Penetrating the American Craft Beer Market: A Market
Entry Study for an Irish Brewery Expansion
Submitted in partial fulfilment of the requirement of the degree of Master
of Business Administration of the University of Strathclyde
THE UNIVERSITY OF STRATHCLYDE
BUSINESS SCHOOL
Pietro Busa
Hemant Chandran
Paul Dimerin
2013 Dorain
Dr. Michael Marck
Statement of Academic Honesty
We declare that this dissertation is entirely our own original work. We declare that, except where fully referenced direct quotations have been included, no aspect of this dissertation has been copied from any other source.
We declare that all other works cited in this dissertation have been appropriately referenced.
We understand that any act of Academic Dishonesty such as plagiarism or collusion may result in the non-award of a Masters degree.
Signed ……….……… Dated …….………
Signed ……….……… Dated …….………
Acknowledgements
The team of researchers would like to thank several people for their advice, input and expertise in helping us write this dissertation. Dr. Michael Marck, our project supervisor, has been extremely helpful by providing us generous feedback, advice and direction throughout the entire process. It was a pleasure working with him.
We would like to acknowledge Josh Sauter, Pam Hearne, Kirsteen Rae and Irene Aitkenhead- Taylor for their advice and support throughout the course of this project.
The team would also like to thank Casey’s Brewery who provided us an opportunity to work with them on this topic.
The team would like to express their gratitude to Sri Divya Peddireddi, who helped the team with the graphic design in the recommendations chapter.
Last but most certainly not the least, we would like to thank our respective parents and families for their unequivocal support and motivation during the course of our study.
To all these people and many more, we are extremely grateful and recognise that a mere expression of thanks would never suffice.
Abstract
The scope of this project was to define a successful market entry strategy for Casey’s Brewery, a start-up craft brewer based from Cork, Ireland, which is keen to export its beer to the United States.
The main aim of this project was to understand the market entry prospects in the American craft beer market and scouts, amongst different options, the most appropriate market entry mode. Further, it intended to explore different possibilities for product distribution and identify a particular geographic area within the U.S. market. Other objectives of this project were to identify key aspects of promotion and the most suitable Stock Keeping Unit solution to export the product overseas. Finally, this study meant to investigate those factors that are likely to push a customer to switch from a traditional to craft beer.
The analysis clearly revealed a potential for Casey’s ambitious plan while suggesting to limit, at the beginning, the geographical coverage to the Greater Boston Area and to rely on professional distributors deeply rooted in the American craft beer market. Additionally, this research recommended a set of promotional activities that are likely to make market penetration successful and identified bottles as the best S.K.U. for the initial phase of the process. Ultimately, in addition to the initial research objectives, this piece of work identified a series of steps that Casey’s Brewery should take to make a consumer switch from a traditional beer to craft beer.
Word Count: 26,466
Table of Contents
Statement of Academic Honesty ... 3
Acknowledgements ... 4
Abstract ... 5
List of Figures ... 10
List of Tables ... 11
Chapter 1: Introduction... 1
1.1.
Entering a New Market ... 1
1.2.
Research Objectives ... 2
1.3.
Report Structure ... 3
Chapter 2: Literature Review ... 4
2.1.
Introduction ... 4
2.2.
Entering a New Market ... 5
2.2.1.
Pre-entry Knowledge and Experience ... 5
2.3.
Market Selection ... 6
2.3.1.
Factors Influencing the Market Selection ... 7
2.4.
Market Entry Mode: A Strategic Decision ... 10
2.4.1.
The Hierarchical Model ... 12
2.4.2.
Exporting Versus Foreign Direct Investments Mode ... 14
2.4.3.
The Internalization Theory ... 15
2.4.4.
The Resource Based Theory ... 15
2.4.5.
Normative Decision Theory and Other Approaches ... 16
2.5.
Timing of Market Entry: Pioneer versus Followers ... 16
2.5.1.
Defining a Market Strategy Framework ... 17
2.6.
Market Entry Modes in Mature Industries: The U. S. Brewing Industry ... 18
2.7.
Sequence of Market Entry ... 19
2.7.1.
The Waterfall Model ... 19
2.7.2.
The Sprinkler Strategy ... 20
2.7.3.
The Wave Strategy ... 20
2.8.
Industry Overview ... 21
2.8.1.
The Business Environment for the Beer Industry ... 21
2.8.2.
Market Trends and Industry Challenges ... 22
2.8.3.
The Three-Tier System in U.S. ... 22
2.8.4.
Complex Distribution Systems with Conflicting Interests ... 23
2.9.
The Legal Framework ... 24
2.10.
Marketing Communications ... 25
2.10.1.
Marketing Communications Mix ... 25
2.10.2.
Advertising ... 26
2.10.3.
Sales Promotion ... 27
2.10.4.
Public Relations ... 28
2.11.
Building Brand Community ... 29
2.12.
Outline of the American Beer Market ... 30
2.12.1.
History of Beer in America ... 30
2.12.2.
Beer Production in America ... 31
2.12.3.
Beer Consumption in America ... 32
2.12.4.
Economic Impact of Beer ... 33
2.12.5.
Future Trends ... 34
2.13.
Craft Beer Industry ... 34
2.13.1.
History of Craft Brewing in America ... 35
2.13.2.
Craft Beer Production ... 36
2.13.3.
Craft Beer Consumption ... 37
2.13.4.
Craft Beer Demographic ... 38
2.13.5.
Craft Beer – Future Trends ... 39
2.14.
Irish Diaspora in America ... 40
2.15.
Case Company... 42
2.15.1.
About Casey’s ... 42
2.15.2.
Competitive Advantage ... 43
2.16.
Chapter Summary ... 43
Chapter 3: Research Methodology ... 44
3.1.
Introduction ... 44
3.2.
Research Objectives ... 44
3.3.
Research Process ... 44
3.4.
Research Design ... 45
3.4.1.
Deductive and Inductive Reasoning ... 45
3.4.2.
Exploratory and Explanatory Studies ... 46
3.5.
Research Strategy ... 47
3.5.1.
Case Study Selection ... 47
3.6.
Data Collection Methods and Procedures ... 47
3.6.1.
Secondary Research ... 48
3.7.
Research Conduct and Ethics ... 53
3.8.
Conceptual Framework ... 54
3.9.
Local Analysis ... 54
3.10.
Methodology Limitations ... 55
3.11.
