Pandora Entering Latvia [PDF]

Zitiervorschau

Project C for Marketing Management Program 2011 Danish Academy of Business and Technology

Project Leader:

Marianne Aardalsbakke (MAA)

Classes: MA2-11 & MO2-11 Group No.: 11 Group Members:

Anca Filote (MO2-11) Elmira Oumarova Østergaard (MO2-11) Davis Vanags (MA2-11) Krista Rumba (MA2-11) Mabel Menezes Martins (MA2-11) Richards Tirums (MA2-11)

Group member signatures:

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Key strokes of characters including spaces: 47772

Executive summary Today in the global business world we know that strategic changes are fundamental in order to become more competitive and flexible as the consumer behavior readapts itself into financial conditions, environmental and many other crucial factors. At this point we affirm that accepting challenges companies grows and expands both vertically and horizontally thus becoming a multiplier in the chain that needs constant changes and from this world`s point of view the globalization is forcing us to readjust in the new rules to survive in the current situation. Internationalization is first of all have entrepreneurial vision and from there plan, build, manage, put into practice and constantly monitors to constantly better achieve what is planned. In this report we point our eyes to a market with good chances of ascension, the Latvian market. During this study, questions were raised both positive and negative to reach a consensus or not to explore the Latvian market by the products of Pandora’s Group. Latvia is a country that gained its independence in 1991 and has faced inflation, bank interventions, the high interest rates, high unemployment rate, political instability and population lose credibility regarding their government among other disparities. But today the Latvians impressive progress (WTO and World Bank statements 2010) proves the success and effectiveness of long-term oriented economic reforms and shows Latvians capacity to cope with competitive pressure. Participating in the WTO since 2004, Latvia has significant numbers in the current economy. With a GDP ppp of U.S. $ 14.700 (2010) and a real GDP growth rate increased from 16.74% (2009) to 1.38% (2010), which is composed of 4% agriculture, 21.7% from industry and 74.4% accounts for trade and services (Index Mundi data released in 2010) that means a plus to Pandora's business. Both economic and political aspects as the turn of events in relation to changes in consumer habits, income, a significant increase in the economically active population and the commitment

to become part of the euro zone are just some of the positive aspects in Latvian market mentioned now that contributed to give strong base to this work and led us to formulate our problem statement. But the question that follows is for sure: "Why nobody did it yet?" We can say today that developing markets are potentially those who will be the feeders of developed economies. Today it is a fact that we can no longer ignore. Due to this new reality is that we apply the Blue Ocean strategy where companies reinvent their industries by creating unique value for its customers and therefore sustainable value for its shareholders, employees, suppliers and society, in other words, instead of the bloody struggle in "red ocean" of the competition they must create innovative strategies to clear "blue oceans" of untapped market space (W. Chan Kim and Renee Mauborgne - The Blue Ocean Strategy). Marketers are innovative and accept challenges and this statement led us to open the doors of the market in question with entrepreneurial vision and at the same time with a solid basis for continued development of Pandora Group, reaffirming the strength of its brand in the same way they come walking in all these years of existence.

Table of Content 1. INTRODUCTION .............................................................................................................................................. 5 2. PROBLEMFORMULATION ........................................................................................................................... 6 3. DELIMITATION ............................................................................................................................................... 6 3.1. 3.2. 3.3.

PRODUCT AREA ................................................................................................................................................ 6 GEOGRAPHICAL AREA ...................................................................................................................................... 6 TIME FRAME .................................................................................................................................................... 7

4. METHODOLOGY .............................................................................................................................................. 7 5. THE MARKETING PLAN ................................................................................................................................ 9 5.1. 5.1.1. 5.1.2. 5.2. 5.3. 5.4. 5.5. 5.5.1. 5.5.2. 5.6. 5.6.1. 5.6.2. 5.6.3. 5.6.4. 5.6.5. 5.6.6. 5.6.7. 5.7. 5.8. 5.9. 5.9.1. 5.9.2. 5.10.

THE SITUATION ANALYSIS ............................................................................................................................... 9 INTERN ANALYSIS (SW- ANALYSIS) .......................................................................................................................... 9 EXTERNAL ANALYSIS (OT- ANALYSIS).................................................................................................................... 12 MARKETING OBJECTIVES.............................................................................................................................. 15 CORE STRATEGY............................................................................................................................................ 16 POSITIONING ................................................................................................................................................. 17 MARKETING STRATEGIES ............................................................................................................................. 18 THE ENTRY MODE ....................................................................................................................................................... 18 GENERIC STRATEGY .................................................................................................................................................... 18 MARKETING MIX .......................................................................................................................................... 19 PRODUCTS .................................................................................................................................................................... 19 PRICING ........................................................................................................................................................................ 19 PROMOTION ................................................................................................................................................................. 21 DISTRIBUTION ............................................................................................................................................................. 21 THE PROSPECT ............................................................................................................................................................ 21 THE ENVIRONMENT.................................................................................................................................................... 21 CONSIDERATIONS ....................................................................................................................................................... 22 CONCLUSION.................................................................................................................................................. 22 MONITORING AND CONTROL........................................................................................................................ 23 BUDGETS ....................................................................................................................................................... 24 PROFIT BUDGET .......................................................................................................................................................... 24 CASH FLOW BUDGET................................................................................................................................................... 25 GANTT MAP................................................................................................................................................ 26

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1. Introduction Pandora is known around the world for its designed, manufactured and marketing hand-finished and modern jewellery made from genuine materials at affordable prices. Middle class is booming worldwide and with prosperity comes consumers' desire to show that they are doing well, therefore super brands like Danish Pandora and British Signet also called “category killers”, has stormed the global jewellery market where there is money to fight for. Pandora competes in affordable luxury segment, which in 2009 totalled 83 billion USD, equivalent to approx. 57% of the total market for fine jewellery. Affordable luxury still gives consumers the feel of stardust. In the recent time just a few Danish companies have managed to grow from being nothing to become a big export business within a few years. Pandora has got extreme media attention within the last year for having done exactly that. The company has grown from a small Danish jewellery company without sales abroad to be one of Denmark´s largest twenty stock`s companies with 5.000 employers around the world and sale on six continents through over 10,000 points of sale, including close to 500 PANDORA branded concept stores.

Company was founded in 1982 and now sells their products in 55 countries, including many countries in Europe, North- and South America, China and Asia. Pandora has listed markets, where they operate on their website. To the east of the West Europe there are such countries as Lithuania and Estonia. Our natural curiosity points to Latvia, as the only Baltic State where Pandora is not presented yet. There is not so big physical distance between those countries and Latvia. People in Latvia and the three countries mentioned above have a similar taste of fashion and economy. One analytic from Nordea bank says: “ The question is whether affordable luxury brands, as Pandora can pursue success right out of the booming but highly demanding new markets.” We are going to find out what would be the best way for Pandora to expand in Latvia.

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2. Problem formulation Based on above problem formulation for this rapport is going to be:

HOW CAN PANDORA BEST ENTER THE JEWELERY MARKET OF LATVIA?

3. Delimitation 3.1.

Product area

Jewellery in Latvia is a popular thing to wear, but the irony of it is that the jewellery companies don`t advertise themselves that much. And even a small advertisement campaign could give the popularity to “Pandora”. It is always safer to start with just a few products than put in circulation all at the same time. And later it helps to understand what exactly people in Latvia prefer. What kind of design, what price and much more. That can help for making the production line in the future.

3.2.

Geographical area

We are going to focus on the capital city of Latvia, because Riga is located in the centre of the country and is very easy to reach from every other city in Latvia. The country is not big – only 64,600 square kilometres – because of that people from other cities are visiting Riga very often, for example, in connection with job questions, vacation etc. Latvia in total has 2, 2 million1 inhabitants – but over one third of the population lives in the capital Riga. Riga is the largest city in the three Baltic countries, meaning a high activity and buying availability. Latvia is a touristic country with visitors from all across Europe, also caused by its Freedom statue. There is a big flow of tourists who are visiting Riga during the summer months and this amount is rising in time. In February 2010 the average load in hotels in Riga was 32, 37%, but in February 2011 it was 37, 34%. 2

1 2

http://ltvzinas.lv/?n=zinas&id=3288 (viewed on 07.09.2011; posted on 12.05.2011) http://www.pozitivaszinas.lv/posts/view/riga-aug-turistu-skaits (viewed on 07.09.2011; posted on 28.03.2011)

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3.3.

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Time Frame

The remaining timeframe will include all three planning levels which are corporate, business and the functional level. At the corporate level the long-term goals are determined and are to be realized. These include internationalization decisions, choice of distribution channels and pricing policies. At business level, work is more concrete and the focus is concentrate here on the specific plan of the individual action parameters. And finally is the functional level when working with a shorter horizon plan can vary between days, weeks or months.

