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