The Role of Market Research in the Internationalization of Small and Medium Enterprises

A Swedish Case Study

Masterarbeit , 2009 , 102 Seiten , Note: 3.5

BWL - Marktforschung

The topic of this dissertation comes from these two areas: internationalization of small and medium enterprises (SMEs) and international entrepreneurship. When looking into SMEs internationalization research, there is lack of material about pre-internationalization stage of SMEs. It is also very critical that firms should have theoretical guidelines to follow in early internationalization stage when they have no or very little international experience.

SMEs are well known for their innovative and risk taking approach. This study aims at providing them with a strategic framework or method to analyze the marketability of their products or services and exploit internationalization opportunities. It also focuses on helping them in reducing their risks linked with cross border business opportunities. This research is performed through case study method. A new conceptual model has been developed by integrating relevant standard approaches within the field of research. This model has been further explained by implementing it on case company.

Internationalization of SMEs in general has become a very famous topic in the world. This is the area which is developing further at present. Plenty of research has been performed from different perspectives and angles. International Entrepreneurship is an emerging area when it is yet struggling for standard definition. International entrepreneurship theory and SMEs are very much connected areas. While making a study related to internationalization of SMEs, we cannot neglect the importance of entrepreneurs, which is widely recognized as the main variables in SMEs' internationalization.

Developing theoretical and conceptual model by integrating different existing theories is very usual in SMEs' internationalization research area. This may be due the reason that there is lack of standard theories or approaches in this area so there is an absolute need for such efforts. Motivated by similar drive authors aimed to create customized theoretical framework for analysis with the help of different standard approaches in the field.

Table of Contents

1 Introduction
1.1 Theme of our Study
1.2 Company and Product Introduction
1.3 Objective and Purpose
1.4 Strategic Question/Problem Statement
1.5 Research Questions
1.6 Target Group
1.7 Delimitations

2 Methodology
2.1 Topic Selection
2.2 Research Approach
2.3 Data Collection
2.4 Purpose of Primary Data Collection
2.5 Primary Data Collection Method
2.5.1 Semi Structured Interviews for market survey
2.5.2 Non Structured Interview with Company Owner
2.6 Analysis Method
2.6.1 Statistical Analysis
2.7 Literature Review
2.8 Presentation of Findings/Results

3 Critical Literature Review
3.1 Uppsala internationalization model (U-model)
3.2 International Entrepreneurship Theory
3.3 Marketing Mix
3.4 Theories supplementing Marketing Mix
3.4.1 Skimming versus Penetration
3.4.2 MEC approach
3.4.3 The Kano Model of Customer Satisfaction
3.4.4 Network Theory

4 Theoretical/ Conceptual Framework
4.1 International Entrepreneurship Theory
4.2 Target Market Selection
4.3 Marketing Mix
4.3.1 Product
4.3.2 Price
4.3.3 Promotion/Advertising
4.3.4 Place

5 Empirical Data Findings
5.1 Denmark
5.2 Italy
5.3 France
5.4 Interview with Gunnar Widforss

6 Analysis
6.1 Target Market Selection
6.1.1 Presentation of Market Trends
6.1.2 Uppsala Model
6.1.3 International Entrepreneurship
6.2 Price (Skimming Vs Penetration)
6.3 Product (Kano Model)
6.4 Advertising / Promotion
6.4.1 Presentation of Market Trends
6.4.2 MEC Approach
6.5 Place
6.5.1 Presentation of Company’s Approach
6.5.2 Network Theory

7 Conclusions

8 Recommendations
8.1.1 Theoretical Aspect
8.1.2 Practical Aspect

9 Limitations of the Study

10 Future Research

11 References

1 APPENDIX A: QUESTIONAIRE DENMARK(for semi structured interviews)

2 APPENDIX B: QUESTIONAIRE ITALY & FRANCE

Acknowledgements

As usual like all other researchers we also faced time and resource constraints which is not as important to be mentioned here in detail. Here we would like to acknowledge the contribution of our colleagues and tutors which helped us to achieve our objective.

