In venturing into Eastern Europe, what aspects of the marketing environment must the leading white goods manufacturers consider? Discuss.

University Degree Business and Administrative studies

MARKETING

Question 1: In venturing into Eastern Europe, what aspects of the marketing environment must the leading white goods manufacturers consider? Discuss.

Ans: The fall of Berlin wall led top 3.25 million Europeans starved for better goods and services and waiting for better quality life integrate with western Europe to form a consumer base bigger and diverse than the Americans.

Ten central and Easter European countries i.e. Bulgaria, Czech republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia have applied for the membership to the European Union at the mid 1990s. They would bring great market potential and business opportunities if these countries became members of European Union. Eastern Europe can be a very valuable market to explore although companies might face some difficulties in exploiting the market.

Whirlpool which is an American company and Electrolux a western European company have to consider the conditions of eastern Europe before venturing into white good markets there.

In order to venture into Eastern Europe, there are many aspects that should be considered. These aspects can be classified into macro marketing environment and the micro marketing environment. The following analysis will carry out based on these two key areas:

MACRO ENVIRONMENT (PEST ANALYSIS)

The main elements of the macro environment are Political-legal, Economic, Social and Technological forces the impact these forces will have to be considered by the white good companies. The impact of each of these elements will differ according to market and geographic area. Where more than one market and /or geographic area is being considered, it is necessary to consider the relevant environmental aspects for each.

POLITICAL FORCES:

Political influence may be significant in terms of legislation on trading, pricing, fiscal policy, employment, health and safety at work practices and product liability. In Eastern Europe it must be considered that being under communist rule for nearly 2 decades has alienated these countries from western nations.

Through deregulation by changing business laws and tax incentives for new investments over the last ten years, many governments of eastern European countries, which were once in communistic Bloc in Eastern Europe, have been gradually privatising former state-run companies and have encouraged the formation of a vibrant private sector .Some governments have made significant progress in stabilizing inflation through effective implementation of monetary policy. Therefore the state polity and liberalization of trade policies of governments provide favourable venture environment for any foreign investor in Eastern Europe. In other word, it is important for white goods manufacturers to investigate the government policy and understand the venture environment before enter the market. It is also good idea for white goods manufacturers to establish connection with the government.

Economic forces

Economic conditions of these countries must be considered with care before venturing into their markets , making transitions from communism to capitalism these countries are in recess in several sectors and recession or boom’ will impact on any market, as well as the customer demand and spending behaviours.

Relative to the above political factor, economic factor is the actual result of government’s trade polities continued with the old example, imports have increased as a result of liberalization of trade policies of Eastern Europe and the potential threshold membership with the Europe Union. The free trade agreements of all duties on products have increased business opportunities for European firms through liberalization of trade. As a result, due to import liberalization policies and consumers' preferences for foreign products, now is a good opportunity for European Union countries to penetrate Eastern Europe market. Thus, economic factor also is a significant aspect for white goods manufacturers to consider.

Also the emergence of middle class and upper class in these countries have severe impact on spending and quality issues.

Social forces:

As discussed earlier the formation of social classes something which the communist tried to remove in their communes has led to segmentation of markets there for even in a single market the requirements would be diverse and prices should thus be in a wide range to suit everyone.

Another significant aspect should be considered is consumer ...

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Also the emergence of middle class and upper class in these countries have severe impact on spending and quality issues.

Social forces:

Another significant aspect should be considered is consumer pressure on companies to produce products which are less harmful to the earth’s environment, with less waste, and which are produced in a more ecologically sensitive manner: the ‘greening consumer.’

For example, as we all known, the CFC is widely used in freezer, fridge and air-condition as the most refrigerant all along. The CFC’s in the fridge are kept in the form of liquid, but during the refrigeration period CFC easily gasified and rose into the upper atmosphere. CFC is the mostly reasons for the destruction of ozonosphere. Hence new energy refrigerators and air-condition also reflect growing consumer concerns about the renewable resources and atmospheric pollution. Currently investigate new substitute of refrigerant and design more efficient products become urgent goal of white goods manufacturers.

Technological forces:

Technology is quickly evolving and changing, affecting how people satisfy their needs and their lives.

Technology is less subject to country boundaries than are legal ,economic and political forces and to a lesser social and cultural forces.

Predicting a change in technical products is relatively easy in specific industries ,but forecasting their success is not as easy .Eastern European countries ,which are not technologically advanced and do not have an excellent communication systems pose problems in product promotion .they lack people for technical jobs and computer literacy is not very common ,this thing along with transport can be a problem for white goods manufacturer.

Micro Environment

The elements of the micro marketing environment are aspects that are peculiar to the individual company concerned rather than market specific. The key items of the microenvironment are direct competition, company’s resource base and customers’ buying power.

