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BrewDog’s market entry alternatives
Selected entry alternative: Licensing
BrewDog is a multinational brewery and pub chain headquartered in Ellon, Scotland. University graduates James Watt and Martin Dickie founded the company in 2007 and owns 46 percent stake (Brewdog, 2020). The company benefitted hugely from the innovative management styles of its founders. From the beginning, Watt and Dickie adopted a management strategy that focused on innovation of unique beer products and targeting those who were tired of the industrial beer. Since its inception, BrewDog has expanded into a large brewery that produces various brands of bottled and canned beers and offering a wide variety of styles including ale, stout, and India pale ale (IPA) and lager. The beers are sold in various UK supermarkets while others are exported to global markets. The vision of BrewDog is to lead the revolution of the beer industry and redefine British beer drinking culture. To do so, the company leverages on the passion of its employees about great craft beer (Brewdog, 2020). Nonetheless, BrewDog products are yet to penetrate other valuable markets such as the United States. To enter United States market, the company plans to introduce a new non-alcoholic drink called Punk AF. The challenge for the marketers and managers is thus to determine the best entry alternative into the United States. This paper evaluates various entry options with an aim of selecting the most appropriate option.
BrewDog’s market entry alternatives
The last two decades the United States beer market has witnessed significant growth in craft beer with many people moving towards craft beer offerings. Craft beer market has become a market niche that is being targeted by a rapidly growing number of active home brewer populations. With more than $6 billion in annual sales, the United States craft beer industry is even becoming more attractive for foreign home brewers (Inkpen and Ramaswamy, 2005). To take advantage of this rapidly growing United States craft beer market, a foreign entrant like BrewDog must design a global strategy that will provide it with an opportunity for new sales and profits. Other benefits that a company receives from ‘going global’ would include economies of scope, economies of scale, global brand recognition, global customer satisfaction, minimal labour and input costs, ability to recover research and development costs associated with a particular product and leveraging on the benefits associated with emerging new markets. Alonso and O’Neill (2010) indicated that by targeting a specific niche market, BrewDog can be able to level the playing field against large industrial beer chains with massive resources, large market presence and huge advertising budgets. Additionally, customization helps to consolidate specific market segments and enjoy economies of scale in those segments.
To be successful in the United States market, BrewDog’s market entry strategy should help the company to target market niches which are not targeted by industrial beer chains. There are several approaches which can be used by a company to enter a foreign market. However, it is important to acknowledge that no single market strategy works for all the international markets (Porter, 1980). For instance, in one market, direct exporting may be appropriate while in another market a joint venture may be needed or licensing of manufacturing. Market entry strategies are decided by multiple internal and external factors such as tariff rates, degree of adaptation of the product required, transportation means and marketing approaches. Some of these factors may significantly increase costs without resulting into sufficient sales to offset such costs. In the case of BrewDog, some of the entry options that can be used to enter the American market include direct exporting, licensing, franchising, partnering, joint ventures, buying a company and so on (Stevens and Makarius, 2015). Under direct exporting strategy, BrewDog may decide to sell directly into the American market using its resources. In this approach, the company can develop a sales program that includes agents and distributors in the United States market to receive and distribute the goods. These agents and distributors will be expected to represent the interest of the company.
When adopting the licensing option, BrewDog transfers its rights to use the product and services to another company based in the United States. This approach is more effective especially if the purchaser has a relatively large market share. Licensing is also used as a marketing policy (Frynas and Mellahi, 2015). Franchising is a common strategy in the United States and it has been found to facilitate rapid expansion of businesses. Franchising is more effective when the firms involved have repeatable business models such as food outlets which can be transferred easily to new markets. The business model can either be unique or there is strong brand recognition of the product. Unlike licensing, BrewDog will have to build a strong brand reputation in the United States for franchising to be successful. Particularly, the company can scout the best location but if the brand recognition in the foreign country is low then it will be just another business on the side of the street. Due to the brand and marketing risks associated with franchising, it can only be used for large firms which huge brand recognition in their markets thus able to hedge the marketing and brand risks attributed to new products.
Elsewhere, several companies around the world enter new foreign markets through establishment of partnerships with the local companies. Partnerships can be established are different forms such as simple co-marketing arrangements to more complicated strategic alliances in marketing. Partnerships were found to be more effective in business cultures which are more social (Stack, Gartland and Keane, 2016). In these kinds of arrangements, BrewDog will gain in terms of local market knowledge, customers and contacts from the local company. Joint venture is another common market entry approach. Joint venture simply refers to creation of a third independently managed company after the two companies have agreed to work together. The two companies will share risks and profits equally. BrewDog can also decide to acquire a company in the United States which can produce the identified non-alcoholic drink. This approach is used where the targeted company has substantial market share or is a direct competitor to the market leader (Tremblay, Iwasaki and Tremblay, 2005). However, this approach is relatively costly though it comes with the advantages of being a local company which is entitled to various benefits within the local market.
By just buying a company, BrewDog will be able to immediately takeover its market share, existing customer base and the brand image. Buying a local form also allows the company to bypass local regulations which could be detrimental to foreign firms. Buying a local company has numerous downsides as well (Ogle, 2006). Some of these downsides include operating a new company, high costs and the difficulties associated with starting and managing a foreign company. Piggybacking is commonly used when the company wants to introduce a new interesting and unique product into the international market. The unique product can be sold to a large firm that already have massive market share in the targeted market so that it is included in their inventory. By using piggybacking approach, the company will be able to reduce risks and costs associated with international market entry as the company will essentially be treated as a domestic company (Depenbusch, Ehrich and Pfizenmaier, 2017). Finally, the company can also use the Greenfield investment approach where they buy the land, build the factory and operate business on the basis of a foreign market. This approach is highly risky and will depend on the transport costs, access to technology and skilled labour.