Snuggie Azerbaijan market entry

inAzerbaijan

Group 8

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

Difficult to gather accurate data on Azerbaijan Financial data and market data is sparse

3

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 IVEvaluate and

adapt

Phase IVEvaluate and

adapt

Includes:- Adapt to market conditions- Evaluation of growth strategy

Continuously evaluate and adapt operations

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

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 IVIVPhase I - Planning and analysis

7


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


Porter’s 5-forces

Buyer bargaining

power

Buyer bargaining

power

(High)Dependency on a few large retailers

Substitute product threat

Substitute product threat

(High)Simpleblanket is asubstitute

Supplier bargaining

power

Supplier bargaining

power

(Low)Switching costnon existent

Medium competitive rivalry

Medium competitive rivalry

New competitor

threat

New competitor

threat

(High)Product iseasilyimitable

9


Transportation and shipping

10


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


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

Phase IPhase I

Includes:- Local presence- Analysis of 4 P’s- Financial analysis

Includes:- Local presence- Analysis of 4 P’s- Financial analysis

Phase IIPlanning &

analysis

Phase IIPlanning &

analysis Phase IIIPhase III Phase IVPhase IV

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 IVIVPhase II - Planning and analysis

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)


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


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 Online: baku.ru (an Azerbaijani Facebook)


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



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


Income statementEnd 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


Break even Break Even Point = 34 301 units

After approximately after 6 months

21

Phase IPhase I

Includes: Product Price Place Promotion Management and admin

Includes: Product Price Place Promotion Management and admin

Phase IIPhase IIPhase III

Execution of strategy

Phase IIIExecution of

strategyPhase IVPhase IV

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 IVIVPhase III - Execution

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 IIIPhase IVEvaluate and adapt

Phase IVEvaluate and adapt

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 IVIVPhase IV - Evaluate and adapt

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

QUESTIONS?

26

Appendix A Proof of price Appendix B Complete financial analysis Appendix C References

27

28

Appendix B – Complete Financial Analysis

29

Microsoft Excel Worksheet

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