CONTENTS

WHO WE ARE?................................................................................................................3

COMPANY PROFILE....................................................................................................3

PRODUCT.......................................................................................................................3

INTERNATIONALISATION MOTIVES......................................................................3

TARGET MARKET..........................................................................................................3

TARGET MARKET FEATURES...................................................................................4

MACRO LEVEL: PESTLE ANALYSIS........................................................................5

INDUSTRY LEVEL: 5 FORSES....................................................................................5

MICRO LEVEL: SWOT.................................................................................................9

VALUE CHAIN ANALYSIS.......................................................................................10

PRIMARY RESEARCH.................................................................................................11

QUESTIONNAIRE.......................................................................................................11

IN-DEPTH INTERVIEW..............................................................................................14

ENTRY MODE................................................................................................................15

LOGISTICS.....................................................................................................................16

PRICING..........................................................................................................................16

PRODUCT & BRAND....................................................................................................17

STP ANALYSIS...............................................................................................................17

PROMOTION..................................................................................................................18

SALES FORECAST........................................................................................................18

CONCLUSION................................................................................................................20

REFERENSES.................................................................................................................20

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WHO WE ARE?

COMPANY PROFILE

Established in 1870, Kettnaker is the top class German luxury furniture manufacturer which plays an important role in the premium furniture segment in the most of Europe.

PRODUCT

The products of KETTNAKER include living room furniture, bedroom furniture, beds, wall units and TV stands.

As a successful luxury manufacturer, KETTNAKER has its own characteristics:Uniqueness: The basic requirement for luxury consumers is the unique approach.

KETTNAKER provides customers with individualized furniture. There are hundreds of different materials and colors for customers to choose from. Moreover, designers can offer various designs of furniture patterns according to the customer’s individual taste.

Specialty: As experienced luxury manufacturer, KETTNAKER focuses only on living room and bedroom furniture. This gives KETTNAKER a very clear brand image in the luxury furniture segment.

Best quality: KETTNAKER has the best quality in the furniture field. As a rule customers of luxury goods are very critical and KETTNAKER can bring customers superior and glorious feelings with its perfect products.

INTERNATIONALISATION MOTIVES

Proactive motives Profit and growth goals

Russian market opportunities

Managerial urge

Economies of scale

Reactive motives

Competitive pressures

Saturated Domestic market

TARGET MARKET

First step of our research was the overview of the top Russian interior magazines to understand the current situation on the Russian luxury furniture market, mainly if minimalistic style is popular in Russia. We analysis the following magazines:

Salon Interior Architectural Digest Interior + Design

The several conclusions based on this analysis could be made. First of all, “luxury is measured not in terms of gold and silver, but in terms of design” 1,

as the art-director of one of the most fashionable design company Georg Jense said. Thus, luxury is defined by design, therefore it is important to be in the tune with modern trends in order to

1 Salon Interior #6 2006 http://www.salon.ru/article.plx?id=5411

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promote certain furniture in the Russian market. Secondly, we have found that nowadays the most widespread style of design of furniture is eclecticism. “Eclecticism – is the reality of the modern time”2, said Alexandr Erman, very respectable Russian designer. And thirdly while reading the magazines we found out that the number of article concerning minimalism as a style of design gradually increased from 2006 till 2009. For example, in 2006 there were two articles on this issue in “Salon Interior”, and in 2007 the number was three times as many as one year ago. This statistic shows that the interest of Russian citizen concerning this stream of design has grown.

On the next step of our research we tried to define Russian luxury furniture market features and conducted several secondary date analysis:

PESTLE analysis5 forces analysisSWOT analysisValue-chain analysis

TARGET MARKET FEATURES

Russian Luxury furniture market is not sufficiently formed. Its development is just about to start but the growth is quite fast.

Home Furnishings value growth in Russia, 2003-2013

Value growth (%) 2003-2007 2007-2008 2009-2013

Russia (RUR mln)  7.6 2.1 4.5

Note: Constant value growth at 2008 prices The number of people with the high income in Russia has recently increased and personal incomes have achieved real gains more than 12% per year since 2000. People with high level of income tend to own unique luxuries as status symbols. This trend is due mainly to the ostentatious tastes of rich people.

% of total expenditure of Russian people in 2006 Strong retail growth in Russia. Russia has experienced a strong growth of retail trade that goes in hand with its rising consumer income and expenditure. In 2007, Russia was ranked the world's 10th largest retail market. Russian consumers have a higher purchasing power since the majority of the populations own houses without the burden of mortgage repayments, having inherited their housing from the state following the collapse of the communism.

