Channel and Pricing Strategies for Bosch Product Launch
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Transcript of Channel and Pricing Strategies for Bosch Product Launch
Channel and Pricing Strategies 1
Channel and Pricing Strategies for Bosch Product Launch
Allen Dean, Syed Anwery, Noor Khawaja, Chris Munger, and Derrick Walters
University of Phoenix
MKT 571 – Marketing
Debbie Marchok
April 28, 2010
Channel and Pricing Strategies 2
Channel and Pricing Strategies for Bosch Product Launch
In this paper, we detail channel and pricing strategies for the launch of a new Bosch
product into the U.S. and U.K. markets. The goal of the product launch is to introduce the Bosch
brand to a wider consumer base by developing and marketing a value-priced distance-measuring
device for a broader market than the traditional market of construction professionals. First, we
explain our rationale for selecting the U.K. as our first international market and discuss the
impact of the following factors: sustainability, trends, market size, growth rate, and profitability.
Second, we describe the channel and pricing strategies to be executed with regard to both our
domestic and international markets. Third, we evaluate the implications of several environmental
factors on organizational choices for the U.S. and U.K. markets: political-legal-governmental,
economic, technology, social-cultural, and demographic.
Selection of First International Market
Kotler and Keller (2006) list five reasons why companies expand into international
markets. Although Bosch is already a global company, two of reasons cited by Kotler and Keller
pertain to the decision to launch our proposed product into foreign markets: “to achieve
economies of scale [and]…to counterattack…competitors” (Kotler and Keller, 2006, p. 669).
Our rationale for selecting the U.K. as our first international market is explained below and is
followed by a discussion of the impact of the following factors on our decision: sustainability,
trends, market size, growth rate, and profitability.
One of the risks inherent in launching a product into a foreign market is that a “company
might not understand the foreign country’s business culture or know how to deal effectively with
foreign nationals” (Kotler & Keller, 2006, p. 669). Our proposed product is unlikely to generate
high-volume sales, especially with initial versions of the device. Over time, as feedback from
Channel and Pricing Strategies 3
customers is incorporated into improved versions, the goal is to achieve profitable sales levels by
selling the product globally. Until the ideal mix of features and target markets are identified, the
expansion strategy needs to minimize missteps as alluded to by Kotler and Keller (2006). The
U.K. market, although not identical to the U.S. market, poses the lowest risk in terms of
language, cultural, political and regulatory differences. The U.K. market is also the most logical
starting point for our next phase of expansion, which will target the European Union (E.U.) as a
whole. Logistically, establishing a beachhead of marketing and distribution expertise within the
U.K. will be an ideal point from which to expand into the other E.U. countries while posing the
least risk for our initial launch into foreign markets. Despite the caution against overlooking
possible better markets, Kotler and Keller (2006) point out that our rationale is not uncommon
with regard to psychic proximity impacts, given that “many U.S. firms prefer to sell in Canada,
England, and Australia—rather than in larger markets such as Germany and France—because
they feel more comfortable with the language, laws, and culture” (p. 674).
Sustainability
The concept of sustainability is used in two different contexts by Kotler and Keller (2006,
2009a, and 2009b). In most contexts the term refers to environmental impacts and “the
importance of meeting humanity’s needs without harming future generations” (Kotler and
Keller). Other authors use the term only in connection with environmentally-friendly marketing
initiatives (Perreault, Cannon & McCarthy, 2009). For example, Armstrong and Kotler (2009)
discuss the concept of environmental sustainability, which they define as “a management
approach that involves developing strategies that both sustain the environment and produce
profits for the company” (p. 489). However, although Bosch, like most companies, positions
itself as a manufacturer of environmentally friendly products, from the perspective of launching
Channel and Pricing Strategies 4
a product within a foreign market, the alternate use of the term is more applicable. Specifically,
Kotler and Keller (2009b) introduce the concept of sustainability as the requirement that a “firm
must be sufficiently committed and willing to devote enough resources to create an enduring
positioning” (p. 275).