Chapter Summary ... 56
Chapter 4: Findings & Analysis ... 57
4.1.
Introduction ... 57
4.2.
Table of Significant Findings ... 57
4.3.
Market Entry Prospects ... 60
4.3.1.
Trends in the U.S. Market ... 60
4.3.2.
Geographical Coverage ... 62
4.3.3.
Operational Aspects ... 63
4.4.
Distribution Channels ... 64
4.4.1.
On-Line Sales ... 64
4.4.2.
Direct Relationship with Retailers ... 64
4.4.3.
Brokers ... 65
4.4.4.
Distributors... 66
4.5.
Ideal Geographic Area for Market Penetration ... 68
4.6.
Promotions ... 71
4.6.1.
Identifying with the Craft Beer Community ... 71
4.6.2.
Promoting the Brand ... 73
4.7.
Ideal Packaging Material for Market Entry ... 74
4.7.1.
Bottles and Kegs ... 74
4.8.
Precedents of Irish Craft Beer Penetration ... 76
4.9.
Other Key Findings ... 77
4.9.1.
Switch from Traditional to Craft Beer ... 77
4.10.
Chapter Summary ... 78
Chapter 5: Recommendations and Conclusion ... 79
5.1
Introduction ... 79
5.2
Table and Summary of Recommendations ... 79
5.3
Recommendation 1: Penetrating the American Market ... 82
5.4
Recommendation 2: To Use a Distributor to Penetrate the Market ... 82
5.5
Recommendation 3: Target Boston, Massachusetts to Launch ... 83
5.6
Recommendation 4: Promotional Campaigns to Aid the Launch ... 83
5.7
Recommendation 5: Use Bottles as an Ideal Stock Keeping Unit ... 85
5.9
Recommendation 7: Target and Hook the Traditional Beer Lover ... 86
5.10
Chapter Summary ... 88
Chapter 6: Group Learning and Reflection ... 90
6.1
Introduction ... 90
6.2
Process of Research ... 90
6.3
Group Dynamics ... 91
6.4
What We Learnt ... 91
6.5
What Would We Do Differently ... 92
6.6
Conclusion ... 92
References ... 93
Appendix A – Snapshot of the Alcoholic Drinks Market in U.S. ... 107
Appendix B – Craft Beer Industry Annual Dollar Volume for Years 2003 – 2012 ... 108
Appendix C – Irish Population Estimates, 2011 ... 109
Appendix D – Irish Population in New York ... 110
Appendix E – Irish Population in Massachusetts ... 111
Appendix F – Irish Americans in Eastern Massachusetts ... 112
Appendix G – Irish Americans in NYC ... 113
Appendix H – Power-Interest Stakeholder Analysis ... 114
Appendix I – List of People Contacted ... 115
Appendix J – Interview Transcript of Association 2 ... 119
Appendix K – Interview Transcript of Broker 2 ... 120
Appendix L – Interview Transcript of Craft Brewer 1... 122
Appendix M – Interview Transcript of Distributor 3 ... 123
Appendix N – Interview Transcript of Craft Beer Enthusiast 3 ... 124
Appendix O – Interview Transcript of Retailer 1 ... 125
Appendix P - Data Collection Highlights ... 127
List of Figures
Figure 1: Structure of the Analysis Process………...2
Figure 2: Structure of Literature Review………... 4
Figure 3: Pre-entry Knowledge Requirements……….. 5
Figure 4: Pre-entry Experience Requirements ………..6
Figure 5: Overseas Market Selection Criteria ……….10
Figure 6: Factors of Influence ……….12
Figure 7: The Hierarchy of Choice of Market Entry Modes ………...13
Figure 8: Strategy Framework ……….18
Figure 9: Key Players in the Brewing Industry ………...21
Figure 10: The Three-Tier System ………..22
Figure 11: Roles within the Beer Supply Chain ………..23
Figure 12: The Marketing Communications Mix ………26
Figure 13: Market Share of the Five Largest Breweries over the Years ……….31
Figure 14: Production Share of Beer in the Alcoholic Beverages Market………...…31
Figure 15: Production of Beer over the Years 2006-2011 ………..32
Figure 16: Beer Market Volume 2007-2012 ………...33
Figure 17: U.S. Beer Market Value 2007-2011 ………..33
Figure 18: U.S. Beer Market Volume Forecast 2013-2017 ……….34
Figure 19: 125-Year Brewery Count in the U.S. ……….36
Figure 20: U.S. Craft Beer Production ………37
Figure 21: Volume Share for Craft Brewers ………...37
Figure 22: Consumption of Craft Beer by Age ………...38
Figure 23: Consumption of Craft Beer by Income ………..39
Figure 25: The Research ‘Onion’ ………45
Figure 26: Types of Secondary Data ………...48
Figure 27: Types of Electronic Interviews ………..50
Figure 28: Types of Sampling Techniques ………..52
Figure 29: Research Process ………53
Figure 30: Conceptual Framework ………..54
Figure 31: Data Analysis Process ………55
Figure 32: U.S. Volume Share for Craft Brewers ………...60
Figure 33: American Craft Beer Week Advertisement ………...62
Figure 34: Distribution Channels…...65
Figure 35: American Craft Beer Industry ………...………….69
Figure 36: Promotional Strategy Diagram ………..…71
Figure 37: Craft Beer Festivals in Boston ………..….73
Figure 38: U.S. Beer Consumption by Type ……….…..75
Figure 39: Casey’s Brewery Red Ale Mock-Up ……….…87
Figure 40: Casey’s Brewery Amber Lager Mock-Up ……….87
Figure 41: Casey’s Brewery Stout Mock-Up ……….….88
List of Tables
Table 1: Breweries Operating in U.S. in 2013 ………36Table 2: Craft Beer Production in 2012 (by volume) ……….……….36
Table 3: Classification of Respondents by Stakeholders, Country and Company ………51
Table 4: Summary of Findings ………..….58-59 Table 5: Summary of Recommendations ……….79-80
B.M.I.
Business Monitor International
C.A.G.R. Compound Annual Growth Rate
C.B.P.
Customs and Border Protection
D.S.D.
Direct Store Delivery
E.U.
European Union
F.A.A.
The Federal Alcohol Administration Act
F.D.I.
Foreign Direct Investment
G.B.A.
Greater Boston Area
H.L.
Hectolitres
I.P.A.
India Pale Ale
I.P.R.
The Institute of Public Relations
M.B.A. Master of Business Administration
N.B.A.
