Snuggie Azerbaijan market entry

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  • Currently, we are at the end of Phase II – your decision today will influence when we can begin Phase III (execution of strategy)
    Analysis of market data for Azerbaijan
    Tools used: PESTLE, Porter’s 5-forces
    Analysis of various market entry strategies
    Tailored to fit the market and product specifications
    Development of a 5-year financial plan
    Calculation of relevant costs
    Sales projections
    Ultimately: is this going to be profitable?
  • *Use past tense (Phase I and Phase II were performed previous to this moment in time which is the board of directors meeting)
    Analysis of market data for Azerbaijan
    Tools used: PESTLE, Porter’s 5-forces
    Analysis of various market entry strategies
    Tailored to fit the market and product specifications
    Development of a 5-year financial plan
    Calculation of relevant costs
    Sales projections
    Ultimately: is this going to be profitable?
  • http://www.internationalbusinesslawadvisor.com/2010/01/articles/business-transactions/from-startup-to-global-domination-in-60-snuggies-or-less-or-what-the-snuggie-can-teach-you-about-going-global/
    What is a Snuggie?
    produced in China
  • Threat of entry of new competitors
    High threat – product is easily imitable
    Threat of substitute products or services
    High threat – simple blanket is a substitute to the Snuggie
    Bargaining power of buyers
    High – dependency on a few large retailers
    Bargaining power of suppliers
    Low – switching cost virtually non existent
    Intensity of competitive rivalry
    Low – no direct competition in the early stages of Phase III
  • Western entrepreneurs act as agents for U.S. companies in Azerbaijan, and an increasing number of Azerbaijani trading firms have established solid track records as partners with Western firms. For U.S. firms not willing to commit resources to the relatively small market of Azerbaijan, an agent or representative may be the best initial approach. In many instances, using a local agent is better, especially if the U.S. good/service is new to the market. For more competitive and developed market segments, a distributor provides
    the best option for business development. Verifying the financial bona fides of prospective partners can be difficult. Given this challenge, potential exporters should plan to visit Azerbaijan to build personal relationships, set up local sales networks, or establish partnerships with local agents or distributors. Not-for-profit trade chambers, such as the American Chamber of Commerce in Azerbaijan (Baku), the U.S. – Azerbaijan Chamber of Commerce (Washington, DC), and AZPROMO (Azerbaijan Trade and Investment Promotion Foundation in Baku) may provide good market insights and help locate well-established local partners. (Doing business in Azerbaijan)
  • Azerbaijan has signed bilateral free trade agreements with seven states of the former Soviet Union, although the trade liberalizing provisions of most of the agreements have not yet taken effect. Azerbaijan signed agreements with: the Russian Federation (September 30, 1992); Moldova (May 26, 1995); Ukraine (July 28, 1995); Turkmenistan (March 18, 1996); Uzbekistan (May 27,1996); Georgia (June 10, 1996); Kazakhstan (June 10, 1997), and Tajikistan (July 13, 2007). (Doing Business in Azerbaijan)
  • Analysis of market data for Azerbaijan
    Tools used: PESTLE, Porter’s 5-forces
    Analysis of various market entry strategies
    Tailored to fit the market and product specifications
    Development of a 5-year financial plan
    Calculation of relevant costs
    Sales projections
    Ultimately: is this going to be profitable?
  • JUSTIFY CHOICE OF RETAIL STORES
    Majority prefers to shop in retail locations
    Touch and buy
    Grab snuggie on the way
  • Collectivist society (Hofstede): advertisements featuring happy families – emotional appeal
  • Analysis of market data for Azerbaijan
    Tools used: PESTLE, Porter’s 5-forces
    Analysis of various market entry strategies
    Tailored to fit the market and product specifications
    Development of a 5-year financial plan
    Calculation of relevant costs
    Sales projections
    Ultimately: is this going to be profitable?
  • Analysis of market data for Azerbaijan
    Tools used: PESTLE, Porter’s 5-forces
    Analysis of various market entry strategies
    Tailored to fit the market and product specifications
    Development of a 5-year financial plan
    Calculation of relevant costs
    Sales projections
    Ultimately: is this going to be profitable?