2 Salon Interior #5 2006 http://www.salon.ru/article.plx?id=55834

MACRO LEVEL: PESTLE ANALYSIS

1. Political EnvironmentThe strengths of Russia political environment are presidential republic, 3 branches of

power and opportunity to lobby.The weakness is corruption and weak judicial system.

2. Economics EnvironmentRussia has constant growth of GDP and income level, high economic growth and

relatively low corporate tax. However the world economic crisis makes a slowdown of economic growth recently.3. Social-Cultural Environment

Russian rich people have increase interests in luxury furniture and most of them have high level of education. But the high level of mortality and morbidity and a decrease in the birth rate lead to a decline of the population.4. Technical Environment

On the one hand Russia has advanced technology in different spheres and sufficient skilful professionals. On the other hand in Russia there is a lack of investment in this sphere, in addition the level of piracy is really high.5. Legal Environment

Russian government is struggling against corruption both in internal and external level. Nevertheless there is still a high level of corruption.6. Ecological Environment

Attention to ecological issues in Russia has recently increased. But communication problems are among the main bodies in dealing with these issues.

PESTLE analysis summary: Even though now Russia goes through the crisis, in general economic indicators are more or less tolerable (GDP, Income level, Economic growth). Basically one of the main problems in Russia is corruption, but nowadays a lot of efforts are taken to struggle against it. The presence of both the interest of Russian citizen to buy luxury furniture and their ability to do it.

INDUSTRY LEVEL: 5 FORSES

1. COMPETITORS INTERLUBKE MDF POLIFORM

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We assume Interlubke as the main competitor by results of our primary data research – questioner to sales manages of interior shops chain in Moscow and Saint-Petersburg.

Interlubke overview:Interlubke is also German brand which is represented into the Russian market since the

end of 90th and as a consequence nowadays it poses a certain amount of market shares. For instance, while screening the pages of Salon interior it was picked up that the brand Interlubke was firstly noted in 1998 and from that year till now there were 24 mentions concerning this brand. This is a quite a big number if we compare it with the same indicator of other German brands. In particular, a famous German brand Hulsta was mentioned only 10 times and another one Walter Knoll was noted just 6 times. Thus amongst German brands Interlubke is the most well-known for Russian costumers.

Hereinafter there is an SWOT analysis of Interlubke

STRENGTHS WEAKNESSES Strong brand image in Russia Fashionable design

The furniture scratches Time for delivery

OPPORTUNITIES THREATS

Growing number of wealthy people in Russia

Retail growth in Russia

New entrants Slow down in the housing market Unstable economic situation Change in exchange rate

To sum up the main points of the analysis, the opportunities and threats are the same both for Kettnaker and Interlubke. Also some of the weaknesses and strengths are similar. For example, both of these companies have the same weakness such as time for delivery, in addition they have the same strength – fashionable design (due to the fact that nowadays minimalist style is very popular).

However the main difference is the presence of awareness on Interlubke among Russian people and the absence of it concerning Kettnaker brand.

Nevertheless there are one serious weakness of Interlubke – already some of the Russian costumers are unsatisfied with the quality of this brand, due to it scratches. Consequently Kettnaker will be able to use this shortcoming to its good.

Interlubke strategyActually Interlubke has similar marketing strategy as Kettnaker has.

- The target audience is people with high income level- Entry mode – Direct import- Minimalist style- Moscow and St. Petersburg are the main markets

Nevertheless there is one serious difference between the marketing strategy of Interlubke and Kettnaker – the approach to the costumer. Notably, Kettnaher offers unique and personal approach to every of its costumer, simultaneously Interlubke does not make the same. The last only sell the certain complete design items without any opportunity to redecorate it.

MDF and Poliform overviewBoth of these brands are Italian ones. Actually they are not our direct competitors because

the minimalism is not their core style. However there is a need to note that Russian people are more familiar with Italian brands of furniture than with German ones. It is clear demonstrated by

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the fact that in the same magazine Salon Interior the brand of Poliform was mentioned 103 times during the period from 1999 till 2009.

Although people in Russian are well familiar with Italian brands, in some extent it gives some opportunity for Kettnaker. Because people are saturated with Italian furniture and they will want to try something new, for instance German brand, and as we know Germany is always associated with high quality.

MDF and Poliform strategy So, as we already mentioned both of these firms have their target audience a bit lower in

terms of income than Kettnaker and Interlubke have. They position themselves in the market as an affordable Italian furniture in minimalist style. But people who really wonder high quality and premium class furniture of that style certainly will prefer German brands.

