International Marketing - New Rye Bread Business in Saudi Arabia

1.0 Executive Summary

1.1 The problem

To launch a product which is available in one country and develop a value based international marketing strategy for its launch in a foreign market.

The chosen product is Fazer’s Black Rye Bread which is very popular in Latvia. This report is developed to launch the black rye bread in the Saudi Arabian market.

1.2 The product

The Black Rye Bread is a type of bread made from the flour of rye grain. The black rye bread is higher in fiber than the other breads such as wheat bread, white bread and seeded bread. The rye bread is healthier in comparison to the other breads (Refer Appendix 1).

1.3 Benefits of the Black Rye Bread

Below are some of the benefits of Black Rye Bread (Refer Appendix 2):

n Rye for Cholesterol Reduction

n Rye for Cardiovascular Disease Prevention

n Rye for Cancer Prevention

n Rye for diabetes prevention

n Rye for reducing effects of Menopause

n Rye for Digestive Health

n Rye for Weight Loss

1.4 Long term development plan

Market surveys have shown a great demand for cafes in the urban Saudi Arabian market. To cater to this segment, we plan to open our Fazer Cafes (similar to our cafes in Finland, Sweden and Latvia) where the customers can have bakery products like cakes, sandwiches, pastries, etc. and also chocolates, confectionaries and beverages. We will also provide them with Wi-Fi internet so that they can browse the web or work while sitting in the café.

Apart from bringing in revenue, Fazer Cafes will help us reach our customers directly and get feedback about the taste, shape, size etc. of the breads. We will be able to test-market our future products before launching them.

1.5 Value for the shareholders

Launching our rye bread in Saudi Arabia will increase our revenue and provide increased market visibility for the Fazer brand. This is turn means greater profits for the company and its shareholders.

2.0 Target Country

2.1 Mega trends

1. Move towards healthy lifestyle: The Saudi public is moving towards a healthy lifestyle. The people are increasingly becoming health conscious (Refer Appendix 4). This provides us the opportunity to launch our healthy rye bread.

2. Acceptance of Western products: The people in Saudi have become more open to anything Western than ever before. Anything Western is perceived to be better and of high quality.

3. Increasing demand for bakery products: Market research has shown that the bread and cereal market in Saudi increased at a rate of 3.3% from 2003 to 2008. The bread category accounted for a share of roughly 98%. This shows a solid demand for bread in the Saudi market (Refer Appendix 3).

2.2 Purchasing Power Parity (PPP)

Using a PPP basis is more useful while comparing general differences in standards of living between nations. This is because PPP considers the relative cost of living in countries and their inflation rates, instead of just using exchange rates.

The link to the list of Big Mac cost in different countries can be found in Appendix 7. The price of a Big Mac in Saudi Arabia is US$ 2.6661 and that in Latvia is US$ 2.9010. This shows us that there is not a very big difference between the prices of food products in the two countries when we consider purchasing power parity.

3.0 Sustainable Competitive Advantages

1. Exclusive partnership for production and distribution: Saudi Arabia has a rule that all companies must have a local partner with controlling stake in the company. So, we plan to enter in an exclusive partnership with a local upcoming bakery with good links to the government of Saudi Arabia. This bakery will produce only our bread. The benefits of this strategy are:

A: We will be able gain tacit knowledge from our local partner.

B: The local partner will be able to help us get endorsement from the Saudi Ministry of Health.

C: The Partner will share the profit from the bread, and also the losses. So if the black rye bread does not do well in Saudi, we will be able to minimize are losses.

D: We will save substantial amount of money involved in setting up a manufacturing unit.

We also plan to sign exclusive distribution contracts with supermarkets and pharmacies to sell only our brand. The distribution contracts in Saudi are generally long term, anywhere between 2 years to 5 years. This will insure us that our competitors cannot sell their brand through the same distribution channels.

