Roadmap

 

 

 

Here is the graph that visualizes our action plan. Please scroll down and you'll find it explained in greater detail. Thank you for following us! 

 

 

Action plan for the new market entry

We will present our action plan for Costo’s market entry to the U.S. in form of a roadmap. It presents the timeline for the market activities, action points and the expected returns for the firm from the expansion. Since we have estimated in the prior paragraphs of this research that Costo has potential to conduct the market entry, our roadmap is presenting more of the strategic view that the company could follow, meaning, that the approach is positive towards the internationalization and the results from the actions optimal for the firm. 

Prior to engaging into the action plan, we should take a look at Costo's historical path. Costo's internationalization is rather unusual in the sense that the company's international presence, that seems wide at first glance, is not the result of a strategic expansion. Costo has not so far brought forward any concrete expansion plans. Instead, it has expanded its operations into other countries only once individual retailers have picked up on the uniqueness of Costo's brand and chose to carry a small inventory of Costo's products.

Therefore, the implementation of this action plan marks the beginning of a new challenge for Costo. The company has no strategic international expansion experience, which signifies that Costo is not able to leverage any major lessons from the past into its future undertakings.

Market research

First, prior to the go or no-go decision the company must evaluate its resources and capabilities for the expansion. One of the cornerstones of this analysis is the making a market research because Costo has no prior experience of doing business in the U.S. As we are presenting the action points Costo needs to make on the x-axis, the y-axis shows the value these action points bring to the firm along the market entry process.  In case Costo decides to enter the market the value the market brings is growth potential.

Launching the product to the new market

Second we will move on to the product launch phase. As discussed earlier in our research, the launch would take place in the New York Fashion Week (NYFW). We recognize that having a fashion show on this event is a privileged opportunity, and hence a small company with a niche product unknown to the market is unlikely to have an access to the catwalks or even afford it. Therefore we are suggesting that Costo should team-up with a Finnish brand that has already had a breakthrough on the NY stages, for example Ivana Helsinki. A joint fashion show supported with Costo’s own pop-up store launched during the NYFW would increase the brand awareness. The pop-up store would have several tactical goals with the main focus being on marketing and increasing the awareness to learning from the market and its consumers, in addition to offering a first point-of-sales for the products. Pop-up store is an interesting and affordable way for an SME to establish the brand’s own ‘showroom’ to the market.

Gaining market foothold

The next step is to gain a more permanent foothold on the market. The aim is to position on New York’s Garment District by selling through individual retailers. One of the opportunities that the pop-up store can also offer is connections to people operating in the local fashion field, and hence this networking can result to retailing contracts. If this opportunity is not realizable during the fashion week, another option is to use an agent to find the right local partners.  The location of the retailers is vital. The Garment District works in a similar way as a cluster does, and hence, the consumers associate it to fashion, clothing and accessories and this feature can attract like-minded consumers in search of these types of products. We assume it goes without saying that in this light the area is of course competitive, but as mentioned earlier in our report, the product design will be the differentiating factor for Costo. In addition, according to our competitor analysis there is no direct competition with a similar product and brand. At this point when Costo has been able to find retailers and start more active selling to the market, more active marketing and advertising plans can be launched as well. The benefits from marketing go both ways: increasing Costo’s sales and the customer flow to the retailers’ stores. Hence, the marketing and advertising plans can be potentially used also as a negotiating tool when looking for suitable resellers.