ConclusionEven though the main competitor Interlubke has some competitive advantages: the

presence of awareness of Russian people on this brand, the quite a long experience of activities in Russian market, Kettnaker is able to compete due to its unique approach.

Other competitors are Italian brands and they are indirect ones.

2. SUBSTITUTESThere are two main types of substitutes

Luxury furniture in other styles like for instance classic one or High-Tec Middle class furniture

Speaking about the first group it is important to mention that according to overview of different fashionable magazines, such as Salon Interior, interior + design and so on, the main stream of modern furniture fashion is eclectic, i.e. the mix of different styles. Therefore the jeopardy of substitute of other style is minimal, because usually people will prefer the mix of styles, including minimalism.

And finally about middle class furniture. There is vital to say that in Russia there is a very interesting trend. Some people buy luxury furniture, for instance bedroom, but after this they start to economize money whereby the purchasing of other elements of furniture of middle and low class brands, in particular IKEA.

All in all this trend not really dangerous for Kettnaker, because of the unique approach. Notably, people who experience a lack of money are able to buy just a few elements of furniture of Kettnaker and later on to buy other elements in middle or low class furniture shop.

Conclusion The popularity of eclectic brings some advantageous to Kettnaker, because a costumer is

able to mix different styles in one flat, including minimalism.The unique approach of Kettnaker solve the problem of dangerous from substitution by

middle and low class furniture. Due to the fact that costumer can find only what he or she needs in terms of high class furniture and later on he or she will be able to buy other elements of furniture of lower class.

3. CUSTOMERSAs Kettnaker products are premium ones, that means not only high level of quality, but

also high cost, only well-provided and wealthy category of people can afford them and are our potential customers. Here it’s urgent to answer: how many people in Russia have economical possibility to purchase premium class products?

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In this part of our project we will use secondary research data. Analyzing web site of Federal Service of Government Statistics (further called Rosstat) we didn’t find suitable information, only information about medium salary level – but this data doesn’t give answer for our question. And another thing, author A. Isaev in his book “Mystery of statistics or what do figures hide” writes that Rosstat doesn’t count 9-12% of Russian population in it statistical reports. This 9-12% of population is well-provided and wealthy people.

Federal Service of Statistics in Moscow (further called Mosstat) data and trial report of expert-consulting center “Invest Project” gives information about income-level of Russian citizens. We are interested in two cities: Saint-Petersburg and Moscow, as they are our potential markets. They divide all population of these two cities in decimal groups. We assume that only last 10% group is our potential customer group by the level of income. In Moscow medium level of income for top 10% of people is about 130 000 RUB / month, for second 10% category about 57 000 RUB / month, that we think is not enough to buy KETTNAKER luxury products. For Saint-Petersburg situation is nearly the same.

This top 10% category of people are our potential customers base by the level of income; they financial position is appropriate to buy Kettnaker products.

Getting another data from Rosstat web site we found that: population of Saint-Petersburg is 4 568 047 people, population of Moscow 10 470 318 people. So in figures we can assume that about 456 000 people in Saint-Petersburg and about 1 047 000 people in Moscow have economic possibility to purchase Kettnaker products.

We think that it’s one the most important parts in project to find out who is our potential customer, and number of this potential customers on the target market. So, for this purposes we included several questions in our questioner to experts referring this topic. Here are results. Our potential customer:

Has income level more than 7000 euro/month (about 1 500 000 people in Saint-Petersburg and Moscow) Prefers minimalism design style (about 40% of people who can buy Kettnaker) People who recently bought new premium class housing or intend to redecorate current houses (more than 43200 people)

In customer analyze, we tried to define main factors that influence furniture market. They are: Volume of construction Level of purchasing abilityIn our project we are analyzing market for premium furniture. As follows we must analyze

not just volume of construction, but level of premium construction. Under this term we assume: Premium class realty Premium country-houses Business class realtyBy the forecast of experts in 2009 volume of construction in Saint-Petersburg will be about

2-2.5 million square meters. Share of premium class realty is about 9% - 180 000 - 225 000 square meters, about 1200 flats. Share of business class realty is about 35% - 700 000 – 875 000 square meters, about 7000 flats.

In Moscow volume of construction in 2009 is estimated about 4.5 million square meters. The same 9% share will give us about 405 000 square meters, about 2500 flats. For business class realty 35% shows volume of 1 575 000, about 15 750 flats.

It’s an important point here that level of construction decreased in 2009 year due to crisis, but is supposed to grow in future.

