International Marketing Plan: Oriflame in the Russian market

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Table of Contents

Executive Summary
Introduction
Research Problem
Objectives of the study
Literature Review
SWOT Analysis
Research Methodology
Data Analysis
Recommendations and Conclusion
References

Executive Summary

Many companies which expand their businesses to a multinational scale usually end up failing and retracting back into domestic business organizations due to poor planning. Operating in an international scale usually increases the level of risk that a company faces therefore increasing the chances of failure if companies do not take the activities of planning and strategic management in marketing with seriousness.

Russia is a country with a good political, economic, social, environmental and even legal framework therefore the chances of business prospering in that country is quite high if the company is a proactive planner.

With a good economic growth pattern and citizens who enjoy one of the strongest purchasing power with disposable income close to 70% the country has become a hot spot for international business especially among multinational corporations (Global impact 2010).

Oriflame entered the Russian market 15 years ago and is right now one of the industry leaders and it has reached at this position simply because the company takes business activities such as planning and strategic management in marketing seriously thereby giving the company a competitive advantage over other companies.

Introduction

The commercial environment is becoming exceedingly volatile and as a result organizations are looking for other avenues to successfully realize their objectives and corporate goals in order to please both stake holders and shareholders (Wheelen & Hunger 2002, 5).

A products life cycle stages (i.e. introduction, growth, maturity and decline) usually play a big role in deciding what path a business takes especially if it is to expand to an international stage or remain local (Kotler 1999,122). The decision to remain local or go transnational comes with its challenges and therefore before it is arrived at after numerous consultations between functional areas of an organization.

Thus consistent and continuous coordination of activities and continuous communication between inter-organizational departments is very important especially when conducting audits that may determine an organization’s international business operations.

It therefore becomes necessary for business executives and entrepreneurs who make decisions on behalf of organizations to critically analyze and appraise the whole situation before the company is to make any move concerning entry or ensuring continuity of business in foreign territory (Trott 2008, 17).

It is for this reason that the process of planning and strategy takes center stage, thereby reducing the level of risks that a company may face especially when entering new territory. A company therefore during this phase may decide to choose the best mode of operating in a country, of course having the main objective of cutting on costs, maximizing efficiency, and aiming to make profits (Sinkovics & Ghauri 2009, 12-20).

Transnational/Multinational organizations such as Nike, the coca-cola company, Samsung, Toshiba, Mitsubishi and Siemens are examples of big multinational companies who have successfully gone multinational by carefully planning their business models to be in tandem with the various markets that they intend to enter.

It is therefore clear and apparent that organizations are often forced to adjust their business models and often think outside the box when they transform from a local orientation to a multinational orientation or else they may face a lot of hurdles.

Venturing into international business is not an easy task and therefore it becomes totally necessary to understand the region which the company considers competing with local industries and other well established competitors and consequently modification of business operations may be initiated and put into place to match with the market needs of consumers who exist within this market.

Hence it becomes entirely important to formulate and implement strategies that will assist the company is breaking ice in that market.

The Russian cosmetic industry is well known for the kind of commercial potential it possess and has therefore been attracting a lot of foreign manufacturers into this market. The Russian consumer is said to have a disposable income of approximately 70% for that reason making it most likely that they will indulge in more purchases as compared to the other European counterparts.

Multinationals like Oriflamme, Nivea, Gillette, Revlon and others have therefore concentrated there efforts in this market and gone a step further to compete even with more efficiency when compared to local Russian cosmetic manufacturers (Cosmetics in Russia 2011).

Research Problem

In the field of international business, how to achieve success by multinational/ transnational corporations is a big headache for business executives who are charged with the responsibility of leading these organizations into success.

Marketing departments on the other hand are expected to crafts strategies, tactics and programs In order to make brands belonging to these multinational organizations a success, and it therefore becomes necessary to know how business executives manage to do this.

Objectives of the study

To find out whether there is any thing special business activities carried out by successful multinational corporations.
To identify the specific business activities that defines and shapes the success of multinational corporations.

Literature Review

Pestel Analysis of Russia

Russia is one of the most powerful countries in the world and has over the years become a good country for conducting business within the European Union. The Russian economy has been doing well and growing steadily over the last decade and even the Russian citizens enjoy a high rate of disposable income that makes the country a good destination for international business (Euromonitor International 2010).

