Excerpt
Contents
Fritz-Kola: The Concept
The UK Macro Environment
Political Factors
Economic Factors
Socio-economic Factors
Technological Factors
Environmental Factors
The Micro Environment
Soft Drinks Market Overview
Consumers Trends
Competition
5-Forces Analysis
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Marketing Objectives
Build brand awareness
Increase market penetration
Make use of Segmentation and Targeting
Strategy
The Ansoff Matrix
Porter’s Generic Strategies
Segmentation, Targeting, Positioning
Implementation
Product
Price
Place
Promotion
People
Process
Control
Bibliography
Table of Figures
Figure 1: The Political Instability Index World Map ( (Economist Intelligence Unit, 2011) ...
Figure 2: Corruption Perceptions Index 2010 (Transparency International, 2010)
Figure 3: Estimated and projected UK population mid-2008 and mid-2033 (ONS, 2009)
Figure 4: Ethnic group diversity indices, local authority districts (Large & Ghosh, 2006)
Figure 5: Purchasing power in urban areas in the UK (University of North Carolina, 2009)
Figure 6: Ansoff’s Product/Market Matrix (Stockdale, 2008)
Figure 7: Three Generic Strategies (Provenmodels, 2011)
Figure 8: Balanced Scorecard (SmartKPIs, 2010)
Table of Charts
Chart 1: Income distribution for the total population (Easton, 2010)
Fritz-Kola: The Concept
The Fritz-Kola GmbH is a German enterprise founded in 2003 by Lorenz Hampl and Mirco Wolf Wiegert, two students from Hamburg. The original idea behind the product was to create a cola drink that tastes different from the products of Coca-Cola or Pepsi, being less sweet with more caffeine. Focussing on the distribution through restaurants, cafés, bars and clubs, the brand became popular among the targeted group of young individualists and party- goers. It is due to that popularity, which also was supported by the trend of supporting regional brands, that Fritz-Kola’s revenues were increasing by two over three years in a row. In 2006, the company launched other beverages like lemonades and a ‘morning-cola’ that has the taste of coffee and caramel.
By 2010, the company’s revenue was €2.7 million. The internationalization of its products is an on-going process. Today, Fritz-Kola is available in Germany, Poland, The Netherlands, Austria, Switzerland, Spain and Belgium. Fritz Kola is also available in the UK, but only in one restaurant, which is a German restaurant importing the product from Germany.
The corporate objectives of Fritz-Kola GmbH are not to become a market leader in the segment of soft drinks, but to provide a considerable alternative to the big players like CocaCola and PepsiCo. For that reason, the company strives to create a diversified product portfolio under the brand name Fritz-Kola, consisting of cola lemonades.
The UK Macro Environment
The Macro Environment of the UK will be analysed using the PESTLE management tool. It is designed to examine the external framework a company has to cope with in certain industries or specific countries. To grasp all possible external influences on successful business, the political, economic, socio-environmental, ecological and legal factors affecting companies in the UK soft drinks market will be revised.
Political Factors
Government type and stability
The UK’s governmental system is a Constitutional Monarchy and Commonwealth Realm. The parliament of the United Kingdom, consisting of the House of Commons and the House of Lords, is the ultimate decision maker. It is led by the Prime Minister, who is head of government and appoints the cabinet, which the Queen has to approve (but by convention always does). The three major parties are the Conservative Party, The Labour Party and the Liberal Democrats.
A major impact on whether to do business in a specific country is the stability of its government. The Political Instability Index (PII) indicates the likelihood of political unrests in respective countries. In the PII 2011, the UK ranked #132 out of 164 examined countries, where #1 is the most likely country for political instability. Figure 1 shows a world map with indicators for political instability.
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Figure 1: The Political Instability Index World Map ( (Economist Intelligence Unit, 2011)
Corruption
The corruption index is another important figure to look at. Transparency International captures yearly captures the corruption index for almost 200 countries in the world. The higher the CPI score, the less prone a country is to corruption. In 2007, the UK ranked 20th overall with a score of 7.6 (Transparency International, 2010). A map of this index is shown in Figure 2.
Figure 2: Corruption Perceptions Index 2010 (Transparency International, 2010)
Policies on free trade and prevention of monopolistic structures
Policies of the British Government towards a Government’s interference with businesses state, that it should only interfere if the maxim of free trade and business is threatened. Such interference is valid for monopolistic companies and such companies that obstruct free trade by using their market power to eliminate or thwart competition. The British Government for that reason has released various Acts to prevent the misuse of power. The Monopolies & Restrictive Practices Act (1948) and The Monopolies & Mergers Act (1968) give power to the Competition Commission (CC) to control and break monopoly company structures and monopoly mergers. The Fair Trading Act (1973) defined a monopoly at 25% market share. The Competition Act (1980) enabled the Ministry to interfere where monopolistic structures were recognized. A renewal of this Act in 1998 was resolved in order to match current EU legislation (Bowett, 2011).
Economic Factors
Trade
The UK is a member of the European Union since 1973. Due to this status, there is a free trade between all of the member countries of the EU. This also means that there are no import taxes for goods from Germany, as Germany is a fellow member state of the EU. Goods can be imported from Germany without tax payments to the UK government. This is affecting Fritz-Kola since it produces its goods in Germany and exports them to the UK.
Import and sales regulations
Import and sales regulations could highly affect the outcome of Fritz-Kola’s operation in the UK. If import quotas for soft drinks exist, Fritz-Kola needs to be aware of the quota and should plan accordingly. Most countries use quotas to regulate the import of goods and thus enhance the sales of domestically produced goods. Mostly quotas are used as trade restrictive measures against countries that inundate the domestic market with low cost products (e.g. China). The EU member status of the UK also prohibits it from raising tariffs and taxes against imported goods from other EU member states.