4. Methodology In order to prepare a well-argued internal analysis, it will be necessary to obtain the relevant strengths and weaknesses facts about the Danish company Pandora. To do that it will be appropriate to analyze the company’s value chain in order to identify the activity that creates value for customers and thereby discover the company’s core competencies and competitive advantage. This is significant because it will reveal what strong points the company possesses – and the competitors do not, which can be used in contrast to the competition and provide an edge for Pandora. This information will be based on secondary data collected from the internet, such as firm annual reports and the Company’s home website etc. Furthermore it will be relevant to analyse Pandora’s product line and evaluate its product portfolio, by using the PLC curve. This will give us a picture of how their products have developed over the time, and also determine where the company's product lies in the PLC cycle. With this information, this will make it possible to analyze and evaluate the products' future growth or decline, since this has an impact on competition and choice of marketing mix. Hence, we can evaluate which products to invest further into when entering the Latvian market. Further interior aspects will be to analyse the organization, it´s mission and vision, financial resources, internationalization, growth strategies and export motivation. All the mentioned is important in order to uncover the company’s internal resources and competences. This will verify the company’s abilities when moving into a new market and also paint a picture of the company’s capability status, but then again identify factors that could indicate weaknesses in the company. The data will be based on already existing information resources that are available on the internet.

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AP Degree in Marketing Management

Everything above mentioned will be combined in a SW-analysis, so we can be able to form a strategy for Pandora when entering the Latvian market. Succeeding to analyze the internal situation we will make an external analysis, and therefore uncover both the macro and micro conditions in Latvia. This is important so better decisions can be made henceforward, and besides to discover if this market has good potential for Pandora’s products. It will include relevant aspects such as the macro-environments four most important factors, such as political, economic, socio-cultural and technological. This is relevant, for the reason that it will illuminate the factors and type of changes Pandora may have to adapt to when entering the Latvian market. This information can be collected as secondary data from the internet, such as Euromonitor for Country rapports, Eurostat, Tradeport, country statistics etc. While the macro conditions are mainly dealing with the overall situations, the micro analysis will therefore focus on competitors, consumers, distribution and media habits as well as media opportunities’. This will reveal if Pandora has selling opportunities on this new market. Accordingly it is important to understand Latvian customer behavior since they will be the ones buying Pandora’s products. For this we can use the SOR model to analyze the customer buying behavior, and increase some understanding about the consumers’ needs, motivation and influences when buying. Here we can use secondary data but also primary data in qualitative form. Moreover, it is also important to achieve a differential advantage over their competitors, and therefore analyse the competitive environment, by describing the form of the competition, the industry and the competitors. This can help and give a picture of how big the threats Pandora can cross paths with when entering the Latvian market. Both the internal and the external analyses will be placed in appendix. The relevance of all the above external analysis will outline an OT- analysis, and reveal opportunities and threats that the company may face. By summarizing all the data we have collected, both internal and external, we can transfer the information and put it to use for marketing strategies for the marketing plan. The SWOT is an effective tool that can provide and support the company when making conclusions based on collected data. The external factors will represent new and improved market opportunities for the company. In order of being able to enter the Latvian market successfully, it is important to have an overall guideline to provide an overview and therefore make a marketing plan, which will include information about: objectives- both economics and marketing, the choice of target market, entry modes strategies and positioning. This plan will be based on internal and external analysis, and therefore result in an attractive possibility to penetrate this new market, Latvia. Then the process will include determining the company's marketing strategy where we can use the STP model (SMP) and in so doing define segmentation, target group and positioning. 8

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Then we can conclude and decide by choosing the right marketing mix for the company. This is very important when exporting to a new and unknown market, so the company will not make any miss-calculated decisions. All of this together suggests a plan for Pandora to enter the Latvian market, in the best possible way. Estimated budgets and a Gantt plan shall bring us closer to the operational faze and make it possible to effectively manage our marketing activities and importantly be able to determine how successful they have been. And lastly the conclusion will be made to give a clear answer to the problem statement.

5.

The marketing plan

The marketing plan creates an overview and helps to address the marketing coordination’s, based on information from the analyses and applied to make the right decisions before entering the new market. With this plan, it will make it able to optimize its resources and achieve the best results when choosing between its activities.

5.1.

The situation analysis

The situation analysis is based on the internal3 and external analyses4 and gives a picture of how things stand with Pandora at the moment, based on both internal and external factors. These conclusions are to form the basis for decisions about which marketing activities the company need to implement. We have combined it in a SWOT analysis.

5.1.1. Intern analysis (SW- analysis) 5.1.1.1. Strengths

3

Information’s collected from Pandora’s Annual Rapports anno 2009 and 2010

4

The internal and external analyses are placed in Appendix

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Products: Pandora has created a strong brand which is valued at 1 billion DKK and the Goodwill is approximately 2 billion DKK5. In addition, Pandora is the world's third largest jewelry company. Their strong brand and their successful jewelry concept is the source of their financial results. An innovative addition as their “Create and Combine” concept allows the costumers to create their own unique combinations that are right for their particular lifestyle, situation and economy. This has proven to be an attractive way to penetrate the market, as customers are encouraged to buy individual products and product configurations to commemorate a very special moment in their lives. Marketing: Pandora has good ability to establish itself in new markets and has good geographic presence. This will thus minimizes the risk of weakening its earning potential, and will as well spread the risk if there should be stagnation in one region or continent. Expansion will continue in the future as this will reduce dependency on individual markets. Pandora's online sales platform increases for brand awareness and maximize customer segment and hence to promote earnings potential. This way it can promote its brand and attract but also retain customers by creating customer loyalty through Pandora club and Facebook fan page. Pandora has ensured exclusive rights by registering their trademark6 in the EU, the USA, Australia and Asia, and has been granted patent rights in connection with charm-bracelet functionality in the EU, U.S., Australia, New Zealand, South Africa, China and Norway. Furthermore in 2010 they implemented a zero-tolerance policy on violations of Pandora's intellectual property rights on the Internet and the counterfeiting of products and brands. Production: Pandora achieves a number of competitive advantages through their value chain. Pandora´s production is cost-effective by being manufactured at four production plants in Thailand. The fact that production facilities are located in Thailand has the additional advantage achieving a number of tax exemptions7, which is extended until 2019, and is also exempted from import duty on certain machinery and raw materials imported into Thailand. This reduces their costs and is considered as a competitive advantage. Additional Pandora has achieved an efficient use of its capabilities through the use of 3D technology8 that has enabled a strong collaboration between the design department in Denmark and the development and production departments in Thailand. Pandora´s optimizing of the production process has been ISO 9001 certified. 5

Pandora Annual Rapport 2010, page 48

6

Pandora Annual Rapport 2010, page 32

7 Pandora Annual rapport 2010, page 9 8

Internal Analysis in Appendix

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Financing: Pandora has achieved a strong financial development through a significant growth in turnover in the last few years. The company has so far a good state of health, and this is estimated to continue evolve in a positive direction but only at a relatively much lower level than previously. Organization: Pandora’s strength is that the company has a close cooperation in its supply chain, and by operating in a vertically9 integrated business it ensures a high degree of control in its value chain. This way the company achieves economies of scale reduce costs and achieve a greater control in their supply chain. The dismissal of the former CEO Mikkel Olsen10 could bring the company back on its track and attempt to conquer the confidence back and as well as its consumers.

5.1.1.2.

Weaknesses

Products: Pandora considers their brand to be the most important asset, as this reflects in their core values. A reduction in brand value due to bad publicity or similar could result in a significant reduction in demand for their products and thus a reduction in their revenue and earnings. Their products can also be viewed as a weakness, since 85% of their turnover generated of the charm bracelets and charms11. This dependence can make the company vulnerable if demand creation and customer preferences will change.

Marketing: The impact of raising their product prices in the U.S stores has had a negative effect and brought disaster downgrade on the Pandora shares. It has scared the customers away and Pandora now is struggling with large stocks of jewelry and a decrease in sales12.

Production: By locating all production in Thailand, this may adversely affect the supply chain, due to political unrest in Thailand as well as natural disasters (tsunami) is considered to occur in the eastern continent. Financing: The Pandora shares declined by 60 % in August 2011, which means that many of its investors has chosen to drop their Pandora's shares, caused by the excessive uncertainty 9

International markedsføring, Trojka, 4th edition page 103

10

http://www.dr.dk/Nyheder/Penge/2011/08/02/085416.htm

11

Pandora Annual rapport 2010,Page 56

12

http://www.fashionforum.dk/pandora-foraerer-smykker-vaek

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surrounding the Pandora's future combined with distrust in management but also Pandora's new business model13. Organization: After restructuring in the management posts it leaves consideration to its stakeholders. This makes the company look bleak and leaves room for skepticism.