Local market expansion

The U.S. is a big market area that offers a lot of growth potential. Therefor after establishing the product in the country’s fashion capital it is time to expand further. The experience Costo has gained by this point from the market will facilitate the expansion. Also the increased awareness and product breakthrough in the most important fashion area are smoothing factors for the next steps. Our suggestion is that Costo would aim to sell to selected department store chains (DSC) or selected retailing chains which have a nationwide coverage. In addition to the customer reach, the chain selection will be based on the chains’ image –it needs to support Costo’s brand. Especially department store environment would be attractive due to the possibility of creating shop-in-store contracts. This form of sales channels enables the manufacturer to have a stronger control over its brand and image. For example, having their own stands, display shelves, and brochures there which support the company’s line. What will also need to be taken care of latest at this point is the development of proper analyzing and measurement tools for marketing and sales. As the sales start to increase Costo will have to take care of its production and distribution chain in order to guarantee seamless supply to answer the consumers’ needs. Therefor if the sales peak and reselling deals are signed in great numbers it might become accurate for Costo to consider having own storage in the U.S. to avoid the expenses from importing and to be able to react faster on the buyers’ demands. Most of the business benefits of this phase have been already mentioned earlier in this analysis. Of course, cash flow increases as well as benefitting from the partnership with retailers in forms of their brand image and customer networks are taken to a next level. In addition, some of the resellers do have their own online store, which adds one more sales channel for Costo products. It is important for Costo to keep its distribution chain efficient but it also needs to monitor its retailer relationships. Are the relationships profitable now and in the future and how do we measure them? In the beginning of the internationalization a lot might need to be ‘forgiven’ in terms of sales numbers in order to create the wished brand image. For example, considering the opportunities of selling a big volume to a hyper market chain in comparison of giving a few sample pieces to sell to a shop in the Garment District. But as this has been Costo’s starting point in the domestic market, and after that it has expanded to the European and Asian markets and gained experience and returns from the sales there, this operating method in the U.S. is not new to the company.  But in the more mature stages of the market penetration the retailers’ profitability is going to play an important role and new retailing opportunities need to be prospected constantly.

Objectives

Financial Objectives

It is important for Costo to fulfill certain financial objectives in order to ensure the survival of its North American expansion. At the very least the company has to ensure that its newly formed New York operations are breaking even. It can be expected that Costo’s New York operations will not make any money at first. While Costo builds up its brand across the city, the company’s first objective should be to break even within two years. This does not mean, however, that it should weather heavy losses in order to sustain its activities in New York City. One possible way to sustain the operations in this risky market is to use the home office’s resources to absorb the losses. At least temporarily until the new subsidiary is ready to make some sales.

After surviving its arrival to New York City, Costo’s second financial objective should be to map key objectives in milestones. The first of those could be to make 10% of overall global sales in New York. This would translate to selling for approximately €25 000 across the city, and should be fulfilled within the first three years of operation. Within 5 years the company should continue aiming for ever-stronger sales. Continuing its aggressive push, Costo’s sales should reach €50 000. The last financial objective that Costo can draw out is a long-term, 10 year goal. As part of its long-term strategy Costo should continue to aim its growth at approximately 20% per year, which will take its American sales to nearly €200 000.

At that rate, Costo will make its American market the most important one it is operating in, since nearly half the annual sales will originate from the USA.

Nonfinancial objectives

Customer satisfaction. Costo aims to high customer satisfaction level. This is achieved through high quality products and excellent customer experience. One of Costo's competitive advantages is the quality of design and fabrics which shows in the way the products last long in everyday use. Thus any possible complaints on product quality have to be taken seriously and handled well. Customer satisfaction level can be measured through interviews or questionnaires.

Building customer loyalty. One of Costo's main objectives is to create a strong connection or bonds to customers. Costo aims to create a group of customers who will thing highly of the brand, purchase the products again and recommend it to their friends. Strong customer loyalty is beneficial for example in bringing “word-of-mouth” support and through active customer participation in the company's social media channels. High customer loyalty level is important to Costo also because its products are a possible target for trendy mass chains making cheap copies. Customer loyalty can be measured by conducting periodic surveys.

Launching Costo in New York Fashion week. Costo aims to create buzz and awareness during the fashion week by having a pop-up store and cooperating with already well-known Finnish brands.

Selling through small retailers. After the pop-up store, Costo's obejctive is that the products will be sold by small retailers already attractive to Costo's target group in New York's Garment District.

Selling in department stores nationwide. After Costo's breakthrough in New York, during the next years Costo aims to start selling its products through selected department stores that suit its brand and offer nationwide distribution channels as well as online.

Socially responsible marketing. Costo aims to maintain the eco-friendly thinking behind the brand also in all marketing activities. Marketing activities are mostly social media campaigns and other guerilla marketing not producing extra waste.

Continuous evaluation. Evaluating the new market before launch is not the end of evaluation. Setting up a structured regular marketing analysis to measure sales, marketing, communications, economic context. Contributes to marketing on shorter and longer time basis. This can be done for example by surveys or generating data from social media, e.g. Twitter mentions.