Corporate Taxation
Every company, including Limited and other organisations like clubs, societies, associations, co-operatives, charities and other unincorporated bodies are subject to corporate taxation. Corporate tax needs to be paid for every profit that is made by trade within the UK. If a company is not based in the UK, but makes profits from business conducted in the UK, it still needs to pay corporate tax on these profits (HM Revenue & Customs, 2011). This means for Fritz-Kola, since it is no UK entity, that it needs to pay corporate tax on the profits it makes by selling the product to UK retailers. It also means that it is subject to corporate taxation and needs to be aware of changes in the taxation system. The current main corporate taxation rate is at 26%. For companies that generate profits smaller than £300,000 a reduced rate of 20% applies (HM Revenue & Customs, 2011a).
Business cycle and economic growth
The business cycle indicates where an economy is going. Since 2008, where the US financial and housing crises hit Europe, the economy still has to recover. It has slowly crawled out of one of the nastiest recessions since the 1970, but government measures to increase spending power and inject incentives that could get a true recovery started are still missing. The predicted economic growth for 2011 is 0.6% and in 2012 the economy is predicted to grow at a level of 0.7% (Allen, 2011). At these levels, an economy is considered stagnant. The consequences of economic stagnation can be seen in low purchasing power, high unemployment and high inflation. Since 1981, it is the first time that the household incomes have fallen under last year’s income rates. This of course leads to even less spending on the side of the consumers, and the saver’s ratio goes up. Government desperately must try to give incentives to consumers to spend their income and save less to stimulate economic growth (Cohen, 2011). This of course goes hand in hand with the all-time high inflation rate of 5.2%, which is the highest inflation rate since 20 years. Prices have gone up drastically in comparison the increase in income, which is why the real purchasing power of consumers has stalled and now decreased (O'Connor, 2011). As a counter measure the bank of England has dropped its interest rates to 0.5% so that consumers can afford easy money and spend it to jumpstart the economy (Bank of England, 2011).
Currency
The UK is one of the few countries within the European Union that preserves its currency and does not introduce the Euro. This of course bears the consequence that exchange rates between the Sterling and the Euro vary and depending on the current economic climate, arbitrage can be made. This also means that for importing and exporting goods, different rates are favourable. In the case of Fritz-Kola, who would be exporting goods into the UK, receiving Sterling, an exchange rate with a weak Sterling would be preferable, since those monies need to be changed in Germany. The better contractual agreement for FK would be to be paid in Euro. This means that the importer would have to change Sterling to Euro first, and FK would receive a fixed amount of Euro, without any risk of losing money to unfavourable rates.
Minimum working wage
The latest statistic for poverty in the UK shows that 13.5 million people living in households below the low-income threshold of 60% or less of the average household income. The actual minimum wage for workers aged 21 and over is £6.08 per hour. The minimum wage and the uprating of the last year show a negative impact on employment. In addition, the increased minimum wage leads to increased costs for companies and they deal with that by accepting reduced profits and increase prices. Due to the cut profits the companies tend to invest less, what has an additional negative impact on the recovery of the economy.
Unemployment
Unemployment is another factor that influences the economy of a country. In 2011, the unemployment rate rose to a 17-year high of 8.1%, which still can be attributed to the economic recession (HRM Guide, 2011). Unemployment in general leads to a reserved buying behaviour which has a negative impact on the spending and therewith on the overall economic growth.
Socio-economic Factors
Population demographics
In the year 2010, the UK had a population of 62.26 million (ONS, 2011). As can be seen in Figure 3, the ratio of males and females among the current and the projected population for 2033 is almost equal. The average age of the UK population in 2010 is 39.7 years (ONS, 2010).
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Figure 3: Estimated and projected UK population mid-2008 and mid-2033 (ONS, 2009)
Attitudes to foreign brands and products
A survey in 2003 showed that, with slight variations by product, nearly half of the consumers would prefer or specifically look for British brands over foreign brands. This is valid mostly for the food sector, concerning meat and produce. As a consequence, most retailers and supermarkets label their products with ‘Made in Britain’ or ‘GB’ to make consumers aware of the nationality of the product. The study also showed that people are willing to buy more British or locally produced goods when they get older (Food & Drink Europe, 2003). This also implicates that younger age groups are not as loyal to nationally produced goods, which might be influenced by the growing economic integration and globalization.
Cultural Diversity
The UK is a very diverse country with many ethnic minorities living mostly in the urban areas of the country, as illustrated in Figure 4. These cities like London have a great ethnic and therefore cultural diversity. London is the most diverse city. Over 8% of its inhabitants are other than british-white ethnicity.
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Figure 4: Ethnic group diversity indices, local authority districts (Large & Ghosh, 2006)
Since Fritz-Kola will firstly primarily focus its marketing efforts on the bigger cities like London, Leeds, Birmingham and Manchester, the diversity with its differing values, attitudes and believes plays a significant role in the marketing of the company’s products. The diversity, as can be seen on the map, is highest in those big cities. The biggest immigrant population in the UK are Black-African and Black-Caribbean with 2%, Indians with 1.6% and Pakistani with 1.3% (CIA, 2011).
Household income distribution
Figure 5 shows the purchasing power in urban areas in the UK. Noticeable is that London, as one of the world’s financial capitals possesses clearly the highest purchasing power throughout the country, followed by the areas around Liverpool and Manchester and Newcastle, but the most purchasing power still concentrates in south-east England.
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