5.1.2. External analysis (OT- analysis) 5.1.2.1. Opportunities General market conditions: The quantity of internet users in Latvia represents almost 70 %14 of the population, which is also reflected in the increasing amount of Facebook consumers, and these are 304.704 Latvian user members15. This is pretty good figure for Pandora's online sales platform and online advertising efforts. The trend in Latvia shows that people usually shop in large shopping malls such as Alfa, Spice, Galerija Centre etc. This is moreover, the favorite shopping place for all income categories and by all age levels16. The market situation today also shows that more women than previously have entered the labor market and this trend indicate a change of the roles of Latvian women in society17. This ensures an improved financial security for the families and also boosts the income level, and thus increasing the allowance. Macro Conditions, Foreign relations of Latvia includes a membership in the EU, UN and NATO18, and thereby makes it possible to implement The EURO I Latvia in the future, is estimated to happen around 2014. This Baltic country is as well a member of the WTO19, and both Latvia and Denmark have joined the International Sale of Goods Agreement (SICG)20 and thereby undertakes to comply with its 13

http://www.dr.dk/Nyheder/Penge/2011/08/02/092324.htm

14

http://www.internetworldstats.com/eu/lv.htm

15

http://www.socialbakers.com/facebook-statistics/latvia

16

Euromonitor, Consumer lifestyle - Latvia, page 53

17

Euromonitor International, Consumer lifestyle- Latvia page 36.

18

http://www.mfa.gov.lv/en/news/press-releases/2011/march/31-5/

19

http://www.wto.org/english/thewto_e/countries_e/latvia_e.htm

20

http://www.cisg.law.pace.edu/cisg/countries/cntries-Latvia.html

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provisions. These rules apply to both parties and hence makes it easier to resolve conflicts if they arise. It is forecasted that the Latvian economy will recover in the future, and that the GDP21 will evolve itself. This will bring Latvia back on a positive path as the disposable incomes will rise again and the consumer expenditure equally will increase. Demand Conditions, The Latvian consumers can easily be described as spontaneous shoppers22, which means that they will buy something that they like or looks appealing and especially on price terms, and not because its brand name or they have need for it. Pandora owns both, a niche and considerate prices, so the outcome could become a successes story. Generally companies in Latvia, by this mean including jewellery companies, do not put too much effort in marketing initiatives to illuminate them self’s. So by doing this one can get a quick foothold in the Latvian market, because costumers in Latvia are easy to convince and will definitely respond to advertisements especially older women. This can create a competitive advantage. The Latvian females are very fashion oriented, and do like to decorate themselves with accessories, like rings, earrings, necklaces etc. They are attracted by good prices and can easily switch between different brands. Supply conditions, As before mentioned about political instability or natural phenomenons in Thailand. This is crucial for their production base. Distribution conditions, Since Pandora is the third biggest jewelry enterprise worldwide23, they don’t have to adapt its prices towards the Latvian market leader’s prices, and can choose its own marketing mix. This will make it easier for Pandora to operate.

5.1.2.2.

Threats

General market conditions, Latvia’s small size of population on only 2.2 million and its narrow target audience which focus exclusively on the women's segment, makes it harder to achieve a high turnover on the Latvian market. The target audience in Latvia amounts to 550,000 female

21

http://di.dk/SiteCollectionDocuments/Opinion/Konjunktur/Markedfokus/Letland.PDF, page 2th

22

External analysis – SOR model in Appendix

23

http://www.dr.dk/Nyheder/Penge/2010/10/05/104009.htm

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but our potential target group is approximately 750,000 female in total (urban female population)24. Latvia emigration volume is quite high and estimated to be even right a statistical figures show. This may be due to negative factors such as political discontent, high unemployment or Corruption in the country.25 This is not good, mainly because the population figure is already low. Television commercials in Latvia are prolonged which can last up to 15 minutes in the hour. This may seem annoying to some viewers and are probably most of the younger spectators. That is why it is easier to flick through the commercials. Thereby, TV adverts have a negative effect and is not perceived as a trustworthy source. Macro Conditions, Since the economic crisis originated, Latvia has experience an economic downturn, high unemployment, low wages, increased external debt which the Latvians must pay for, government tax and VAT tax increases and much more26. This indicates that consumer expenditure is lowered and results in a low purchasing power, because in times like these people are afraid to spend and would rather save money. That means the purchasing power majority exists at high-income Latvians females that can afford to buy prestigious fashion industry brands. Demand Conditions, The lifestyle trend in Latvia can change. The spontaneous shopper can as well change its shopping behavior and price can become the main criterion when considering purchasing. Many Latvians have decided to rely on second-hand clothing or to repair current clothing and thereby is purchasing less often. Likewise it may fall for ssubstituted products which are copied or much cheaper merchandises instead of genuine jewellery. Supply conditions, Prices of commodities like gold and silver has been rising for a period, and prices have nearly doubled27. Since these represent the largest portion of production costs, this can have economic consequences for the company.

24

Euromonitor, Consumer lifestyle – Latvia, page 19

25

External analysis – Economic factors in Appendix

26

Euromonitor, Consumer lifestyle – Latvia, page 30

27

Pandora Annual rapport 2010, page 32

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5.2.

Marketing objectives

Pandora has to define some marketing and economic objectives. The important factors to consider are: SMART approach meaning setting Specific, Measurable, Achievable, Realistic and Time specific objectives. Since we are going to do marketing activities in Latvia, as a new market for Pandora, the strategic thrust defining business future direction is market development according to the Ansoff Matrix for selling current product on a new geographic market. Implementing this strategy we would need to find out about profitability and what kind of products from Pandora´s product line fits to the trends on the Latvian marked as well as careful choice of the sales channel. Investigated customer behavior follow us to choose the shop in shop channel, placed in some of Riga’s most popular malls. Furthermore the product range that will be sold in Latvia will include typically earrings, rings and bracelets. By the process we need to understand the latest preferences of customers in the identified segments and appropriately target each item in product line to maximise sales volumes. To provide a way to check our level of success, we are going to use market share in percentage as a unit of measure. It will do our objectives measurable and easier to compare. We hope to achieve 10 % of the Latvian jewellery marked during the first year on the market. To achieve those approaches we need some sufficient employees and resources, so we need to ensure competency and commitment of all personnel involved in the development and implementation of the strategy. This can range from having an experienced and knowledgeable marketing team to capable sales staff. Access to funding is also necessary for the acquisition of extra stock to fulfil increased demand. Pandora´s Latvian department can in this case collaborate with The Lithuanian or Estonian department and fast fulfil the stock. Financial objectives: To sell to 10% of the females in the target country, aged between 25 years to 55 years. Approximately 5.500 customers at an average price of 250 DKK, buys 4 times a year. It would make a turnover of 5.500.000 DKK28 Those are reasonable and realistic objectives, as consistent with the priorities of the organisation. That is another step towards realising Pandora´s vision of becoming the world’s most recognised 28

Se budget in appendix

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jewellery brand.29 Our objectives should flow from the mission statement of Pandora´s business to offer "high quality, hand finished, modern and genuine jewelry products at affordable prices "30, towards the financial objectives and to the rest of the marketing plan. A regular progress update will be taken every month to track level of success.

5.3.

Core strategy

Target market The target market is Latvia, but the focus will be on its capital Riga. Pandora’s target audience is Latvian women in the ages between 25 and 55 years old. The average income per month for this target group aged between 25 years to 55 years is approximately 204 LVL31, which corresponds to 2131 DKK. Latvia contains all together 1.2 million women, but the size of the segment (population) only represents approximated 550.000 women. Young people in Latvia do not work until they reach the age of 18, and are completely supported by their parents. Thereby their decisions are reflected and reviewed by their parents. If it comes to buying jewellery, parents usually make their own decision on that as well (not always they would buy an expensive or mid-expensive piece of jewellery, but they would prefer to buy not that expensive but then again qualitative jewellery). After reaching 18 years just a very small per cent of youngsters start to search for a job. It is attributable very simple – they are not motivated to do that, because they still live with parents. At that age teens are still learning in high school. After graduating high school they are starting their studies in university, now living alone, but still supported by parents. At age 20 most of Latvian young people, (man as well as woman) have a job. Then they start to live independently and make their own decisions. Statistics says that ⅓ from the young people (15 – 24) are still without a job (April 2011)32. Women in their mid-twenties and who might have a status as a young family usually have a credit for the apartment or a house. Beside that they have to subtract the fixed costs such as kinder garden expenses, insurances, groceries and etc. After paying that they spend the rest of it for themselves. Statistics prove that every 5th woman in Latvia after shopping (includes clothes, 29

Pandora´s Annual Report 2010, page 6

30

http://ezinearticles.com/?Charms-and-Beads-to-Fit-Pandora-Style-Bracelets&id=5989152

31

http://www.tam2015.com/3/situacija-latvija.htm

32

http://www.social.lv/portal/nodarbinatiba/aktualitte/1370-teju-tresdala-jauniesu-latvija-ir-bez-darba

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shoes and jewellery) are indicating to their partners a lesser amount of money than they actually have spent. This data is gathered by Naudas Plānošanas Centrs (Money Planning Centre) and GE Money Bank. In the same survey they cleared up that 53% of Latvian woman are those who control the whole family budget as well they decide what to buy and where to spend vacation 33. It means that in our target group is a lot of decision makers. They do not need to discuss the purchase with someone else they can buy it spontaneous – gives Pandora better selling odds. The amount of working population (woman) is increasing. In 2011 in the first quarter the amount of woman who is working was 466.5 thousand, but in the second quarter it was 480.6 thousand. At the same time the amount of those women who are searching for a job is decreasing. In the first quarter of 2011 it was 78.9 thousand, but in the second quarter it was 75.7 thousand. It is a positive tendency for Pandora34.