Competition

It is necessary to consider the nature and degree of competition in a product area from similar products.

For example, since 1990, the total market demand for household appliances has experienced steady growth in eastern European market. Consumer demand for higher quality than is produced domestically has resulted in increasing imports. Foreign and domestic brand competition has tightened, and both quality and price now play an important role in consumers' decisions. In general, European Union manufacturers have gained the largest shares rate in Eastern European household appliance market. Table.1 shows the foreign companies’ activity on the Hungarian market. Therefore, white goods manufacturers should consider the market competition and its own competition strength to their target market.

Table.1 Foreign brand (focus on the white goods aspect) marketing analysis

Source: Hungarian household consumer goods research in 1999.

The company’s resource base

To venture into Eastern Europe the white goods manufacturers should clearly realize that the key competitive factors are price, quality, service, and increasingly design. The price factor can be balanced out when foreign suppliers are able to keep to delivery terms, provide excellent after sales service and are willing to negotiate terms of financing. A successful white goods manufacturer should establish representative offices or agents that constantly keep up with market trends and have close and direct contacts with the local household appliances industry.

Customers’ buying power

Customers’ requirements and perceptions must constantly be monitored. It impacts on the business’s performance. (The following analysis based on Polish household application Market Research in 1999)

For example, Polish families are generally well equipped with household appliances. Many families are planning to purchase new equipments. In table2 shows the ranking list of white goods owned by households.

Table.2 Particular white goods market share analysis

Source: Polish Indicator Market Research Company Completed in January 1999

Almost every Polish household has a refrigerator (99.7%) and gas or electric cooker (75.1%). Trade sources indicate that the best import and sales potential over the next several years will be:

- dishwashers

- freezers

- microwaves ovens

- automatic washing machines

White goods manufactures are typically products that are purchased approximately every 5-7 years. Demand for the white-goods is increasing due to the consumer's yearn for the latest equipment to replace their often aging and less efficient machines. Many households replaced obsolete equipment, especially refrigerators and washing machines. For these maturity manufactures, the auxiliary functions, variety of color, service features and well-designed equipment are the most important factors in market strategy. These problems also are the considered carefully by the manufacturers in further market research.

The population's increasing buying power is also stimulating market growth. New to market products, such as microwave ovens and dishwashers (that began to appear in the 1990s) are now being bought with increasing frequency. For this potential rising market the perfect functionality, stability of price and good after sale service should be the most advisement before these products launch into market.

Question 2:

Why has Whirlpool adopted a customer service oriented strategy based on the augmented product? Why might some customers prefer such a service-led product offering? Explain which customers.

Fig. 1 Augmented product of Whirlpool

Competition these days is not just about technological superiority of the product because there is not much of a difference in technology of the products of the same category .Now people are more concerned about the social environment ,atmospheric pollution and the services that are rendered to them. that is the reason why the service oriented strategy has come into existence.Whirlpool adopted a customer service oriented strategy to treat the challenges from the Electrolux through combining the core product with the relative component of packaging and support services. Fig.1 shows the customer service strategy of augmented product

The core product is the basic product shell with the functional features. In the packaging component, the aspects of quality, packaging, styling and price guarantee the basic product quality standard. Adding brand name, trademark and features, the entire nature of this product will change in the eyes of the customer. In other words, the customer will naturally differentiate Whirlpool washing machine with other brands. Whirlpool washing machine means the reliable quality, high price, good staff attitude and etc. Customer contact, staff attitudes and behaviors are equally important in the customer’s choice. They are all clues to the specific nature of the core product, which most customers are unable to judge technically for themselves. The support services component would include after sales service, installation, delivery, warranty and ancillary services. Why? If we look at the problem from the customer’s point of view, it is fairly obvious. When the customer is considering the purchase of washing machine, there are many questions need to be answered. For example, how reliable is the washing machine? What are the service charges? How fast will the service and repair be carried out? What guarantees and maintenance contracts are available? The support services components are becoming more and more important as Whirlpool product differentiators.

Reference to the Fig.1, we know eighty per cent of the customer choice is made up from a consideration of the outer two rings, the support services component and the packaging component. This is because customers are not technically capable of assessing the core component. It is because this reason that Whirlpool acquires such strategy of augmented product to beat its rivals by attracting own customers and making people recognized the brand.

The support service is regarded as a necessary component of whirlpool product. That means Whirlpool sales any its product with a relative package of supporting service. It results the rising of product selling price directly. But those customers, who are with high income and have enough disposal capital, don’t care the price difference relatives to other equal product. They pay more attention to the features, service quality and convenience. Also because the Whirlpool’s high price decides the customer segment, brownstones customers may are willing to purchase the Whirlpool product. The brand name of Whirlpool not only means high quality also represent the social status.