Volume of cottage village construction and cottage supply in Moscow is 284 villages, about 20000 cottages, from which share of premium class is about 50% - 10 000 cottages. In Saint-Petersburg is 225 villages, about 13500 cottages, 50% share – 6 750 cottages.*

Also we have to mention that, by many analytical researches, premium segment in real estate is less influenced by crisis than other segments, of course demand is lesser comparing to before crisis time, but it has suppositions to recover soon.

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Summarizing all mentioned above we have the following levels of construction, which meet our requirements:

SAINT-PETERSBURG MOSCOWPremium

8%

Business47%

Cottage45%

Premium9%

Business56%

Cottage35%

About 8 200 flats, 6 750 cottages About 18 250 flats, 10 000 cottages

4. SUPPLIERSKettnaker assess its supplier’s power as very strong. Luxury furniture manufacturing

process requires materials of best quality – this is one of the main points that makes suppliers power so high. On each stage of furniture producing work must be done on the highest level and in required time. Any delay in supply of raw material will lead to delay in all process. Result of this delay will be unsatisfied customer. It is a specific feature of this type of business and as far as we are concerned all furniture producers are very dependent on their suppliers.

5. NEW ENTRANTSThe luxury furniture market has high entry barriers due to the high costs and special

segmentation. Furthermore, there are few distribution channels in Russian furniture market, so it is not easy for the new entrants to enter this market.

The possible new entrants and possible competitors for Kettnaker on Russian market can be companies that are already competitors on German market, but not presented in Russia yet. According to the information that we received from Kettnaker, BEHR INTERNATIONAL company is their strong competitor in Germany (except Interlubke, but this company is already presented on Russian market).

6. SUBSTITUTESThe main substitutes of KETTNAKER can be divided into two groups: Luxury furniture with other designed like classical ones. Middle class furniture. Some rich people may turn to the level of products lower than

premiums due to the influence of financial crisis.

MICRO LEVEL: SWOTSTRENGTHS WEAKNESSES

High product customization Positive European market experience German quality

Weak brand image in Russia Time for delivery

OPPORTUNITIES THREATS

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Growing number of wealthy people in Russia

Retail growth in Russia

Slow down in the housing market Unstable economic situation Change in exchange rate

1. STRENGTHS KETTNAKER offers customers individualized luxury furniture, which can satisfy target

customers’ needs. The company has mature and positive European market experience which can be a good

reference for entering into Russian market. All the products are manufactured in Germany, which stands for the best quality.

2. WEAKNESSES As a new performer in Russian market, KETTNAKER is not a familiar brand for Russian

people. As all the products are manufactured in Germany, the delivery time is relatively long

(about 3-4 months).

3. OPPORTUNITIES There is a rapid growth for high-level income people in Russia who prefer conspicuous

consumption. Russia has experienced a strong growth of retail trade that goes in hand with its rising

consumer income and expenditure. In 2007, Russia was ranked the world's 10th largest retail market. This positive trend gives KETTNAKER a great opportunity going into Russia market.

4. THREATS There is a slowdown in the housing market in Russia due to the financial crisis. The economics status in Russia is still unstable comparing to the west European

countries. The foreign currency exchange with Russian rubles changes a lot since 2007, which adds

currency exchange loss risk for KETTNAKER.

VALUE CHAIN ANALYSIS

1. PRIMARY ACTIVITIES Inbound Logistics: KETTNAKER has been manufacturing furniture in Germany for more than 100 years, so it has a very mature inbound logistic system from raw material suppliers. Operations: The whole manufacturing process is done in Germany. KETTNAKER has modern factories and warehouses in Germany. Outbound Logistics: We are going to offer Kettnaker the following way of transportation.First, orders from Russian clients are consolidated in the warehouse in Germany until its amount is enough to load in container. Then container is delivered to the port of Hamburg by trucks. In the port container is reloaded from truck to the container vessel and delivered to the port of Saint-Petersburg. After custom clearance container is delivered to the warehouse of the partner’s company and from there to the clients.

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Marketing and Sales: KETTNAKER has its own marketing and sales team in Germany. When entering into Russian market, the company is considering finding a local partner who has a good distribution channel in Russia. Service: Kettnaker provides home delivery, installation service and high quality after-sales service.

2. SUPPORT ACTIVITIES Procurement: KETTNAKER has a strong procurement team in Germany. Technology Development: Never stops innovation is a strong point for KETTNAKER For example, the SOMA furniture shelving system of KETTNAKER received the “Best New Products” honor on the Cologne Furniture 2009 Trade fair. If we speak about SOMA program we briefly have to mention what is it. Human Resource: KETTNAKER owns an excellent designer team which guarantees to keep a leading position in the premium furniture market.