Mr. Daniel Tolstoy, our supervisor, is the person to be thanked the most. With his kind and rich feedback and especially with his flexibility towards our work structure, he helped us a lot. We would also like to thanks him for his extra time he took for us and gave us such a valuable feedback before final submission. While talking about the supervision, we would also pay regards to our co examiner Mr. Sven Åke Nystrom who is a very experienced and expert teacher and researcher in field of marketing. He provided us with valuable feedback and guidance about our work

We would also like to thank Mr. Tobias Eltbrandt, our program coordinator and tutor. The knowledge we gained through our courses has helped us a lot in the thesis.

Mr. Jonas, our thesis coordinator, has also helped us by arranging all the managerial requirements in a smooth way for our thesis. We would like to thank him for such a flaw less and smoothly structured management of the thesis process.

In particular we would like to thank Mr. Gunar Widforss, owner of Widforss industries, who had provided us a chance to work with his company. We would specially like to thank him for his commitment and giving us meeting time even on short notices and also for funding the research.

We would also like to thank our opposition group members Ngoc and Thu for their constructive feedback on our drafts during the seminars.

Finally we would like to thank our families and friends who helped us in our thesis work and without their moral support we could not have achieved the desired objectives.

Abstract

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Glossary

SMEs: Small and medium enterprises

DKK: Danish Kroner

ISMIE: International SME Model of Innovation Exploitation through Market Research

I.E: International Entrepreneurship

1 Introduction

Internationalization of SMEs in general has become a very famous topic in the world. This is the area which is developing further at present. Plenty of research has been performed from different perspectives and angles. International Entrepreneurship is an emerging area when it is yet struggling for standard definition (McDougall and Oviatt, 2000a). International entrepreneurship theory and SMEs are very much connected areas (Fletcher, 2004). While making a study related to internationalization of SMEs, we cannot neglect the importance of entrepreneurs, which is widely recognized as the main variables in SMEs' internationalization (Miesenbock, 1988). While innovation lies at the centre of the entrepreneurship (Schumpeter, 1934).

The topic of this dissertation comes from these two areas; internationalization of SMEs and international entrepreneurship. When looking into SMEs internationalization research, there is lack of material about pre-internationalization stage of SMEs. It is also very critical that firms should have theoretical guidelines to follow in early internationalization stage when they have no or very little international experience.

Uppsala Model, Born global SMEs, International Entrepreneurship theory and Network Theories are most popular concepts these days into this area (Ruzzier et al., 2006). Most of these theories are utilized in the research because they stand as widely accepted concepts. The use of such standard approaches is helpful in enhancing the strength and reliability of the research.

Developing theoretical and conceptual model by integrating different existing theories is very usual in SMEs’ internationalization research area. This may be due the reason that there is lack of standard theories or approaches in this area so there is an absolute need for such efforts. Motivated by similar drive authors aimed to create customized theoretical framework for analysis with the help of different standard approaches in the field. After devising the model with the help of standard theories it was tested against our Swedish case study of Gunnar Widforss Industries.

1.1 Theme of our Study

It can be said that Marketing Research is the theme of this study as it acts as major input and main driving force into the dissertation. Potential markets (Denmark, France and Italy) indicated by our case company were surveyed. Empirical finding from this survey were analyzed by connecting them to different theories to generate important strategic decisions. Importance of market and customer information enjoys great recommendation in literature also. Market research is a proactive and skilled approach which can be utilized in various ways. Conventional barriers are being dissolved and firms opt for proactive and skilled approach through which they acquire competitive advantage by exploiting opportunities and innovation.

While designing their strategies market oriented firms admit the relevance and importance of using information about customer and competitors (Armario et al., 2008). Market research capabilities including market sensing and customer linking provide companies with foreign market knowledge (Armario et al., 2008). Market commitment decisions are influenced by foreign market knowledge as per Uppsala model (Johanson & Associates, 1994, p. 84).