National Basketball Association
N.Y.C.
New York City
N.Y.S.E. New York Stock Exchange
P.O.P.
Point of Purchase
S.K.U.
Stock Keeping Unit
T.T.B.
The Tobacco and Alcohol and Trade Bureau
U.K.
United Kingdom
U.S.
United States
U.S.D.
United States Dollar
1
Chapter 1: Introduction
1.1. Entering a New Market
The purpose of this research was to advise Casey’s, a start up craft brewery based from Cork, Ireland, that is aiming to launch its own craft beer in the American market. In line with this, the researchers intended to look at a market entry strategy and distribution channel that should be utilised in order to penetrate the American craft beer market.
The rationale for selecting this topic is that each researcher found the scope of the project very interesting and engaging since Casey’s is likely to face several challenges in its mission of penetrating an overseas market. Furthermore, playing on each other’s strengths, the researchers were confident of producing an interesting and thought provoking project.
Craft beer consumption and production in the United States (U.S.) has seen robust growth over the past two decades and is expected to continue following such a trend for the years to come. The number of craft brewers has increased significantly all over the States. The picture arising from the research portrays America, changing its drinking patterns, shifting from traditional beer towards more sophisticated flavoured craft beer (Euromonitor 2012).
As suggested by Koch (2001), market entry mode and market selection are two aspects of a single decision process. This piece of work developed an integrated process of evaluation of the difficulties that a new entrant might face once it decides to penetrate an unfamiliar and competitive American craft beer market. This research then presents a market entry strategy, designed by the researchers through an inclusive spectrum of analysis keeping into account all the factors, internal and external to the company, which could be relevant to the decision making process. The following chart represents the framework used to structure the analysis.
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Figure 1: Structure of the Analysis Process; Source: Adapted from (Ekeledo & Sivakumar, 2004)
1.2. Research Objectives
The market entry mode strategy is an area that has gathered significant interest in the academic world leading to a very substantial body of research identifying and assessing those factors essential to successful market penetration. The interest toward these issues, studied at different extents and under many aspects, comes mainly from the theory of international investments and from the problems related to international production (Hymer, 1960) (Southard, 1931) (Caves, 1971) (Dunning, 2006) (Dunning 1977).
The selection of a market entry mode is considered by Root (1994) as extremely relevant strategic decisions for international firms. This decision of selecting a market entry mode is highly critical, as the researchers believe that Casey’s needs to optimize every aspect that market entry entails for the brewery to be successful in the American beer market.
A series of interviews have been conducted with different stakeholders (brokers, distributors, retailers, craft brewers, associations, enthusiasts) bearing extensive business experience in the craft brewing and the alcoholic beverage industries. These interviews provided the researchers with useful insights and a rich array of perspectives allowing in-depth knowledge of the industry.
3
More particularly this dissertation aims to respond to the following set of questions:1) To investigate the market entry prospects of Irish beer into the U.S. craft beer market. 2) To identify distribution channels that should be utilised to enter the U.S. craft beer
market.
3) Explore geographic areas in the U.S. to support the launch of Irish craft beer. 4) Identify promotional campaigns to aid market penetration.
5) To investigate the ideal Stock Keeping Unit (S.K.Us) for market entry.
6) To explore precedents of previous market penetration of Irish craft beer into U.S.
1.3. Report Structure
The report comprises four sections:The first section reviews and assesses the most relevant literature in the field of market entry strategy. The section explores aspects such as pre-entry knowledge and experience for entering a new market, factors influencing market selection, market entry mode, market entry timing and sequence of market entry. It also considers the aspects of marketing communication and brand building strategy for a new entrant to the market. Finally, this part also presents an overview of the American craft brewing industry, exploring its past and future trends and introduces the firm as an object of this study.
The second section describes, in detail, the methodology that has been used to carry out the research. This section gives an insight into the different approaches used while highlighting the difficulties that the researchers faced during the research process.
The third section presents all the findings and research results related to the mentioned objectives with highlights of all the interviews carried out during the research.
The fourth and final section explores the most relevant findings and offers recommendations from these findings. This section critically reflects on factors that are expected to influence the chances of successful penetration of the American craft beer market.
4
Chapter 2: Literature Review
2.1. Introduction
The following chapter will explore the most relevant studies in the area of market entry strategy. The review will then investigate marketing and promotional literature that will help frame some promotional aspects of the entry strategy that the brewery should employ. In both cases, the review explores the entire American market in conjunction with the product offering. The final section of the literature review explores the American craft beer market itself, the geographic areas where the brewery can launch its offering, the current state the market is in and the different and diverse demographic that make-up the market.
Figure 2: Structure of Literature Review
Literature Review
Marketing Communications
American Beer Market Market Entry
Casey’s Brewery (Case Company)
5
2.2. Entering a New Market
When a company enters a new market, it seeks a specific set of clients to increase its customer base and diversify its business activity. A successful market penetration strategy relies heavily on the company’s aptitude to meet the requirements of new customers (Grigsby, 2007).
A business trying to penetrate a foreign market will be required to make relevant evaluations regarding the choice of the entry mode. Normally there are different strategic options for entering a new market and each of them may involve varying resource levels. The four most common modes used by firms are exporting, sole venture, joint venture, exporting and licensing (Agarwal & Ramaswami, 1992). Root (1987) stresses the importance of the right initial choice and the difficulty of changing it afterwards without considerable loss of time and money.
2.2.1.
Pre-entry Knowledge and Experience
Paunescu (2013) emphasizes the importance of pre-knowledge and experience of an entrepreneur entering a new market; the author claims that there is no one universal recipe for successful entrepreneurship and market entries. Even if there are many similarities in successful ventures stories, there are also factors that distinguish one venture from the other. This study draws on existing research indicating that pre-entry knowledge of the market jointly with entrepreneur’s experience at practical and managerial level will enhance the chance of success for a company (Dencker et al., 2009) (Agarwal, et al., 2004) (Delamr & Shane, 2003) (Franco & Filson, 2006)
The study aims to understand the relationship existing between pre-entry knowledge and experience and success of a new venture. The author suggests that this entry knowledge should be analysed under three criteria:
Personal profile and characteristics of the entrepreneur Knowledge about the business and the industry Resources at entrepreneur’s disposal
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Additionally, the study reflects on the fact that pre-entry experience can contribute to three categories of entrepreneurial skills: Functional skills (ability to perform tasks)
Relational skills (capacity to work with external actors)
Resource Management skills (ability to optimize the management of scarce resources) The study aims to highlight the importance of start-up business planning as a pre-requisite for successful market entry. Furthermore, the author focuses on the value of social and human capital and claims that, if the entrepreneurial model is adhered to, the firm will be more prepared to deal successfully with unexpected changes in the competitive environment.
