when entering South Korea. The market is almost saturated, and Apple will enter it late because it has already embraced 3G technology. As South Korean consumers are quite tech-savvy and most likely to use mobile phones with latest technology and new features, they are very likely to switch mobile phones. Consequently, entering the market with an advanced version of iPhone might create a competitive advantage for Apple and probably results in gaining market share more quickly.
In terms of global pricing, Apple follows a price standardization policy.
Keegan et al (2008) differ between three alternative global pricing policies: extension/ethnocentric, adaptation/polycentric and geocentric.
Exhibit 3 discusses the ethnocentric/standardization and polycentric/differentiation pricing policies, which Apple might consider when launching iPhone in South Korea. The more flexible geocentric approach recognizes that several factors are relevant to pricing decisions: “local costs, income levels, competition, and the local marketing strategy” while price is integrated with other elements of the marketing program. “Local costs plus a return on invested capital [ROI] and personnel fix the price floor for the long term” (Keegan et al, 2008, p.382). In the short term, Apple might set the price less than its costs plus ROI in order to penetrate the market and gain market share. Hence, the geocentric approach lends itself to global competitive advantage because prices support “global strategy objectives rather than the objective of maximizing performance in a single country” (Keegan et al, 2008, p.382).
Kotler et al (2008) differ between two global pricing strategies/objectives: market skimming/financial objectives (Appendix B) and penetration pricing/nonfinancial objectives. Penetration pricing may be used by Apple to gain a market position in South Korea by setting a low price, and hence attracting a large number of buyers. Apple might consider penetration pricing due to the intensive local competition from Samsung and LG in South Korea whose selling price for phones is almost twice as high as it is outside the country. Exhibit 4 shows the pricing of selected Samsung mobile phones in South Korea. Moreover, in 2009, the South Korean GDP per capita at nominal values (US$17,074) and GDP at PPP per capita (Intl. $27,938) was far behind the USA’s (US$45,934, Intl. $45.938) (IMF, 2010). Apple should consider the lower income levels of its local consumer when setting a price, but they have to avoid setting the price for iPhone so low that consumers lose faith in the product’s quality (Hollensen, 2010).
Summarizing the discussion above, iPhone is advised to respond to competitive and market conditions, and should consider the geocentric approach in connection with penetration pricing when entering South Korea, because this will enable Apple to quickly penetrate the market and gain market share from its strong local competitors in the short term, and lends global competitive advantage while Apple’s global strategic objectives are supported rather than the objective of maximizing performance only in South Korea. Having gained a stable market share in the country, local costs plus ROI will characterize the iPhone’s price in the long-term.
Regarding its promotional strategy, Apple has to make three decisions: How to position the iPhone in South Korea? Which media to use for communicating the message? Building up a standardized or adapted promotion?
Having identified the target audience (Appendix B), Apple can now determine the communication objectives and design a message. How should the company position the iPhone in South Korea? As South Korean mobile phone users appreciate fashion combined with function, Apple should position iPhone in South Korea on the basis of performance/technology and design while differentiating it from competitors. Nevertheless, Apple is advised to refrain from promoting iPhone as a “blue ocean” product because both Samsung’s and LG’s strategy of creating blue ocean products and offering these phones at high prices failed (Ramstad et al, 2009). Therefore, Apple should learn from its competitors and position iPhone as an inspiring product that is useful and ahead of consumers’ expectations instead of narrowing the market into unprofitable niches.
Apple must now select channels of communication. Kotler et al (2008) differ between personal and nonpersonal communication channels. Apple might decide to use nonpersonal communication channels such as print media (newspapers) and broadcast media (television) to reach as many consumers as possible. Although advertising and public relations within the marketing communications mix are more expensive than other tools, especially PR creates awareness and interest in iPhone before its launch. An original but tasteful TV campaign, that pays particular attention to iPhone’s performance and design features, will finally lead to desire and action (buying the iPhone) when iPhone is launched. Especially opinion leaders will be affected by this communication. They will carry messages to people who are less exposed to media, so that finally personal communication will be stimulated through word-of-mouth (Kotler et al, 2008).