1.2 Company and Product Introduction

Widforss Industries is privately owned business based in Vasteras Sweden. The company has got some small scale projects currently. But the owner of the company has ambitions to grow. He believes in innovation and he is currently working closely with Idelab at Mälardalen University (www.mdh.se). Widforss Industries has two new patent-pending low-tech products. The company plans to sell a manufacturing license for one product to a big industry leader company, which dominates the entire European market and therefore wants a European patent, at least in the Netherlands, Germany and Denmark, France and Italy (India, China and the United States, on the target list). The second product which, in principle, having identical function, must be manufactured and distributed by Widforss Industries, or by prospective partners but marketed to the end user/consumer of retailers/dealers. These products solve a need that has long been in Sweden, but it is not verified on the need and the behaviour found in other European countries. In Sweden, there are other established solutions /products, but its solution is different and has many advantages. In the rest of Europe, it is uncertain whether consumers would like to solve their problem with the company's product. Scope of the study is to investigate Danish, French and Italian markets for one of its products mentioned above. This device is an innovative solution designed to facilitate transportation of bicycles through vehicles. This device would be fixed into bicycle permanently. People can lock their bicycle with their vehicles easily by using this device and carry them anywhere they want (Widforss, interview).

1.3 Objective and Purpose

SMEs are well known for their innovative and risk taking approach. Purpose of this study is to provide them with a strategic framework or method to analyze the marketability of their products or services. It will also help them in reducing their business risks linked with cross border business. The thesis will help them formulate their pre-internationalization marketing strategies with the help of a Swedish case study. Major objective of this study is to make a theoretical contribution to the field of research by developing a theoretical model.

1.4 Strategic Question/Problem Statement

‘‘How can marketing research help innovative SMEs in exploitation of international opportunities in their early internationalization? ’’ Case of Gunnar Widforss Industries

1.5 Research Questions

- Which Market should Widforss industries enter at this stage out of potential markets?
- What marketing strategy Widforss industries should follow to be successful in new foreign market?
- Which theoretical model should innovative SMEs follow in general to exploit internationalization opportunities in their pre internationalization stage?

1.6 Target Group

Primary target of our research is management of Widforss industries. Apart from this our major target groups are researchers, students, teachers, entrepreneurs, marketing managers and innovators. But scope of research is not only restricted to these groups only, applicability of this research could possibly increase towards different groups and fields.

1.7 Delimitations

Most of the research works always have some delimitation and they are restricted to some boundaries. Our research has delimitations as well. We will not able to provide sufficient empirical evidence in proof our suggested theoretical model as our research will be based on literature and one case company only. Due to resource constraints we will only survey one major city in each country and will interview few people within those cities. So, our results from the survey may be a true representation of the consumer trends in respective countries.

2 Methodology

The research is performed through case study in which a customized theoretical framework is built by adhering to methodological framework suggested by Eisenhardt (1989) in which case study research is used to create new theories. Standard approaches and methods will be used to perform this study. An overview or order of the research activities has been described

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Fig 2.1: Layout of work structure

2.1 Topic Selection

Today the world is in direct need of innovative ideas and small and medium sized enterprises are the entities which can recover the world economy from the current crisis. Today’s many major business enterprises were started as very small companies and they grew by folds in many cases within few years. This project will help an SME to start the business in European market and successful execution can help the company to launch its product in the market. On the other hand we will also have an opportunity to work on an international project which will help us develop better understanding of international markets. The project will also help us in understanding and executing innovative ideas with the help of standard literature theories. A lot of literature is available about SMEs but we did not find any specific study about pre internationalization marketing strategies. Our study will focus on this key area and will definitely add a new perspective in the literature about SMEs. Hence the topic is covering both aspects of a good research contributions i.e. theoretical contribution to the literature and practical contribution for the company.

2.2 Research Approach

The selected research approach is both inductive (in which theories are created) and deductive (theories are tested) because the theories are integrated into framework from different research paradigms. Hence the theoretical framework consists of other customized frameworks. Therefore, it involves both creation and testing of theories. We decided to work on chosen topic through case study method which we thought could provide us realistic results and can answer our research question effectively. This is because the research area deals with operational links involving real time scenarios. We can meet this demand through case study method very well and can answer to ‘How’ and ‘Why’ type questions efficiently with real time situations and experience.