Figure 4: Pre-entry Experience Requirements Source: Paunescu (2013)
2.3. Market Selection
Market selection, for every company, is a crucial and strategic step of any international business strategy (Root, 1994), (Kobrin, 1976). Contrary to the most prevalent approaches arising from past literature, considering the selection of the market and the mode of entry as related decisions but substantially detached, Koch (2001) suggests that looking at these aspects as two components of a single decision process should be a more appropriate approach. The outcome of such a structured process, can be affected by an exhaustive list of factors and indicates that an inclusive analysis would give the possibility to accommodate very diverse business environments, will help improving the quality of the decision making process and deal with most relevant practices.
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2.3.1. Factors Influencing the Market Selection
Koch (2001) identifies a series of factors likely to affect the selection of a market for a company that can be internal to the company, external, or mixed. These factors are of high relevance to this study because one of its objectives is to assess why a firm should decide to enter a given market. The author identified a comprehensive list of factors relevant to the market selection and the research will try to explain the relevance of these factors in the craft brewing industry.
Koch (2001) suggests that an element deeply influencing the strategic orientation that companies develop is the collective and individual experiences of their workers. At this level it is possible to use a classification based at least on two strategic orientations. The first reflects a proactive, reactive and planned orientation (Glaister & Thwaites, 1993); the second one considers companies as prospectors, analysers and defenders (Miles & Snow, 1984). This strategic orientation is likely to influence the internationalization process of the same company.
2.3.1.1. Internal Factors
Stage of internationalization:
Referring to the international activity of a company or, more in particular, to its export activity
Company strategic objectives:
These may assume many forms and depend on company history, business sector, or personal preferences of decision makers setting these objectives. They may imply market shares revenues or profits on a global or on a local scale.
Overseas market selection experience:
This implies the assessment of company’s experience in an international business context.
Company international competitiveness:
Capacity to access, certain skills and competences of extreme relevance to perform in a global business environment
Calculation methods applied:
Based on two alternatives: the first approach compares methods relying on risk appraisal versus methods based on advantage evaluation; the alternative approach, compares methods based on costs to methods based on extent of marketing control (Root, 1994) (Porter, 1980).
8
2.3.1.2.
Mixed (External/Internal) Category
Own/accessible resources:
Firms with higher availability of resources, and through different forms of partnerships have access to resources of other firms, are favoured, ceteris paribus, in the selection of their worldwide market.
Networking:
Companies should develop initiatives such as taking part in international exhibitions, trade fairs; set up strategic alliances or joint ventures with other players; use the same suppliers, buyers and create ad hoc consortia. Companies that focus on developing their business networks are facilitated in their internationalization process (Johanson & Mattson, 1988).
Similarity/proximity of overseas market:
Vahlne & Wiedersheim-Paul (1977) found that so-called Psychic distance often influences overseas market selection. Factors like, company employees' familiarity with a country, management’s experience with a country, strength of cultural and business links (see the immigrant effects discussed later on) between countries are factors likely to have a substantial relevance in the market choice.
Market portfolio congruity:
The market portfolio of a firm may change over the life of a business, as it is a consequence of incremental changes, perhaps responses to decisions for pursuing established business objectives. Root (1994) suggests that, over the time, the logic of market selection may change. It is important that a company's market portfolio is compatible with a company’s current competitive environment and future development strategy. In order to meet its objectives and find a better fit with its external environment the company might be required to modify its existing portfolio of assets. Expansion sequence optimisation:
It is important to define the most suitable way to enter international markets and the related entry sequence. This must be done keeping into account the future anticipated trends of the international market environment and a firm’s future resources, competencies and capabilities. A preliminary stage of this analysis may suggest clustering countries on the basis of their socio-economic features and choosing the strategy that allows using resources efficiently and sustaining the growth.
9
2.3.1.3. External Factors
Country market potential:
Country market potential is one of the most common and relevant criteria used in market selection (Johanson, 1997) (Root, 1994) (Moyer, 1968). An aspect that should be kept into account while assessing this factor is the potential risk of political manipulation of the relevant data regarding the product. Another aspect deserving careful attention is evaluation of product market specific factors used in estimating the country’s market potential.
Competitive significance of the market:
A conventional and relevant point of interest regards the significance of lead markets as an indicator to assess company’s current performance and as an input to predict its future changes (Elliott & Cameron, 1994). These leading markets are usually big, strong and free from administrative regulation and protective measures with strong opponents. These markets are of relevant strategic importance in global marketing (Elliott & Cameron, 1994).
Anticipated overseas market risks:
Assessing market risk in foreign market selection is the aspect that, perhaps, has received the highest attention in the literature (De la Torre & Neckar, 1990) (Backhaus & Meyer, 1986). Export credit guarantee institutions like banks and other organisations concerned with international business have mainly driven this attention.
Czinkota & Ronkainen, (1996) identified three main areas of business risks in an international context:
Possession risks (expropriation, confiscation and domestication)
Operational risks (exchange risks, over- investment and price controls related risks)
10
Figure 5: Overseas Market Selection Criteria Source: Koch (2001)
2.4. Market Entry Mode: A Strategic Decision
A relevant body of past studies covering fields such as global trade, industrial organisations and market imperfections have revealed several aspects likely to have an influence in choosing the target market for a potential entrant.
In this regard Dunning (1977, 1980 and 1988) integrated the perspectives from these areas and suggested a framework according to which three main factors affect the choice regarding how to penetrate a new selected market:
11
Ownership advantages of a firm. Location advantages of a market.
Internalizations advantages of integrating transactions within the firm.
There have been numerous empirical studies, which attempted to justify the choice of entry mode; however, the literature did not manage to explain in a satisfying way the relationship existing among the relevant factors that should influence the final entry choice. (Kobrin, 1976)
The criticality of the decision of choosing the best market entry mode for a firm is very high because this choice might have a relevant effect on a firm’s global business performances. (Klein & Roth, 1990) (Anderson & Coughlan, 1987).