Furthermore, it has to be discussed whether to standardize or adapt Apple’s promotional strategy. Because “advertising is based largely on language and images, it is mostly influenced by the sociocultural behaviour of consumers” in South Korea. As iPhone has no market share in South Korea yet and is therefore an unknown product, the company is advised to react to the market, and adapt its advertising in a way that emphasizes iPhone’s performance and design features. Also language has to be adapted. Consequently, the initial high spending on its promotion strategy will pay off in the long-term because Apple’s global strategic objectives are supported.
Considering iPhone’s distribution strategy, Apple has now to decide on how to enter the South Korean market (Appendix B). Lasserre (2007) describes four entry modes: Joint Venture, acquisition, agreements such as franchising, licensing or distributor contracts and direct entry. The choice on entering the market is based on a combination of ownership dimension/level of control and investment intensity (exhibit 5).
Exhibit 6 discusses direct entry, acquisition and Joint Venture, which Apple might consider when launching the iPhone in South Korea. However, the most suitable entry mode for iPhone into South Korea seems to be a distribution contract with a local phone carrier. A distribution contract requires fewer investments but might lead to a conflict of interests that emerge when sales of iPhone reach a certain level. Especially when the country is risky and characterized by stiff competition, Apple might want to test the market without committing too many resources upfront. Hence, a distribution contract will be the most suitable solution for entering the market quickly.
Having analyzed consumer needs and set channel objectives, the company might now make a decision on the number of channel members. Kotler et al (2008) differ between three strategies: intensive, exclusive and selective distribution. Exhibit 7 discusses intensive and exclusive distribution. Due to their disadvantages, Apple should rather consider selective distribution, which means using “more than one but fewer than all of the intermediaries who are willing to carry” (Kotler et al, 2008, p.325) the iPhone. This will allow Apple to “develop good working relationships with selected channel members and expect a better-than-average selling effort” (Kotler et al, 2008, p.325). Moreover, by using selective distribution, the market will be more covered with iPhone compared to exclusive distribution, and it will give the company more control over prices and promotion than intensive distribution does.
Summarizing the discussion above, Apple is advised to sign distribution contracts with approximately two to three phone carriers in South Korea which enables to enter the market profitable and successful.
5. Monitoring
The success of Apple’s market entry depends on its concrete goals and objectives. These will influence marketing performance measures and standards.
Regarding its product strategy, possible market performance measures will be numbers of sales of its advanced model compared to other markets in which the iPhone was launched and compared to competitors (so far information available), sales growth rate within a certain time, market share gained after a certain time, percentage of total profits, return on investment, and by the monitoring criteria listed by Sargeant and West (2001):
- the actual sales achieved against the budget,
- the actual costs incurred against those budgeted,
- the overall strategic direction that the organisation is taking – i.e. will the overall corporate objectives be achieved in a manner commensurate with the organisation's mission?
In terms of iPhone’s promotion strategy in South Korea, possible performance measures will be the advertising effectiveness like the awareness level achieved, cost per contact with target audience, sales per territory relative to its potential.
Measures to control the performance of iPhone’s pricing strategy will be the response time of competitors to iPhone’s selling price, margin structure relative to marketing expenses, margins relative to channel member performance.
Regarding iPhone’s distribution strategy, possible market performance measures will be sales, expenses and contribution margin of Apple’s distribution contracts, percentage of stores carrying the iPhone/market coverage, sales relative to market potential of each phone carrier, percentage of on-time delivery, expense-to-sales ration of each partner, order cycle performance of each carrier (Hollensen, 2010).
If nothing else, the success of iPhone’s market entry can also be measured by behavioural control such as reactions about the iPhone launch in newspapers etc.
Conclusion
Once IPhone has evaluated the forces affecting competition in the market, the political, economic, socio-cultural and technological factors with significant implications for them, as well as other external factors influencing the entry mode and queries that might come up after entering the Korean market, then the plan of action can be shaped and the appropriate strategies in terms of product, price, place and promotion formulated. Relative pros and cons of any of the strategies that have to be taken into consideration have been broadly discussed in this paper.