The 4Ps of marketing

Product:

Costo’s product portfolio is divided across five types of products. At the time the largest offering by Costo is its hats. The company has over 30 hat collections, each of which available to up to 12 different models. A few models of bags and gadgets, such as tablet sleeves, smart phone covers and wallets complement the collection. All accessories are made from premium quality leather.

The hats are characterized not only by their unique design but also by their interchangeable bobbles. This allows the customer to create different combinations among its collection of Costo hats. Since the hats are Costo’s best product and offer the chance to differentiate from competition, Costo will only introduce its hat collections to New York City. 

Given New York City’s geographical area and climate, there are no drastic needs to adapt the hat products. There may be a need for some kind of local adaptation, such as adapting to particular if any colors and motifs prove to be particularly popular in New York’s urban culture. According to Lopez & Fan (2009) it is advantageous for fashion brands to utilize their original concepts with some local adaptations when expanding to the United States. Therefore Costo will not be required to modify the ecological and sustainable values represented in its products.

Place:

New York City has one of the most active fashion districts in the world, known as the Garment District. According to the New York City Economic Development Corporation, the Garment District is the most densely populated area in the world in terms of fashion businesses. Unlike for example Fifth Avenue  characterized by expensive luxury brand stores, Garment District suits for more relaxed lifestyle and would thus be a great fit for Costo's brand image and sustainability values.

As stated, it would be beneficial for Costo to open a store in the Garment District. Costo's limited resources pose challenges for finding an optimal location to sell the products. The New York Times reported that rents in the Garment District fell by 25% since 2007. Still, opening a permanent store would not fit Costo's budget. Costo should open a pop-up store in the district instead. That would be a Costo store opened only for a limited time. This could be launched during fashion week, one of the world’s busiest and most competitive fashion events.

Promotion:

Costo is limited in its resources and therefore must be conscious about its promotion activities. Billboards in New York City are rather expensive and are generally thought to be utilized by the larger brands with large marketing budgets such as Marc Jacobs, H&M, Zara, etc. Therefore advertising on billboards is not an option that is within Costo’s resources. On the other hand, other affordable options do exist for Costo to use and to make the brand stand out.

In order to make use most effectively of its resources, Costo would be best to create buzz by guerilla marketing. It is a more affordable method than billboards and could better reflect the company's environmental and ethical values, as well as help in building awareness of Costo's brand essence. Furthermore, Costo could focus its promotion in the online environment. In addition to being a low-cost tool of promotion, social media can increase the awareness of the brand across the city by specifically targeting the IP addresses of the internet connection located within the Tri-State area of New York, New Jersey and Connecticut. 

Also, social media campaigns would be rather cheap to execute. For example, Costo could build a launch campaign "Where's the bobble?" via Instagram, where people could post pictures of their bobbles around different places. These kind of campaigns are critical in taking the brand to the next level, from brand awareness all the way to brand judgments and brand emotions, targeting the ultimate goal, reaching brand resonance (Keller, 1998).

Price:

The current pricing structure of Costo’s products range varies from €59 to 80€ depending on the models and includes free worldwide shipping. The pricing is similar to those observed in similar brands based in New York City, such as Gorin hats which are ranging from $40 to 100$. Costo will need to convert its prices from Euros to US dollars while maintaining profitability.

Using the Big Mac Index, we are able to compare the purchasing power parity between Finland and the United States. The Big Mac Index of January 2013 estimates that there is a price difference of 20% between Finland and the United States. At the current exchange rate of 1EUR=1.36050 USD (29 November 2013) the price range of Costo’s hats would range from 80$ to 110$, which could be reduced by 20% to represent a range from 64$ to 88$ to represent the purchasing power parity differences between the two countries. This would place Costo’s products in the upper end of the spectrum, leaning towards a premium pricing, which will reflect the brand’s quality in terms of the materials and the values of the firm.

It is important to note that while Costo's hats would be priced in the more premium segment, they would still be a significantly cheaper option than individual tailor-made hats. Costo would not directly compete with the "unique pieces" made by artisans, but offer quality design hats more affordably.