According to Agarwal & Ramswami (1992), examining the importance of interrelationships amongst the considered factors is essential because they can explain those firms’ behaviours that cannot be explained relying only on the independent factors.
Another factor that Agarwal and Ramswami (1992) have identified as relevant for the choice of a market entry strategy is managerial perceptions. If many of the academic works mentioned have always assumed that advantages directly related to a location or a country are exogenous advantages and should be constant for all the companies deciding to enter a given market this might change according to the perceptions managers of a company have about these variables. In particular, factors that may influence such a perception have been identified in managers past experience regarding that particular geographical area or market, their professional experience or professional background. The importance of managerial perceptions in making decision is, as well, supported in the organisational behaviour literature (Cyert & March, 1963).
12
Figure 6: Factors of Influence Source: Agarwal and Ramswami (1992)
2.4.1. The Hierarchical Model
Past literature has mainly been oriented toward traditional classification based on the distinction between equity based (fully owned operations or joint ventures) and non-equity based market entry modes (mainly based on contracts).
Some more past studies have highlighted the importance of other factors specifically connected to firms (Erramilli & Rao, 1993; Kim & Hwang, 1992; Kumar & Subramaniam, 1997; Madhok, 1997), or related to the target country (Anderson & Gatignon, 1986; Kogut & Singh, 1988; Tse & Al 1997).
In a study made in 2000, Pan and Tse drew upon past literature and argued that the entry mode that a firm will choose can be analysed under a hierarchical perspective (Kumar and Subramaniam, 1997). The authors claim that this approach would be structured by managers in such a way that different market entry modes are ranked into a multilevel hierarchy according to a set of appraisal criteria for each level. Managers should keep into account a limited number of factors per level of the defined hierarchy.
13
Figure 7: The Hierarchy of Choice of Market Entry Modes Source: Pan & Tse (2000)
This approach is centred on evaluating the presence and the level of investment in equity and, in doing so, classifying in equity modes (wholly owned operations and equity joint ventures) and non equity based modes (contractual agreement or export). At the first level, there is a distinction between equity and non-equity entry mode. The following step would be to evaluate which sub-category, between the equity or non-equity entry modes options to choose to develop further.
In this study, the hierarchical model is tested empirically on a sample of more than 10,000 foreign firms entering the Chinese market in the period 1979 to 1998.
The findings indicate that there are some factors that influence managers while choosing between equity versus non-equity option. However the influences tend to be weaker for choices made in the lower levels of the hierarchy. The results provide empirical evidence in support of the hierarchical model of market entry modes.
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2.4.2. Exporting Versus Foreign Direct Investments Mode
The selection of a market entry mode can be influenced by several factors. Due to the difficulty to include all these factors in one study, many other studies tried to narrow the focus of the research.
Chung and Enderwig (2001) proposed a study on the eclectic framework as proposed by Dunning (1977, 1980 & 1988) and extended by other authors (Hill et al 1990), (Kim and Hwang 1992) which has been widely used to explain the choices between Foreign Direct Investments (F.D.I.) and other entry modes. (Dunning, 1973).
In this study the authors analyse a sample of 124 firms from New Zealand operating in Taiwan (the only overseas market considered) with the aim of comparing two entry modes exporting vs. F.D.I.
The analysis was conducted using a logistic regression analysis and factors examined in the study were:
The International Experience: Defined as firm’s experience with Japan.
Immigrant Effect: According to which, immigrants from the host country are likely to facilitate the market entry process acting as a connection bridge amid the firm and the host country. Immigrants often have a significant knowledge of the country and of its culture (Gould, 1994; Lever- Tracy et al., 1991).
Market Size: Indicated as a relevant effect from many past studies (Agarwal and Ramaswami, 1992; Kwon and Konopa, 1993; Root, 1994; Terpstra and Yu, 1988). Service Requirements: The service requirements of a product, according to several
studies, can also have an influence in the choice of market entry mode. When high level of services, pre or after sales, are required by a manufacturing product companies tend to produce directly in the host market to offer an adequate level of performance (Anderson & Coughlan, 1987; Ramaseshan & Patton, 1994).
The study found that three variables were significant. They are product type (service vs. other), the immigrant effect and firm’s international experience (experience with Japan). Perhaps the most relevant finding of the study is the impact of the immigrant effect, according to which firms established by immigrants’ native of the host country tend to opt for F.D.I. to enter a new market.
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2.4.3. The Internalization Theory
This theory aims to explain the reasons according to which a organisation should decide to set up a direct facility in a host country instead of setting up partnerships agreement with other players. Rugman (1980) argues that the majority of these studies are part of the subset of the general theory of internalization.
Other authors offered important contributions in this regard. McManus (1972) developed the internalization theory, trying to explain the reasons why firms invest directly in manufacturing facilities abroad (Buckley & Casson, 1976).
Coase (1937) argued that companies might choose F.D.I. when internal transactions are less expensive than external transactions.
Buckley (1988) indicates that testing the internalisation approach in the modern theory of the multinational enterprise presents several difficulties. The author claims that because of the complex structure of the theory, the conclusion drawn is that is not possible to execute a rigorous testing at the most general theoretical level. However, specific restricting assumptions are required to proceed to rigorous testing.
2.4.4. The Resource Based Theory
The resource based theory looks at the organisation as the basis of competitive advantage, instead of looking at the industry, (Capron & Hulland, 1999). Organisation’s internal resources as assets and capabilities are the source of its competitive advantage (Barney, 1991) (Teece, et al., 1997). Contrary to what Porter (1980) claims, success of firms depends on how the firm relates to the competitive environment.
The industrial-organisation-based (IO-based) theories’ view considers the firm as a ‘combiner’ of input looking to optimize both production and distribution process (Barney, 1991). Following a similar path, the resource based theory, recognizes that resources might be both heterogeneous throughout the firms and not perfectly mobile. But it goes further by indicating that a player’s success in the marketplace may also depend on the firm’s role in shaping the environment in which it operates and not only on the environment itself (Conner, 1991).
Unlike competing theories, as explained later on, the resource-based theory considers sole ownership to be the preferred entry mode unless proven otherwise as (Ekeledo & Sivakumar, 2004).
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2.4.5. Normative Decision Theory and Other Approaches
Normative decision theory proposes that the choice of entering a given market should be based on the trade off between risks and returns. According to this approach, the entry mode that offers the highest return adjusted per the level of risk should be the choice of every firm (Anderson & Gatignon, 1986).