5.4.

Positioning

The purpose of positioning is whenever a consumer thinks of a products or service it is being associated with a specific brand. And in our case we want to say that whenever a consumer thinks of luxury jewelry goods, the Pandora brand should be the one of the first brands that comes in their thoughts. Pandora is already positioning their products as luxury and at the same time affordable. Quote: “PANDORA designs, manufactures and markets hand-finished and modern jewelry made from genuine materials at affordable prices”35, but to position it in the same way in the Latvian market could be a challenge for Pandora. Since Pandora products for Latvia’s economic situation are considered as expensive, psychological pricing should be used, as it can manipulate the reference prices that consumers carry in their heads. The psychological difference between 30.00 LVL and 29.99 LVL is much greater than the actual difference. And by using psychological pricing Pandora’s products could be considered luxury, but at the same time affordable. After all Pandora should focus on their brand quality and uniqueness while entering the Latvian market and at the same time to link the consumer minds with Pandora brand in the first place that is coming in consumer’s minds whenever they are thinking of a luxury jewelry.

33

http://www.ogrenet.lv/izklaide/kas_jauns/8401/?print

34

http://www.csb.gov.lv/statistikas-temas/nodarbinatiba-un-bezdarbs-galvenie-raditaji-30263.html

35

http://www.pandora.net/en-gb/pandora-company/about-pandora

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5.5.

Marketing strategies

Pandora Group is a born global enterprise. We should clarify what kind of organization Pandora Group is before deciding the entry mode because these arguments will keep our choice lending to the answer of our problem statement after all. Being a born global enterprise means that the company has the ability to standardize production and marketing in a global niche. Pandora Group has experienced higher growth rates than others in the jewelry industry and a large growth in their export compared to the home market sales. Proof of that is the history about its foundation and their mission itself. 5.5.1. The entry mode Direct Export Mode will be adequate which is where the producing company takes care of exporting activities and it is in direct contact with the first intermediary in the foreign target market (Latvia). They need to be involved in handling documentation, physical delivery and pricing policies with the product been sold through agents or distributors. The advantage of this mode is that dealing with an agent or distributor they access to local market experience and contact with potential customers. They can get knowledge of the market and have more control over marketing mix. The distributors could provide local selling support and eventual services if needed. But Pandora Group has to know that there are certain disadvantages also, they need to be effective regarding communication and lack of information, always remember the culture differences and perhaps some possible trade restrictions. Highlighting that this entry mode requires monitoring constantly and if the partner is doing a good job and the market is good, Pandora Group should consider forward integration. 5.5.2. Generic strategy Considering Pandora Group as one of the strongest in the industry and also considering that Latvia is not that especially attractive then an effective marketing and sales efforts for Pandora’s offering will be good for generating near terms profits (An overall offering). We suggest the differentiation strategy (the generic strategy) which in this case fits on Pandora’s Group. It consists on creating a product that is perceived as being unique (they already are handcrafted, affordable luxury, “create and combine” concept, etc.) “through the industry”. The emphasis has to continuous on brand image, special features, and superior services and pursues a strong distributor network. The uniqueness should also translate to profit margins that are higher than the industry average. In addition some of the conditions that should exist to support a differentiation strategy include strong marketing abilities, effective product engineering (they do have), creative personnel, the ability to perform basic research and a good reputation which qualifies Pandora Group for that.

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5.6.

Marketing Mix

Nowadays to better understand what a product is we need to know that is not just a tangible thing that we just buy and take home. Most of the time tagged to the product is services that are being offered just because the consumers choose to have that product. The product has to be, necessarily, that one who is desirable to the customers, fulfill their expectations and meet their needs. We need to observe 5 levels:     

Benefit-core: a key benefit that the consumer is buying Basic Commodity: it is what the consumer buys. Here are defined the basic benefits of the product. Actual product or expected: presents five features – quality level, features, design, branding and packaging. It is a set of attributes that consumers generally expect. Expand product: to offer additional services and benefits. Potential output: consists of all extensions and changes that the product may suffer in the future. It is likely evolution of the product.

Of the four mix variables we need to consider the product as the most critical decision making. Pandora Group needs to manage their brand as a major asset of their company. In addition to managing the brand it is of paramount importance to position it correctly in this suggested strategy in order to achieve their goals. 5.6.1. Products The products are the set of attributes, functions and benefits that consumers buy. First they may consist on tangible attributes or intangible such as those associated with good will (which Pandora products has) or a combination with both. 5.6.2. Pricing The pricing strategy is mostly influenced by the net income and for a long term market control. Inside the pricing we will suggest the market development strategy because is what Pandora Group start doing since they established to internationalize their products. The aim is market control at low prices. We need to take account of quality and price. The customer usually seeks a fair price which should be neither too high, so that the consumer feels are not worth buying it, nor so low that leads them to think something is wrong with the product. Within the marketing mix, price plays four important roles:  

If the purchase is made and, if so, how much consumers buy. If the commercialization of the product is sufficiently profitable (In case of Pandora Group is increasing every year according to their annual balance sheet). 19

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 

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If the price is flexible and can be changed easily. The price is one who creates the demand and not vice versa. If the product price is low, usually the demand is higher and vice versa.

After analyzing this information the question is: what is the ideal price of a product? The ideal price of a product is simply that the customer deems just and at the same time it is interesting for the company profitability.

20

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5.6.3. Promotion We suggest the PULL strategy which is a direct interface with the end users of the Pandora’s products. The use of channels of distribution is minimized during the first stages of promotion and a major commitment to advertising is required. The objective is to PULL the prospects into various channels outlets creating a demand the channels cannot ignore. In this case the adequate advertising strategy would be the “Product Benefit Advertising” when Pandora Group will promote their products without comparison to competitors, since they pursue a good market share in the industry. This will be especially beneficial when introducing and connect their mission to the ads. We should also consider the level of advertising. As mentioned before Latvian consumers get better stimuli (and the company will get better response) to TV commercials and outdoors. A direct marketing company from Latvia to work with should be also considering if the budget allows. In case of Pandora Group that has a variety of offering and the audience is fairly broad (from 16 to 50 years old women) it is often beneficial to promote its identity rather than a specific product. They could increase sales by developing the brand identity as inspiring individuality cultivating the attachment of emotional significance to Pandora’s jewelry and thus increasing brand awareness that will stimulates interest in Pandora’s product range as an affordable luxury brand. 5.6.4. Distribution Based on Pandora’s long term vision that is “to become the world’s most recognized jewelry brand” we suggest the Group to keep focusing on branded sales channels capitalize their product offering and use Taylor approach regarding the new geographic market. To strength the perceptions of Pandora’s brand they need to focus on several Pandora branded points of sale to expand the product offering further than through unbranded points of sale. Also work with third part distributors with some exclusive rights to promote and sell their products to retailers in specific geographical area and specified period (e.g. Christmas). Arguing and sustaining that distribution and marketing are vital to maintain control over the brand image. Important to highlight also that to better control and manage the results we suggest having risk assessment, good information and communication between both sides and monitoring constantly. 5.6.5. The prospect The market segmented was very important to define the target group and through this minimize the risks for entering this market. Pandora’s portfolio has the consumer’s needs characteristics such as quality, durability, reliability, ease of use and can create dependability. 5.6.6. The environment 4According to our target group the cultural trends and life styles in Latvia could easily support the offering of Pandora’s Group penetration in the Latvian market. 21

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5.6.7. Considerations To play the game competitive Pandora Group has to analyze consumers, selecting target markets and use the tools of marketing mix to satisfy customer needs. Above all we suggested and developed this marketing strategy that fit the position and resources of the company, compared to Pandora’s Group competitors and then manage and adapt these strategies effectively to environmental changes. Another important issue that should be consider as a weakness with respect to marketing mix is that the business environment and the market is extremely dynamic , for example, a strategy that worked well in the past may no longer work in this. In this context the correct definition of marketing and marketing mix are of fundamental importance to the success of the company in a competitive environment. Each decade require that the company management think critically on their goals, strategies and tactics. Rapid changes can easily become obsolete winners of the principles in the conduct business yesterday. Therefore the constant and infinite analyses in the market the update of the most attractive segments, assessing the strengths and weaknesses of the company and competitors, and consequently the definition of marketing plans as we are doing on this project , annual plans of action directed to fully meet the needs customers are vital for maintaining healthy business. Surely a company that is not dedicated to recycling and is not always making the necessary changes to meet market demands dynamism is bound to start losing market share in a short time.