The case study has been defined as an empirical study which investigates a contemporary phenomenon within its real life context especially when the boundaries between phenomenon and context are not clearly evident. (Yin, 2003)

After finalizing the methodological stance now we would precede by representing our research design. The case study design for the study has been described below;

The case study design can be of following types (Yin, 2003));

- Type 1 Single-Case (Holistic) designs
- Type 2 Single-Case (Embedded) designs
- Type 3 Multiple-Case (Holistic) designs
- Type 4 Multiple-Case (Embedded) designs

In this case study, single case holistic design is used. The case of one SME is being studied, and then the results are generalized for similar innovative SMEs.

Within this case study, exploratory research questions are used. In exploratory research we try to find out something which we already do not know (Fisher, 2006). So this thesis involves exploratory research and information was collected both through primary data and secondary data.

2.3 Data Collection

We used our findings from literature to develop the conceptual framework and empirical data findings through market research for our case study of Widforss Industries.

2.4 Purpose of Primary Data Collection

Empirical findings have been attained through market survey and company interview to investigate following;

- Asses the demand of new product
- Get feedback from the customers on the product and their needs
- To observe how many cars have toe bars which is necessity to use our product
- To observe the trends of product usage in different countries
- Attitude of consumers towards the innovative products with respect to different regions and cultures
- Get feedback and suggestions from consumers about the product design
- To explore the company policy, plans and business activities.

2.5 Primary Data Collection Method

Face to face interviews was the method of survey. Two types of interviews have been utilized. One for consumers and other for management of the company.

2.5.1 Semi Structured Interviews for market survey

Interviews have been conducted primarily with potential customers of the company. These interviews were semi structured with pre coded and open ended questions.

Population and Sampling:

In this section we have described our population, sample size and technique as below;

Population:

Population includes people of Denmark, France and Italy who use bicycles.

Sample Size:

- Total 100 respondents from Denmark comprising 95 semi-structured interviews and 5 in-depth interviews.
- Total 50 respondents each country from Italy and France, including 45 for semi- structured interviews and 5 for in-depth interviews.

Sampling Technique

Random sampling technique will be used and people will be selected randomly on different locations in Copenhagen (Denmark), Milan (Italy) and Paris (France).

Demographics

Our overall target market is residence of target countries (Denmark, Italy and France) who use bicycles and have cars or other vehicles at their disposal as well. They currently use or may use their vehicles to transport bicycles. Our aim was not to look at the market with regards to different segments so we have not divided our findings or analysis with respect to consumer demographics. But a basic description of respondent’s demographics is given below;

Age: Anybody who can ride bicycles

Gender: Both Male and Female

Income Level: There is no specific income level, but the consumer or his/her family should afford a car.

Respondent Location: Living at various locations in Copenhagen (Denmark), Milan (Italy) and Paris (France)

Survey Structure

As described earlier, we used structured interviews with some pre coded questions. A tabular description of our survey structure is given as;

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Table 2.1: Questionnaire Structure

Question numbers may vary a bit as we used questionnaire for Italy and France with slight variations in question order.

2.5.2 Non Structured Interview with Company Owner

We took an open interview with owner of the company Mr. Gunnar Widforss to collect strategic information about the company. The interview covered following areas;

- Future Business plans
- Partnership plans
- distribution strategy

2.6 Analysis Method

Empirical findings achieved through market survey and company interview have been thoroughly analyzed with the help of selected theories. Analysis is based on following theories:

- Uppsala Model

Target Market Selection

- International Entrepreneurship

Target Market Selection and Exploitation of innovation

- MEC Approach

Product Development and Promotion

- Skimming Vs Penetration

Pricing Strategy

- Network Theory

Distribution

2.6.1 Statistical Analysis

We have used descriptive and inferential statistics, because both seem to be appropriate in order to achieve our expected results. As per short definition;

- Descriptive statistics is concerned with generalizing from a sample
- Inferential statistics is concerned with making estimates and inferences about a wider population

Within descriptive statistics Frequencies have been checked and used with analysis on need basis. However, our analysis was not based on statistics; it was rather focused on theories and literature. But descriptive and inferential statistics has been used within analysis to show the empirical data trends.