Evidence, however, indicates that the final choice of entering a new market will be influenced by factors like the availability of resources intended as the managerial and financial capacity of a firm to operate in a given market and the need for control as the need for a firm to influence operations, systems, decisions in that foreign market (Cespedes, 1988), (Stopford & Wells, 1972; Koch, 2001; Koch, 2001). Control is desirable to improve and manage a firm’s competitive position. However, a stronger degree of control implies higher ownership of the venture. In this case, risks are likely to be higher due to a higher commitment of resources and the risk connected with the responsibility of decision-making. The choice of an entry mode ends up a being what managers or entrepreneurs perceive to be the right balance among all these factors (Kalyanaram & Gurumurthy, 1998).
2.5. Timing of Market Entry: Pioneer versus Followers
A market pioneer is defined as the foremost actor to enter into a new market and he is also defined a “first mover” (Schmalensee, 1982; Bond & Lean, 1977; Bond & Lean, 1979).
Schmalensee (1982) presents a market model in which rational buyer behaviour, in the case of imperfect information regarding the quality of products, can give advantages to pioneering brands.
This work has some implications because the relevance of the aforementioned advantage changes across markets with different basic conditions. The study draws its motivation from two sorts of evidence from the past research.
First, Bain (1956) in an empirical study of conditions of entry concludes that buyer preferences for product of sellers already in the markets versus those of potential entrant products are, on average, larger and represent the most frequent barrier to entry. Many past studies treated advertising as a proxy for product differentiation and to explain a relationship with profits. Bain concluded that advertising was not the only factor at work.
The second aspect is the traditional wisdom in marketing supported by empirical research on the fact that there are relevant advantages in being the first entrant in some markets.
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Normally, marketers predict little chance of success for the so called ‘me too’ brands, those selling at a lower price but pretending to be identical to established brands.Bond and Lean (1977, 1979) find that pioneering brands get long-lived and important advantages in the prescription drugs market. Later entrants manage to gain a foothold only if they offer distinct therapeutic effects; oftentimes, lower prices are not sufficient.
Moreover, developing new products could require important investment of time and money. The issues regarding product innovation and new product development have interested economists since authors such as Schumpeter emphasized their importance in his description of dynamic capitalism. (Fethke & Birch, 1982).
Factors to be taken into account by the firm, in this regard, are the increasing costs connected to the development period, the potential reduction of profit caused by the prolongation of the development period and the possibility that competitors can innovate and imitate, which affect the eventual reward available to the firm (Fethke & Birch, 1982).
2.5.1. Defining a Market Strategy Framework
Kaliyanaram and Gurumurthy (1998) suggest that the first entrant in a market will have a significant market share advantage over later entrants. However, later entrants can still be successful while entering a new market by adopting distinctive positioning and market strategies. This study suggests that even if pioneers become powerful they may become complacent or not be in a position to satisfy the growing demand of the place. Therefore there might be a chance for a new player to take advantage of this gap and find innovative ways to match customer’s requirements.
The authors define a market entry strategy framework that helps to define strategies for growth, penetration and shares retention axed on three main areas.
Having analysed the various strategies that successful pioneers and late entrants adopted, a framework has been developed that can be used to formulate strategies for growth, penetration or share retention.
The first component in this framework involves understanding and developing market dynamics. The critical areas to be analysed are:
1) Drivers of technology that may generate a relevant shift in the market.
2) Changes in governance: shift in regulations with a major effect on the industry organisation.
3) The growth and size of the prospective market. 4) The competitive profile.
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The second component of the framework implies the conduction of an internal appraisal of the company’s abilities and product offerings.After the completion of external and internal appraisal, there is the third constituent of the framework where a company needs to define the development of the product strategy. Strategic elements included segmentation, positioning and decisions on marketing instruments.
Figure 8: Strategy Framework Source: Booz Allen & Hamilton (1998)
2.6. Market Entry Modes in Mature Industries: The U. S. Brewing
Industry
Swaminathan (1998) evaluates two processes, niche formation and resource partitioning that, independently, might be of relevance whenever a company is aiming to penetrate new market segments of mature industries.
Environmental changes likely to facilitate the entry of a new firm represent the focus of the argument of niche formation whilst the research-partitioning argument is based on the differentiation internal to a mature industry, which implies the division into subgroups composed of generalists and specialist.
Both the discussed arguments, niche formation and account partitioning, stress forces that are endogenous and exogenous to the industry, respectively. The author in order to resolve this ‘theoretical’ dispute models the effects of niche formation and resource-partitioning together on
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the founding of two segments of the U.S. brewing industry: brewpub and microbrewery segments.The findings indicate that niche formation argument explains in a better way founding for both microbrewery and brewpub. A second important result is that limited evidence has been found regarding the fact that resource-partitioning process is being practiced again in the microbrewery segment of U.S. brewing industry.
2.7. Sequence of Market Entry
Sequencing market entry theory relates to the decision a company makes regarding how to enter a market or segment of a market, whether doing it simultaneously or initiating a gradual entry (Douglas & Craig, 1992).
The past decades have seen a substantial growth in the internationalisation of businesses. With the number of firms operating in multinational markets constantly increasing, the focus of attention has shifted to decisions concerning the standardisation vs. adaptation of the marketing mix across countries from initial entry decisions. More recently, attention has moved to the formulation of global marketing strategy.
These changes indicate a need for greater concern with understanding marketing’s role in the development of global competitive strategy. (Kalisha, et al., 1992).
2.7.1. The Waterfall Model
The waterfall model is based on the work of Ayal and Zif (1979). This model is a marketing strategy that suggests entering the target markets one after another, commencing from the one with the highest level of technology and moving towards markets that are technologically less advanced.
Economic factors (fixed costs of introduction), Diffusion dynamics (the lead effect), and competitive forces influence the choice of either a waterfall or sprinkler strategy. However, Kalisha et al (1992) demonstrated that a multinational business is not systematically forced by global competition to introduce a new product simultaneously in all its markets
A positive aspect of this approach is that it allows a firm, which is entering a new market, to learn from its mistakes and have a deeper control on the product launch, as it will not be exposed to several markets at the same time.
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2.7.2. The Sprinkler Strategy
Contrary to the waterfall strategy, the sprinkler strategy promoted by Ohmae (1985, 1987) represents a marketing strategy consisting of a company choosing to introduce a product simultaneously in several markets. The sprinkler strategy is particularly suitable for a company aiming to be a first mover that wants to anticipate moves by competitors. One of the main problems that may arise with this approach is that it requires very substantial resources that senior management may be reluctant to provide. In addition, a further risk is that companies could miss the opportunity to gain a sound understanding of the market, neglecting to take the right path to success.