References: 

Keller, Kevin Lane. Strategic Brand Management. 3rd ed. 1998. New Jersey: Pearson Educaiton, Inc., 2008. Print. 

Lopez, C. and Fan, Y., 2009. Internationalization of the Spanish Fashion Brand Zara. Journal of Fashion Marketing and Business, 13 (2), pp.279-296.

Porter, M., 2006. Competition in Global Industries: A Conceptual Framework. International Marketing, 3 (1), pp.159-198.

Rantisi, N., 2001. How Local Institutions Fashion the Design Innovation Process in New York City’s Garment District. In: Druid, Winter 2001 Danish Research Unit on Industrial Dynamics Academy. Klarskovgaard, Denmark. January 18-20. 2001. Toronto, ON. Available  at http://www.druid.dk/conferences/winter2001/paper-winter/Paper/rantisi.pdf. [Accessed 29 November 2013]

Costo and Guerilla Marketing

As we have been mentioning 'guerilla marketing' a few times in our research we thought it would be useful to visualize it through some examples. So, here are some guerilla activities Costo has been doing over the past years.  

The STP Plan - Segmentation, Targeting & Positioning

Here is our elaboration on the STP decisions for Costo.

Segmentation:

We used the following bases for segmentation:

1) Geographic

• urban consumers
• people living, working or spending a lot of time in downtown area of New York

2) Demographic variables

• men and women in their 20s to 40s
• mid to high income level

3) Behavior-based

• Trend-setters: attend various events, are active in the trend-making scene
• Followers: follow different kinds of trends
• Have high loyalty to brands that are meaningful to them

4) Values and lifestyles

• Great value/appreciation for sustainability issues
• Value on distinct style and design; desire for something that is rare or uncommon
• Fashion conscious; style plays a big part in their lives

Targeting:

Our target audience is middle to high class consumers who have a distinct style and awareness for environmental issues.

We need to create brand awareness for Costo, and considering the low resources for the launch, we plan to do so by targeting a smaller set of consumers first.

Our primary consumer is the trend-setter. He/she is fashion savvy and active in the scene, visiting exhibitions and shows, etc.  These people popularize a new fashion, they make the trend. For example: http://www.timeout.com/newyork/shopping/32-local-trendsetters

Our secondary consumer is the follower. He/she has distinct style and follows trends set by the primary consumer group. This consumer segment represents the majority of our target audience, with regards to market share size and sales.

Positioning: 

Based on our competitor analysis, we find that Costo can serve a niche of consumers who appreciate design and sustainability aspects. Since our target audience is very careful on what they wear, and we have a strong brand promise, we can position the brand in the more premium segment. However, we do not compete with individual tailor-made products, and the price is lower than the premium paid for that craftsmanship.

Functional benefits: protecting function of the hat, a finishing touch to the looks

Emotional benefits: a very distinct design brings a feeling of being different and unique, makes you stand out from the crowd, “feel-good” factor from promoting sustainability and acting responsibly,

Self-expressive benefits: a feeling of being cool and distinct by wearing the special type design hat, being stylish and a bit carefree at the same time by wearing a colorful bobble

References:

Kotler, P., 1999. Kotler on marketing: how to create, win, and dominate markets. [e-book]. Free Press. Available at: Google books <http://books.google.fi/books?id=5GigjssNBBwC&pg=PT41&lpg=PT41&dq=kotler+stp&source=bl&ots=oJ0qvuCQ41&sig=N__A8bCvDlb-4IIX38l5OyuQSqg&hl=fi&sa=X&ei=HT2eUq_4KIHStAaY1ICoCA&ved=0CE8Q6AEwAw#v=onepage&q&f=false> [Accessed December 2, 2013].

 

Competitor analysis

Company's positioning strategy depends on strengths and weaknesses of the brand and their competitive forces. Positioning is about analyzing the desired customer perception of the brand and the strategies used to achieve this set goal. Costo needs to meet the qualifying factors of its' competitors, but additionally differentiate against them. In this positioning map Costo and its identified competitors in the NY market are shown in relation to two dimensions; quality of design and eco-friendliness or sustainability.