2.7 Literature Review

Data has been collected to analyze the literature and then to select relevant concepts for the theoretical framework. This data was in form of view points and theories instead of empirical findings.

The literature in the areas of SMEs Internationalization, Entrepreneurship, International Entrepreneurship, Innovative SMEs, Theories/Models of SMEs internationalization, New Product Development, New Product Forecast, Exploitation of Innovation and Market Research was searched.

Various standard literature sources like Journals and books were consulted. University library, inter library loans, text books, print journals and online data bases to access the literature were used.

The literature studied was mainly collected through online articles, journals and magazines within the area of the study. Other sources used also include research papers, business magazines, text books, news papers and journals in the field of market research and consumer behaviour.

2.8 Presentation of Findings/Results

Again Descriptive Statistics is used while presenting data results in results chapter. Different charts like histograms, pie charts and bar graphs are used for graphical presentation of the data findings.

3 Critical Literature Review

Here, we have adopted a diverse approach where we have drawn components from multiple theoretical paradigms for construction of the required conceptual framework. Selected literature is mostly connected to internationalization of small and medium size firms.

In this chapter we have critically reviewed our selected literature and with the help of that review. We have integrated these theories/concepts to create a theoretical framework. Theoretical framework has been explained in detail in next chapter.

Researchers have studied internationalization extensively for last few decades from various aspects, including: marketing, strategic management, organization theory, international management and small business management. They looked at critical areas such as international decision making and management, development of internationalization activities and factor influencing internationalization for both large companies and SMEs (Hisrich and Antoncic, 2006). Through carefully analyzing the literature and an empirical study, we have identified a phenomenon that will help in all these areas.

3.1 Uppsala internationalization model (U-model)

Uppsala model came into being as result of second stream of research on internationalization of SMEs in 1970. These researchers had particular interest in dynamics of internal process of SMEs (Bloodgood et al., 1996, p.61-76). Uppsala model has significant contribution towards research on internationalization of small and medium sized firms and people made efforts to refine this model with time (Morgan and Katsikeas, 1997b).

As per the Nordic international model firms enhance their international involvement in incremental steps within their current markets. They enter into new markets lying at greater at ‘’psychic distance’’ due to differences in culture, languages, education and business practices etc. The knowledge about international markets is help in making entry mode and country market selection. (Hisrich and Antoncic, 2006)

Different types of learning are involved in internationalization of firms as per this dynamic model (Andersen, 1993, p. 209-31). “Market knowledge and market commitment are assumed to affect decisions regarding commitment of resources to foreign markets and the way current activities are performed. Market knowledge and market commitment are, in turn, affected by current activities and commitment decisions.” (Johanson & Vahlne, 1990, in Johanson & Associates, 1994, p. 84).

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Figure 3.1. The Uppsala model of internationalization

Another prevalent aspect of the Uppsala model is psychic distance. This incremental model proposes that companies first enter into foreign markets located at less psychic distance. Language, culture and political systems are vital ingredients of psychic distance. (Johanson & Wiedersheim-Paul 1975, p. 308). Psychic distance has been termed as very important in early internationalization process of SMEs as the firms which don’t have any international experience or very little amount of it, tend to enter the markets (Armario et al., 2008).

Critique has been made continuously since the discovery of Uppsala model on both theoretical and operational level (Mitgwe, 2006). A serious problem identified by researcher is lack of explanation on why or how the process starts and areas whereby knowledge effects commitment. This model talks about the four consecutive stages that companies pass through in their internationalization process but it has failed to specify the mechanisms that take the firms through those different stages (Andersen, 1993).

Incremental or step by step process of internationalization in which firm enters into foreign markets after having established their business in domestic markets is central argument of this model. Many critics speak against this assumption and of the view that firms could possibly skip some of the stages and attain quick internationalization instead of gradual (Chetty & Campbell, 2003, p. 800-820). Sullivan and Bauerschmidt (1990) made a hypothesis of incremental internationalization but failed to approve it through test which they made by using the empirical study.