Adopting a sprinkler strategy may lead to a series of advantages such as the opportunity to build entry barriers quickly, considering the simultaneous activity on several markets and the possibility of enjoying higher streams of cash flow.
2.7.3. The Wave Strategy
The wave strategy, introduced by Lymbersky (2008) is focused on cultural differences and ranks countries and markets in different groups (waves) according to the similarity to the home market of a company. Hence, the first wave to be targeted is made up of markets that are comparable to the home market with slight variations. The wave strategy contains elements of both the sprinkler strategy, and the waterfall strategy. Lymbersky (2008) suggests that in real market situations, companies are giving increasing relevance to mixed timing strategy to enter foreign markets.
According to Hofstede (2001) and Hall (1990) countries that present similar cultural characteristics such as Austria, Switzerland and Germany should be grouped in one set.
The logic underlying this process is that in the first wave (group), the concept of the home market can be replicated in an easy way and eventual differences can be analysed. The experience and the knowledge gained thanks to these market entries should be used in the planning process of the following wave. The second wave should be launched only after that the first wave generates a solid stream of cash flows.
However, the waterfall strategy seems to be favoured by academics and businesses. Ayal and Zif (1979) argue that the waterfall strategy should be the preferred over sequence strategy in time of fast growth, low competitive pressure and growing sales.
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2.8. Industry Overview
2.8.1. The Business Environment for the Beer Industry
According to a report produced by SAP and Deloitte (2005) to understand today’s beer industry, it is necessary to look at the beverage industry in total.
The beverage industry has been dealing with many new prospects to capitalize on in the recent years. Shifts in consumer demands and change in preferences require a constant effort to maintain current customers and attract new ones.
Beverage companies need to offer superior quality products, resourcefully distribute them and offer low prices to survive in an environment shaped by increasing competition. Additionally, firms need to ensure safety and be dynamic to capture new markets trends by updating their offering with new products (SAP & Deloitte 2005).
According to this study, private labels are greatly influencing the environment. The sector has seen the birth of a few global ‘giants’ that produce many brands and are often active in both the categories of the market: alcoholic and non-alcoholic beverages.
According to Euromonitor (2013), beer consumption in the U.S. in 2012 has grown after three years of decline. Regarding craft beer, according to U.S. Brewer Associations (2013), the industry has registered a growth in 2012 of 15% by volume and 17% by dollars compared to the performance in 2011 of 13% by volume and 15% by dollars.
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Furthermore, the report identifies four key areas in which beer producers should concentrate their efforts for lasting growth:1) Revenue Protection: Focusing on factors such as improving the availability of products, better management of customer relationship and of the distribution phase.
2) Cost Reduction/Margin Improvement: Improving working effectiveness. 3) Improved Asset Utilization: Reducing inventory levels.
4) Regulatory/Assurance: Participating in retailer assurance schemes and achieving full compliance with legislation.
2.8.2.
Market Trends and Industry Challenges
Sankrusme (2008) indicates that to identify the changing patterns of global competition in the beverage industry, a continuous analysis of competing forces is required. The aforementioned study highlights the importance of tracking market trends for brewers and lists six elementary themes:
1) Distribution systems complexity with conflicting interests 2) Changes in lifestyle and demographics
3) Increasing bargaining power of retailers 4) Competition intensity
5) Issues related to product safety
6)
Consolidation and globalization2.8.3. The Three-Tier System in U.S.
At the end of the prohibition in the U.S., member states received the power to control production, importation, distribution, sale and consumption of alcohol within their limits (Sarasin, 1998). The brewers willingly offered to operate under a new system of distribution selling to independent distributors. Brewers were no longer allowed to control or own retailers. Cash sales between the tiers were meant to avoid control by brewers. This legal framework has paved way for the current formation of the beer industry (Sarasin, 1998).
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This was the birth of the three-tier system. The primary purpose were to create a system that facilitated state and local control, discouraged aggressive marketing and encouraged moderate consumption.
Beer distributors have a complex role inside the three-tier system. Distributors purchase beer from the manufacturers, reduce the brewer's capital requirements and assume, directly, the risk of retailers not executing the final payment. The wholesalers then store the beer at their facilities until the retailers request it.
2.8.4.
Complex Distribution Systems with Conflicting Interests
Often brewers’, distributors and merchandisers sell their products. This practice is most prevalent in the U.S. As illustrated in the chart below, each unit performs different roles within an intricate supply chain (SAP and Deloitte 2005).
Figure 11: Roles within the Beer Supply Chain Source: (SAP & Deloitte 2005)
The aforementioned study suggests that this arrangement is likely to create conflicts of interests between beer manufacturers and distributors:
For Beer Manufacturers: Registered increased sales and return on investments at the expense of distributors’ margins; keep developing new product and packages increasing the complexity of distributors work.
Beer Distributors: Historically have lower profits and higher capital requirements for distribution networks; they push consumers toward brands offering the highest margins, consolidate their activity and spread their fixed costs on greater volume to obtain cost reduction, invest in warehousing and distribution equipment and try to acquire new customers.
On the other hand, it has to be noted that the retailers’ bargaining power is constantly increasing, pushing beer makers to improve the agility of their supply chain, with cost efficiency as a primary target.
The growth of private beer makers, craft brewers in particular, shows how the introduction of a new product could be an important source of differentiation and competitive advantage.
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Retailers use their influence to set superior standards for better service quality and operational excellence. Thanks to their direct relationships with clients, retailers have deeper knowledge of consumer behaviour. The study suggests, as beer distribution process improves, many producers attempt to get closer to the consumer by using direct-to-consumer marketing approaches. For example: active monitoring of in-store activity and direct store delivery (D.S.D.).2.8.5.
Distribution Channels and Supply Chain
In a competitive business environment that features fierce competition, shifting consumer trends and conflicting interests between manufacturers and distributors, the supply chain faces systematically considerable pressure. Retailers regularly ask for better quality and shorter delivery times and these requests put pressure on manufacturers to achieve higher efficiency in managing their supply chain.