With regard to the latter concept of sustainability, our product launch within the U.K. is
risky in that a number of competitors, especially from Asian manufacturers, already sell value-
priced distance-measuring devices. However, ceding the market for value-priced construction-
related tools poses the risk of future encroachment by competitors into the professional segment
of the market. Furthermore, allowing competitors to begin building uncontested brand loyalty at
the early stages of tool buyers’ consumption lifetimes risks future sales of Bosch’s wide-ranging
line of professional tools. Thus, from a threat perspective, leaving the value-priced market to
competitors is not a sustainable approach.
One factor related to sustainability cited by Kotler and Keller (2009b), reinforcing and
strengthening brand association favorability, does argue for the introduction of our proposed
Bosch product into the U.K. market. The E.U. represents a significant market for Bosch tools and
establishing and reinforcing awareness of the Bosch brand is critical if Bosch is to maintain and
grow its share of both the European and global markets. The Bosch brand is already positioned
within a broad and growing product mix. Addressing a wider spectrum of potential buyers by
offering products that span from value- to professionally-priced offerings enables positioning of
the Bosch brand within a much larger range of prospective buyers.
Trends
Kotler and Keller (2009b) define a trend as “a direction or sequence of events that has
some momentum and durability” (p. 72). The move to increasing reliance and comfort with
Channel and Pricing Strategies 5
electronic gadgets that inject convenience and features into previously less automated tasks is a
trend that has been well established for decades. Consumers are acclimated to the use and
reliance upon handheld electronic devices at younger ages and this is another trend that has been
demonstrated with devices such as laptop computers, portable music players, and smartphones.
Such trends are equally well established in both the U.S. and U.K. markets and are in fact
becoming a global phenomenon in developed and developing countries. The effect of these
trends within the U.K. market should reinforce the potential attractiveness and market acceptance
of a handheld distance-measuring device that incorporates convenience and ease-of-use features
desired by prospective customers.
Market Size
According to the U.S. Department of Commerce, the U.K. economy ranks sixth in the
world and third in the E.U. in terms of size (U.S. & Foreign Commercial Service and U.S.
Department of State, 2010). Statistics related to the size of the U.K. market compared to the U.S.
market are summarized in Figure 1. The smaller size of the U.K. market can be seen as a
desirable attribute as it will allow the expenditures associated with the product launch to be
approximately 25% of those associated with the U.S. launch. With the more manageable size of
the U.K. market, communication and positioning will be capable of being fine-tuned to a greater
degree as the market is developed prior to follow-on launches across the E.U.
An unsophisticated look at the population density per square mile for the U.S. (84 people
per square mile) and the U.K. (650 people per square mile) serves to illustrate the fact that
product distribution within the U.K. will be less costly in terms of the distances involved in
putting the product in the hands of customers (Infoplease, 2010). The U.K. population is also
more urbanized than in the U.S., with 90% of the U.K. population living in urban centers versus
Channel and Pricing Strategies 6
82% of the U.S. population (CIA, 2010). Other comparisons between the U.S. and U.K.
populations are shown in Figure 2.
Figure 1
Comparison of U.K. and U.S. Markets
Note. The figures cited above were drawn from the United Kingdom Country Memo (globalEDGE,
2010a) and United States Country Memo (globalEDGE, 2010b).
Figure 2
Comparison of U.K. and U.S. Population Statistics
Note. The figures cited above are 2009 estimates and were drawn from the CIA World Factbook (CIA, 2010).
Growth Rate
The growth rate of the population in the U.K. is 0.279% and in the U.S. it is 0.977% (CIA,
2010). From a market perspective, the U.K. economy contracted by 4.8% in 2009 (U.S. &
Foreign Commercial Service and U.S. Department of State, 2010). However, the tight economies
in both countries are contributing to greater cost consciousness on the part of consumers, which
might potentially lead to increased demand for a value-priced distance-measuring device versus
models priced for the professional market.