The cosmetic industry for example has witnessed a lot of growth in revenue especially in the last decade and industry reports suggest that there is likelihood that this will go on until the year 2013. Despite the recession that recently hit the European Union, the Russian cosmetic industry was still able to grow by a significant 2% making it one of the lowest growths over the last ten years, though at that time it was outstanding.

Currently, the industry enjoys annual revenues of over $ 9 billion per year therefore pulling the worlds largest participants in cosmetics move towards this country to invest in Russia (Passport magazine 2011).

Russian has the 10^th largest economy in the world and the 6^th largest purchasing power parity therefore meaning the purchasing power of Russian consumers is quite high translating into more income for businesses which serve consumers who are in Russia. For nine straight years leading to the year 2008, the Russian economy recorded a growth of 7.1% making it one of Europe most stable economies.

The average salary of a Russian citizen was also recorded as close to $ 650 per month up from a mere $ 75 back in 2000, additionally only 13% of Russian live below the poverty line therefore meaning over 80% of citizens have a stable daily income that is above $ 1 per day (The Moscow times 2010).

The political legal environment of Russia has been a good and stable one since the break up of the Soviet Union back in the early 1990’s. Political instability is always known to be a great hindrance to international business operations and often many multinationals only invest where they assume to be the safest country.

Although Russia’s democratic principles are quite questionable the countries leadership is quite effective in catering for the needs of the people therefore satisfying their demands through good leadership.

The presence of consumer laws, competition laws, employment and health and safety laws that govern all manufacturing industries whether local or foreign furthermore make international business operations run more smoothly, even though local industry are somehow at an advantage compared to foreign companies.

The social structure of Russia consists mostly of young individuals who are workers and income earners; such a social structure is good for business because a younger population is more likely to consume products manufactured by industries within Russia.

In addition, a younger population usually consists of individuals who apply some effort to work and earn money with intent of improving their living standards, furthermore the fact that over 80% of the Russian population live above the poverty line is an indication of some degree of economic equality that exists in Russia as compared to other countries (The Moscow times 2010).

Russia is a country that is respected in the field of technology and has numerous scientists within various sectors of the economy who strive to improve on the technology used in the country. Moreover, the ability to partner with like minded countries such as China and Japan has enhanced the technological position that Russia enjoys.

Saint Petersburg State University and Moscow university that were established by previous regimes have made it quite clear that education especially in Sciences idea key pillar of Russia’s stability and therefore assists in ensuring that innovation in natured in the Russian society.

Oriflame Cosmetics and the Russian cosmetic industry

Oriflame Cosmetics is a Swedish cosmetic powerhouse that has full multinational operations in over 62 countries worldwide. The company was founded back in 1967 and has been in the Russian market for close to 15 years.

According to Cosmetics in Russia, Oriflame’s management and top company officials have made it clear that “the Russian market remains Oriflame powerhouse and their main priority, and thus the company intends to strongly to take leading positions in direct sales in Russia and countries in the vicinity.”

The company offers a wide range of cosmetic products which are basically made from natural raw materials and additionally uses mostly multi-media channels to sell its products. Simply because many individuals are looking for employment Oriflame decided to partner with locals within its multinational markets to assist in sales and therefore earn money.

Oriflame has the ability to effectively produce highly advanced products that are highly differentiated and in touch with the market needs of Russian consumers and therefore this is why it is among the leaders in the Russian cosmetic industry.

Approximately 80% of the total market share of cosmetic products (that is, eye makeup, lipstick, facial makeup, hair make up, skin care products, and nail products) is shared by 10 companies with Oriflame being the leader enjoying close to 12% of the total market share.

The Russian cosmetic industry has over 40 serious participants consisting of “Avon, L’Oréal Russia, Gillette Group, Procter & Gamble, Schwarzkopf & Henkel, Beiersdorf, Kalina Concern, Colgate-Palmolive, Amway, Unilever Russia, Nevskaya Kosmetika, Mary Kay, Faberlic, Estée Lauder, Johnson & Johnson, Vesna, Londa Russia, Vichy Laboratories, Svoboda, Christian Dior SA, Eurocos Cosmetics, Krasnaya Liniya Chanel, GlaxoSmithKline,” meaning that the level of competition is quite intense (Euromonitor International 2010).

However, the intensity of competition is therefore quite fair or rather healthy because the Russian cosmetic industry enjoys close to $ 8 billion in annual revenues which is quite large as compared to other European counterpart (Euromonitor International 2010).

