International Marketing Plan

DavidsTea

Amit Patel

INB 337: International Marketing Management

Fall 2015

2

Table of Contents Executive Summary………………………………………………………………………………3 1. Company Analysis………………………………………………………………………........4

1.1. The Company…………………………………………………………………………….4 1.2. Company Analysis…………………………………………………………………….....4

1.2.1. Internal Analysis……………………………………………………………….....4 1.2.2. Financial Information…………………………………………………………….5 1.2.3. Domestic Business Activities………….…………………………………………6 1.2.4. Value Chain Analysis…………………………………………………………….6

1.3 Industry Analysis…………………………………………………………………………7

2. Global Market Search………………………………………………………………………...8 2.1. Country Selection………………………………………………………………………..8

2.1.1. Criteria Selection…………………………………………………………………8 2.1.2. Country Comparison………………………………………………………….....11

3. Market Analysis……...……………….……………………………………………………..12

3.1. PEST Analysis………………………………………………………………………….12 3.1.1. United Kingdom………………………………………………………………....12 3.1.2. Japan……………………………………………………………………………..12 3.1.3. Russia…………………………………………………………………………….13

3.2. Competitive Analysis of UK, Japan, & Russia…………………………………………14 3.3. Country Comparison: Primary and Secondary Factors……………………………...….14

4. Marketing Plan……………………………………………………………………………….18

4.1. Market Entry Mode……………………………………………………………………...18 4.2. Marketing Mix………………………………………………………………………......19 4.2.1. Product…………………………………………………………………………...19 4.2.2. Promotion………………………………………………………………………...19 4.2.3. Placement………………………………………………………………………...19

4.2.4. Price……………………………………………………………………………...20 4.3. STP Process……………………………………………………………………………..21 4.3.1. Segmentation…………………………………………………………………….21 4.3.2. Targeting…………………………………………………………………………21 4.3.3. Positioning……………………………………………………………………….21 4.4. Conclusion and Recommendation………………………………………………………21

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Executive Summary DavidsTea is a Canadian tea retailer based in Montreal, Quebec. It is the largest Canadian-based specialty tea boutique in the country, and competes directly with Teavana in many markets. DavidsTea was founded in 2008 by David Segal and Herschel Segal, his cousin and opened their first store in Toronto. Currently, DavidsTea has 173 shops that are located in Canada, primarily, and in the United States. As of January 31, 2015, DavidsTea has 340 full-time employees and 2,000 part-time employees.1 DavidsTea is interested in expanding into other countries, thus this report will discuss the potential markets it could enter and further analyze the feasibility of doing business in those possible countries.

1 https://www.davidstea.com/

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1. Company Analysis 1.1 The Company DavidsTea is a tea company that offers over 150 varieties of tea, including exclusive blends, exotic blends, seasonal collections, and traditional teas. It is the largest Canadian-based specialty tea boutique in the country. The company was founded in 2008 with stores in both Canada and the United States. The vision of David and Herschel Segal was to create “great tea, a friendly environment and a colorful, modern store”.2 The founders believe that tea is healthy and brings people together. DavidsTea went public on the New York Stock Exchange on June 5, 2015.3 DavidsTea’s logo (Figure 1) shown below is rather simplistic, but a lively brand nonetheless with such a color as turquoise. Sylvain Toutant, the CEO of DavidsTea focus is to create new products, focus more on customer service, generate a greater sense of brand awareness and grow the chain to over 550 stores in North America.4

Figure 1: DavidsTea logo

1.2 Organizational Structure

1.2.1 Internal Analysis DavidsTea offers a wide variety of teas to satisfy every taste. The company also sells tea accessories, such as spoons, travelers’ mugs, tea sets, and more. DavidsTea offers the following tea types: White Tea, Green Tea, Oolong Tea, Black Tea, Pu’erh tea, Mate Tea, Rooibos Tea, and Herbal Tea.5 They also offer hot tea, iced tea, tea latte, and tea pop. DavidsTea also has a loyalty program called Frequent Steeper, on the next page is an outline of the benefits (Figure 3).6 Creating a relationship with the customer was the main focus of the company from the beginning. DavidsTea in-store experience and loyalty program are ways in which the company keeps customers coming back.