  • Snuggie Azerbaijan market entry

    1. 1. in Azerbaijan Group 8
    2. 2. Objective  To analyse the relevant factors involved in successfully introducing, marketing, distributing, and selling the Snuggie in Azerbaijan.  Goal  Penetrate the Azerbaijani market profitably and grow at an annual rate of at least 10 % for the next 5 years. 2
    3. 3.  Difficult to gather accurate data on Azerbaijan  Financial data and market data is sparse 3
    4. 4. 4 Phase I Planning and analysis (from HQ) Phase I Planning and analysis (from HQ) Includes: - Product data - Market analysis - Entry strategy Phase II Planning and analysis (from AZB) Phase II Planning and analysis (from AZB) Includes: - Local presence - Analysis of 4 P’s - Growth strategy - Financial analysis Phase III Execution of strategy Phase III Execution of strategy Includes: - Product - Price - Place - Promotion - Management and admin Phase IV Evaluate and adapt Phase IV Evaluate and adapt Includes: - Adapt to market conditions - Evaluation of growth strategy Continuously evaluate and adapt operations
    5. 5. 5 Phase I Planning & analysis Phase I Planning & analysis Includes: - Product data - Market analysis - Entry strategy - Growth strategy Includes: - Product data - Market analysis - Entry strategy - Growth strategy Phase IIPhase II Phase IIIPhase III Phase IVPhase IV
    6. 6.  What is a Snuggie?  The Snuggie is a sleeved blanket which offers both the comfort of a blanket, and the freedom of a shirt or blouse.  Price  Less than £10 in the United Kingdom  Why the Snuggie?  Strong sales in other markets (> 20 million units in one year)  Low cost and relatively easy to distribute (small and light)  Azerbaijan is cold in the winter 6 IIIIII IIIIII IVIV Phase I - Planning and analysis
    7. 7. 7 IIIIII IIIIII IVIV Phase I - Planning and analysis  PEST:  Political  Sufficiently stable political environment (Economist)  Highly corrupt (Corruption Perception Index)  Government increases efforts to join WTO  Economic  Annual growth of economy has exceeded 10 % since 2000  Stable currency - moderate averaged inflation, but strong fluctuation (hedging strategy)  Low import tax on textiles (5 %)  Social  Positive attitude towards Western goods  90 % speak Azeri  Technological  Lack of central heating and cold winters  Unreliable electricity supply  Low, but growing Internet user base
    8. 8. 8 IIIIII IIIIII IVIV Phase I - Planning and analysis  Porter’s 5-forces Buyer bargaining power Buyer bargaining power (High) Dependency on a few large retailers Substitute product threat Substitute product threat (High) Simple blanket is a substitute Supplier bargaining power Supplier bargaining power (Low) Switching cost non existent Medium competitiv e rivalry Medium competitiv e rivalry New competitor threat New competitor threat (High) Product is easily imitable
    9. 9. 9 IIIIII IIIIII IVIV Phase I - Planning and analysis  Transportation and shipping
    10. 10. 10 IIIIII IIIIII IVIV Phase I - Planning and analysis  Entry mode: direct exporting  Best option since the market is relatively small to commit resources  Local agent and company manager on-site  Production in China  Low-cost labour; economies of scale  Shipping is affordable (low weight product)  Flexible, allows quick up-ramping of supply and vice versa  Entry scale: small  Target top 20 % income segment: most disposable income, over 1.8m potential market  Target customers in main urban areas, mainly Baku, the capital  Entry timing: late fall 2011  Cold period starts (tº down to - 10º C)  New Year’s Day (1 January): major holiday in Azerbaijan, tradition of gift giving  Main competitor, Slanket, not in the market  1st mover advantage  Also, Slanket is too expensive
