This report will evaluate the present situation in the market in order to identify methods that companies can use to become and to remain successful within the consumer market for Iced Tea.
Therefore the objectives of the report are as follows:
- To identify the bases which can be used to segment the Iced Tea market.
- To examine a method which could be used to forecast demand in the Iced Tea market.
- To identify a market coverage strategy that could be adopted by Pepsi/Lipton.
- To recommend a marketing strategy for Shin Shii concerning its entry into the market, and also to recommend how Shin Shii should position Kai Shii in the market.
Theoretical Framework: the analysis of this report will be based on the principles of segmentation, coverage strategy, forecasting, and marketing planning and strategy.
Method: the information on the company and product were taken from chap 3 of Kotler et al (2002). The theories and concepts used came from textbooks and lecture notes. As all examples given in the discussion come from the textbook, these will be indicated as page numbers, in brackets.
This report started with an executive summary. The author then proceeded with this introduction, which is followed by the analysis of the case study, the report ends with a set of conclusions, recommendations, references and appendices.
Assumptions
- Iced Tea is still a popular beverage.
- Oolong has not yet entered the Iced Tea market.
- Pepsi/Lipton are still producing in partnership.
- Brooke bond's range of hot canned tea has not been introduced to the market.
Limitations: this report is based only on the information from Kotler et al (2002), which means that information is out of date.
3. ANALYSIS OF CASE STUDY
This section analyses the issues covering segmentation and demand forecast with the aims of identifying the most important strengths and weaknesses of the companies and the opportunities and threats of the environment.
3.1 Bases for Segmentation
Many companies recognise that buyers differ in their needs, perceptions and buying behaviours. For this reason these companies may decide to segment the market and select a target market(s). By targeting a particular segment or segments, companies can meet customer needs better, enhance profitability, and target their communications more accurately (Kotler, p 95). There are several bases that could be used by companies to segment consumer markets. Bases that could be used to segment the Iced Tea market are as follows
- Demographic segmentation - this involves dividing the market into groups based on demographic variables such as age (Nestea has narrowed down promotion to target the 18-26 year olds, p111), sex, income, occupation and nationality. An example of demographic segmentation within the Iced Tea market would be full-time employees. Ready-to-drink Iced Tea could be demanded by this group of consumers because they do not have time to prepare healthy beverages themselves.
- Psychographic segmentation - this type of segmentation involves splitting the market into segments based on social class, lifestyle and personality characteristics. For example health conscious consumers who may demand Iced Tea as a healthier alternative to soft drinks.
- Behaviour segmentation - this involves dividing the market into groups based on consumer knowledge, attitude, use or response to a product.
- .Geographic segmentation - this involves dividing the market into segments depending on the country or region in which consumers live, i.e. consumers who live far into the countryside may not have access to a wide range of healthy beverages, so a company selling Iced Tea might not have a lot of competition within these particular areas. Countries where tea is a traditional drink could also be considered: China, Japan, UK, and India.
These various segments could be considered as viable alternatives. The decision to segment the market and whether to cover all segments or not has to be considered and the alternatives for market coverage will be discussed in a later section.
- Methods of Demand Forecasting
It is also necessary for firms to try to forecast demand in order to make informed decisions about he market. The first step could be to determine the overall size of the market in order to decide which proportion to serve. Future demand for products can be forecast using a number of different methods of Market Research, including
- Surveys and Questionnaires - these can be used to find out consumers' intentions, a typical survey would include a purchase probability scale on which a consumer can clearly indicate their intention to purchased a product within a given time period. However surveys and questionnaires that are mailed to consumers have a rate of return of less than 10%, and firms may have to employ people to carry out street surveys in order to be more successful. However face-to-face surveys are usually proven to be more accurate. This is because consumers are less likely to exaggerate their intentions, when asked directly by a market researcher, than they would be when inside their own home.
- Test Markets - this is the stage of new-product development, or established product sales in a new distribution channel or territory, where the product and the marketing strategy are tested in a more realistic market. This gives the company experience with marketing the product before going to the expense of full introduction.
Time-series analysis - this method of demand forecasting is based on past sales. To forecast for the long term companies may try to identify an underlying pattern of growth and decline in sales that have been the result of basic changes in technology, population and capital formation.
A Test Market would probably be the most accurate way of forecasting demand of Iced Tea. This is because companies who use questionnaires or surveys are relying on the consumer to tell the absolute truth, and state their intentions clearly. If consumers lie about their intention to buy a product then the results of a survey can greatly mislead a company. Whereas a Test Market gives a firm the chance to place their product in realistic market surroundings, and watch how its sales compare with those of competitors, before introducing the product to the actual market. This will save the company a great deal of money should the product be unsuccessful in the market.
- CONCLUSIONS
This section gives the conclusion for segmentation and demand forecast. The conclusion on the Strengths, Weaknesses, Opportunities and Threats for the companies is given in Appendices 1 and 2.