2 Ibid. 3 http://fortune.com/2015/06/05/davids-tea-ipo/ 4 http://www.retail-insider.com/retail-insider/2015/10/davids-tea 5 https://www.davidstea.com/ 6 Ibid.

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Strengths Weaknesses

• Offers 150 varieties of tea, including exclusive and exotic tea types

• Loyalty program called Frequent Steeper • Tea is considered to be a drink that provides

health benefits

• DavidsTea has stores primarily in Canada and a few in the United States.

• Since DavidsTea is a relatively young company, many consumers are not aware of the brand

Opportunities Threats

• DavidsTea has the ability to expand into multiple markets including Asia and Europe

• Advertise more in order to increase brand awareness

• Tea is the second most popular beverage in the world, which means there is a market for tea

• DavidsTea has one main competitor: Teavana • Teavana has a larger market share in Canada

and the United States • Demand is elastic for specialty goods, like tea

Figure 2: SWOT Analysis of DavidsTea

Figure 3: DavidsTea Frequent Steeper Benefits

1.2.2 Financial Information

The company’s revenue is $127.37 million and the net income is $5.79 million.7 The share price started at $19.8 Currently, the DavidsTea is trading at $11.10.9 The company lost $93.2 million at the end of the first quarter of 2015. However, sales grew 29% to $35.8 million at the end of the second quarter.10

7 http://www.marketwatch.com/investing/stock/dtea/financials 8 http://fortune.com/2015/06/05/davids-tea-ipo/ 9 http://www.nasdaq.com/symbol/dtea 10 http://www.theglobeandmail.com/report-on-business/davids-tea-lost-932-million-in-first-quarter/article24988179/

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1.2.3 Domestic Business Activities

Currently, the company only has stores in Canada and the United States, below is a map showing the company’s stores locations (Figure 4). Since DavidsTea is in its infancy, it has the ability to expand its operations to foreign markets. The company has recently made an agreement with Air Canada to serve DavidsTea products, which is an example of a strategic alliance.11

Figure 4: Map of DavidsTea Store Locations

1.2.4 Value Chain Analysis

DavidsTea creates value for its customers through different activities. Below is a value chain of DavidsTea (Figure 5).

Figure 5: DavidsTea’s Value Chain

11 http://globenewswire.com/news-release/2015/10/07/774194/10151915/en/DAVIDsTEA-Inc-Now-Available-on-Air-Canada-and-Continues-North-American-Expansion-With-the-Opening-of-Six-New-Stores.html

Legal, accounting, and financial management Employee training and recruitment Website maintenance and research/development for new products Supplier management, subcontracting, and specification

- Quality control - Raw materials control

- Manufacturing - Packaging - Production control - Maintenance

- Finishing goods - Order handling - Delivery to stores

- Customer management - Order taking - Market Research

- Customer Service

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1.3 Industry Analysis Tea is the second most consumed beverage in the world and a multibillion dollar market, approximately worth $45 billion.12 In Canada and the United States, the direct competitor of DavidsTea is Teavana. Teavana is an American tea company that was founded in 1997 and was acquired by Starbucks in 2012.13 Teavana has stores in United States, Canada, Mexico and Puerto Rico. Teavana, however, offers all tea varieties except Pu’erh tea and Mate tea, but does offer Chai tea, which is not a type of tea sold by DavidsTea.14 Threat of New Entrants: The threat of new entrants is low because it is a niche market. Domestically, DavidsTea has one competitor: Teavana and is only sold in North America. Threat of Substitution: The threat of substitution is low because tea is the second most consumed beverage in the world and has been one of the top most consumed beverages annually. Tea is a healthier option compared to the other beverage options; it has elements that are known to lower risk for heart disease, cancer, and diabetes.15 Bargaining Power of Suppliers: The bargaining powers of suppliers is high because there are not many tea companies like DavidsTea, therefore suppliers can adjust prices to their needs. Bargaining Power of Buyers: The bargaining power of buyers is high since because the price elasticity of demand for tea is high, which means consumers will switch over to other products, if priced too high.