5.7.

Conclusion

Pandora from a small Danish company nowadays has risen to the world`s third largest jewellery company. Now they are selling goods in 55 countries all over the world. But there are still countries which are undiscovered for Pandora, for example, Latvia. A member of three-country union called The Baltic States. Pandora has already entered the other two countries (Lithuania and Estonia). Why do not capture Latvia as well? Our problem statement was: HOW CAN PANDORA BEST ENTER THE JEWELERY MARKET OF LATVIA? There were a lot of things to consider. Firstly, why Pandora isn`t still in the Latvian market like Estonia and Lithuania. The answer is simple, probably because of the economic situation. The economic crisis touched Latvia the most. And the recovering period is longer for Latvia but now every statistical data is increasing, starting from the employed people and their incomes. The fact that Latvian women are willing to spend money for themselves is a positive tendency for Pandora. Pandora’s products in Latvia would catch a woman’s attention with incomes a little above average, but despite that there is a possibility that women with average incomes will buy the Pandora’s products as Latvians are spontaneous buyers. We suggest that Pandora should open a shop in shop in the most popular Riga`s shopping mall Alfa, which is a popular 22

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destination not only for people who live in Riga, but for people from other cities and tourists as well. For entering the Latvian market we choose to use Direct Entry Mode. The producing company takes care of exporting activities and it is in direct contact with the first intermediary in the Latvian market. For the strategy we choose The Differentiation Strategy. That is because Pandora is completely new product, it is not known in Latvia. Also it is considered to be a unique product (handcrafted, affordable luxury). In this strategy a large promotion budget should be involved. Pandora can afford to do that. Looking from this aspect Pandora would be a little ahead of the competitors if adopting this kind of strategy because a very little jeweler companies has big and observable advertising campaigns.

5.8.

Monitoring and control

Now we have made the plan for Pandora´s Latvian activities according to the marketing plan based on some objectives and future expectations. It is rare that expectations’ being followed up, as the company has planned and it gives rise to a continuous monitoring of the companies surroundings, activities and the results of those activities. The planned activities in marketing plan shall take place as scheduled at the right time and right place. It is therefore important to make a controlling plan identifying who is responsible for ensuring that the planned activities are performed in the right way at the right time. In addition the results and the implementing of the marketing plan have large difference from the expected results, the changes in the marketing plan can be considered. That is why the monitoring and controlling is appropriate.

The effective follow-up actions are grouped in the following timetable: Monitoring Action

Marts 2012

July 2012 EØ

Budget Earnings

AF

Product awareness

KR MM

Strategy

23

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5.9.

Budgets

5.9.1. Profit budget PROFIT BUDGET Year

2012 5.500.000,00 3.881.020,00 1.618.980,00 350.000,00 180.000,00 1.088.980,00 49.200,00 1.039.780,00 334.000,00 705.780,00

Net turnover Variable cost* Cross profit Distribution and marketing cost Fixed cost Primary result Net interest cost Ordinary result before taxes taxes of ordinary result Result of the year

kr. kr. kr. kr. kr. kr. kr. kr. kr. kr.

* Material cost Rent expences Excise tax Expenditure on salaries Total

kr. 3.000.000,00 kr. 237.820,00 kr. 600.000,00 kr. 43.200,00 kr. 3.881.020,00

24

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5.9.2. Cash flow budget CASH FLOW BUDGET Year

2012

Inflows Payments from sales/turnover kr. 5.500.000,00 Obtaining of loans kr. 1.500.000,00 Total Inflow kr. 7.000.000,00 Outflow Material purchase kr. 3.000.000,00 Inventory kr. 500.000,00 Marketing kr. 350.000,00 Rental cost kr. 237.820,00 Tax cost kr. 334.000,00 Expenditure on salaries Repair and maintenance Repayments on loans Private comsumption VAT to be paid Total Outflow Annually cash flow Liquid assets primo Liquid assets ultimo

kr. kr.

43.200,00 25.000,00

kr.

450.000,00

kr. 4.940.020,00 kr. 2.059.980,00 kr. 2.059.980,00

25

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5.10. Gantt Map

26

Buy SmartDraw!- purchased copies print this document without a watermark . Visit www.smartdraw.com or call 1-800-768-3729.

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List of literature Marketing Framework Foundations of Marketing Financial Management Global essential of Marketing Pandora Annual Rapport 2009 and 2010

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Appendix

Internal analysis The purpose of this internal analysis is to identify the company’s strengths in order to exploit them in the competition but also to uncover the weaknesses that Pandora may possess. These factors may give the company competitive advantages when occupying itself on the new market and also succeed to obtain a satisfied benefit tilt.

Supply chain Pandora is an international company and active in numerous countries, Therefore it is important that the company has close cooperation in its global supply chain, e.g. in areas such as demand planning, procurement and storage of raw materials, production and shipping. At the same time there is a demand on close cooperation with the design and development departments on the preparation of production and product, raw material procurement and control of manufacturing in Thailand. Each process is planned carefully in order to ensure the maximum efficiency in each stage of production. As the company constantly grows internationally, therefor it is strategically important for the company to maintain its full control of brand image and marketing initiatives. This means that after being introduced in the new market, the company tries to take over distribution, either through their own initiative or through purchases. Pandora's distribution is controlled through agreements with distributors or franchises, thus allowing them to promote and sell Pandora products to stores in a given area and for a limited period. In 2010, Pandora became a RJC member (Responsible Jewelry Council), with the purpose to act responsible in their supply chain. The company strives to prevent and limit overall CSR-related risks in the supply chain in general and in the purchase of precious metals and precious stones in particular. A code is sent to all Pandora's main suppliers with a requirement that they sign and endorses this Code and further accepts checks by independent external auditors.

Value chain By using the Michael Porter's value chain model, we can analyze the company's value-creating activities, and thereby evaluate their optimum so Pandora will gain competitive advantage. The primary activities consist of up-stream activities and downstream activities, which includes the key areas. Support activities are designed to integrate the value chain's primary activities, hence the name. Infrastructure The company operates a vertically integrated business model; it designs, manufactures, markets and distributes hand finished and modern jewelry. Most of the company’s activities are centralized and controlled from the headquarters in Glostrup, Denmark, and ensures a certain degree of standardization on a global level regarding to logistics, marketing, sales, etc.

A large share of responsibility for Pandora's collapse in 2011 was based on both the rising prices on goods such as silver and gold but also on the management's liability; therefore the former CEO Mikkel Olesen was fired and replaced by director Marcello Bottoli, while searching for a new CEO.

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Human Resources The global reach makes sharing of knowledge and cross-border cooperation between local units, and between local units and head office, imperative, and with the rapid growth in number of employees during recent years. At the production facilities in Thailand, PANDORA provides technical, supervisory and managerial training to the employees in general, and PANDORA provides opportunities for individual career development. Technology To ensure an effective product development at the short time as possible, Pandora use the 3D technology in R & D phase. The products are developed in collaboration between two design teams in Denmark and development team in Thailand. Procurement Pandora’s products are manufactured internally, on their own plants in Thailand and opened a fifth plant this year. And in their production Pandora is using futures contracts on silver and gold with the suppliers to reduce the risk of loss, by fluctuations in prices. Pandora enables advantageous prices by placing relatively large orders for silver on these suppliers. Gold is bought on the spot market through local distributors in Thailand. These finished products are stored mainly in the company's address in Thailand until the collection is ready to be delivered to the local distribution center, which happens weekly. After the manufacturing the products are distributed to sales channels, primarily direct to dealers, but also via external distributors. Inbound logistics Pandora stores raw materials and intermediate goods in storage facilities at the production place in Thailand. To manage price volatility in commodity markets, maintaining a sufficient level of raw material to a continuous production can be ensured without Pandora need to buy commodities in periods of rising commodity prices. Outbound logistics Pandora uses external transport companies to transport finished products from the Thai plant with air transportation to warehouses in the U.S., Australia, Denmark and Hong Kong. The Danish warehouse is a transit point for distribution of its products with subsidiaries and distributors worldwide. Pandora has taken advantage of many forms of distribution. Sales to the wholesalers in some countries were widely used in the beginning. Pandora has the acquisition of several distribution companies, moving towards direct distribution, which in 2010 brought 89.7% of revenue. Marketing and Sales Pandora´s marketing is centralized and managed from the head quarter in Denmark, where distributers, distribution companies, franchise takers and other sales agents is provided with the marketing materials. Company is using a various numbers of marketing channels including advertising in lifestyle magazines, activities and advertising on the Internet and TV, branch publications and at the end product placing. Company focus lays therefore particular on Pandora-branded sales channels.