Retailers identified the following as steps to improve a supply chain:
• Ensure on-shelf product availability • Increase flexibility
• Accurately forecast demand
• Implement a fully integrated returnable containers (empties) management process • Lower costs by controlling high-value empties assets
• Increase control by managing empties at customer locations • Tracking empties to reduce manufacturing problems.
2.9. The Legal Framework
The legal requirements in the U.S. alcoholic beverage sector are quite complex and industry players are required to comply with regulation at a federal and a state level.
The Tobacco and Alcohol and Trade Bureau (T.T.B.) states that a business willing to import alcoholic beverages in the U.S.:
Needs to have a permit as requested by The Federal Alcohol Administration Act (F.A.A.) from T.T.B.
Needs to maintain a staff and a business office in the U.S. or, alternatively, must contract an existing licensed importer in the U.S. Making an agreement with an existing commercial importer registered in the U.S. eliminates the needs of an importer permit. In order to have a permit requested by the F.A.A. must complete a T.T.B. form 5
100.24. Jointly to other qualifying documents for each location where he plans to conduct business. For being a wholesaler as well as an importer of beverage alcohol products it is needed to apply for both permits. A permit as an importer does not
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routinely allow conducting business as a wholesaler. Needs to pay the Federal Alcohol Excise Tax on beverage alcohol products when these are removed from U.S. Customs and Border Protection (C.B.P.) port of entry.
Needs to have its product’s label approved or a certificate of exemption from label approval before to introduce products to interstate commerce so to ensure that products meet federal law requirements.
Needs to file pre import application to ensure proper tax classification and that products are manufactured meeting federal law requirements.
Needs to meet state requirement in addition to federal requirements (The Tobacco and Alcohol and Trade Bureau, 2013) .
2.10. Marketing Communications
Experts in the field of marketing agree that, no matter the organisation’s size, scope and market, all organisations need to utilize communication in varying degrees (Shrimp, 2010) (Fill, 2009) (Broderick & Pickton, 2005), be it directed to consumers or focused on other businesses. Marketing communications is an integral part of a firms’ overall marketing push and directly the market performance of a product offering or service. Organisations use a multitude of marketing communication tools that helps it engage its target market better (Fill, 2009). The primary forms of marketing communications include traditional/mass media or above the line marketing, sales promotions, point of purchase (P.O.P.) communications, online advertising, public relations campaigns and various other forms of collateral (Shrimp, 2010).
2.10.1.
Marketing Communications Mix
Marketing communications utilizes three key components: tools, media and messages. Advertising, sales promotions, direct marketing, personal selling and public relations make up the five principal communication tools that firms employ. The messages that firms attempt to convey are either informative or emotional depending on the firm’s product offering and the target audience it is trying to connect with. In order to deliver its key messages using the various communication tools available, firms use two types of media: traditional media, which refers to printed and broadcast media. The other form refers to the increasing use of technology, more particularly the Internet as a means of communication and is gaining popularity among firms due to the nature of the medium, which allows for two-way interaction between firms and its audience (Fill, 2009).
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Figure 12: The Marketing Communications Mix Source: (Kotler & Armstrong, 2010) 2.10.2.
Advertising
Consensus suggests that there is no one all-encompassing theory that explains how advertising works as the very nature and goals of advertising is dependent on the aims and objectives of the firms that utilize them (Fahy & Jobber, 2012). Compounding this is the fact that advertising is frequently combined with a multitude of other promotional elements, which lends to the difficulty to come up with one all-encompassing theory and definition (Broderick & Pickton, 2005). Most books on the matter therefore define the term in a broad and general view such as the way Kotler (1999, p.692) defined it:
“Any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor.”
It is also important to note that the flexibility of this form of communication lends itself well to organisations of different sizes, as firms are able to tailor their advertising effort according to the size and demographic of its intended audience (Fill, 2009); as such, the key role and function of an advertising campaign is to communicate with specific and target audiences.
There are several key benefits of advertising such as the ability to reach a mass audience and although mass advertising is viewed as an expensive initiative, the cost trade-off is outweighed by the ability of advertising to reach many million members of a firm’s target audience, indeed, the cost-individual reached ratio is relatively low (Broderick & Pickton, 2005).
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Advertising as a potent tool for increasing awareness and sales, as one would imagine, has strong proponents from industry and the academe such as Jones (2007) who believes that advertising is a key component in influencing an individual to buy a product they have never purchased previously. Additionally, it positively influences the creation and the maintenance of brands, helps differentiate brands from others and ultimately helps increase sales. This train of thought views advertising as a ‘strong force’ (Fill, 2009) (Fahy & Jobber, 2012) (Broderick & Pickton, 2005).An alternative to this view is known as the ‘weak force’ of advertising, which raises doubts about the presumptions made by the strong force proponents. These weak force advocates believe that a consumer’s buying behaviour is driven more by habit than by advertising exposure and that advertising merely works in conjunction with an individual’s thoughts and beliefs on the brand (Bernard, et al., 1998). While advertising is viewed as significant, proponents of the weak force theory such as Ehrenberg et al. (2002) believe that advertising is best viewed as a way to reinforce values, sustain brand value and preserve market share. As with any two opposing sides to an argument, both viewpoints do have merits and do agree on some aspects such as the belief that advertising can be very effective.
2.10.3. Sales Promotion
Sales promotions are defined as any activity or incentives to consumers or the trade that will drum up sales and stimulate demand (Fahy & Jobber, 2012). Its objective is to encourage a particular group of people to behave in a specific way. The difference between sales promotions and advertising is that the latter is usually undertaken when a firm wants to build and develop market awareness for a certain product or brand. Furthermore, advertising is viewed as a long-term investment for a firm while sales promotions are geared towards short long-term, temporary and immediate upward shifts in sales (Shrimp, 2010).
Manufacturers utilize sales promotions to entice retailers, wholesalers or end users to buy a product and encourage the manufacturer’s sales force to aggressively push and sell its products. Retailers on the other hand utilise sales promotions to encourage sales through inducing its customers to buy more and is presented as an added value to the basic product that is intended to encourage buyers to act now rather than later (Fill, 2009).
There are two elements to sales promotions if looked through a value orientation frame: value increasing and value adding (Peatty & Peatty, 1994). Value increasing indicates that the value created is manifested through changes to the product quality or quantity or by lowering the price. Some examples of value increasing promotions are discount pricing, multi packs, payment terms, guarantees and coupons. Value adding promotions; on the other hand, is defined as offering an augmented offering that serves to add a premium to the product. Samples, product
