1. Target Market Selection and Timing Strategies ofInternational Market Entry K. Navi Phifer Michael Gross International Management WS 2011-2012 HTW-Berlin 16 Dec 2011

2. Outline Market Entry Timing Strategies Target Market Selection - selection process - example Case Study: Groupon - brief history/facts - entry into Chinese market Conclusion 16 Dec 2011 K. Navi Phifer - Michael Gross 2

3. Timing Strategies1. Dynamic Timing2. Time of Year3. Wave4. Sprinkler5. Waterfall 16 Dec 2011 K. Navi Phifer - Michael Gross 3

4. Dynamic Timing For new design and market entry of new products Company should constantly keep knowledge ofproduction efficiency and potential market up-to-date The product should continuously be improved untilentering the market, when the design process stops. Created by Sechan Oh and Ozalp Ozer U of Texas Dallas (2010) 16 Dec 2011 K. Navi Phifer - Michael Gross 4

5. Time of Year Some industries are busier at certain times of the year Example: accountants not wanting new software right before taxes are due Example: childrens toys for Christmas Closely related to geographical market segmentation 16 Dec 2011 K. Navi Phifer - Michael Gross 5

6. Wave Developed by management consultant Christoph Lymbersky (also developed sprinkler & waterfall timing strategies) Applies to timing entry into international markets New product introduced simultaneously into countries with similar cultures & characteristics Example: product launched in Germany, Austria and Switzerland at 16 Dec 2011 K. Navi Phifer - Michael Gross 6

7. Sprinkler Applies to timing entry into international markets Product is launched into all suitable countries at the same time Example: countries with same language 16 Dec 2011 K. Navi Phifer - Michael Gross 7

8. Waterfall Applies to timing entry into international markets Product is launched in one country at a time New markets entered only after sales are established in previous market(s) 16 Dec 2011 K. Navi Phifer - Michael Gross 8

9. Target Market SelectionTarget Market: group of individuals who have similar needs, perceptions and interests; show inclination towards similar brands and respond equally to market fluctuations. Understand consumer lifestyle Age group Income Spending capacity Education & profession Gender Mentality, paradigm & thought process Social status Environment 16 Dec 2011 K. Navi Phifer - Michael Gross 9

10. Target Market Selection Example: Selling Soap Need: why do people use soaps?Segment 1: Against Body Odor Soaps with a strong and lasting fragrance Marketing professionals Sales Representatives People exposed to sun for a longer duration Individuals travelling by public 16 Dec 2011 K. Navi Phifer - Michael Gross 10

11. Target Market Selection Example: Selling Soap Need: why do people use soaps? Segment 2: Hygiene & Cleanliness To fight germs and infections - Soaps for a high standard of hygiene Individuals working in hospitals, nursing homes and research centres Individuals working in unhygienic conditions 16 Dec 2011 K. Navi Phifer - Michael Gross 11

12. Target Market SelectionExample:Selling SoapNeed: why do people use soaps?Segment 3: Anti-aging, beautifying For a whiter, brighter skin - Soaps to improve your skins natural glow Ages 30 60+ Female 16 Dec 2011 K. Navi Phifer - Michael Gross 12

13. Target Market SelectionExample:Selling SoapNeed: why do people use soaps?Segment 4: Eco-friendly Environmentally friendly soaps, sustainably made for a better, greener future Ages teens 40 Larger spending capacity 16 Dec 2011 K. Navi Phifer - Michael Gross 13

14. Groupon Case Study: Brief Facts founded November 2008 Its name blends group and coupon strategy: acquisition and renaming What is the core of Groupons operation? 16 Dec 2011 K. Navi Phifer - Michael Gross 14

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16. Groupon Case Study first to offer group buy with massive discounts unique style of One-Deal-Per-Day-Per- Location they filled in a niche market in eCommerce, they came and they conquered. 16 Dec 2011 K. Navi Phifer - Michael Gross 16

17. Groupon Case Study:Acquisition Groupons first deal was a half-price offer for pizzas for the restaurant on the first floor of its building in Chicago Groupon serves 500 markets and 44 countries: United States, Canada, Taiwan, Brazil, Germany, Greece, Finland, France, the Netherlands, Belgium, the United Kingdom, India, Ireland, Israel, Italy, Poland, Portugal, Spain, Puerto Rico, Japan, Turkey, Mexico, Peru, Chile, Colombia, South Korea, Sweden, Argentina, the United Arab Emirates, Norway, Romania, Singapore, Malaysia, Hong Kong, Mainland China, Russia and South Africa. K. Navi Phifer - Michael Gross 16 Dec 2011 17

18. Groupon Case Study:Acquisition 16 Dec 2011 K. Navi Phifer - Michael Gross 18

19. Problems and failureA successful deal could temporarily swamp a small business with too many customers, risking a possibility that customers will be unsatisfied, or that there wont be enough product to meet the demand 16 Dec 2011 K. Navi Phifer - Michael Gross 19

20. Problems and failure Groupon doesnt charge businesses upfront to have their ads run on the site Groupon takes half of the profits generated by the promotion Groupon receives the full amount from the sales upfront Then they pay the first 33% in five days and the rest by the end of 55 days 16 Dec 2011 K. Navi Phifer - Michael Gross 20