Taking into account all the aspects debated, IPhone’s launch in South Korea will be profitable and successful when :
- Apple adapts iPhone to local market condition and customer wants to a certain amount, and introduces an advanced version of its product,
- chooses a geocentric pricing approach while penetrating the market with lower prices compared to competitors in the short term,
- promotes the iPhone through PR before launching, and through an adapted TV campaign at the time of launch while emphasizing on the product’s performance and design,
- distributing the iPhone through two to three selected local phone carriers.
To which extend the iPhone’s entry into the South Korean market has been successful can be monitored by regular control of output, like profits, sales figures and expenditures as well as by behavioural controls.
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Appendix A
Exhibit 1 Porter’s five forces
Exhibit 2 SWOT analysis
Exhibit 3 Discussion of ethnocentric/standardization pricing policy and polycentric/differentiation pricing policy
Exhibit 4 Pricing Samsung mobile phones in South Korea (Source: Ramstad et al, 2009)
Exhibit 5 Entry modes (Source: Lasserre, 2007, simplified)
Exhibit 6 Discussion of entry modes: direct entry, acquisition, Joint Venture
Exhibit 7 Discussion of intensive and exclusive distribution
Exhibit 8 Words counted
Appendix B
Additional information question 2
According to Lasserre (2007), South Korea can be categorised as a Newly Industrialised Economy holding the following market characteristics: The market growth is high, the size is medium to high, the segmentation is an established middle class and a diversity of segments, customer’s value product differentiation and service, the distribution is characterised by pull logistics and beginning of mass retailing, and the competition is deregulated, active and diverse.
The PEST analysis might be extended by environmental and legal factors to PESTLE analysis to additionally analyse iPhone’s macro-environment in South Korea. Environmental factors such as global warming, pollution, energy consumption or waste regulations are in this case of less importance.
South Korea’s legal system is a combination of continental European civil law, Anglo-American law, and Chinese classical thought (CIA, 2008). This allows Apple to operate in a secure legal environment which is substantial for the market entry.
Additional information question 4: global pricing strategy/objective market skimming
Market skimming might be used by Apple to achieve financial goals such as return on investment when a high price is set to skim maximum revenues from the top end of the market so that the company makes fewer but more profitable sales in a short term. A great disadvantage of this approach is that due to Apple’s small market share in South Korea, it is unlikely that the company will bear up against local competitors like Samsung and LG. Building a premium position also requires enough resources for promotion etc. as well as visible local presence of Apple in South Korea. Market skimming might also lead to grey markets when they sell the iPhone more cheaply in other countries (Hollensen, 2010).
Additional information question 4: iPhone’s target audience
Usually, Apple’s primary customer targets are middle-upper income professionals who use the iPhone to coordinate their busy schedules and communicate with colleagues, friends and family. Its secondary customer target market consists of high school, college and graduate students who need a portable multifunctional device. Additionally, the South Korean target market is also characterized by its tech-savvy phone users who might use the iPhone as a status symbol.
Additional information question 4: iPhone’s distribution strategy
First of all, Apple should follow the network perspective, which means that the company makes use of a business network for internationalization and especially when expanding into the South Korean market because through the relationship of its domestic network, Apple has gained experience and improved knowledge, which can be used as bridges to networks in South Korea.
Appendix C
Minutes of the IPhone group assignment meetings
Group: Adelina Cimpeanu
Dorothee Eickhoff
Anja Lorbeer
(Tanzeem Karishma Binte Rahman)
Tutor: Mesfin Habtom
First meeting
Date: 20th October
Time: 10am – 12pm
Location: Stapelton House Cafeteria
Second meeting
Date: 27th October
Time: 10am – 12pm
Location: Stapelton House Cafeteria
Third meeting
Date: 3rd of November
Time: 10am – 12pm
Location: Stapelton House Cafeteria
Fourth meeting
Date: 10th of November
Time: 10am – 12pm
Location: Stapelton House Cafeteria
Fifth meeting
Date: 24th of November
Time: 10am – 12pm
Location: Stapelton House Cafeteria
Porter’s five forces are entry of competitors, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and rivalry among existing players. It is common practice to add a sixth factor: stakeholders such as government, trade associations, shareholders etc. who also create competition among different entities (Sekhar, 2010). A threat arising from the government are high taxes and restrictions for foreign companies, entering the market.