PRIMARY RESEARCH

In developing our marketing strategy we have made primary research: Questionnaire for experts Interviews

QUESTIONNAIRE

Questionnaire was made for the 18 designers and 15 sales managers of the two leading interior shop chains in Moscow and Saint-Petersburg – FTF Interior & Neuhause.

The following questions were asked: What companies could be the potential competitors of Kettnaker on the Russian market? What are the Kettnaker competitive advantages? What income should the person have to afford himself to by Kettnaker? Assess, please, (from 100%) the role of the designers in the process of buying furniture. Assess, please, (from 100%) the role of the sales manager in the process of buying

furniture. What is the crucial factor that predetermine the decision of the customer ( price, quality

etc) What are the modern trends on the Russian luxury furniture market? What architectural

styles are the most popular?

Here are presented the results of the questionnaire:1. Kettnaker competitors

INTERLUBKEPOLIFORMMDF ItalyTeam by WellisOthers

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2. Kettnaker competitive advantages

Customizable furniture – very high flexibility for materials, colors, size, very fast response to all modern trends.

Very vast space for designers to realize non-standard decisions in the interior Higher quality comparing to Italian brands Combining last technologies and new techniques with furniture

3. Customer’s income

3 000-5 000 Euro 5 000-8 000 Euro 8 000-12 000Euro 12 000 Euro and more

0%

10%

20%

30%

40%

50%

60%

4. Role of designers in the process of decision making

74 % of respondents assessed the role of designers in the process of decision making as the crucial one – designers influence the decision of customers in more than 50 % of cases. 21% of respondents answered that designers influence the decision of customers in 30% of cases.5% of respondents think that designers influence the decision of customers in 20% of cases.None of respondents assessed the role of designers less than in 20% of cases.

74%

21%5%

more than 50% of cases 30% of cases20% of cases

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5. Role of sales managers in the process of decision making.

80 % of respondents assessed the role of sales managers in the process of decision making as the crucial one – sales managers influence the decision of customers in more than 60 % of cases. 10% of respondents answered that designers influence the decision of customers in 40% of cases.10% of respondents think that designers influence the decision of customers in 30 % of cases.None of respondents assessed the role of sales managers less than in 30% of cases.

80%

10% 10%

more than 60% of cases 40% of cases30% of cases

6. Crucial factors in decision making

32%

26%

29%

13%

Price QualityDesign All factors together

7. Most popular architectural styles in Spb

classical style60%

minimalism10%

eclecticism20%

others10%

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IN-DEPTH INTERVIEW

Besides the questionnaire for the sales managers and designers, we had a chance to conduct the interview with the Sales Director Export of the company Team by Wellis (the leading Swiss furniture company) Mr. Paul Meisel. The following questions were asked:

What is the top furniture market in Europe? What are the main characteristics including size? What is the top market for modern living furniture?

1) Who are the main players (competitors) in modern segment in Europe? What are leader’s advantages comparing with other competitors?

2) Who are the main target consumers in Europe? Could you please make it more detailed? Like the income range, age, gender etc.

3) What are the ways of distribution?4) What are the global trends on the luxury furniture market?5) Why Russian market seems attractive for European brands?

The results of the interview are:

1) Germany is the biggest market for modern living furniture. 2) Main players on the modern premium furniture market are the same time Team by Wellis

competitors. Mr. Paul Meisel divided Team by Wellis competitors into two parts. Companies that produce sofas: Casina, Minotti, COR, De SEDE, Witma,

Flexform, Moroso, BNB Companies that produce wall unites: Interlubke, BNB, Kettnaker

3) Target consumers characteristics: Minimum income level - 120 000 Euro per year. Age - 50 years and older

4) Usually such companies like Team by Wellis use export entry mode ( direct export, indirect export, cooperative export)

5) The work of the companies that produces luxury furniture with famous designers is greatly important.

6) Global trends on the market are:

The design became affordable. Now you do not need to pay big money to have a good design in your flat or house.

People nowadays prefer to mix different architectural styles in the interior. In most cases, they do not furnish their rooms in one particular style. This trend is called eclecticism.

These are the crucial points in understanding the today’s luxury furniture market in Europe and Russia.