Channel and Pricing Strategies 7
Profitability
Bosch established its presence in the laser-based distance-measuring market with the 2008
acquisition of CST/berger, a company based in West Lafayette, Indiana (Bosch, 2009). For the
foreseeable future, manufacturing will remain located in the U.S., which means transportation
costs to the U.K. market, especially for a value-priced device being positioned against already
available competitive products, will drive down profitability in the short term. However, given
the breadth of Bosch technological expertise, well-established supply chain, and strength of the
Bosch brand name compared to the other competitors in the market, we anticipate being able to
earn greater margins as production experience, economies of scale, and stronger brand awareness
help us unseat competitive products using less desirable ultrasonic technology.
Channel and Pricing Strategies
Although the U.S. and U.K. markets are extremely similar culturally and with regard to
levels of disposable income available for consumer electronics, the differences in product
distribution costs and retailing environments will require adjustments in the channel and pricing
strategies to be followed in our two initial markets. The guiding principle for our channel
strategy is to ensure our products “are available in the right quantities and locations—when
customers want them” (Perreault, Cannon, & McCarthy, 2009, p. 292). In the paragraphs that
follow, we describe the channel and pricing strategies to be executed with regard to both our
domestic and international markets.
Channel Strategy
An important perspective regarding the Bosch Measurement Assistant is that in many ways
it represents a new unsought product. Perreault, Cannon, and McCarthy (2009) define new
unsought products as “products offering really new ideas that potential customers don’t know
Channel and Pricing Strategies 8
about yet” (p. 249). Although our new distance-measuring device is not unknown in the
construction industry, for the larger value-conscious consumer market, such devices are
relatively unknown. In general, many consumers are not aware of the benefits a distance-
measuring device may deliver. Therefore, selective distribution makes the most sense while we
strive to inform prospective buyers about the utility and convenience of a distance-measuring
device and we will focus on making the product “available in places where similar (or related)
products are sought [combined with]…attention-getting promotion” (Perreault, Cannon, &
McCarthy, 2009, p. 248).
For both the U.S. and U.K. markets, the Bosch Measurement Assistant will initially be
distributed through a select group of retailers in the top 25 U.S. and top 5 U.K. markets. This
limited physical availability of our product will be complemented by web-based availability
provided by a select number of retailers with national market coverage. Some of the brick and
mortar channel partners being approached in the U.S. are Ace Hardware, Lowe’s, and Home
Depot. We will negotiate with all three to carry the Bosch Measurement Assistant in their stores
within the targeted U.S. and U.K. markets. Within these targeted markets we will offer
advertising assistance and in-store promotional displays to spur initial interest in the product.
Within the U.K. we will approach Homebase, Wilkinson, and Mica. In support of our channel
partners, we will provide demonstration products, detailed product information leaflets, and full-
color displays featuring the Bosch Measurement Assistant.
Each of the retailers mentioned above also sell products from their branded Internet
shopping sites. The Bosch Power Tools Division web site will provide information about the
Measurement Assistant but we will not attempt to sell directly to the consumer given the desire
to avoid channel conflict with our retail partners. Not only are we not equipped at this stage to
Channel and Pricing Strategies 9
engage in direct sales relationships with low-volume purchasers, we also seek to avoid the
example of “many firms that thought they could quickly establish effective websites for direct
online sales [but]…found that it took several years and millions of dollars to work out the kinks”
(Perreault, Cannon, & McCarthy, 2009, p. 293).