21. Market Entry China1) They decided to employ 1000 permanent staff by the end of March2) top international education institutions master degree students building a team of local experts in Beijing by paying above the industry average salaries local clones, their primary competitors are ready for that and they took the initiative in playing dirty 16 Dec 2011 K. Navi Phifer - Michael Gross 21

22. Market Entry China Battle of Clones according to the latest statistics 1215 Groupon clones with 265 already bankrupt (up till 24th Jan 2011) ready to battle over 1000 clones? owned by local internet companies equally deep pockets their own territorial market ready to start a pricing war if their terrioritorys invaded 16 Dec 2011 K. Navi Phifer - Michael Gross 22

23. Market Entry China The differences between Chinese clones and Groupons traditional business Its not 1 deal per day per location, its as many deals as possible covering as many locations as possible Discounts are not enough to attract huge volume of customers offering free deals is 16 Dec 2011 K. Navi Phifer - Michael Gross 23

24. Market Entry China Groupon has done one thing right for their venture in China Groupon in a strategic relationship with Tencent the Chinese internet giant who dominate IM in China with QQ (etimated of 640 million users) both companies are reported to enter a 50/50 stake relationship for Groupons ventures in China rising a pool of 950 million euros thats believed will be mostly invested in China. 16 Dec 2011 K. Navi Phifer - Michael Gross 24

25. Market Entry China Just two months ago at the end of August, Groupon closed 13 of its Chinese locations and fired over 400 full-time staff. Groupon is just the latest example of a Western Internet company to fail in China. four typical mistakes Western Internet companies make when entering the Middle Kingdom 16 Dec 2011 K. Navi Phifer - Michael Gross 25

26. Failures1. Arrogance Groupon faced an uphill battle from the very beginning due to its arrogance. Before Groupon entered China, the US firm proclaimed that it would become Chinas largest shopping site. In Europe, Groupon had adopted a strategy of using high salaries to poach competitors top employees and assumed a similar strategy would work in China as well The company also thought that it could just pay huge sums to acquire Lashou, the largest Chinese group- buying site in order to enter the Chinese market, but was shocked when the Chinese site refused their offer. 16 Dec 2011 K. Navi Phifer - Michael Gross 26

27. Failures2. Lack of Local Understanding Groupons China head seemed to think that all international markets were alike. At first Groupon insisted that its partnering vendors split profits 50-50, without taking into account the realities of Chinas group-buying environment. Given so many existing players in the market, vendors have the upper hand when negotiating with group-buying operators and typically leave their partner only 10 percent of the profits instead of 50 percent. Local vendors were so taken back by Groupons aggressive sales tactics that they often told the companys sales people to calm down and come back later with more realistic expectations. Groupon insisted on using mass email marketing, despite being warned that Chinese people seldom read that type of email. 16 Dec 2011 K. Navi Phifer - Michael Gross 27

28. Failures3. Misaligned Management Structure Groupons failure to draw more heavily on local talent in its management structure limited its ability to adapt to local nuances and succeed in the Chinese market. only two management members were Chinese: one from mainland China and the other from Hong Kong. Groupons operations in more remote parts of China were run by foreigners with limited understanding about the local nuances of the Chinese market. foreign managers were managing Chinese employees in a Western style very low efficiency 16 Dec 2011 K. Navi Phifer - Michael Gross 28

29. Failures4. Wrong Choice of Local Partner Groupon made a very smart decision in partnering with Tencent, which next to Alibaba Group, is a true leader in Chinas Internet space. Where Groupon went wrong was not making use of the numerous advantages a partnership with Tencent has to offer. For example rather than rely on Tencents local market expertise, Groupon instead to chose to hire expats to run its operations all over the country. 16 Dec 2011 K. Navi Phifer - Michael Gross 29

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31. ReferencesTarget Market & Timing http://www.managementstudyguide.com/target-market- selection.htm http://www.donaldmcmichael.com/market_entry_strategy_intr o.htm http://smallbusiness.chron.com/market-entry-timing-product- marketing-strategy-5074.html http://www.outsource2india.com/services/market_researchser vices.asp?src=hp_mrs Wright State University: Market Entry Strategies: Pioneers Versus Late Arrivals MSOM: 2010 Manufacturing and Service Operations Management Annual Conference Abstracts: A Dynamic Strategy to Optimize Market Entry Timing and Process Improvement Decisions "Market Entry Strategies"; Christoph Lymbersky; (2008) 16 Dec 2011 K. Navi Phifer - Michael Gross 31

32. ReferencesGroupon http://www.screenwerk.com/2011/12/02/data-suggest-its-too-early- to-sell-grpn/ http://www.screenwerk.com/2011/06/03/groupons-numbers-day-2-is- the-model-broken/ http://www.wordstream.com/blog/ws/2011/06/17/groupon-bad-press http://businessmodelinstitute.com/is-groupons-business-model-the- foundation-for-failure/ http://blogs.reuters.com/felix-salmon/2011/08/27/the-future-of- groupons-business-model/ http://www.wordstream.com/blog/ws/2011/06/17/groupon-bad-press http://www.penn-olson.com/2011/11/04/4-mistakes-behind- groupons-failure-in-china/ http://www.retaildoc.com/blog/groupon-worst-marketing-business/ http://techrice.com/2011/02/12/groupon-on-course-for-fail-in-china/ 16 Dec 2011 K. Navi Phifer - Michael Gross 32