Conclusions on the primary & secondary research

We understood the trends on the market (European and Russian) There is a demand for luxury furniture: Purchasing ability Popularity of the minimalistic style

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ENTRY MODE

We offer Kettnaker to choose direct export entry mode to enter Russian market. The are several reasons for this decision:

Internal.

Firm size (don’t have enough resources necessary to achieve a high degree of control) Product complexity. Luxury product, management wishes to retain control over

production

External.

Country risk/demand uncertainty. When country risk is high, it is better to choose entry mode that involves relatively low resource commitments

Desired mode characteristics

Risk averse export mode Flexibility. Export mode is the most flexible mode.

MODE Conditions favoring the mode

Advantages Disadvantages

Export mode No need to produce goods in the target country no investments in foreign production most of costs associated with exporting take the form of marketing expenses

The firm is lacks the resources required for foreign joint ventures or international direct investment

Minimizes risks and investments

Speed of entry

Maximizing scale; uses existing facilities

High flexibility

Transport costs

Limited access to local information

Company viewed as an outsider

According to the view of experts, the need of buying high class furniture mostly arises during the repairing in the flats and houses. When the time comes to furnish their newly repaired flats, majority of customers start from selection of kitchen furniture and sanitary engineering, because this is products of primarily need and they have to meet some technical requirements. Only after that, it is turn to choose furniture for bedroom and living room.

Due to this reason, it is logical to sell Kettnaker :

1) In the premium class interior shop;2) In the interior shop that sells kitchens;3) All products in this interior shop should be in minimalistic style ( because it is also the

style of Kettnaker’s products ).

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The probability that the customer will switch to another shop to buy bedroom furniture after purchasing kitchen is very low due to the special character of the buying process of luxury furniture. This specificity implies:

- Time-consuming process (sometimes people choose kitchen and furniture for up to 2 years)

- Highly personalized process (very intimate relations are usually established between sales manager and the client) client doesn’t want to switch to another manager.

So, if the customer is satisfied with the quality of the product and the service of the interior shop where he bought kitchen, he will rarely switch to another shop to buy the rest of the furniture.

That is why we offer Kettnaker not to set a subsidiary but to sell its products through the partner. As we concluded, it should be a premium class interior shop that sells kitchens and furniture in minimalistic style. In Saint-Petersburg the leader in this field is FTF-Interior, so Kettnaker need to sign a contract with this company

LOGISTICS

We are going to offer Kettnaker the following way of transportation.First, orders from Russian clients are consolidated in the warehouse in Germany until its

amount is enough to load in container.Then container is delivered to the port of Hamburg by trucks. In the port container is reloaded from truck to the container vessel and delivered to the

port of Saint-Petersburg. After custom clearance container is delivered to the warehouse of the partner’s company

and from there to the clients. It is estimated that it will took about 150 days to deliver Kettnaker from the time the

client made the order till the moment it would be delivered to Saint-Petersburg or Moscow.

PRICING

The product is sold to the partner for the export price. The transportation cost through the German territory is included in the export price. Transportation basis is FOB3. While crossing the German border, the exporting declaration has to be returned to Kettnaker by the Kettnaker’s partner company.

In Russia customs duty and VAT should be paid.The price is formed by:

1) Export price (less EU VAT)2) Customs duty3) Russian VAT4) Transportation and installation cost to the client5) Price margin of the Russian partner company.

3 International commerce terms 200016

PRODUCT & BRAND

Dimension of Product

Perceptual map

Brand equity Product Positioning

Country of origin effect

High level of customization

High price, high quality

The brand loyalty and brand awareness in Russia is low; but successful experience in European market; The perceived quality is high

Premium class due to its super German quality and the uniqueness of its products

Germany has an excellent reputation in furniture manufacture quality in Russia

STP ANALYSIS

SEGMENTATION

Geographic Segmentation. Moscow and Saint Petersburg -the highest percentage of high-income people in Russia.

Demographic SegmentationIncome: People have income level more than 7000 euro/month Style preference: People who prefer minimalism design style (about 40%)Social Class: People from top level social class who prefer luxury products

Psychographic SegmentationCulture: There has been a conspicuous consumption trend in Russia. People with high levels of disposable income tend to own unique luxuries as status symbols.Lifestyle: Nowadays Russian rich people prefer buying new premium class housing or redecorating current houses. This leads to the increase need of premium furniture.

Behavioral Segmentation Occasions: Russian people prefer buying furniture for different rooms in one furniture shop. That’s why Kettnaker will sell its products in the shops selling kitchen furniture.Benefit: Rich people require furniture which can satisfy their pursuit of uniqueness. User Status group: Russian rich people usually purchase furniture according to designer’s opinion.