The primary web-only channel partner with whom we will co-market the Bosch
Measurement Assistant in both the U.S. and U.K. is Amazon.com. Amazon’s presence is so
strong and growing in both the U.S. and U.K. markets that it is likely to be the one of the top two
or three web sites prospective customers will visit to read about and possibly order our new
product. Amazon is an especially attractive partner with regard to our product launch within the
U.K. as their logistical expertise and experience in shipping U.S.-manufactured products to U.K.
customers will allow us to keep U.K. prices for the Bosch Measurement Assistant reasonably
close to the U.S. prices. Leveraging the pre-existing channel relationship between Amazon and
Bosch, we are therefore able to cost-effectively tap into Amazon’s product distribution
capabilities within the U.K. with much lower costs than we might experience with new
international wholesalers.
One final consideration with regard to our selected channel partners is the need to have an
efficient and professional reverse channel in place. All of the retail partners mentioned above
have established mechanisms in place for customer returns. Given the nature of the still-evolving
product niche that the Bosch Measurement Assistant will be seeking to carve out for itself and
subsequent generations of the product, product kinks and rejection by a non-insignificant
percentage of early adopters has to be expected. Ensuring that such initial missteps do not
alienate the portion of early customers unhappy with our first generation product offering will be
the responsibility of a prompt, courteous, and no-hassle reverse channel.
Channel and Pricing Strategies 10
Pricing Strategy
Until a second manufacturing facility is established in a E.U. country, the additional
shipping, legal, and administrative overhead of selling a product in the U.K. that is manufactured
in the U.S. will cut into the profit margins of U.K. sales. However, we have established a pricing
strategy based on the guidance set forth by Armstrong and Kotler (2009), who remarked that
“price is only one element of the…broader marketing strategy [and]…before setting price, the
company must decide on its overall marketing strategy for the product or service” (p. 264). Thus,
we have selected a target costing pricing strategy whereby we began “with an ideal selling price
based on customer-value considerations and then target[ed] costs [to]…ensure that the price is
met” (Armstrong & Kotler, 2009, p. 265). In combination with are target costing approach to
setting a price for the Bosch Measurement Assistant, we are following a market-penetration
pricing approach. Armstrong and Kotler (2009) indicate that “companies bringing out a new
product… can choose between two broad strategies: market-skimming pricing and market-
penetration pricing” (p. 270). A market-penetration pricing strategy matches our ulterior goals of
displacing low-cost, low-tech, and low-brand-recognition competitors using less precise
ultrasonic technology and establishing a foundation for a lifelong purchasing relationship with
both early and value-focused tool buyers.
The Bosch Measuring Assistant will be introduced at $29.95 wholesale, with a $39.95
estimated retail price per unit. U.K. prices will be set in Euros at the corresponding exchange rate
and marked up 5% to recoup some of the additional costs of transportation to and distribution
within a foreign market. These prices reflect our strategy of (1) attracting desirable channel
partners and (2) taking share from other established competitors. Furthermore, these prices
reflect the fact that the Bosch Measurement Assistant represents our initial foray into a nascent
Channel and Pricing Strategies 11
product category that will combine the most important features from smartphones, calculators,
precision laser distance-measurement technology, laptops, digital voice recorders, and easy-to-
use intelligent software interfaces. By offering superior value at a price competitive with lesser-
featured offerings from primarily Asian suppliers, we plan to achieve economies of scale and
customer feedback that will propel Bosch to the front of the handheld digital tool market of the
21st century.
Impact of Environmental Factors
There are five environmental factors that firms must monitor and respond to appropriately
in order to succeed in a global marketplace: political-legal-governmental, economic, technology,
social-cultural, and demographic (Kotler & Keller, 2009b). We evaluate the implications of these
factors on marketing decisions to be made by Bosch as it releases its value-priced distance-
measuring device into the U.S. and U.K. markets. Despite the similarities between the U.S. and
U.K. markets, some subtle differences dictate adjustments to the marketing approach to be taken
within the two markets.