2. Endorsement from Saudi Ministry of Health: We plan to carry out some medical tests to prove the benefits of the black rye bread. Then, we plan to get the endorsement of the Saudi Ministry of Health. The endorsement will benefit our product to prove to the customers that our claims of health benefits are true. And generally, the government endorses only one brand of a particular type so the endorsement will make us exclusive from the others.

Figure 1

4.0 Local Issues

Since we are moving to a new country let us analyze Saudi Arabia (target market) based on the 12C framework.

Country: Research about Saudi Arabia has shown us that when it comes to grocery shopping, the home makers are the main decision makers. The ladies are very health conscious and like to eat healthy. We also found that Saudi is a rich country with high disposable income because it is an oil-rich country. Also, anything Western is perceived to be of better and of high quality.

We also came to know through research that every business in Saudi Arabia has to have a local partner which has a controlling share in the company. We have discussed this under Sustainable Competitive Advantages.

Culture: In terms of culture, Saudi’s are moving towards being more accepting of Western culture. You can see huge crowds in front of McDonalds and KFC in Riyadh. I must say that I was pleasantly surprised by this analysis. I had not imagined an Islamist nation could be so open to the Western culture. We also found out that ‘Fazer’, our brand name, does not mean anything in Arabic, the language of Saudi Arabia. Based on all these reasons, we believe there will be no negative perception of our product in terms of culture, religion or lifestyle.

Channels/Distribution: Saudi Arabia has many super markets and pharmacies like Panda, Geant and Tamimi. These organizations have a well functioning distribution channel and we plan to have exclusive production and distribution contracts with them.

Communication: Saudi Arabia has many cellular and landline service operators, although some of them are new in the market. They entered when the Saudi Telecom Company’s monopoly was broken in 2009. Saudi has modern Radio and TV facilities. They also have more than 20 active internet service providers in the country. The most common language is Arabic. We plan to print everything on the bread wrapper in both English and Arabic.

Commitment: As discussed previously, Saudi customers have a large disposable income. They tend to be more brand loyal than their western counterparts as long as the quality of the product doesn’t worsen.

Currency: The Saudi Riyal is the currency of Saudi Arabia. The Riyal has been fairly stable over the last 3 years (Refer Appendix 5) and there are no signs of any change in the near future.

Capacity to pay: Saudi Arabians have second largest disposable income in the Middle East, after Qatar (Refer Appendix 6). Also, because the country produces about 25% of the world’s oil, I think it’s safe to say that their capacity to pay is not an issue.

Concentration: Since our product is going to be positioned to target health conscious, exercising, office going, urban population, we would prefer if the product is launched in the capital city of Riyadh first. Riyadh has the maximum per capita income in Saudi Arabia. It also has the most number of people involved in service industry.

Choices: Our consumers have choices between health clubs, gyms, wheat bread, etc. The choices also include local types of bread like fatir (flat bread) and arikah (bread from the south western part). None of these offer the benefits that our product offers. These products are also not positioned like ours to target the urban, health conscious, office going people.

Consumption: Although we know that the Saudi’s eat bread at least twice a day, we don’t have a definite figure on consumption amounts.

Contractual Obligations: Saudi has a very firm and rigorous legal system. Non-adherence to the legal contracts treated with an iron hand. So once we sign a contract with a supplier or a distributor, we have very little to worry about from the legal perspective.

Caveats: As will be discussed under Sustainable Competitive Advantages, we plan to conduct some medical tests to prove the benefits of the black rye bread. And then we intend to approach the Saudi Ministry of Health to endorse our product. But if the tests don’t prove the benefits, we might have to reconsider our stand on launching the product in Saudi Arabia.

5.0 Product Life Cycle

Let us plot a graph to compare the product life cycle stages of the product in Latvia and in Saudi Arabia.

As can be seen from Figure 2 below, the black rye bread is at the maturity stage in Latvia. This is because the rye bread has been in the Latvian market for ages. There are many brands available in the market selling the black rye bread and there is negligible growth in the sales volumes.