The country ranks 13th in its GDP purchasing power parity.
Although the rapid growth rate mitigated after the Asian Crisis (1997-1998), South Korea still embodies an emerging market with high potential for growth (Kotabe et al, 2008).
The South Korean mobile phone market is highly influenced and characterized by its oligopoly of three major mobile phone network providers and the strong competition of mobile phone producers. The implications of this highly competitive market are a threat to Apple but can be conquered with the right marketing strategy.
Native Koreans account for most of the inhabitants.
81% of the overall population of 48.6 million people are living in urban areas and 72% are aged between 15 and 64 years (CIA, 2008).
According to the CIA (2008), there are 45.6 million mobile phones registered in the country, which portrays the high penetration rate.
South Koreans have a high mobile phone turnover and are highly aware of fashion, brands, and technology which all is combined in the iPhone.
Standardization means selling exactly the same product to an ethnic consumer that Apple already sells to the general market consumer, assuming similar customers’ needs across countries in order to achieve large economies of scale and minimize costs, and hence being able to offer the iPhone at a lower price in South Korea (Kotabe et al, 2008). Standardization also builds up a global brand and product image. However, ignoring local differences might dissatisfy its customers.
Samsung’s and LG’s smart phone sales have been limited due to high prices and the lack of Korea-language software applications (Ramstad et al, 2009), although there is a high degree of English literacy in South Korea.
E.g. Apple might adapt the language or raise the ring volume so phones can be heard on crowded South Korean streets (Kotler et al, 2008), and offer shiny features to stick them on the phone etc.
It charges the same price for its iPhone all over the world without considering local competitive or market conditions.
The ethnocentric pricing policy can be equated with Hollensen’s (2010) price standardization, and Keegan’s polycentric pricing policy with his price differentiation approach.
Both companies together sell about 90% of the mobile phones there (Ramstad et al, 2009).
iPhone’s price might then even be similar to its selling price in other countries. Consequently, grey markets are avoided and customers will not lose trust in the iPhone’s product quality.
“Product positioning is the activity by which a desirable position in the mind of the customer is created for the product” (Hollensen, 2010, p.477). Positioning the iPhone for the South Korean market begins with describing the product as a comprising different attribute that is capable of generating a flow of benefits to buyers and users by matching the special requirements of its South Korean customers.
This might convince customers and makes them switch to iPhone, so that finally the iPhone will automatically be a blue ocean product with a consumer focus (Halligan, 2006). Although Apple should consider entering the market with an advanced model of iPhone, but when the company would position the iPhone as a blue ocean product and sells it at a lower price than its competitors in order to be able to penetrate the market and compete with its strong local rivals, customers might lose faith in the phone’s quality, which consequently would create a bad image of Apple.
While personal communication channels (face to face, phone, mail, chat) allow for personal addressing and feedback of consumers, they do not reach a broad target audience, and therefore are very time intensive, as approximately 93% of South Koreans have a mobile phone.
However, standardization “allows the realization of economies of scale in the production of advertising materials, reducing advertising costs and increasing profitability” (Hollensen, 2010, p.606).
Apple might open its own store in South Korea when the country becomes a significant portion of the company’s turnover though.
This strategy also reduces costs in marketing and logistic, as the distributor carries out logistical tasks, stocking, transporting and billing (Lasserre, 2007), and increases revenue through long-term agreement deals. Having chosen a local distributor, Apple might offer the iPhone through its contract phone carrier in different contract plans based on capacity, free minutes etc. Customers can make their decision for any plan depending on their needs and budged. Offering different plans might also be an additional driver to pull the iPhone through its distribution channels.
To evaluate how Apple performed in the South Korean market as well as for getting feedback for a possible reformulation of the company’s global marketing plan, the control process is the final and essential stage of international market planning (Hollensen, 2010).