TARGETING

Company Ability Established in 1870 Kettnaker now is the top class German luxury furniture manufacturer who plays an important role in the premium furniture segment in Europe. Comparative advantages.

Resource neededThe entry mode Kettnaker chooses for entering Russian market is direct export. So Kettnaker needs to find a qualified distributor in Russia.

Main Competitor analysisKettnaker assumes Interlubke as its main competitor – questioner to sales manages of interior shops chain in Moscow and Saint-Petersburg.

Russian market By far Russian Luxury furniture market is not sufficiently formed. Its development is just about to start but the growth is fast. Moreover the number of people with high income in Russia has

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recently increased and personal incomes have achieved real gains more than 12% per year since 2000.

POSITIONING

Kettnaker has always been positioning itself in the premium class no matter in which market due to its super German quality and the uniqueness of its products

Country-of-origin effect: made in Germany influence on the quality perception of product – it means high quality, and this is product competitive advantage.

Increase brand targets: Brand loyalty – consumer will buy product time after time and remain insensitive to

competitors offerings. Brand equity – consumer would pay more for branded product Brand awareness – how many customers know the brand Brand associations – must be quality, uniqueness, luxury

Brand of the partner FTF Interior is well known on the market, and it will add benefits to

brands that are sold in its interior shops.

PROMOTION

The most effective promotion methods for luxury furniture are:1. Advertising in the top interior design magazines2. Trainings of designers and sales managers3. Participation in different exhibitions and presentationsFirst method of promotion is advertising in the top interior magazines: Salon Interior Architectural Digest Interior + Design The cost of advertisement in this magazines is 6 300 euro per one band in Salon Interior and

5 220 euro in Architectural Digest. These are the main sources of information about luxury furniture for potential customers and designers. Designers have significant influence on customer’s final decision, that is why we also need to pay much attention to designer’s brand loyalty.

Our second promotion method, that will be used, is the organization of special product-trainings for designers and sales managers, so that they become more familiar with the brand and can show the main advantages of Kettnaker furniture to the customers. The costs of the trainings will be divided between Kettnaker and FTF Interior equally. Cost of training in German manufacture of Kettnaker for 1 designer is about 1200 Euro.

Moreover, we can promote Kettnaker’s products by participating in different exhibitions and presentations to attract target customers attention. Our Russian partner, FTF Interior, several times in a year organizes presentations of new furniture product lines. By the terms of our agreement, Kettnaker will also be displayed during these presentations.

Combining all these methods of promotion Kettnaker will increase awareness of its brand among customers, that will finally lead to increase in sales.

SALES FORECAST

First of all, doing our sales forecast it is very important to analyze and to understand the process of purchase of luxury furniture. According to experts view, it is not as obvious as it can

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look from the first sight. As it was mentioned above in our report, manufacturing and delivering of ordered furniture takes approximately 150 days, but it’s normal for luxury furniture – competitors has nearly the same time. Long time of manufacturing and delivery is a peculiarity of luxury furniture. But more important for us is that first peculiarity leads to the second – very long time customers need for decision making, that can be much longer than half a year. As follows, it’s very hard to evaluate market share of companies on the market and volume of their sales for selected period. Even experts, that have significant work experience, can’t estimate this figures. None can answer what market share has for example our main competitor Interlubke, or is the volume of their sales for a previous year.

Our logic in estimation of sales is different from standard approaches used for this means. First, we decided to calculate our future expenses after entering Russian market. As we selected export entry mode and reliable partner, our main expenses will be advertising of products. Specific of luxury furniture is that first we receive an order and prepayment from the customer, and only after we start our manufacturing and delivering of this specific, customized wall unit or something else. Our financial risks are minimal.

Calculation of advertising costs for one year. In promotion methods we described in details our advertising campaign; here we will provide some exact figures:

1. Advertisement in Interior Design (11 issues per year) 6300 * 11 = 69 300 Euro2. Advertisement in Architectural Digest (12 issues per year) 5220 * 12 = 62 640 Euro 3. Trainings for designers and sales managers (trip and training in Germany on the

manufacture of Kettnaker, expenses are divided 50% to 50% with FTF Interior), 2 trainings a year, about 10 people per one training, cost for 1 person 1200 Euro. 10 * 2 * 1200 * 50% = 12 000 Euro

Our total promotion expenses are about 144 000 Euro per year.FTF Interior shop chain consists of 7 shops – 5 in Saint-Petersburg, 2 in Moscow.