The perceptual maps shows that Carhartt, Obey and American apparel are revealed as high quality design but not very sustainable. Faire is quite sustainable but lower quality design. Greenpacha and Flipside hats are of quite good quality design and relatively sustainable or sustainable. Independent tailors are of very high quality but not so sustainable, whereas Costo is of high quality design and sustainable. Drawing from this map, Costo's strength in relation to main competitors seems to be combining great design and sustainability.

Great brands have purpose. Here we utilized Simon Sinek's Golden Circles to analyze Costo's brand and purpose. Uninspiring brands tell what they sell whereas great brands go deeper and inspire customers with their purpose.

WHAT (What is Costo doing?)

Offering statement introduces the company portfolio of products, services & solutions, with their unique benefits.

-Well designed hats with quality, ecology and style

HOW 

(How is Costo doing it?)

Way of doing things expresses the principle beliefs on how to meet the needs described.

-By combining ecological materials and design that stays stylish regardless of current fashion

WHY (Raison d'etre)

Positioning statement showing what is the company's vision.

-To create something always in style and against the prevailing throw-awayism

References:

Koch, A. (2010). What, how, why - the brand trinity for a compelling brand. Available: http://invitroinnovation.wordpress.com/2010/06/23/why-how-what-the-3-questions-for-creating-a-compelling-brand/. Last accessed 1st December 2013.

Kotler, P, Keller, K et al. (2009). Marketing management. London: Pearson Education.

Bobbles pictures from Costo website www.costo.fi

SWOT –the firm and the target market analyzed.

We have analyzed the strengths, weaknesses, opportunities and threats for Costo’s market expansion to the U.S. market. The first chart present the analysis from the company’s point of view whereas the second one focuses on the market side. Before moving there let’s first discuss briefly about the background setting for the firm’s internationalization. Costo has market presence in the European and Asian market and traditionally the sales have been conducted through retailers. In addition, the firm has its own online store which delivers the products globally.  However, if we exclude the possible online orders to the U.S., the market area is new for Costo. For a small company expanding to a new market without prior experience from it is a challenging task. SME’s limited resources also influence the entry mode choice, as well as the scale and scope of possible marketing activities which are important in order to gain brand awareness among the new potential customers.

If we look at Costo’s financial performance, we can see, that their revenue has been increasing annually.

Revenue, Costo Oy. Source: Taloussanomat, accessed from: http://yritys.taloussanomat.fi/y/costo-oy/helsinki/2060874-2/

At the same time their return rate plummeted on 2011 and as the statistics are missing the 2012 result, it is difficult to estimate what has been the direction of the development.

Return, Costo Oy. Source: http://yritys.taloussanomat.fi/y/costo-oy/helsinki/2060874-2/

A new market entry could possibly bring in new customers and increase the revenue. But at the same time internationalization requires financial investments from a company. Therefor it carries both, the opportunity and the risk. With the financial data publicly available from the company it is not possible to from this perspective whether or not Costo should expand to the U.S. Therefor we focus on analyzing other factors which are presented in the following charts. 

SWOT for Costo

 

One of the key strengths for the company is their product. It is simple and the design is unique, thus identifiable and a differentiating factor from competing products in the market. Even having only a few hat models in production, the fact that the company is using recycled materials in their production makes each hat a unique product. In addition, this factor makes the product ecological which brings along another potential customer segment of ecological consumers. Being a small firm has its pros and cons. A small company is not tied with heavy organizational structures and processes which can facilitate the decision making and enable also faster reaction on changing market environment. However, the resources in use are fewer than bigger competitors have. Opening an own flagship store or a chain of brick-and-mortars is often too expensive a choice for smaller operators and hence they often internationalize trough a potential partner –for example a retailer or an agent. The latter one offers also a solution for the lack of market information and prior experience that a newcomer may have. Small companies do not necessary have sufficient resources to analyze the market and its potential beforehand and an agent who has this information and potentially an existing customer network can be an optimal choice.

At the same time operating in a market through middle men reduces the firm’s control over its own brand and can reduce the firm-end customer interaction. Brand value is very important for Costo and it should aim to nurture it. How it can do it will be discussed later in this research project.