DavidsTea Teavana Sales $24.2 million N/A

Number of Employees 2,340 5000+ Year Established 2015 1997 Number of Stores 173 355

Figure 7: Competitor’s Table 16 17

12 http://fortune.com/2015/06/19/starbucks-teavana/ 13 http://www.teavana.com 14 https://www.davidstea.com/ 15 http://www.health.harvard.edu/press_releases/health-benefits-linked-to-drinking-tea

Rivalry of Tea

Industry: High

Threat of New

Entrants:Low

Bargaining Power of Buyers:

High

Threat of Substitution:

Low

Bargaining Power of Suppliers:

High

Figure 6: Porter’s Five Forces of Tea Industry

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2. Global Market Search16 17 2.1 Country Selection 2.1.1 Criteria Selection Since DavidsTea is only sold in Canada and in the United States, I will focus my search on potentially expanding into European and Asian countries. European countries are relevant because it is a relatively wealthy continent. Asian countries are relevant because they have large populations and are experiencing economic growth. The factors I will be using to determine which countries DavidsTea will be most successful in include tea consumption per capita, annual disposable income, population size, and ease of doing business. Countries that had a population of less than 30 million people were removed from the list of the world’s largest tea consumers created by Euromonitor.18 Based on these factors, we can narrow down the selection to 28 countries:

Population Size: It is key for DavidsTea to expand into countries that are densely populated because it means potentially larger sales within those particular countries. Tea Consumption per Capita: It is important for DavidsTea to expand into countries where tea is the most consumed because this could also potentially lead to higher sales. Annual Disposable Income: It is essential for DavidsTea to expand into countries where annual disposable income is the highest because it means that the country’s population is well-off economically. Also, tea is considered is a nonessential good.

Ease of Doing Business: It is critical for DavidsTea to expand into countries that are easier to do business in order to be financially successful.

I chose to weight both average tea consumption and population at 35% because both are equally important when determining which countries to enter. Next, I gave annual disposable income a weight of 20% because it is important to enter countries that are well off. Finally, I gave ease of doing business a weight of 10% because it is not as much as a significant factor when considering expanding abroad.

16 http://ir.davidstea.com/ 17 http://www.teavana.com/ 18 http://qz.com/168690/where-the-worlds-biggest-tea-drinkers-are/

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Figure 8: Likert Scale for Factors

Figure 9: Country Data of Primary Factors 19 20 21 22

*

DavidsTea is sold in both Canada and United States 19 https://www.cia.gov/library/publications/the-world-factbook/ 20 http://qz.com/168690/where-the-worlds-biggest-tea-drinkers-are/ 21

http://www.oecdbetterlifeindex.org/topics/income/

Factor 1 2 3 4 5 Standard Weighted

Population (in millions) 30M - 120M 120M - 210M 210M - 300M 300M - 390M 390M + 25% 35%

Avg. Annual Tea Consumption (lbs

per person) 0 - 1.00 1.00 - 2.00 2.00 - 3.00 3.00 - 4.00 4.00 + 25% 35%

Annual Disposable Income (USD) 1,000 - 10,000 10,000 - 19,000 19,000 - 28,000 28,000 - 37,000 37,000 + 25% 20%

Ease of Doing Business 80 + 80 - 60 60 - 40 40 - 20 20 - 0 25% 10%

Country

Population A

verage annual tea consum

ption (lbs per person)