Political-Legal-Governmental
Despite the differences that exist between the U.S. and U.K. political, legal, and
government milieu, the fact that the origins of the U.S. were so heavily influenced by its prior
existence as a colony of the British Empire makes it far easier for a company to expand business
operations from the U.S. into the U.K. than into most other countries. However, one issue that is
likely to cause different political-legal-governmental impacts within the U.S. and U.K. markets is
where our product is manufactured. In an increasingly global marketplace, one countries creation
of jobs is oftentimes viewed as being at the expense jobs for another country’s citizens. This is
probably less of an issue given the relatively small dollar volume of our proposed product’s
Channel and Pricing Strategies 12
current market. However, it may become more of an issue if successive generations of the
product spur widespread adoption and if one target of our marketing efforts ends up being
government workers. From a political-legal-governmental standpoint, room for maneuver exists
with regard to both the U.S. and U.K. markets. To U.S. audiences, the fact that the core of the
product is designed and manufactured in Indiana would be stressed. To U.K. audiences, the fact
that the parent company and primary brand of the product originate in an E.U. country would be
emphasized instead.
Another aspect of the political-legal-governmental environment that would need to be
taken into account is the different regulatory environment of the two markets with regard to
“product standards, product liability, and commercial transactions” (Kotler & Keller, 2009b,
p. 86). There are some significant differences between the U.S. and E.U. political, legal, and
governmental institutions and their expectations of businesses. The issue of consumer privacy is
one well-known and publicized example of U.S. business practices that need to be significantly
modified to comply with European laws.
Economic
Two aspects of economic impacts on marketing decisions are (1) the distribution of income
within a market and (2) the levels and availability of savings, debt, and credit (Kotler & Keller,
2009b). As depicted in Figure 1, the GDP per capita in the U.K. is over 20% lower than in the
U.S. This fact is another reason why the U.K. is a logical first step in the international release of
a value-priced distance-measuring device. The relatively greater degree of affluence in the U.S.
market means the expected $50 to $60 price difference between the value-priced and
professional-class products will have less of an impact on buying preferences than in the U.K.
market. Therefore, even though the market size of the U.K. is only about 20% of that in the U.S.,
Channel and Pricing Strategies 13
the greater price sensitivity in the U.K. market may end up making total sales volume
comparable between the two markets.
Lower price sensitivity in the U.S. market may also result from the fact that “U.S.
consumers have a high debt-to-income ratio [and]…credit is readily available in the United
States” (Kotler & Keller, 2009b, p. 80). This means that greater care will need to be taken with
positioning and channel selection in the U.S. to avoid cannibalization of Bosch’s professional-
class product, whereas in the U.K. product cannibalization may prove to be less of an issue.
Technology
Two technological trends mentioned by Kotler and Keller (2009b) are pertinent to the long-
term market strategy represented by the launch of our proposed distance-measuring product and
expansion into international markets. These trends are (1) the accelerating pace of change and
(2) unlimited opportunities for innovation. The accelerating pace of change has become such an
integral aspect of life in the 21st century that rapid advancement in product features and
capabilities has come to be expected by consumers and forced upon manufacturers creating
products for competitive markets. Technology advances so rapidly and technological products
typically have such universal appeal that manufacturers are constantly vying for a place in the
global market by trying to innovate and improve faster than their competitors. Consumers, in
response, typically place much less emphasis on brand loyalty and more emphasis on innovative
features and reasonable pricing, especially with regard to newer products that have not stabilized
with regard to features and consumer expectations.
Both of the aforementioned trends highlight the potential for a significant explosion in
innovation with regard to distance-measuring devices when combined with advances in
miniaturization and computational power in ever-decreasing form factors. Measuring distances is
Channel and Pricing Strategies 14
an activity that is rarely performed in a vacuum. Instead calculations are then performed,
information documented, and reports transmitted. A “measurement assistant” that eventually
combines voice dictation, photographic illustration, powerful and easy-to-use computation, and
rapid transfer of information to computers for inclusion in reports and other documentation is not
only becoming technologically possible but capable of being delivered at lower costs than ever
before. If the Bosch brand is to become as synonymous with state-of-the-art tools that support
anyone engaged in construction-related work as Apple has become with portable music players
and high-tech communication assistants, aggressive competition with other manufacturers for
mindshare is required.