Question 3:

Whirlpool and Electrolux have adopted very different branding strategies in their head-to-head global battle. Why? What are the relative advantage and disadvantages of the two companies’ respective approaches?

First it should be known what a brand is and is not , only then we can go about the process of branding and branding strategy. First a brand is not just the logo,tagline,packaging or the look and feel of the ads and our website, these are just graphical parts of the brand identity and are often narrowly and incorrectly referred to as branding ,there is a much broader definition shared by many in the brand management community .it should be remember that a brand resides in the heart (feelings)and minds (intellect )of the customers and prospects .It is the sum total of their experiences and perceptions ,some of which you can influence and some you cannot. So let look at the how whirlpool and elctrolux want their customers to perceive them.

Whirlpool adopts the single-branding strategy in this white goods battle. Due to the high quality and high price company mainly focuses on the high market position. Also because of this reason they may lose some market share of low position. But now Whirlpool occupies the 13 per cent of the market and leadership in pan-Europe, and has a stable customer segment is high position. There is no doubt that these special customers will prepare to pay more money in better features and reliability and it would effectively increases company profit. Hence better improvement of features and service system to satisfy the demands of brownstone customers is the Whirlpool main goal.

As the main rival of Whirlpool Electrolux adopts the opposition business strategy: using multi-branding strategy to gain more market share. Electrolux, Zanussi and AEG are consisted of Electrolux family. These three brands offer a mix of price, feature, distribution and brand value ingredients. AEG occupies a high position, Zanussi focus on the low to middle value position, and Electrolux mainly gains the upper middle market position. It together provides Electrolux family with a formidable range of marketing options. Electrolux attempts to target different customer groups and differentiated branding strategies. Gaining more market segment and meeting more different customers requirements are Electrolux business goal in order to increase the profit-making opportunity as possible as well.

Whirlpool

Advantage:

Although augmented product of customer strategy may cost more than basic customer service, it can help protect the brand name: Whirlpool and reduce problems caused by poor dealer service.

a. Protect brand

Reference to the above analysis for the augmented product, we know, most customers are unable to judge the product quality technically. Usually they pay more attention to customer service. They naturally combine the customer service level and the product quality, and regard it as the critical standard of entire brand quality. Many aspects, such as the reliability of product, the attitude and technique of customer service staff, the repair cost and period and etc, reflect the consumers’ brand choice. Once these requirements couldn’t be achieved satisfactorily, the consumers will attempt to other brand product. In other words, service quality decides brand quality.

In order to enhance brand competition, Whirlpool is considered fully to accommodate the European regional and cultural differences. Whirlpool sales arm operates 19 sales teams, with 650 representatives liaising with over 4000 trade partners.

In order to gaining market penetration, company builds up customer and dealer service levels. For customer aspect, Whirlpool increases service level: guarantee replacement, establishing care hotline, offering long period guarantee and offering product refund. Whirlpool also offers a range of financial services to retailers.

b. Reduce problems caused by poor dealer service.

Implementation of augmented product requires extensive training of dealer repair personnel and the establishments of regional service centers run by organization. Hence Whirlpool increases the investment in dealer education, electronic data interchange, trade marketing, after sales service, and dealer and strategic trade partnerships. Whirlpool not only set up the original equipment manufactures service centres in North American, but also establishes the regional customer service centres in Germany, the UK, Belgium, Holland and Austria.

Repair work and after sales service can increase the profit-making opportunity.

Whirlpool may offer the free repair work and after sales service to customer within warranty period. Whilst when the products owned by customers are out of warranty and require periodic repair, then the active solicitation of service work can be a lucrative business for company profit.

Disadvantage:

High price limits the market share.

For instant, and basic Whirlpool washing machine is only 100 pounds, but its

selling price is 200 pounds. (Including the worth of support service). While other brand washing machine with equal quality still is 100 pound. Those customers with basic incomes likely couldn’t purchase this machine because of the extra service cost.

Too great reliance on service profits maybe will hamper Whirlpool product improvements and allow competitor to grow by introducing new item.

Electrolux

Advantage:

Multi-branding strategy considers the requirement of increasing segmentation of specialized customers. This strategy can generate significantly higher revenues.

Electrolux’s branding strategy belongs vertical multi-branding type. Table.3 illustrates the Electrolux multi-branding strategy.

Table. 3 the multi-branding strategy of Electrolux company

This strategy can satisfy the different customers’ requirement as possible as well. Not matter you are seeking the basic washing machine of 100 pounds or the 400 pounds one with the warranty and special service.

Disadvantage:

Electrolux focus on the horizontal mark share. But those problems, such as product improvement, good after sales service, suitable distributions, setting up good retail arm and material supply line and etc. are strongly affected by the regional and cultural differences. Those are vertical development problems. Electrolux exists little lack of attention in these significant aspects.