Annual D

isposable Incom

e in USD

(2014) E

ase of Doing

Business

UK

64,088,222

4.281 28,840.60

6

Japan 126,919,659

2.133 22,856.90

34

USA

*

321,368,864 0.503

41,205.80 7

Russia

142,423,773 3.051

7,636.10 51

China

1,367,485,388 1.248

4,702.60 84

Turkey 79,414,269

6.961 7,445.50

55

India 1,251,695,584

0.715 1,395.70

130

Germ

any 80,854,408

1.524 29,923.90

15

Canada*

35,099,836

1.121 28,770.00

14

Indonesia 255,993,674

1.007 2,097.80

109

Mexico

121,736,809 0.034

7,476.60 38

Poland 38,562,189

2.204 8,617.40

25

France 66,553,766

0.441 27,662.70

27

South Korea

49,115,196 0.372

15,005.30 4

Italy 61,855,120

0.312 23,887.70

45

Morocco

33,322,699 2.682

2,269.60 75

Malaysia

30,513,848 1.057

6,365.80 18

Spain 48,146,134

0.324 18,842.10

33

Brazil

204,259,812 0.038

7,733.10 116

Egypt 88,487,396

2.231 3,024.20

131

South Africa

53,675,563 1.789

4,100.60 73

Ukraine

44,429,471 1.284

2,391.00 83

Thailand 67,976,405

0.111 3,239.60

49

Colom

bia 46,736,728

0.038 5,149.90

54

Peru 30,444,999

0.047 4,248.60

50

Philippines 100,998,376

0.063 2,109.30

103

Vietnam

94,348,835

0.437 1,359.10

90

Argentina

43,431,886 0.466

8,324.80 121

10

Figure 11: Likert Scale Scores of Primary Factors

*

DavidsTea is sold in both Canada and United States 22 http://www.doingbusiness.org/rankings

Country

Population A

verage annual tea consum

ption (lbs per person)

Annual D

isposable Incom

e in USD

(2014)

Ease of D

oing B

usiness Standard

Weighted

UK

1

5 4

5 3.75

3.4

Japan 3

3 4

4 3.5

3.3

USA

*

4 1

5 5

3.75 3.25

Russia

3 4

1 3

2.75 2.95

China

5 2

1 1

2.25 2.75

Turkey 1

5 1

3 2.5

2.6

India 5

1 1

1 2

2.4

Germ

any

1 2

4 5

3 2.35

Canada*

1

2 4

5 3

2.35

Indonesia 3

2 1

1 1.75

2.05

Mexico

3 1

1 4

2.25 2

Poland 1

3 1

4 2.25

2

France 1

1 4

4 2.5

1.9

South Korea

1 1

3 5

2.5 1.8

Italy 1

1 4

3 2.25

1.8

Morocco

1 3

1 2

1.75 1.8

Malaysia

1 2

1 5

2.25 1.75

Spain 1

1 3

4 2.25

1.7

Brazil

3 1

1 1

1.5 1.7

Egypt 1

3 1

1 1.5

1.7

South Africa

1 2

1 2

1.5 1.45

Ukraine

1 2

1 1

1.25 1.35

Thailand 1

1 1

3 1.5

1.2

Colom

bia 1

1 1

3 1.5

1.2

Peru 1

1 2

3 1.5

1.2

Philippines 1

1 1

1 1

1

Vietnam

1

1 1

1 1

1

Argentina

1 1

1 1

1 1

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2.1.2 Country Comparison In Figure 12, the table shows the top three countries that DavidsTea could expand into based on the criteria factors selected earlier. United Kingdom, Japan, and Russia all have a high rate of tea consumption. Also, all the countries have a large population. All countries have high disposable incomes except for Russia, but Russia is being considered because of its relatively high rate of tea consumption, which is 3.051 pounds per person. Based on weights of the primary factors that I chose for the screening process of potential markets to expand into, both the United Kingdom and Japan are ranked higher than the United States and Canada, however, Russia is ranked just below Japan but still above Canada (Figure 11).

Country United Kingdom Japan Russia

Population (July 2015 Estimate) 64,088,222 126,919,659 142,423,773

Average Tea Consumption

(lbs per person) 4.281 2.133 3.051

Annual Disposable Income (USD)