Cosmetics in Russia (2007) claims that the Russian woman living kin urban centres begin using cosmetics when they turn 16 years old and continue doing so until their old age, while on the other hand their counterparts in the eastern part of Russian begin using cosmetics as soon as they turn 14.

Additionally, the article claims that the Russian women are obsessed with elegance and good looks and therefore uses cosmetics an average 4 more times as compared to women from other parts of Europe. As a result multinational cosmetic manufacturers and local manufacturers see this market as a long term investment and business project.

Consequently, it becomes necessary to understand what is it that has made Oriflame very successful in the Russian market and has even made the giant Swedish cosmetic manufacturer more successful than local counterparts such as Kalina, Nevskaya and Kosmetika (Oriflame Cosmetics 2011).

SWOT Analysis

A swot analysis basically assists corporate entities to make business decisions by simply taking a critical look at possible success points and situations which could lead to success or failure if not taken care of in an appropriate manner (Wheelen & Hunger 2002, 45).

When these events and situations are brought into light then institutions are able to easily formulate strategies and implement marketing plan and regularly adjust them with an aim pleasing a specific targeted market (Kourdi 2009, 92).

Strengths

The internal environment of Oriflame cosmetics consists of resources, company culture, and Organizational structure is faced by strengths and weaknesses which must be tapped into and minimized respectively to bring about positive business outcome that is in line with corporate goals.

Some of the strengths of Oriflame cosmetics include the good company culture that aims all business efforts towards maximizing the customer experience, a good corporate culture that serves the customer as King.

Oriflame Cosmetics is an institution that has a good worldwide image and reputation therefore the good brand value attached to this brand can help it break ice in new territories and this is what has made it even bigger in Russia with a market share of over 13%.

Weakness

One of the weaknesses that Oriflame cosmetics face is the limited number of Resources to further its business ambition therefore restricting the kind of growth that the leadership dreams of. Thus Without enough resources any achievements that the company desires to attain are limited considering the levels of risks that a company faces after dedicating huge resources.

Opportunities

The large Russian cosmetics market currently with Revenues of over $9 billion annually offers other areas of opportunities that can be tapped into especially after careful planning and strategies are embraced by the top leadership of Oriflame Cosmetics.

The demographical structure of the Russian population mainly consists of women who use cosmetics starting at an early age and even go ahead to use it until they become old therefore offering massive opportunities of business that can be achieved through target marketing (Bennet 2006, 170).

Threats

The tight competition among existing competitors who use low cost models present a threat to Oriflame in Russia (RNCOS 2010). Simply because foreign companies incur higher costs in the process of business simply because local manufacturer are cushioned from this costs by the government, may mean decreased profit margins by Oriflame Cosmetics.

Research Methodology

Research methodology is a framework that is used to guide the process of collecting Data and analyzing it to make useful information out of it that can be interpreted and used to guide the decision making process.

This research is an exploratory type of research and in order to find out its research objectives the researcher need to use secondary sources of data obtained from industry publications and also web sources to understand how Oriflame cosmetics has successfully conquered the Russian Market and even out shone local manufacturers (Kotler 1999, 44).

The data obtained will be further analyzed qualitatively order to process it into useful information that can be easily interpreted and thus used by decision makers.

Data Analysis

Oriflame cosmetics has been in the Russian industry for close to 15 years and since then the company has been able to learn and adopt a suitable business model routed on strong strategy that has merged the companies objectives together with consumers expectations and wants.

Oriflame has a wide range of brands that have a good marketing mix and a set of good marketing strategies that are established to back them up. However, industry reports by Euro monitor suggest that the industry has witnessed a decline in the sales of premium products since the recession affected the industry in 2009.

Trends suggest that the Russian consumer is attracted to quality and at the same time fair prices and therefore this is what Oriflame have incorporated in their company strategies.

Hence, by understanding these needs of the Russian consumer Oriflame has formulated and implemented strategies that will enable the company to successfully tap into the market with a high degree of efficiency.

The key to success for Oriflame in the Russian market is as a result of well formulated strategy and top notch marketing planning. The ability of Oriflame to effectively manipulate the marketing mix to their advantage through involving the marketing department is paramount to their current performance. Their approach to pricing, product development, placing (distribution) and lastly promotion is the key behind their success.