In the past Costo has not been investing money on marketing and advertising but these activities have based strongly on gonzo marketing and other alternative solutions. It is not enough to enter a new market. The firm needs to let people also know that it has arrived. New York, our first destination to expand in the U.S. is a competitive area and especially in the fashion field. Nevertheless, if a firm is able to gain foothold in N.Y. the reputation can carry further.   

SWOT for the U.S. Market

The big population with similar PPP distribution is a market opportunity for Costo (see the map below). The product is affordable and the pricing does not need to be adapted to the market. This is also an important factor for a firm that is operating through a global online store –the price transparency for its customers.  In addition, online shopping is more advanced and used method in the U.S. due to long geographical distances and the history of the antecedents of e-commerce: catalogue sales and the TV shop. another market specific factor that can help in the market expansion is in the retail structure: big national department store chains and the shopping mall culture.

However, currently the production is in Europe and expanding to the U.S. adds taxes and other exporting costs for the firm. Secondly, has Costo ensured that its production has the capacity to respond to the potentially growing demand of the new market?

Source: World bank, GNI per capita. Accessed from: http://data.worldbank.org/indicator/NY.GNP.PCAP.PP.CD/countries?display=map

Five Forces of Industry

The following considers the industry forces according to Porter's Five Forces model.

Threat of New Entrants

High Pressure:

The fashion and apparel industries are very competitive. According to MarketLine the global apparel industry has grown by 5.9% in 2011 to reach a value of 3 049.51 billion USD.  Nonetheless the high pressure environment of the apparel retail industry hinders new entrants. The quasi-absence of switching costs permits customers from switching from one brand to another. Existing firms in the industry have an established foothold which makes it difficult for new entrants to break out.

There are relatively low capital requirements to enter the industry. On the other hand, larger capital requirements could be required in the event of a new entrant seeking to design, produce and promote a new line.

 .      Threat of Substitution

Moderate Pressure:

It can be agreed that accessories have more than the function of keeping warm. Accessories in the apparel industry can serve the function of representing a social class, environmental values and form an ideal way to express individual identity. This signifies that there are countless possibilities in terms of design, accessibility (brick and mortar stores and e-retailers) and prices.

In certain contexts counterfeit activities can be a problem. While counterfeit goods are associated for being produced in China, Vietnam and other Southeast Asian countries, the United States – and New York in particular, do have a strong counterfeiting presence. The Huffington Post (Dobnik, 13 June 2013) that New York City’s counterfeit apparel and fashion goods are produced in Chinatown and are distributed all over the city.

 .      Bargaining Power of Customers

Moderate pressure:

Despite the economic situation in the United States, both the retail and apparel industries continue to grow. Similarly customers have little or no switching costs between brands, which make for a certain amount of pressure on behalf of the customers. Individual customers do not have bargaining power in the industry; however common recourse can pull more weight. Customers in the industry can be price-sensitive.

 .      Bargaining Power of supplier

Low Pressure:

The nature of international trade has diminished the individual suppliers in the textile, fashion and apparel industries. Low-cost producers in China, Vietnam and Bangladesh have diluted the bargaining power of suppliers. Switching costs for retailers from one line to another and from one supplier is not very high. The risks involved in suppliers revolve around quality of the goods and reliability of the supplier.  Furthermore the lack of diversification of apparel suppliers diminishes their bargaining power since the number fashion retailers representing the values of the brand can be limited Several suppliers increase their bargaining power by coordinating licensing and partnership activities.

 .     Intensity of Competitive Rivalry

High Pressure

The global apparel industry is highly fragmented. The competition is fierce (Jones et al., 2011), as countless brands compete for market share.  A large number of brands seek to differentiate themselves via uniqueness and style to find a niche market. The intense competition of the industry can also trigger price wars, which further intensifies the industry. The fashion and apparel industry is often characterized by its advertising, which increases the intensity of the rivalry because of the difficulty to rise out of the clutter.

References:

Industry Profile: Global Textiles, Apparel & Luxury Goods, 2012. [pdf] London, UK: MarketLine. Available at: MarketLine, http://advantage.marketline.com/Product?pid=MLIP0468-0001 [Accessed 26 November 2013].

Jones, P., et al., 2011. Fashioning Corporate Social Responsibility. Emerging Markets Case Studies Collection.