$28,840.60 $22,856.90 $7,636.10

Ease of Doing Business 6 34 51

Standard 3.75 3.5 2.75

Weighted 3.4 3.3 2.95

Figure 12: Top Three Countries Based on Criteria with Values

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3. Market Analysis 3.1 PEST Analysis 3.1.1 United Kingdom 23 Political Factors: United Kingdom uses a constitutional monarchy with a bicameral Parliament consisting of the House of Lords and House of Commons. The United Kingdom uses a common law system and includes England, Scotland, Wales and North Ireland. Economic Factors: The United Kingdom has the third largest economy in Europe, behind Germany and France. It has annual disposable income of $28,840. The United Kingdom has an unemployment rate of 6.2% and an inflation rate of 1.5%. Social Factors: The United Kingdom has a population of 64.08 million. About 82.6% of the total population live in urban areas. The official language of the United Kingdom is English. Technological Factors: In the United Kingdom, there are about 78.5 million cellular devices. About 89.9% of the population uses the Internet. 3.1.2 Japan 24 Political Factors: Japan uses a constitutional monarchy with a bicameral parliamentary government consisting of the House of Councillors and House of Representatives. Japan uses a civil law system. Economic Factors: Japan has the fourth largest economy in the world with a GDP of $4.75 trillion. The annual disposable income of Japan is $22,856. Japan has an unemployment rate of 3.6% and an inflation rate of 2.7%.

23 https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html 24 https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html

Figure 13: Map of United Kingdom

Figure 14: Map of Japan

13

Social Factors: Japan has a population of 126.91 million. About 93.5% of the total population live in urban areas. The official language is Japanese. Technological Factors: In Japan, there are about 152.7 million cellular devices and about 86% of the population use internet. 3.1.3 Russia 25 Political Factors: Russia is a federation government that uses a bicameral Federal Assembly, which consist of the Federation Council and State Duma. Russia uses a civil law system. Economic Factors: Russia has a GDP of $3.57 trillion. It has a disposable income of $7,636. Russia has an unemployment rate of 5.1% and an inflation rate of 7.8%. Social Factors: Russia has a population of 142.42 million. About 74% of the population live in urban areas. The official language is Russian. Technological Factors: In Russia, there are 221 million cellular devices and about 59.3% of the population use Internet.

Figure 15: Map of Russia

25 https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html

14

3.2 Competitive Analysis of UK, Japan, & Russia In the United Kingdom, Twinnings is now tied with PG Tips for the title of most popular tea brand with Tetley Tea in second place. PG Tips is the market leader with $225.87 million in sales and Tetley recorded $154.57 million in sales, but Twinings recorded an even larger share of the $757.25 million in the United Kingdom tea market. Twinings was able to do so because the company added more premium and herbal tea types to their product line.26 In Japan, Harada Tea and Ito En are the country’s most popular tea brands. Harada Tea leads the market in Japan due to the company’s ability to innovate and ability to provide peace of mind.27 Harada can trace the exact origin of each product to ensure its safe and fresh. Ito En is another popular tea brand, with $250 million in sales.28 In Russia, Orimi Trade and May Company are the top market leaders in the Russian tea market. Orimi has a market share of 30% and offers over 450 tea and coffee varieties.29 May Company is ranked right below Orimi Trade in terms of sales in the Russian tea market.30 3.3 Country Comparison: Primary and Secondary Factors I believe that inflation rates, the sum of the absolute differences of Hofstede’s Cultural Dimensions between home and foreign country and corporate tax rates are all important secondary factors to consider. Inflation rates are important because it will either encourage consumers to buy a product or deter consumers from purchasing, which is why I gave this factor a weight of 7%. Hofstede’s Cultural Dimensions describes society’s culture on values and standards. The sum of the absolute differences of Hofstede’s Cultural Dimensions is an important factor to consider because it is relatively easier for companies to enter foreign markets that are culturally similar to their domestic market, which is why I gave this factor a weight of 5%. Finally, corporate tax rates are important to consider when going abroad because it could possibly affect profitably of the company if the tax rate is high, which is why I have this factor a weight of 3%.

26 http://www.mirror.co.uk/news/uk-news/soaring-demand-posh-tea-sees-4915656 27 http://www.harada-tea.co.jp/harada/eng/engHome.html 28 http://asia.nikkei.com/Markets/Tokyo-Market/Ito-En-profit-seen-rising-20-on-brisk-tea-sales 29 http://www.orimi.com/en/company/ 30 http://themay.com/en/business-units/may-foods/kopiya-o-kompanii/

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Figure 16: Likert Scale for Primary and Secondary Factors

To calculate the Hofstede Cultural Difference, I calculated the absolute difference of each individual Hofstede factor, between the home country, Canada, and potential foreign markets, which include United Kingdom, Japan and Russia.