On the other hand, the black in the Saudi Arabian market is at its introduction stage. There are no competitors and there is a huge scope of growth.

Figure 2

6.0 Consumer based market segmentation

Bread consumers in Saudi Arabia can be segmented in many ways. One way is to segment them based on their life stage – old adults, old families, young adults, young families and pensioners.

Another way to segment bread consumers can be based on lifestyle – convenience buyers, price sensitive buyers, health conscious and traditional bread buyers.

Figure 3 below shows the perceptual map of consumers based on lifestyle. We have mapped the consumers on the map based on healthy product buyers versus availability of the product.

Figure 3

Convenience buyers are buyers who are more concerned about their convenience of buying rather than anything else. They buy the bread which is available closest to their house.

Price sensitive buyers are concerned about the price of the bread rather than anything else. They always buy the cheapest bread available in the market.

Health conscious buyers buy healthy bread irrespective of how expensive it is or how easily available it is.

Traditional bread buyers are the consumers who buy the traditional Saudi Arabian breads irrespective of their price and nutritional value.

Since black rye bread is a healthy product and has many health benefits, we propose to segment the consumers based on lifestyle, instead of life stage. This will give Fazer a better understanding of their customers and help them in targeting a specific type of customer.

7.0 Target Market (Psychographic)

Based on the consumer segmentation above and the nature of the product, we propose to target the health conscious buyers. Amongst the health conscious buyers, Fazer is advised to target the urban, cosmopolitan and office going people with high disposable income.

Because of so many health benefits of our bread and the fact that our bread is going to be sold for a premium (see Pricing Strategy below), it makes perfect sense to target the households with high disposable income. And since the office going and urban people are the ones who don’t get proper exercise on a daily basis because of the nature of their job, they are the ones who are more conscious about eating right, eating healthy.

We don’t propose to target convenience, price sensitive or traditional bread buyers. Neither are we targeting the low income households or the people who live in rural areas.

8.0 Market Positioning

Philip Kotler and Gary Armstrong have described five winning value propositions in their book (Refer Appendix 8). These are:

1. More for more

2. More for the same

3. The same for less

4. Less for much less

5. More for less

We propose Fazer to use the “More for more” proposition. This involves providing the most upscale product and charging a higher premium to cover the higher costs. This is attributed to the following reasons:

1. Our target market is urban, cosmopolitan and office going people with high disposable income. These people are willing to pay a premium for high quality product like ours.
2. More for more will result in higher profits because per unit price will be more.
3. There is a demand for a premium product – no other bread manufacturer produces bread having the same benefits as Fazer’s black rye bread. The product is exclusive.

9.0 Points of Difference

1. Exclusive production and distribution deals with local companies.
2. Endorsement of our bread from the Saudi Arabian Ministry of Health.

10.0 Points of Parity

1. Bakery and confectionary product.
2. Short shelf life.

11.0 Unarticulated Demand

1. We will take inputs regarding tacit knowledge from our local partner in order to understand the taste that the people of Saudi Arabia like.
2. We have sent people to stay with the local families to gain more understanding about Saudi Arabia, things like how they eat their bread, what is the shape best suited, what changes they would like to see in the bread, etc.
3. We have designed easily open able and re-sealable packs for ease of handling the bread.
4. Since Saudi Arabia is a Islamist country, green colour will play an important role on the packaging.

12.0 Market Entry Strategy

Let us analyze the market entry strategy using the Ansoff’s model (Refer Appendix 9).

Figure 4

Referring to the Ansoff’s matrix above, our existing product (black rye bread) is being launched in a new market (Saudi Arabia). This means that we are employing the Market Development strategy.

As discussed earlier, we will import raw materials and established processes from Latvia and partner a upcoming, influential baker in Saudi Arabia. We will enter in exclusive production and distribution contracts with some major supermarkets and pharmacies for a period of between 2 and 5 years.