Social-Cultural
Social-cultural impacts on marketing efforts within the U.S. and U.K. are likely to be very
similar. Both societies are modern and technologically advanced. Self-reliance and individual
expression are pronounced aspects of both U.S. and U.K. cultures in general and represent
attributes that are likely to resonate well with our product’s release features and pricing. One
aspect of social-cultural factors mentioned by Kotler and Keller (2009b) that may be pertinent to
our product is that “each society contains subcultures, groups with shared values, beliefs,
preferences, and behaviors emerging from their special life experiences or circumstances”
(p. 81). The generation of buyers just entering their twenties as our product is released to the
market is characterized by almost unthinking acceptance of technology, electronic gadgets, and
almost a disdain for older, manual ways of accomplishing tasks. Although focus groups should
be used to confirm such a hypothesis, it is likely that the most youthful target market for our
value-priced distance measuring device would find it completely natural and preferable to
Channel and Pricing Strategies 15
measure distances using an automated tool rather than relying on measuring tapes, rulers,
yardsticks, and manual data entry in support of area and volume calculations.
Demographic
In the U.S., the ethnic composition of the country is estimated to be almost 80% white,
13% black, and about 5% Asian. Of these groups, about 15% are classified as Hispanic (CIA,
2010). The most significant aspect of these figures is the adaptation of more services and
products to better appeal to and serve the Hispanic market, with one obvious example being the
inclusion of manuals, signs, and other instructional materials for products and services written in
both English and Spanish. The U.K. ethnic composition is markedly different, with 92% white,
2% black, 2% Indian, and 1.5% Pakistani.
One obvious impact of the ethnic composition differences between the U.S. and U.K.
markets is the unsuitability of including the same bilingual (English and Spanish) printed
materials in products shipped to the U.K. Given the unique aspects of the variants of English
spoken in the two markets, especially with regard to measurement terminology (metric in the
U.K. and paradoxically English in the U.S.), unique pre- and post-sales product literature tailored
to both markets is a logical step. Use of the appropriate vernacular within the product literature,
along with elimination of largely unnecessary language versions, serves two purposes. First, it
communicates to U.K. customers that their needs and expectations have been factored into the
product’s design and packaging. Second, such customization for the U.K. market should help
differentiate the Bosch product from low-cost Asian competitors who may seek to minimize their
costs by exercising less care with the documentation included with their products.
Within the U.S. market, Kotler and Keller (2009b) point out that “the increase in the
percentage of Hispanics in the total population represents a major shift in the nation’s center of
Channel and Pricing Strategies 16
gravity” (p. 77). This dictates that Bosch invest in skilled translators to ensure that the Spanish
versions of product literature are accurate, easy to understand, and natural-sounding for Spanish-
speaking customers. This is especially important because of our product’s positioning as a value-
priced alternative to the professional line of Bosch distance-measuring devices, which makes the
Hispanic market a logical match given their family incomes, in general, still lag behind that of
the U.S. population as a whole (Kotler & Keller, 2009b). Another ramification of the size of the
Hispanic market in the U.S. is that it may make sense to produce radio and television advertising
materials in Spanish for airing on Hispanic-focused media, a consideration that is unlikely to be
necessary for the U.K. market.
Conclusion
In this paper, we detailed channel and pricing strategies for the launch of a new Bosch
product, a value-priced distance-measuring device, into the U.S. and U.K. markets. First, we
explained our rationale for selecting the U.K. as our first international market and discussed the
impact of the following factors: sustainability, trends, market size, growth rate, and profitability.
Second, we described the channel and pricing strategies to be executed with regard to both our
domestic and international markets. Third, we evaluated the implications of several factors on
marketing decisions to be made by Bosch as it releases its value-priced distance-measuring
device into the U.S. and U.K. markets.
Channel and Pricing Strategies 17
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