According to the Euromonitor International, Country Market Insight July 2010 Oriflame was able to increase its total sales by 11% and this was simply due to the revision of the various strategies that the company used. Knowing that premium product sales were on the decline this meant that mass marketing approaches were a much better option as the recession was affecting Europe and other markets.

The actual advantage that Oriflame was able to enjoy from mass marketing is that a high degree of production efficiency and economies of scale arose therefore lowering production costs tremendously and this trickled down to the actual prices on the shelves of stores thereby triggering purchase.

The ability to distribute their products through direct marketing is also another advantage because it increases product penetration in a target region. Direct salesmen entrepreneurs who enjoy commissions from multilevel marketing is attractive because while consuming and introducing others an individual is also able to earn, therefore this strategy boosted the market position of Oriflame.

Using massive promotion campaigns on TV and print media and also passing benefits to distributors (direct salesmen) was one main reason behind the performance of Oriflame.

Moreover, considering the unique packaging, color, branding and brand identity awarded to products of Oriflame such as lipstick, mascara, eye liner, hair gels, and facial creams gives Oriflame an upper advantage by positioning their products as flagship brands that are perceived as superior.

Oriflame prices have shifted from premium pricing methods to a penetrative pricing approach thus making them cheaper and affordable for the people in Russia.

Penetrative pricing has been made possible by the fact that the company is now serving the mass market and also at the same time has opened factories in Russia therefore enjoys the hefty benefits that multinationals enjoy from the government for creating jobs by opening factories in host countries.

While other local participants like Kalina, Kosmetika and Nevskaya continue to experience growth in sales by 13 &, 10% and 18% foreign companies may find their market position under great threat and therefore must embrace strategies used by companies like Oriflame (Global impact 2010).

It is as a result evident that the success enjoyed by Oriflame in Russia has been gradually achieved in the last 15 years of Operation for that reason success international business can only come through careful planning and strategy in marketing.

Recommendations and Conclusion

The success of Oriflame in Russia can be attributed to the level of marketing planning and strategic management that has been used by business executives to ensure that short run day to day business and long run business operations are carried on in line with the mission and vision of the company.

Oriflame’s operation within 62 countries is run depending on the country and when the company entered Russian it adopted a business model that was in tandem with the Russian market (Commercecan.ic 2011).

Therefore, business executives while making international business decisions that usually involve the shifting of a lot of resources for the host country is also equally important to review, appraise current strategies and if found totally redundant it is mandatory that a complete overhaul is conducted and new strategies that are in alignment with the new market be put in place.

Oriflame’s case of success in Russia acts as an example and therefore encourage those business executives and entrepreneurs operating in a transnational success that the key to making international business activities successful is mainly through formulating, implementing, and continuously evaluating marketing strategy as business activities also change.

References

Bennet, P., 2006. Marketing Management and Strategy, 4th edn. New York, NY: Prentice Hall.

Commercecan.ic, 2011. “Market Overview of the Russian Cosmetics Market.” Commercecan. Web.

Cosmetics in Russia, 2007. “Oriflame celebrates 40 years of Business.” Cosmetics in Russia. Web.

Cosmetics in Russia, 2011. “The first on-line Newsletter on Russian perfumery and Cosmetics Market in English.” Cosmetics in Russia. Web.

Euromonitor International, 2010. “Colour Cosmetics – Russia.” Euromonitor International. Web.

Global Impact Consulting, 2010. “Russian cosmetics market.” Global Impact Consulting. Web.

Kotler, P., 1999. Principles of marketing, 2nd edn. New York, NY: Prentice Hall.

Kourdi, J., 2009. Business Strategy: A Guide to Effective Decision Making, 2nd edn. New York, NY: Economist books.

Oriflame Cosmetics, 2011. “About us.” Oriflame Cosmetics. Web.

Passport magazine, 2011. “Crazy for cosmetics 2008.” Passport magazine. Web.

RNCOS industry Research Solutions, 2010. “Russian Cosmetics Market Forecast (2008-2012).” RNCOS industry Research Solutions. Web.

Sinkovics, R. & Ghauri N. P., 2009. New Challenges to International Marketing. London: Emerald Group Publishing.

The Moscow Times, 2010. “Russia Is Getting Wealthier”. The Moscow Times. Web.

Trott. P., 2008. Innovation Management and New Product Development, 4th edn. London: Pearson.

Wheelen, T., & Hunger, D. J., 2002. Strategic management and business policy. New Jersey: Prentice Hall.

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