Figure 5

The advantages of this method are described in Sustainable Competitive Advantages’ point number 1.

13.0 Risk Assessment

The risks involved in this type of market entry are:

1. As stated earlier, we are entering the Saudi Arabian market using the Market Development method, so there is a lower risk of the process going wrong because the product is already produced in Latvia.
2. There is a risk of not being able to prove via medical tests that our black rye bread actually has all the benefits that we claim. We are doing everything we can to prove the benefits of our product according to international standards.
3. We also need to consider the risk of our distributers and partner pulling out of the venture midway. Although the Saudi legal system is pretty strong, we still need to consider the risk.
4. There is also a risk that the Saudi Arabian Ministry of Health does not endorse our bread. I think this is a low risk scenario and will not hinder the launch of the product.

After analyzing all these risks, I would say that the risk involved in launching the black rye bread in Saudi Arabia is medium because we are, after all, going to a new country to launch our product.

14.0 Pricing Strategy

Below is a rough diagram of the pricing strategies that can be used.

Figure 6

We propose to use the Premium pricing strategy for the black rye bread in Saudi Arabia because it has a couple of very strong sustainable competitive advantages. The premium pricing will also differentiate our product and points to its uniqueness and benefits. Also, there is no other competitor in the very healthy market where we operate and should be able to capitalize on this opportunity of being the first in the market.

15.0 Brand Name

We propose to use our existing brand name ‘Fazer’ (used in more than 8 countries across Europe). This is attributed to the following factors:

1. ‘Fazer’ is already a well established brand in Europe.
2. Saudi Arabians like anything that is foreign.
3. ‘Fazer’ does not mean anything in Arabic, the language of Saudi Arabia.

16.0 Conclusion

Taking into consideration the sustainable competitive advantages of Fazer black rye bread, the 12 C analysis, lack of competition, the opportunities in Saudi Arabia and after analyzing the risks involved, I propose to go ahead and launch Fazer black rye bread in Saudi Arabia based on the marketing plan described above.

17.0 References

Appendix 1

"WHFoods: Rye." The World's Healthiest Foods. Web. 04 Dec. 2010.

Appendix 2

"The Health Benefits of Rye." Elements4Health - Research Based Health and Fitness. Web. 04 Dec. 2010.

Appendix 3

"Bakery and Cereals in Saudi Arabia to 2013: Industry Report." Industry Market Research Reports & Business Analysis at MindBranch. Datamonitor, 1 Apr. 2010. Web. 04 Dec. 2010.

Appendix 4

"Increasing Number of Health-conscious Consumers Drives Strong Demand for Dairy Food Products." Riyadh News, Riyadh Events, Riyadh Hotels, Riyadh Shopping, Riyadh Business, Travel Riyadh. 16 Sept. 2010. Web. 04 Dec. 2010.

Appendix 5

"Foreign Exchange Rate Data - Saudi Riyal - SAR - Saudi Arabia." Daily Foreign Exchange Rates, Information about Currencies and Currency Markets. 3 Dec. 2010. Web. 04 Dec. 2010.

Appendix 6

"World's Largest Expat Survey Reveals Crunch Hits Expats Hard." PR Newswire - News Distribution, Targeting and Monitoring. PRNewswire, 24 June 2010. Web. 04 Dec. 2010.

Appendix 7

"The Economist's Big Mac Index Valued at Today's Exchange Rates." Forex Trading and Exchange Rate Services. Oanda, 03 Dec. 2010. Web. 04 Dec. 2010.

Appendix 8

Armstrong, Gary. "Customer-Driven Marketing Strategy: Creating Value for Target Customers." Principles of Marketing. By Philip Kotler. Thirteenth ed. Pearson, 2010. 238-40. Print.

Appendix 9

Ansoff, Igor. "What Is the Ansoff Matrix Guide." Ansoff Matrix. Web. 04 Dec. 2010.