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Since 2009, Pandora has been able to offer their products through retail stores in the travel industry, including sales at airports and on board a number of international airlines and cruise ships. Pandora is writing own Pandora Magazine, which is its own fashion magazine and includes beauty, fashion and jewelry features. This magazine is intended for Pandora's Club members. The October edition contained, among other things an interview with Jennifer Aniston, she is here used as a role model for the Pandora consumers. Service Dealers of Pandora's products generally have the right to have defective products repaired or replaced, according to the company return policy varies appeal period up to one year from date of purchase, depending on how the product is purchased. Pandora is taking use of concept stores, shop-in-shops and multi-brand outlets, all depending on how much space is allocated to the Pandora range of in-store.

Pandora’s products Today Pandora produces 5 collections and their targeted audience is women between 25 and 50 years. The collection involves the Moments Collection, which is indeed the company's core product, Stories, Compose, LovePods and Liquid Silver. Pandora jewelry is largely produced by gold and silver and a number of precious stones. This means that a rise in prices for these commodities has resulted in an increase in prices on Pandora’s products. This has resulted in a negative business concept, and Pandora is now focused towards to reestablish its "Affordable Luxury" position. The brand “Pandora” is regarded as the most important asset and acts accordingly with their core values Affordable Luxury, Contemporary Design and Personal Storytelling. These core values are factors that are repeated in all of their collections. Pandora manufactures genuine jewelry such as charms, bracelets, rings, earrings, necklaces & pendants as well as watches and now sunglasses. The manufacture of the last named product is outsourced. Their Charm products still represent the largest share of revenue, and amounted approx. 90% of revenue in 2009 and still represented over 85 % of sales in 2010. This means that the charm products are in the growth/maturity phase since it creates a huge growth for the company on its active markets. Intellectual Property Rights Pandora has ensured exclusive rights by registering their trademark in the EU, the USA, Australia and Asia, and has been granted patent rights in connection with charm-bracelet functionality in the EU, U.S., Australia, New Zealand, South Africa, China and Norway. Furthermore in 2010 implemented a zero-tolerance policy on violations of Pandora's intellectual property rights on the Internet and the counterfeiting of products and brands.

Internationalization

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In fact the company's story began in 1982, but it was only after the Millennium that the company began building its international presence. The company’s export motivation was born in 2000 after for the first time launching their charms concept in Denmark, which resulted in an acquired growth and increased demand. Pandora then took the U.S. market in 2003, Australian and the German market in 2004 and since then the company has expanded its sales internationally huge. Pandora is today the world's third largest jewelry brand and sell their products in 55 countries through 10 000 distributors, across six continents. Pandora has also established over 450 branded concept stores worldwide. Pandora is a born global company. Since 1989, when Pandora for the first time moved its production to Thailand, the company had invested in an additional 4 new production factories. The fifth factory was built in 2010 and is expected to be commissioned in late 2011. This is a clear expression of Pandora's ambitious faith in its future sales. The export motive is considered to be proactive, and thus act according to the company's vision - to become the world's most recognized jewelry brand.

Growth strategies In the beginning the founders, Per and Winnie Enevoldsen, started Pandora by selling imported jewelry from Thailand but later changed its focus and began to develop own unique jewelry, which was a strategic smart for its evolution. Pandora's objectives are set in their strategies. Their mission is to offer women the world over a universe of high quality, hand-finished, modern and authentic jewelry products at affordable prices. And as mentioned before, their vision is to become the world's most renowned jewelry brand. The company uses several kinds of growth strategies. On their existing markets the company is focused on market penetration. The company continually strives to increase the number of their branded sales channels in selected markets in order to obtain a right share of revenues in the future. This will strengthen their brand concept in retail and even expanded product offerings compared to their other outlets. Innovation is also the hallmark of Pandora, by launching the concept "Create and Combine" where the customers are free to choose and build their own unique piece that fits lifestyles and economy. This penetrates quiet well, and allows customers to celebrate a very special moment in their lives. Pandora is also dedicated to product development. The company has over the years constantly expanded their portfolio of jewelry, such as with their Compose in 2007, Love Pods in 2008 and Liquid Silver in 2009, and added additional services such as maintenance and cleaning of the products, have an innovative line of watches and recently launched an exclusive line of sunglasses. In line with the globalization the company is striving to enter new geographic markets, and therefore is focusing on market development as well. By 2010, Pandora established itself further in Italy which is EUs largest market within the genuine jewelry, also Russia and emerging markets like China and Japan. Pandora's online sales platform will also increase for brand awareness and maximize customer segment and hence to promote earnings potential. This way it can promote its brand and attract but also retain customers by creating customer loyalty through Pandora club and Facebook fan page.

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Financial resources Pandora is today the third largest jewelry company worldwide. Throughout the financial crisis, Pandora has succeeded just fine through the economic crisis and has achieved good turnover results both in 2009 and the 2010. But should the financial crisis continue, this could have negative economic consequences for the company, because consumer luxuries consumptions will be effected by recession periods. Pandora's existence is dependent on global economic conditions and these conditions are reflected of Pandora's current major markets like USA, UK, Australia and Germany. Likewise can an increase in cost of raw materials, which are silver and gold, have a major economic consequences for Pandora as well, this will either intimidate and scare of its customers or cost the company. Pandora shares Initial Public Offering of Pandora happened on the fifth of October 2010, under the symbol "PNDORA". Pandora grew fast and achieved a market capitalization of 43 billion kr., became the sixth most valuable company in Denmark, and even topped large companies such as Vestas and Coloplast. The Enevoldsen couple has sold most of their Pandora shares to private equity fund Axcel in 2008, and further in 2010, and are left with a remaining share of 21 %. The remaining 1.2 % belongs to the Board of Directors and 18.5 % is owned by other founders. In 2011 the crises seriously stroke the Pandora group, which resulted in an unhappy drop for the Pandora shares, with a decline by 60 percent. Many of Pandora’s investors chose to drop their Pandora's shares, caused by the excessive uncertainty surrounding the Pandora's future combined with distrust in management but also Pandora's new business model. Today36, Pandora shares are of approximately 50 kr., which means it again has begun to rise slightly since its collapse in august 2011.

External analysis By analyzing Latvia’s environment conditions it can help us to understand the situation and predict the factors or conditions that may affect the company's development in the future. This will be divided into a micro part, which is the more dependent surroundings and a macro part which includes the independent surroundings. This will be done in order to cope with possible threats and opportunities in its external context.

The Macro Environment To discover the macro environment conditions we can take use of the PEST model, and analyse the factors which the company has no opportunity to influence, meaning that these are provided from the outside. These are as followed:

36

november 2011

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Political Factors37 Among the Baltic countries Latvia is a market which lies in a better position related to international trade policy. Added to the WTO (World Trade Organization) in 2004 Latvia has been gaining ground in European trade with constant efforts and good results from its recent independence. Several factors contribute to this achievement but also there are significant weaknesses that need to be analysed. Among them we mention that tariff barriers are within the limits established by members of the WTO, required documentation and relatively low cost to start a company in relation to other Baltic countries. The overall regulatory framework is relatively efficient. Despites bureaucratic bottlenecks, rules regarding the formation and operation of Private Enterprise are easy and not burdensome. The Non-tariff Barriers (Non-tariff Barriers refers to all that barriers to trade are not tariffs. Examples of these include countervailing and anti-dumping duties, "voluntary" export restraints, subsidies which sustain in operation loss making enterprises, technical barriers to trade, and obstacles to the establishment and provision of services) reflected in Latvian and EU policy include agricultural and manufacturing subsidies, quotas, import bans and restrictions for some goods and services, market access in some services sectors restrictions, nontransparent and restrictive regulations and standards, and regulatory and inconsistent customs administration among EU members. We also highlight the position of Latvia with respect to the DOHA WORK PROGRAM (the framework document for the further progress of multilateral trade negotiations signed among the members of WTO) which include among others that Latvia has a particular interest in the negotiations on market access in NAMA (Non Agriculture Manufacture) in order to enhance the result of the market access of all. They also support the flexibility in the negotiations and straight efforts to multilateral trade agreements in order NOT to create impediments to trade and economic interests of members of WTO. And their scope extend to services and intellectual property thus to enable a multilateral assessment of the effects of policies on the world trading system.