𝐴𝑏𝑠𝑜𝑙𝑢𝑡𝑒𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒𝑜𝑓𝐻𝑜𝑓𝑠𝑡𝑒𝑑𝑒𝐹𝑎𝑐𝑡𝑜𝑟 = 𝑓5 − 𝑓7 fa = Home Country Hofstede Factor Score fb = Foreign Country Hofstede Factor Score Then, I added the absolute differences of all Hofstede’s six dimensions, which include power distance, individualism versus collectivism, masculinity versus femininity, uncertainty avoidance, long-term orientation versus short-term orientation, and indulgence.

𝑓5 − 𝑓7

8

9:;

+. . . + 𝑓5 − 𝑓7

Power distance measures the amount of inequality in a country. Individualism versus collectivism explores the degree to which people in a society are in groups. Uncertainty avoidance measures society’s tolerance of risks. Masculinity versus femininity is defined as a preference in society for assertiveness, whereas femininity is defined as a preference of modesty and thoughtfulness in regards to others. Long-term orientation versus short-term orientation is associated with the country's connection of the past with current and future challenges. Indulgence versus restraint is the dimension that measures freedom or suppression in a society.31 The absolute difference between Canada and the United Kingdom is 56, which implies culture

31 http://geert-hofstede.com/

Factor 1 2 3 4 5 Standard Weighted

Population (in millions) 30M - 120M 120M - 210M 210M - 300M 300M - 390M 390M + 14.28% 30%

Avg. Annual Tea Consumption

(lbs per person) 0 - 1.00 1.00 - 2.00 2.00 - 3.00 3.00 - 4.00 4.00 + 14.28% 30%

Annual Disposable

Income (USD) 1,000 - 10,000 10,000 - 19,000 19,000 - 28,000 28,000 - 37,000 37,000 + 14.28% 15%

Ease of Doing Business 80 + 80 - 60 60 - 40 40 - 20 20 - 0 14.28% 10%

Inflation Rate 8% + 8 - 6% 6 - 4% 4 - 2% 2 - 0% 14.28% 7%

Hofstede 300 - 240 240 - 180 180 - 120 120 - 60 60 - 0 14.28% 5%

Corporate Tax Rate 20% + 20 - 15% 15 - 10% 10 - 5% 5 - 0 % 14.28% 3%

16

between the two nations, whereas Japan and Russia have an absolute difference of 214 and 251, respectively (Figure 17).

Canada UK

Absolute Difference (Canada &

UK)

Japan

Absolute Difference (Canada &

Japan)

Russia

Absolute Difference (Canada &

Russia)

Power Distance 39 35 4 54 15 93 54

Individualism 80 89 9 46 34 39 41

Masculinity 52 66 14 95 43 36 16

Uncertainty Avoidance 48 35 13 92 44 95 47

Long Term Orientation 36 51 15 88 52 81 45

Indulgence 68 69 1 42 26 20 48

Total (Sum) - - 56 - 214 - 251

Figure 17: Table of Hofstede’s Six Cultural Dimension Scores 32

Country United Kingdom Japan Russia Standard Weighted

Population 64,088,222 126,919,659 142,423,773 14.28% 30%

Avg. Tea Consumption

(pounds per person) 4.281 2.133 3.051 14.28% 30%

Annual Disposable Income (USD)

28,840 22,856 7,636 14.28% 15%

Ease of Doing Business 6 34 51 14.28% 10%

Inflation Rate 1.50% 2.70% 7.80% 14.28% 7%

Hofstede 56 214 251 14.28% 5%

Corporate Tax Rate 20% 33% 20% 14.28% 3%

Figure 18: Data of Primary and Secondary Factors 33 34 35

32 Ibid. 33 https://home.kpmg.com/xx/en/home/services/tax/tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html 34 http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG

17

Country United Kingdom Japan Russia

Population 1 3 3

Avg. Tea Consumption 5 3 4

Annual Disposable Income 4 4 1

Ease of Doing Business 5 4 3

Corporate Tax Rate 2 1 2

Inflation Rate 5 4 2

Hofstede 5 2 2

Standard 3.85 2.99 2.28

Weighted 3.56 3.21 2.8

Figure 19: Likert Scale Scores of Primary and Secondary Factors

Figure 20: Annual Disposable Income and Average Tea Consumption Perceptual Map

Among the top three countries based on the weights of the primary and secondary factors, DavidsTea should consider expanding into the United Kingdom. The United Kingdom consumes about 4 lbs of tea, annually, and has an average disposable income of $28,840, which is shown in the perceptual map above (Figure 20).