    11. 11. 11 IIIIII IIIIII IVIV Phase I - Planning and analysis  Organic growth strategy  Maintain export office  Increase staff to four towards year 5  Innovation: follow up regular Snuggie with:  Luxury Snuggie (cashmere)  The Doggie Snuggie  Patterned Snuggies (Zebra pattern etc.)  Evaluate regional expansion (?)  Baku warehousing hub  Free trade agreements - Georgia and Turkmenistan
    12. 12. 12 Phase IPhase I Includes: - Local presence - Analysis of 4 P’s - Financial analysis Includes: - Local presence - Analysis of 4 P’s - Financial analysis Phase II Planning & analysis Phase II Planning & analysis Phase IIIPhase III Phase IVPhase IV
    13. 13. 13  Local presence  In Azerbaijan, relationships are crucial to business success  several visits before we commit  building trust  Local sales office staffed by experienced expatriate manager  Our agency AZPROMO coordinates between us and:  Mr. Elmar Farajov (Head of International Projects, Min. of Trans.)  Selim Ariturk, Economic/ Commercial Officer (US Embassy)  Narqiz Nasrullayeva-Muduroglu, Executive Director (US Chamber of Commerce, Baku)  Sales office:  Leased from Baku Cargo Terminal  Flexible space for up to 4 employees  Expatriate manager  Intern (year 2 onwards)  2x Assistant manager (year 2 and 5) IIIIII IIIIII IVIV Phase II - Planning and analysis
    14. 14. 14  Product  Snuggie: blanket with sleeves  Strong branding (Western name sounds “trendy”)  Snuggie logo on product  Descriptions on the package in Azeri language  Price  Market-oriented pricing  Adjusted PPP* = (PPP of top 20% of population) (PPP of USA)  Price = (US Retail Price) x (adjusted PPP)  Retail Price: $7.29 (5.83 Azerbaijani New Manat) IIIIII IIIIII IVIV Phase II - Planning and analysis
    15. 15. 15  Place  Warehouse: at Baku Cargo Terminal  Retail outlets (75 % of supply):  Since the majority of people prefer shopping in large retail stores  Sell at “Ramstore”, “Continental”, and “New World”  These are high-end supermarkets and malls  Demo stand inside the Ramstore mall  Petrol stations’ convenience stores:  SOCAR stations (15 locations)  Teleshopping (20 % of supply):  Proven track record of sales via this channel  Additional positive effect on promotion  Online shopping (5 % of supply):  Low but growing number of Internet users  Preference for immediate purchase in shops IIIIII IIIIII IVIV Phase II - Planning and analysis
    16. 16. 16  Promotion  Start campaign in early fall 2011 to generate awareness,  In time for cold winter season  Emphasis  Popularity in the West: “20 million sold in the US”  Energy savings (alternative to electric heating in winter; homes have no central heating)  Snuggie as a perfect gift (New Years’ tradition of gift giving)  Emotional appeal (family, etc.: collectivist society)  Media  TV (teleshopping):  through ANS TV, Lider and MTV (young and trendy)  Newspapers: popular media  Demonstrations at shopping malls IIIIII IIIIII IVIV Phase II - Planning and analysis
    17. 17.  Cost 2011 2012 2013 2014 2015 Order Amount Snuggies $68,914.29 $76,571.43 $84,228.57 $91,885.71 $99,542.86 Production Cost $68,914.29 $76,571.43 $84,228.57 $91,885.71 $99,542.86 Transportation Cost $30,150.00 $33,500.00 $36,850.00 $40,200.00 $43,550.00 Overhead Cost $106,675.00 $109,400.00 $127,400.00 $130,400.00 $148,400.00 Total Cost $274,653.57 $296,042.86 $332,707.14 $354,371.43 $391,035.71 IIIIII IIIIII IVIV Phase II - Planning and analysis
    18. 18. IIIIII IIIIII IVIV Phase II - Planning and analysis 2011 2012 2013 2014 2015 Retail 258428.57 268000.00 273742.86 275657.14 273742.86 TV 75805.71 84228.57 92651.43 75805.71 54748.57 Online 25119.2571 55820.5714 92103.943 167461.714 253983.6 Total Revenue 359353.54 408049.14 458498.23 518924.57 582475.03  Revenue