Estimated average price of unit of furniture is about 15 000 Euro. Gross margin of Kettnaker is 30% from export price in Gernamy, which is about 1.5 times lower than price in Russia. Average export price of one unit is 10 000 Euro, gross margin of Kettnaker from one unit sold is 3000 Euro. This means that to obtain zero profit in Russian market Kettnaker has to sell 48 units of furniture in a year in 7 FTF interior shops, or about 7 units of furniture in a year in one interior shop – less than 1 a month. This figures are very low, in fact sales of luxury furniture are much higher.

Let’s come back to our forecast of purchase of new premium housing. All in all for Moscow and Saint-Petersburg there are about 43 000 houses sold for previous year, as preference for minimalistic style are about 35% - our potential customers base is about 15 000 people. Here we will assume 5 scenarios:

1. Very bad – only 0.5% of potential customers will buy our products. 15 000 * 0.5% = 75 people (about 10 people a year in one FTF Interior shop). Gross margin = 75 * 3000 = 225 000 Euro. Earnings before taxes (EBT later) = 225 000 – 144 000 = 81 000 Euro.

2. Bad – only 1.5% of potential customers will buy our products. 15 000 * 1.5% = 225 people (about 32 people a year in one FTF Interior shop). Gross margin = 225 * 3000 = 675 000 Euro. EBT = 675 000 – 144 000 = 531 000 Euro.

3. Normal – 3% of potential customers will buy our products. 15 000 * 3% = 450 people (about 64 people a year in one FTF Interior shop). Gross margin = 450 * 3000 = 1 350 000 Euro. EBT = 1 350 000 – 144 000 = 1 206 000 Euro.

4. Positive – 6% of potential customers will buy our products. 15 000 * 6% = 900 people (about 128 people a year in one FTF Interior shop). Gross margin = 900 * 3000 = 2 700 000 Euro. EBT = 2 700 000 – 144 000 = 2 556 000 Euro.

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5. Very Positive - Positive – 8% of potential customers will buy our products. 15 000 * 8% = 1200 people (about 171 people a year in one FTF Interior shop). Gross margin = 1200 * 3000 = 3 600 000 Euro. EBT = 3 600 000 – 144 000 = 3 456 000 Euro.

Our promotion campaign is one of the best possible on the market; FTF interior is a very well known rapidly developing interior shops chain, which plan to expand its chain in Moscow in the nearest future and to make it bigger than in Saint-Petersburg; our expenses are very low comparing to future sales, even in bad scenario we will obtain profit!

Our sales forecast, that we believe is very close to reality, make us be sure that Kettnaker will succeed on the Russian market!

CONCLUSION

While conducting the marketing research and developing the marketing strategy for Kettnaker to enter Russian market, we concluded that we have everything to be successful:

Excellent product Target audience with the interest to our product and purchasing ability Reliable partner FTF Interior Feasible promotion campaign Positive sales forecast

Moreover, we do believe that the crisis now can give us opportunities while entering Russian market. The main idea here is that we can create a strong brand image of our product much cheaper due to falling of prices (because of the crises). First of all, we can display our product in better places in Saint-Petersburg and Moscow. Why - because the rent is lower. Then we can give more advertising. Why - because journals, through which we want to promote Kettnaker, are lack of clients now and the prices for advertising are also cheaper. That is why we want to use the opportunities the crisis gives us. All this Kettnaker will do together with the partner - FTF-Interior. And we do believe that united affords of these two companies will lead to success!

REFERENSES

1. Marcus J.Schmidt&Svend Hollensen. Marketing Research, An International Approach (Prentice Hall 2006)

2. William A. Cohen. The Marketing Plan (John Wiley & Sons, Inc. 2006) 3. Paul Baines;Chris Fill;Kelly Page. Marketing (Oxford 2008) 4. Svend Hollensen Global Marketing (Prentice Hall 2007)5. Frank Bradley Marketing Strategy (Prentice Hall 2005)6. http://academic.mintel.com.ezproxy.gsom.pu.ru:2048/sinatra/oxygen_academic/

databasesh/7. http://www.portal.euromonitor.com.ezproxy.gsom.pu.ru:2048/PORTAL/Magazines/

Welcome.aspx8. http://www.bpn.ru/publications/18136/9. http://www.gdeetotdom.ru/analytics/vipbuilding/10. http://www.poselkispb.ru/press-analityc.html?p=1&nid=107711. http://metrkv.ru/articles/index.xml?articles_id=25098612. http://www.arin.spb.ru/analitics/index/13. http://www.salon.ru

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