35

http://geert-hofstede.com/

1.5

2

2.5

3

3.5

4

4.5

5

AnnualTeaConsumption(lbsperperson)

AnnualDisposableIncome(inUSD)

DisposableIncomeof2014vs.AnnualTeaConsumption

Japan

United Kingdom

Russia

18

4. Marketing Plan 4.1 Market Entry Mode DavidsTea should enter the United Kingdom because about 75% of Britons consume tea.36 When DavidsTea expanded operations into the United States in 2011, the company built its own retail shops in shopping centers and malls. However, I believe the company should export its products directly into the United Kingdom, first, and use retailers as intermediaries and gauge consumer interest of the company and its products. As mentioned earlier, DavidsTea has established a strategic alliance with Air Canada for the sole purpose of promoting their tea varieties, and the company should consider making a deal with English airliners, such as Virgin Atlantic and British Airways, which is one market entry method that has low financial risk. DavidsTea could also use an indirect distribution channel by utilizing retailers as intermediaries, which is also a low financial risk, but DavidsTea has little control over how its products are positioned within stores. DavidsTea should thoroughly consider building stores throughout the country depending on the successfulness of the aforementioned market entry methods since it is a large financial risk. The Incoterms Rules are important to consider when exporting products abroad. As mentioned earlier, DavidsTea products should export and sell its products in local retailers in the United Kingdom. The company should utilize the Carrier Paid To (CPT) method, which means that DavidsTea will deliver its goods to retailers and will have to pay for all the shipping costs.37 Another reason as to why DavidsTea should expand into the United Kingdom is because of how culturally similar it is to Canada based on Hofstede Framework (Figure 20). Culture similarity means that companies do not have to drastically adapt their marketing mix strategies when entering foreign markets. According to the Uppsala model, companies should first enter countries that are culturally similar to their home market and then expand into more distant countries.

Figure 21: Hofstede Scores of Canada and United Kingdom

36 http://www.mintel.com/press-centre/food-and-drink/trouble-brews-for-the-great-british-tea-time-volume-sales-of-tea-decline-by-22-in-five

years 37 http://www.iccwbo.org/products-and-services/trade-facilitation/incoterms-2010/the-incoterms-rules/

0 10 20 30 40 50 60 70 80 90 100

Power Distance

Individualism

Masculinity

Uncertainty Avoidance

Long Term Orientation

Indulgence

Hofstede Scores of Canada and United Kingdom

United Kingdom Canada

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4.2 Marketing Mix: Four P’s DavidsTea should slightly adapt its product portfolio to appeal to the consumers of the United Kingdom. Next, DavidsTea should slightly standardize its promotional strategy. The company should standardize its placement strategy, focusing on highly populated cities. Finally, DavidsTea should adapt its pricing strategy due to differences in inflation rates. Product: Promotion: Placement: Price:

Figure 22: Standardization versus Adaptation 4.2.1 Product Since the 18th century, the United Kingdom has been one of the world’s largest tea consumers per capita with an average tea consumption rate of roughly 4 lbs per year. Although DavidsTea offers a wide variety of teas, the company should consider slightly adapting its product mix to appeal to all consumers of the United Kingdom. 4.2.2 Promotion DavidsTea should consider standardizing its promotional strategy is because the official language of both Canada and the United Kingdom is English. Also, both countries are culturally similar according to the dimensions of Hofstede. It is important for DavidsTea to advertise in areas that densely populated in an attempt to gain popularity. DavidsTea should create social media campaigns through Facebook, Instagram and Twitter since 90% of the citizens of the United Kingdom have access to the Internet. The recent growth of social media over the past few years has allowed companies connect with consumers at a personal level and increase brand awareness. 4.2.3 Placement DavidsTea should first sell their products in grocery stores that are located in highly urbanized cities, such as London, Edinburgh, and Manchester, to test out consumer tastes and gauge popularity. Some popular grocery stores of the United Kingdom include Tesco, Sainsbury and Asda.38 If the company is successful in the aforementioned cities and supermarkets, DavidsTea should continue to expand throughout the rest of the United Kingdom and consider opening up its own shops, like the company has done in Canada and the United States. 38 http://www.retaileconomics.co.uk/top10-retailers.asp