This model has emphasized on experiential learning which affects the commitment decisions. It suggests gaining the knowledge by doing different activities in current markets. Theme of this model is learning by doing (Forsgren, 2002).

There are three categories of responses that we get from the industry about Uppsala model: rejection, total acceptance and acceptance with modification. Researchers has either rejected or accepted it with some modifications. Although all basic assumption made by this model has been challenged by empirical studies (Andersen, 1993). But it stands as very popular model in the field of study.

Our adoption and adaptation of the model

We have not adopted this model completely rather part of it. We are interested in the concept proposed by this model that market knowledge has impact on commitment decision related to foreign market entry. The parts, which are relevant for us are shown in the figure below.

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Figure 3.2. Adaptation from Uppsala model of internationalization

(Adapted and modified by authors)

This model emphasized on market knowledge and determined it as key element to start with process of internationalization. That was the foremost reason for choosing this model. We then modified it as per requirement of our study. As mentioned by critics that this model fails to specify the mechanism that can clearly determine that how firms should pass through different steps or stages. We want to introduce a mechanism that enhance the foreign market knowledge for SMEs and also easily practicable. We are of the view conducting consumer market research can definitely contribute towards the market knowledge of the firms that will ultimately affect the commitment decision. Commitment decisions in turn determine whether a firm should enter into a specific international market or not. We have also bypassed the incremental stage methodology highly criticized by researchers about this model. Any firm after conducting an extensive market research can establish its business without having the presence into domestic market.

3.2 International Entrepreneurship Theory

International entrepreneurship concept emerged from Uppsala Model while opposing the process aspects of the SME’s internationalization. It poses that IE poses that firms act more from an entrepreneurial drive than following slow incremental processes. This is relatively new emerging research area which is still in search of right definition (McDougall and Oviatt, 2000a) (Antoncic and Hisrich, 2000). As per recent definition international entrepreneurship can be further specified as, ‘’a combination of innovative, proactive and risk-seeking behavior that crosses national borders and is intended to create value in organization’’ (McDougall and Oviatt. 2000b).

However, consensus upon definition of international entrepreneurship has not been yet made as various researchers says that this far more comprehensive phenomenon and its understanding within framework of SMEs alone is not possible from which a large amount of international entrepreneurship is based (Mtigwe, 2006). Original definitions suggested by McDougall and Oviatt (1994, 1996, 2000) are very restrictive and there is need for finding a neutral definition independent of firm size (Mtigwe, 2006).

Zahra and George (2005) showed the neutral view point by defining International Entrepreneurship as “the process of creatively discovering and exploiting opportunities that lie outside a firm’s domestic markets in the pursuit of competitive advantage.” But this definition itself has received criticism from some other researchers. It has clearly stressed over importance of creativity and competitive advantage as it fails to depict the most important elements of entrepreneurship termed as exploitation of opportunities impendent of firm’s or individual’s resources and impact of risk on international business. (Stevenson and Jarillo, 1990).

As per Bruce Mtigwe (2006) more comprehensive definition would be “a courageous managerial value creation process through which an individual engages in innovative, proactive, calculated risk-taking behaviour designed to prosecute foreign business opportunities presented by multinational market successes and imperfections for financial and non-financial rewards.” We would like to stick with this particular definition given by Bruce because it is in favour of proactive innovative behaviour and calculated risk taking attitude. We have followed this concept in our practical theoretical model.

Having interest in internationalization of SMEs, we can hardly ignore the importance of entrepreneurs, which is widely recognized as the main variables in SMEs' internationalization (Miesenbock, 1988). McDougall and Oviatt have associated international entrepreneurship with small and medium sized firms. Also researchers have discovered a strong link between entrepreneurship and small business since the start of the 1980s (Wortman, 1986). But our focus is rather on innovative SMEs instead of small and medium firms in general. Moreover, there is a clear link between innovation and entrepreneurship. Innovation lies at the centre of entrepreneurship (Hitt et al., 2001; Schumpeter, 1934). Discovery of a new opportunity is termed as invention whereas innovation is exploitation of this opportunity (Alvarez and Busenitz, 2001). It means international entrepreneurial success asks for not just the discovery of a valuable innovation but also that the innovation be introduced successfully to world markets (Acs et al., 2001). For successful introduction of any invention, market knowledge is essential especially the view point of end users.