4.1 Segmentation
Companies within the Iced Tea market use two main bases to segment the market. These are demographic and Psychographic bases. An example of a segment identified using a Psychographic base would be health conscious people. This group of consumers respond well to this product because it is convenient and refreshing, but mainly because it is a much healthier alternative to soft drinks. A segment of the Iced Tea market identified using a Demographic base would be business professionals, who do not have a lot of time to spend preparing a beverage. Although Iced Tea may appeal to this group of consumers because it is a light and healthy beverage, the main advantage is that it is ready-to-drink when bought. Demographic and Psychographic bases are the two most popular bases used because they have more relevance to the Iced Tea market.
4.2 Demand Forecast
In order to forecast demand, Test Marketing would be the most reliable source to a company. Although Test Marketing can be expensive, the situation in a test market is extremely realistic and it enables a firm to see how consumers would react to their product in a real market.
5. ALTERNATIVE STRATEGIES AND RECOMMENDATIONS
5.1. Coverage Strategies Alternatives
There are three types of market coverage strategies that companies can choose from when selling a product. These are:
- Undifferentiated Marketing. Any company using this market coverage strategy is choosing to ignore market segment differences, and target the whole market with one offer. Rowntree's use an undifferentiated market strategy to advertise `Polo Mints'. When they promote this product they concentrate solely on the products features and not any target consumers, therefore not alienating any segments of the market.
- Differentiated Marketing. By using a differentiated market coverage strategy, a firm decides to target several market segments and use different offers for each one. Airlines often use a differentiated market strategy to market different types of aircraft seats. Economy-class seats will be promoted to the working class, whereas business-class seats will be targeted at companies who have employees travelling to meetings etc., and first-class seats will be reserved for the small group of consumers who can afford to pay for the most luxurious seats.
- Focused Marketing. Using a focused marketing strategy, a firm decides to target a large share of one or a few segments of the overall market. This market coverage strategy is often used if company resources are limited. An example- of a company who use this strategy is book publishers `Mills & Boon'. They focus their marketing mix at one particular segment of the market. `Mills & Boon' aim their romance novels at ordinary women in search of love and happiness, as this segment makes up the largest share of the market.
5.2 Recommendations
The marketing strategy that a firm chooses will differ depending on the product being sold. Given that Shin Shii has already had great success using an undifferentiated market coverage strategy in Taiwan; it is recommended that they use this strategy again when entering the western markets. Shin Shii used Advertisements that featured people from all age groups, therefore not alienating any market segment. This market strategy should be successful for Shin Shii because their offer will focus on what is common in the needs of consumers. In this case the common need is for a natural drink that complies with people's concerns for their health and the environment, and this is exactly is kind of drink that Kai Shii is presented as. Undifferentiated marketing also provides cost economies, for example the cost of market research and product management is lower due to the absence of segment marketing research and planning. Therefore Shin Shii could afford to spend more on advertising and promoting their range of Iced Teas. The problem with this strategy is the large companies could retaliate and it may be advisable to consider a niche marketing route, perhaps at the more expensive end of the market in the short term.
Similarly Pepsi/Lipton could benefit from using a differentiated marketing strategy. This is because the partnership is associated with the brand name Pepsi', the soft drinks company often target the advertising and promotion of their beverages at a target market of consumers aged from around 12 to 24 years old. They promote 'Pepsi-cola' as a drink for the `new generation' and use teenage idols to attract young consumers to their product. Using a differentiated market coverage strategy, Pepsi/Lipton could take advantage of this association when targeting this group of consumers. But at the same time when Pepsi/Lipton are targeting another segment of the market they can lose the association to Pepsi's `new generation' completely, by referring to their product only as Lipton Iced Tea, and not mentioning `Pepsi' in their promotions. By using different marketing mixes Pepsi/Lipton can better satisfy the needs of each consumer segment.
Lipton however cannot ignore Kai Shii’s strategy of full market coverage and may need to adopt this strategy in order to compete more effectively in the longer term. This will take time but it may be worth in the future.
- Positioning Strategy: It could be recommended that Shin Shii should position Kai Shii as a new age product, alongside Coca-Cola and Pepsi. It should be positioned as a convenient and healthier alternative to soft drinks. Unfortunately for Shin Shii, Lipton Iced Tea has already been positioned in the minds of consumers as a natural and healthy beverage. Therefore, in order to be successful within the market, Shin Shii must try to deposition or reposition Lipton Iced Tea. They could do this through advertisements that show the main differences between the companies Iced Tea ranges. For example Shin Shii could promote the fact that, unlike Lipton Iced Tea, Kai Shii is produced in Taiwan - the homeland of tea an upmarket and authentic product.
- Taking Advantage of Opportunities: the demand for healthy drinks is growing so it is recommended that both companies continue to increase their presence in the market by introducing new products and moving into new countries.
- To overcome their weaknesses, Shin Shii needs to develop expertise in Western markets
- To resolve the threats, the competitors should continue to innovate and introduce new flavours which allows for differentiation.
REFERENCES
Kotler, Philip; Armstrong, Gary; Saunders, John; and Wong, Veronica (2001) Principles of Marketing, Third European Edition, Prentice Hall, Europe; Chap 3
APPENDIX 1
SWOT ANALYSIS FOR PEPSI/LIPTON
APPENDIX 2
SWOT ANALYSIS FOR SHIN SHII