To reaffirm these statements we show the following strengths and weaknesses to be observed in a research made by the World Bank before considering Latvia as a new market to be explored. Trade relations between Latvia and Denmark are well targeted and flow considerably. Example would be given articles from iron or steel, bedroom furniture and goods made by wood, furniture’s parts, cigarettes, rape seeds, exhaust pipes for motor vehicles, fishing Vessels that Latvia exports to Denmark and Denmark exports to Latvia breeding bovine, swine and others. We can conclude then that the Pandora Group, taking the legal procedures, is not subject to restrictions in relation to a possible export of their products to that country. 37

http://www.wto.org/english/tratop_e/tpr_e/tp238_e.htm

http://www.heritage.org/index/Trade-Freedom http://info.worldbank.org/etools/wti/docs/Latvia_taag.pdf

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Latvia also figures in the world ranking of trading across borders in the twenty-second place among 183 countries. The LPI - Logistics Performance Index – that show us the value of the index that ranges from 1 to 5, with the higher score the better performance represented regarding the efficiency of customs and other border procedures, quality of transport and IT infrastructure, ease of arranging competitively -priced shipments, timeliness of shipments, they are number 3 on this scale. And finally, to give a better understand regarding the Latvian trade policy, we have consider also the MA-OTRI (Market Access Overall Trade Restrictiveness Index Tariff that summarize the trade restrictiveness of the tariff schedules of the country`s trade partners including nontariff measures). It is equivalent to the uniform tariff that maintains the country's aggregate export volume at its heterogeneous tariffs given at a current level, which the average was 14.3 per cent from the last three years. Economical and geographical Factors Economic conditions affect the whole activity in a society and often have a decisive influence on demand. Latvia broke up from a planned economy after its independence in 199138, but it was first after the millennium it experienced a high economic growth level, even possessed Europe’s largest growth in 2004 and its next 3 years. This Baltic country had joined the WTO in 199939, and thus reduces the trade barriers when exporting to Latvia. In 2004 it joined the European Union40 and consequently follows an identical legislation, free trade and the banking world. Both Latvia and Denmark have joined the International Sale of Goods Agreement (SICG) and thereby undertakes to comply with its provisions. These rules apply to both parties and thus makes it easier to resolve conflicts if they arise. In the Europe region, Latvia was one of the most crisis impacted country and the result was an economic fall, meaning that the GDP had dropped by -18% in 201041. The inflation rate declined to -1.2 % and unemployment rose to 22 % in 201042, while the youth unemployment rate was nearly doubled up to 44.9%. This was the highest unemployment rate in the EU. This indicates that the country’s current economic stabilization program predicts that it will first meet the Maastricht criteria by 2012 and thus be able to join the euro area mainly in 2014. The GDP per capita was 7592 € in 2010. The income level in Latvia has been rising within the years and reached 10100 € right before the crisis, but fell toward 8000 € in 2010. This income is still very weak compared to Danish numbers which corresponds to 1/5 share. This declining income implies a reduced consumption and thus reduces the sales opportunities for Pandora when entering this market. A story goes 38 http://da.wikipedia.org/wiki/Letland 39

http://www.wto.org/english/thewto_e/countries_e/latvia_e.htm

40

http://www.magasinetroest.dk/index.php?id=4&no_cache=1&tx_ttnews[tt_news]=695

41

Eurostat statistics

42

Eurostat statistics

Anca, Davis, Elmira, Krista, Mabel, Richi Project C

AP Degree in Marketing Management

that Latvia was once the country with most Porsche Cayenne cars per capita43, but now has to live with that they remain the third poorest country in Europe, only surpassed by Bulgaria and Romania44. This indicates that the purchasing power in Latvia is quite poor, has an index 70 compared with the Danish index 140. For the future, there are signs that allude that reforms are slowly changing the development and economics confidence is slowly returning, but still it has lost five years of economic growth. The growth is expected to remain moderate, around 3- 4 % annually until 2015. But Latvia is still very vulnerable, as investors lost confidence in it. In addition the Latvian people do not cheer either; hence many doubt their future in the country and their politicians, and do believe that the future is abroad. The official statistics show that 10,700 emigrated in 2010, but the numbers are estimated to be much higher. The demographic circumstances are such that the population numbers has been declining over the years, and is today on 2.2 million inhabitants with 1.2 are women. A total number of women in the age between 20 and 55 are 5500045. The average household size has constant throughout the year remained at 2.6, but the proportion of households consisting of a single person has been risen from 24.5% of the population in 2004 to 27.4% of the population in 2010. This can contribute to influence the remaining demand for luxury consumption. Riga’s urban population has been drooping on numbers throughout years and since 1990, the total number was 1.177.932 and declined to 1.003.949 persons in 2006. This trend contributes to reduce demand for goods that have to do with urban development, and therefore is not as good for Pandora’s business development. Socio-Cultural Factors46 The area of Latvia is 64 589 square meters. 60% of population are Latvians, 27% are Russians. National language is Latvian language and the dominating religion is Lutheranism, Catholicism, orthodoxy. The capital city and the biggest city is Riga. (SO WHAT) Education in Latvia this time is very low. Because of the economic crisis they closed 131 schools between 2006 and 2010 period and that is a 12.9% decline. The biggest Universities are making education programs for international students and so are trying their best to stabilize the education. Latvia is based above the average among the world’s sovereign states in democracy - press freedom, privacy and human development. The Latvian culture can be described as (look in the book: when culture collides) New generation speaks English today, so it is easier to communicate with the out world, especially in urban areas. While it is now required that all school students learn Latvian, most schools also include English47 and

43

http://www.magasinetroest.dk/index.php?id=4&no_cache=1&tx_ttnews[tt_news]=695

44

http://www.magasinetroest.dk/index.php?id=4&no_cache=1&tx_ttnews[tt_news]=695

45

Eurostat statistics

46

http://en.wikipedia.org/wiki/Latvia

47

http://en.wikipedia.org/wiki/Latvia#Language

Anca, Davis, Elmira, Krista, Mabel, Richi Project C

AP Degree in Marketing Management

either German or Russian in their curricula. The English language is widely accepted in Latvia especially in business and tourism. In 2011 Urban 1.563.000 vs. 700.000 rural.48

Technological Factors49 Pandora Group continuous invests in technology to bring efficiencies to all sectors through all processes to minimize costs, reduce cycle time and increase consistency among others. If we look into the process starting on the design till the output at their factory in Thailand, the geographical distance is not a matter of issue since the designers are in Denmark and their facilities are in Thailand. Through technological programs they communicate themselves gathering all the information needed to develop the product itself. Although the process of manufacture is almost handcrafted the auxiliary machinery play as a fundamental to ensure the quality and development of the whole process until its final stage. Other important point to highlight is regarding their website. Through it Pandora Group are expanding the global demand and increasing the power consumption thus also spreading the awareness of their brand. We can easily connect Pandora Group’s mission to the technology itself for many reasons. Internet today is one of the most efficient means of communication that exists in geographical terms. It has the power of reach millions of users with just a few clicks. For many companies this has been a start-up to expand their businesses and the Pandora Group is among one of them. In a press release from 05/07/2011 the brand Pandora stood out at the social media Facebook in the measurement of engagement of its fans in the third place and first place ranking in the jewellery category. “Pandora’s engagement (highest in their category) on FB demonstrates a level of commitment and skills that put in our “gifted” category among much larger brands” – says Scott Galloway, L2* founder and NYU* Stern professor. These data comes to accomplish value to Pandora’s brand and strengths the relations between their customers and the company itself. Other fact that contributed to this huge success was the first issue released of digital-only-magazine in last June addressed to its 1.7 million members of their consumers club. This initiative has come to emphasize the correlation of Pandora’s Group mission and the market already explored and the extent of this type of action that will bring in a near future which is to reaffirm the social brand awareness of Pandora.