3.3 Marketing Mix

Marketing mix is essential tool for developing marketing strategy or plan for a new market entry. We will use and discuss the basic model including 4 P’s or marketing as described below:

Price: What price are customer willing to pay and what should be the price strategy of the firm which will give optimum results and fulfil the goals of the firm regarding profitability and revenue.

Promotion: How the product will be advertised and what would be the communication strategy of the firm. There are different ways to promote a product like, advertisement through electronic media, personal selling, direct marketing, indirect marketing and many others.

Product: What products are appropriate for a specific market and how the product should be customized or adapted to fit into needs of a particular customer group or segment?

Place: How the product would place and made available for the customers. It depicts the distribution channels which play a vital role for the success of any business which are providing tangible goods to customers. It encompasses even more importance in case retail chains.

3.4 Theories supplementing Marketing Mix

We have chosen some theories or models closely relevant to SMEs internationalization. We shall now discuss these theories in later part of this chapter.

3.4.1 Skimming versus Penetration

The development and diffusion of innovation is extremely dynamic phenomenon influenced by different important factors like price, product and market entry time and selection (Milling and Maier, 1993). At first point we should have some clear pricing strategy on we can base our specific pricing decisions. There are different pricing strategies like strategy of skimming and penetration pricing strategy. However choice of a specific pricing strategy depends on firm objectives. For example if the objective is enhancing dollar volume of sales or market position, penetration strategy is appropriate one (Milling and Maier, 1993).

When it comes it pricing it is also critical for firms to decide when to follow a skimming or a penetration pricing strategy. This decision depends on level of competition, product innovation and market characteristics.

Traditionally a company adopts skimming strategy when the target market or segment is price insensitive and willing to pay premium price and also when there is limited supply, skimming strategy is adopted to minimize the risk and maximize the risk. The firm product also plays a vital role in this regard, if a company selling an innovative and unique product it has the option to choose skimming strategy until the competition forces a lower price.

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Figure 3.4: skimming v penetration

Source: (International Marketing, 2008, p.441)

In case of penetration strategy the objective is to stimulate market growth and penetrate into market to achieve large market share by offering products at lower prices. Penetration pricing strategy is likely when there is stiff competition, companies has to lower prices to have a comparative advantage. But in case of rapid growing markets with sustained economic growth where the large parts of the population is moving into middle class, penetration strategy could be used to stimulate market growth even if the competition is low (International marketing, 2008, p.441).

Choice of an optimum pricing strategy is nearly not possible. There are various factors which affect the pricing decisions (Milling and Maier, 1993). But setting a suitable pricing strategy is quite possible. Therefore, we chose these two strategies and given model for our discussion.

3.4.2 MEC approach

This theory suggests that consumer motivation can be understood only through hierarchal linkage among attributes, consequences and values (Mort and Rose, 2004). Consumer demand a specific product because of the expected positive consequence associated with the use of that product as per MEC theory of consumer behaviour (Gutman, 1982). Products may be described in terms of their attributes but the real meaning of the product to consumers lie in the value they offer. MEC theory describes the connection between product attributes, consequences and values. MEC stands for ’means end chain’’ where the mean is product and end is its desired value state (Søndergaard, 2005).

MEC approach is applicable to product development but it has been used in the development of advertising strategy more often. Information obtained through research about consumers’ high priority means and chains for a product or product category gives the companies the necessary knowledge for efficient development of products. Product develop in such manner would offer consumers the desired value. MEC approach to product development will have influence on major areas related to successful market oriented product development (Søndergaard, 2005).

As per Gutman (1982) MEC approach provides researchers and managers with a practical method to attain insights into consumer buying behaviour. This approach describes how the consumers cognitively associate the product to themselves. Our job is to exploit the hierarchical cognitive structure already existing in consumer’s subconscious (Mort and Rose, 2004).

