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.
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