Standardize Adapt

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4.2.4 Price DavidsTea should adapt its pricing strategy. DavidsTea must have a short distribution channel in order to keep product prices low, which means the company cannot use many intermediaries, such as agents and wholesalers. Currently, the most popular tea brands in the United Kingdom are Twinings, PG Tips, and Tetley. The prices of Twinings Tea are £2.00 to £8.00. The prices of PG Tips Tea range from about £2.00 to £5.00. The prices of Tetley Tea range from £2.00 to £11.00.39 Most teas sold by DavidsTea cost between $8.00 to $12.00, while the exclusive and exotic blends cost around $15.00 to $20.00.40 To calculate the price of DavidsTea products, I used the Forward Exchange Exchange Rate Formula, which is shown on the next page. The company should avoid increasing prices of product because the price elasticity of demand for tea is high, which means consumers will switch over to other tea companies. As of December 2015, the exchange rate is $1 to £0.66.41 The inflation rate in the United Kingdom is 1.5% and in Canada, the inflation rate is 1.8%. Forward Exchange Rate Formula:𝐹 = 𝑆 ;?@A

;?@B= 0.66 ;?E.E;F

;?E.E;G= 0.658

F = Expected Exchange Rate S = Spot Exchange Rate Ia = Domestic Inflation Rate Ib = Foreign Inflation Rate The next step is to multiply the factor of 0.658 to the USD prices which are mentioned previous paragraph, and thus, the price of DavidsTea in the United Kingdom would be about £5.24 to £7.90 for its common products, whereas the company’s more exclusive, exotic blends will be £9.87 to £13.16. 39 http://www.sainsburys.co.uk/ 40 https://www.davidstea.com/ 41 http://www.xe.com/currencyconverter/convert/?From=GBP&To=USD

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4.3 STP Process 4.3.1 Segmentation In United Kingdom, tea appeals to people of all ages and since DavidsTea offers a large variety of tea types, it appeals to the tastes of all consumers. Black tea is the most consumed tea type in the United Kingdom, followed by green tea, but the sales of fruit and herbal tea have been on the rise since 2012. Between 2012 and and 2014, sales of these tea types have rose 31%, from $87.25 million to $114.35 million.42 Thus, DavidsTea should focus more on creating a larger selection of black, green teas, herbal teas and fruit teas. By doing so, the company is using the individual consumer preferences as the basis for its segmentation. 4.3.2 Targeting It is important that DavidsTea focuses on areas that have a slightly higher disposable income since tea is not considered a necessity. Men aged between 16 and 44 are United Kingdom’s largest tea consumer. 43 DavidsTea should use a mass marketing strategy, since roughly 75% of Britons drink tea. 4.3.3 Positioning DavidsTea should position itself as a premium tea brand in the United Kingdom. The tea industry in United Kingdom is highly competitive with Twinings, PG Tips, and Tetley as the most popular brands, but none of these companies have created its own independent stores. DavidsTea should open up shops in the United Kingdom to differentiate itself from other brands. 4.4 Conclusion In summation, I believe DavidsTea will be quite successful in the United Kingdom. The United Kingdom has a relatively high disposable income than most countries, which means that consumers have the ability to buy non-essentials. Annually, the United Kingdom is one of the top consumers of tea, globally. In addition, the United Kingdom is culturally similar to Canada, which implies that DavidsTea does not have to adapt its products and marketing strategies all too much.

42 http://www.mintel.com/press-centre/food-and-drink/trouble-brews-for-the-great-british-tea-time-volume-sales-of-tea-decline-by-22-in-five-years 43 Ibid.

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