Despite of fame that MEC has attained in the literature, criticism has been made about this theory. Critics to MEC approach see a major conflict in terms of impact of value in consumer motivation. They talk about much more direct and immediate role for values in consumer motivation phenomenon (Mort and Rose, 2004), they say ‘’ MEC researchers have consistently concluded that the relationship between a product’s attributes and an individual’s values is an indirect connection facilitated only through the consequences of consumption’’.

MEC Relation with Utilitarian Products

We want to check this relationship as our product is related to bicycles and falls into utilitarian category. Utilitarian products are defined as the goods which are functional and useful (Macquarie Dictionary, 2001). Ratchford (1987) says that utilitarian products are consumed mainly due to their functional or practical benefits, so motivation is instrumental here. Examples he gave about the functional benefits are such as problem avoidance, problem removal, incomplete satisfaction or normal depletion.

Consumer’s terminal or enduring value determines the consequences that they seek from a product (Mort and Rose, 2004). As per Walker and Olson (1991) hierarchical levels of abstraction relationship proposed by MEC approach can be used to understand the consumer motivation for utilitarian products.

Our motivation towards selecting this theory is that we found it relevant for the kind of product we are dealing with. The researchers who examined functional product like bicycles discovered interconnections of the levels of abstraction that MEC talks about (Peterman, 1997). Moreover, this is serving two purposes for us. Firstly, is helping us to devise optimum new product development strategy and secondly, it gives us consumer insights for promotion or advertisement strategies.

3.4.3 The Kano Model of Customer Satisfaction

Kano model was proposed by a Japanese researcher, Dr. Noriaki Kano in the 1980s. This model pushes the product development activities from satisfying to delightful customers. There are three types or categories of product attributes as mentioned below (Kahn, 2006, p.80-82):

Assumed

These are basic products attributes which consumers associate with specific products. These features do not enhance consumer’s satisfaction rather minimize their dissatisfaction level.

Inclusion of many assumed features will lead minimize dissatisfaction among customers rather than increasing satisfaction. So it means too many assumed features in this category are not good for product. Satisfaction level of customers would not be achieved (Kahn, 2006, p.80-82). These features may not be explicitly demanded by the consumers as they take them as granted. These features are must be requirements and are considered competitive decisive factors (Sauerwein et al., 1996).

Expected

These are the features that consumers expect from a specific product. They have a liner relationship with satisfaction of consumers. If such features would be more than the expectation of consumer, satisfaction level would be achieved. A typical expected feature is service time (Kahn, 2006, p.82). If these requirements are not fulfilled, consumers will not be dissatisfied but less satisfied (Sauerwein et al., 1996).

Delighting

These are unexpected product features that go beyond the consumer expectations. But they must be perceived as added value to the product rather than surplus product features. These are value adding product attributes which makes consumer delighted and feel good (Kahn, 2006, p.82). Exclusion of these features will not affect customer’s satisfaction but it if such features are included consumers would be delighted and excited about the product (Sauerwein et al., 1996).

Even after two decades of introduction of Kano model of customer satisfaction, it has not lost its fame and still an interesting model for researchers and parishioners. By providing insights into product and service attributes that are perceived as important to customers it stands as a popular method for managers. It helps managers in product differentiation and ultimately achieving a competitive advantage (Parker, 2006). Gary Burchill who is leading contributor in the development of Concept Engineering admires the Kano model while saying , “I am absolutely convinced that characterizing the customer requirements into Kano’s categories is very valuable. Design is a trade-off activity,” (Parker, 2006).

[...]

• Hochschule: Mälardalens högskola (School of Sustainable Development of Society and Technology)
• Veranstaltung: MS International Marketing
• Note: 3.5
• Autoren: Adeel Asghar (Autor:in), Shahid Kalim Khan (Autor:in)
• Erscheinungsjahr: 2009
• Seiten: 102
• Katalognummer: V499514
• ISBN (eBook): 9783346035875
• ISBN (Buch): 9783346035882
• Sprache: Englisch
• Schlagworte: SMEs, Internationalization, International Marketing, Marketing Research, Marketing Strategies, Swedish case study, Milan, Paris, Copenhagen, Research on Bicycle Users