The Micro Environment Costumer buying behaviour, SOR Model

48

Euromonitor, Consumer lifestyle – Lartvia page 18

49

http://www.weforum.org/issues/global-information-technology

http://reports.weforum.org/global-information-technology-report/ http://investor.en.pandora.net/releasedetail.cfm?ReleaseID=589042 http://www.pandoragroup.com/en/Products

Anca, Davis, Elmira, Krista, Mabel, Richi Project C

AP Degree in Marketing Management

We have done primary data research about questioning people about what products from Pandora’s portfolio do they prefer. What luxury goods would you like to have in your own property?50

     

Rings (23 votes) Earrings (17 votes) Watches (11 votes) Necklace (4 votes) Bracelets (3 votes) Charms (1 vote)

Our respondents were only women born in Latvia; their age is between 16-50 years. In total we response from 59 respondents. To analyse the consumer behaviour, we are going to use The SOR Model. The theorist Woodworth found out that human responses were always caused by external stimuli. If a person does something, a preceding stimulus has taken place. Researchers have found out that different people respond differently to the same stimuli, which indicates different characteristics and psychology in every person and this theory we are going to use for our analysis The most important Stimuli (S) for Latvian costumers are price and communication from Marketing stimuli and technological from other stimuli. Costumers in Latvia are easy to influence while a company communicates with them, for example, a commercial on TV is a very good “helper” in decision process. And price is definitely one of the biggest factors in decision making. In connection to Pandora’s luxury products Organism (O) is the main stimuli, which affects consumers buying behaviour. Consumer psychology and consumer characteristics have the main roles here. Organisms include the individual motivational factors, perceptions, learning abilities and memory, which all affect the way the stimuli are processed. Factors, such as cultural and social background, as well as personal factors like values and lifestyle, are also part of the organism, determining how customers will respond to the stimuli. As mentioned above costumers in Latvia are easy to convince. They will definitely respond to the TV commercial especially old people. If Pandora would throw out a TV commercial it could lead to a big interest between youth. Almost 70% from Latvian youth spend 4 hours watching a TV in the holydays and 50% keep doing it in usual work days. 51 Usually jewellery is a thing bought on impulse it means that even a poster in the shopping centre would call a response from buyers in Latvia.

Customer behavior Costumers in Latvia usually buy jewellery spontaneously. Latvian can buy a piece of jewellery after they see that in the store. It is not a long and difficult decision process. Latvian costumers are very easy to convince to buy your products. An easy commercial leaves an impact to the final decision. They are very careful

50

Primary data collection

51

http://www.apollo.lv/portal/life/articles/21737 (viewed on 10.06.2011)

Anca, Davis, Elmira, Krista, Mabel, Richi Project C

AP Degree in Marketing Management

looking at all campaigns. Mostly they would buy, for example, a bracelet while Sunday shopping with the family at the big shopping centre.

Competitor Globally, it may be mentioned the Pandora’s main competitors on the market for fine jewelry may include Tiffany, who is the market leader, Cartier and Swarovski. Only the last named is available on the Latvian market, and are sold through Partner Boutique and retailers in Riga. The company “Baltu Saule” is among the best-known companies in Latvia, which is making ancient Latvian, Scandinavian and Baltic jewelry copies. One of the leading companies in Baltic States so as well in Latvia is Jahonts, which is working now with 18 year experience. And as it is seen in almost every mall as well in internet searching for jewelry in Latvia shows a lot of pages with Jahonts company name on it. In Latvia applies a warranty of 2 years.

Distribution There are several opportunities to distribute the products in Latvia. Country has a developed infrastructure and there are many transport carriers small with just one or two trucks as big such as Kreiss with park of vehicles on 570 pieces. The air company Air Baltic flies from Riga to Copenhagen and many other destinations for favourable prises. Company GLS has a nationwide network of Parcel Shops and distributes parcels to companies in Denmark, Europe and beyond Europe's boarders. It offers courier and express deliveries via subsidiary GLS Express. Cost of shipping calculates from the size of the package and not by the weight of the parcel.

Media The best media52choice to use for advertising in Latvia is the Internet, TV and Radio. Besides that, there are as well an opportunity of advertising in public places like bus stops, on posters etc. By considering there factors you can go deeper in the subject and look for the right target group and then chose the best way how to advertise your products. The number of Internet users in Latvia has grown quite rapidly over the last few years and by June 2010 67.7%53 of Latvian population, meaning that a total of 1,503,400 have successfully usage access. Along with this trend follows the increasing amount of Facebook consumers in Latvia, with 304704 users, and ranking Latvia on a #106 spot worldwide. Therefore, Facebook can also be used to improve commercial matters and as a social media marketing strategies. Commercials are implemented in the Latvian TV, and pops up every hour with the duration up to 12 min, but can vary up to 15 minutes. This may have a negative effect on the Latvian television viewers, because it can work irritating with a long break and people can easily forget about what they were doing/watching before 52

http://gemius.pl/pl/archives/2008-06-28/01

53

Statistics from the International Telecommunication Union - ITU

Anca, Davis, Elmira, Krista, Mabel, Richi Project C

AP Degree in Marketing Management

the commercials. Usually the viewer’s under these circumstances has a tendency to flicks the remote and leave the commercials. This can have a negative effect and might not work at all.

The competitive situation The Porters five forces, is being used to describe an industry’s competitive intensity. By analyzing the competitive situation on the Latvian market, we can be able design the most appropriate marketing strategy for Pandora. The weaker the impact has from the five market forces, the more attractive the industry is considered to be, since it affects Pandora's future earnings potential. Suppliers bargain power Pandora manufactures their product internally, and therefore has established collaborations with several of its suppliers that sell commodities such as gold and silver. These suppliers are many, and the raw materials are usually available on the market at market prices. This indicates that the giant enterprise Pandora is not dependent on them, but the other way around, and thus Pandora has an increased bargaining power towards its suppliers. On the other hand, however, the firm likewise is a little dependent on its suppliers since it can be difficult to find potential suppliers can deliver in such large quantities such as Pandora need in their production. Pandora negotiates for commodities such as precious stones, and here the supplier has a somewhat greater negotiating power, because there only are a small number of diamond companies in the world. This may have an impact on the Pandora business ability. Whit this information we can say that the suppliers barging power is considered to be low. Threats from new entrants At this stage it is not considered to be a big threat, since Latvia economically speaking has placed itself in a less attractive situation. Thus it is estimated that the future development will evolve moderately, and until new entrants will appear Pandora can achieve a large share of the Latvian market and also gain competitive advantage. Pandora concept about charm bracelets is not protected, but only protected with respect to functionality and structure which their charms collection has. And since these represent 85% of turnover, it cannot rule out that new providers may arise or imitations of the concept can happen. In the light of Pandora's economic scale and its large capital it can be said that Pandora has all the right cards in the game against competitors. Therefore the entry barriers for new entrants on the international jewelry market are relatively high, and vice versa, as it require some expertise to grow and compete with Pandora on the international jewelry market. On the other hand the local jewelry companies in Latvia does have an advantages, because they know their market best, they have better contact opportunities in their local area, and therefore are able to better adapt its offerings. The current providers can as well become intimidated because of its big size since, the world's third largest jewelry company. So it can be said that the threats from new entrants is relatively low. Competition from substitute products

Anca, Davis, Elmira, Krista, Mabel, Richi Project C

AP Degree in Marketing Management

Substitute products might include any other accessories such as watches, glasses, bijouterie’s, scarves, bags and more, that women use instead of jewelry. Especially at this moment in period with economic crisis the threats will be the relative price on jewelry, as bijouterie, because they meet roughly the same costumer needs but have a much lower quality. The industry that Pandora operates in has many competitors. Additionally this can be defined as a market for genuine jewelry made of precious metals. Globally we can define Pandora’s strategic group, which includes Tiffany & Co54, Cartier55, David Yurman and Swarovski56 and etc. On the Latvian market and as local competitors, among the best-known companies it can be named Baltu Saule, Jahonts and much more. Pandora products and the brand itself are considered as a differentiated product, and thereby are heterogeneous, and they stand out from its competitors' products. These are both different in their design, quality and have unique image values. The company is positioning itself as, affordable luxury. We can say that the competition worldwide is quite high. But the competition in Latvia is estimated to be low. Buyers bargain power Pandora has two types of customers who are important to them. The leading type which represents the majority is the actual consumers which they obtain through their own shops and the other type is the distributors which they obtain through dealers. Generally, dealers bargaining power high since they are the ones who have the negotiating position on what products should be on their shelves. But in this case it is quite the reverse, largely because Pandora is well known as the world's third largest jewelry company and exactly they select their dealers. With this, it is estimated that the retailer's bargaining power towards Pandora is low. In general it can be said that the negotiating power in the jewelry industry is low, but in Pandora's case, it is the contrary opposite as it also was witnessed this years. Due to price increases on commodities such as gold and silver, Pandora had misled its consumer and raised their sales prices on their branded products. This has led to that many consumers had chosen to boycott the company's products and consequently reduced their negotiating position towards its target audience. This means that if. Further price rising on raw materials, such as gold and silver will have a major impact on the company’s future development. Moreover, the company is now focused towards to reestablish its "Affordable Luxury" position. Due to the above mentioned, it is estimated that consumers' bargaining power is medium.

54

http://www.business.dk/fashion-design/amerikansk-pandora-konkurrent-opjusterer-efter-superjul

55

http://www.cartier.com/

56

Swarovski is available on the Latvian market today

Anca, Davis, Elmira, Krista, Mabel, Richi Project C

Used materials Annual Rapport 2009 Annual Rapport 2010 International Markedsføring, 4.udgave

AP Degree in Marketing Management