    19. 19. IIIIII IIIIII IVIV Phase II - Planning and analysis  Income statement End of Financial Year 2011 2012 2013 2014 2015 $ Revenue 359,353.54 408,049.14 458,498.23 518,924.57 582,475.03 Employee Cost 80,000.00 83,000.00 101,000.00 101,000.00 119,000.00 COGS 114,785.00 128,900.00 158,290.00 172,080.00 201,470.00 Administration and other cost 50,400.00 54,000.00 57,960.00 62,916.00 67,707.60 EBIT 114,168.54 142,149.14 141,248.23 182,928.57 194,297.43 Finance cost 0.00 0.00 0.00 0.00 0.00 Tax (20%) 22833.709 28429.829 28249.646 36585.714 38859.486 Net Income 91,334.83 113,719.31 112,998.58 146,342.86 155,437.94
    20. 20. IIIIII IIIIII IVIV Phase II - Planning and analysis  Break even  Break Even Point = 34 301 units  After approximately after 6 months
    21. 21. 21 Phase IPhase I Includes: Product Price Place Promotion Management and admin Includes: Product Price Place Promotion Management and admin Phase IIPhase II Phase III Execution of strategy Phase III Execution of strategy Phase IVPhase IV
    22. 22. 22  Management and administrative tasks  Continuously monitor important figures  Sales (and location)  Inventory  Maintain relationship with sales outlets and distributors  Assess need for more staff  Regular reporting back to HQ in the US  Evaluate 4 P’s  Product  Price  Place  Promotion IIIIII IIIIII IVIV Phase III - Execution
    23. 23. 23 Phase IPhase I Includes: - Adapt to market conditions - Evaluation of growth strategy Includes: - Adapt to market conditions - Evaluation of growth strategy Phase IIPhase II Phase IIIPhase III Phase IV Evaluate and adapt Phase IV Evaluate and adapt
    24. 24. 24  Evaluate sales figures  Distribution channel reconfiguration?  Change marketing mix?  Evaluate growth strategy  Evaluate competition  Realistic?  Evaluate market conditions  Repeat analysis from Phase I if deemed necessary IIIIII IIIIII IVIV Phase IV - Evaluate and adapt
    25. 25.  Our analysis in Phase I and Phase II predicts we will be able to successfully introduce the Snuggie into the Azerbaijani market in 2011. We will be profitable in year 1.  Year to year growth in the following 4 years will be approximately 10 %. 25
    26. 26. QUESTIONS? 26
    27. 27.  Appendix A Proof of price  Appendix B Complete financial analysis  Appendix C References 27
    28. 28. 28
    29. 29. Appendix B – Complete Financial Analysis 29 Microsoft Excel Worksheet
    30. 30.  BCT, 2007. [online] Available at : http://www.bct.az/en/services_equipment.asp [Accessed 19 November 2010]  Datamonitor,2010 . [online] Available at :http://www.marketlineinfo.com.ezproxy.webfeat.lib.ed.ac.uk/library/DisplayContent.aspx? N=4294669485 [Accessed 16 November 2010]  Deloitte,2010. [online] Available at : http://www.deloitte.com/assets/Dcom-Global/Local %20Assets/Documents/Tax/Intl%20Tax%20and%20Business %20Guides/2010/dtt_tax_highlight_2010_Azerbaijan.pdf [Accessed 21 November 2010] • Earth Trends,2003. [online] Available at : http://earthtrends.wri.org/pdf_library/cp/eco_cou_031.pdf [Accessed 18 November 2010] • FITA,2010. [online] Available at : http://www.fita.org/useful/archives/231.html [Accessed 18November 2010] • Petrolplaza,2010. [online]Available at : http://www.petrolplaza.com/news/industry/MiZlbiY5NzY0JjQmMTYmOTAmMQ%3D%3D [Accessed 20 November 2010] • Prant,2006 . [online] Available at http://www.prant.net/?page=lo [Accessed 19 November 2010]  The Street,2010. [online] Available at: http://www.thestreet.com/story/10660101/snuggie- cashes-in-where-others-failed.html [Accessed 15 November 2010]  U.S Department of State,2010. [online] Available at : http://www.state.gov/r/pa/ei/bgn/2909.htm [Accessed 18 November 2010] 30 Appendix C – References

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