Marketing Plan Master Thesis

Literature search on all relevant topics marketing strategy, marketing plan, market analyses etc., 2.. Methods: All relevant methods of market and marketing analysis and market research,

Masaryk University Faculty of Economics and Administration

MASTER THESIS

B.Sc Dušan Mladenović

Brno, 2013

Masaryk University Faculty of Economics and Administration

Masaryk University Faculty of Economics and Administration

Department of Corporate Economy

Academic year 2012/2013

ASSIGNMENT OF DIPLOMA THESIS

Field: Business Management

Title: Marketing plan

P r i n c i p l e s o f t h e s i s w r i t i n g:

Objective of the thesis:

The main objectives of the thesis are to analyse present market situation of the chosen company concerning its marketing management problem, to analyse the market and to develop marketing plan according the results of analyses

Approach and methods used:

1 Literature search on all relevant topics (marketing strategy, marketing plan, market analyses etc.),

2 current situation and market analyses,

3 proposals of marketing plan

Methods:

All relevant methods of market and marketing analysis and market research, e.g SWOT analysis, survey, interview

The extent of graphical works: according to the supervisor's guidelines the

assumption is about 10 charts and graphs

The thesis length without appendices: 60 – 70 pages

List of specialist literature:

 LEE, K a S CARTER Global marketing management 3rd ed New York: Oxford

University Press, 2012 592 s ISBN 978-0-19-960970-3

 CATEORA, P R a J L GRAHAM International marketing 13th ed Boston:

McGraw-Hill, 2007 702 s ISBN 0-07-308006-3

 ONKVISIT, S a J.J SHAW International marketing: strategy and theory 5th ed

London: Routledge, 2008 710 s ISBN 978-0-415-77262-4

 MULLINS, J W a O.C WALKER Marketing management: a strategic

decision-making approach 6th ed New York: McGraw-Hill, 2008 533 s ISBN

978-0-07-338116-9

 FARRIS, P.W a N.T BENDLE Marketing Metrics: The Definitive Guide to

Measuring Marketing Performance 2nd ed Upper Saddle River: Pearson Prentice

Hall, 2010 432 s ISBN 0-13-705829-2

 HOOLEY, G J a J.A SAUNDERS Marketing strategy and competitive positioning

3rd ed New York: Prentice Hall, 2004 622 s ISBN 0-273-65516-7

 CRAVENS, D W Strategic marketing 9th ed Boston: McGraw-Hill, 2009 784 s

Diploma thesis supervisor: Ing Alena Klapalová, Ph.D

Date of diploma thesis assignment: 1/11/2012

Submission deadline for Diploma thesis and its entry in the IS MU is provided in the valid Academic Calendar

In Brno on 1/11/2012

Abstract

This thesis aims to develop a marketing plan for Yugomar d.o.o – a Serbian company that intends to get into Bulgarian market The thesis consists of theoretical part which gives overview of the main categories connected with marketing plan and analysis that needs to be done Practical part is continuation of the theoretical one and furthermore it gets profound into details about Bulgarian market as such, detailed inquiry and analysis done and moreover proposed marketing plan for Yugomar d.o.o which is based on the findings Considering all data gathered while conducting the market analysis Bulgaria proved to be “promising” market with much of potential growth to expect in the following years However Yugomar d.o.o has to perform necessary marketing action with utmost care in order to launch its business operations as smooth as possible

Key words

Marketing plan, market analysis, SWOT, PESTEL, marketing mix, Yugomar d.o.o., Bulgaria, Serbia, Master thesis

Author's statement

I hereby declare that this thesis I submit for assessment is entirely my own work and has not been taken from the work of others save to the extent that such work has been cited and acknowledged within the text of my work

Dušan Mladenović

Acknowledgements

Hereby, I would like to express my deepest appreciation to the people who sacrifice their own time helping me to make this work done First of all, PhD Alena Klapalová, for mentoring, and all-time long supports with abundance of invaluable advices Moreover, I would like to mention people from the management of the “Yugomar d.o.o.”, who provided me with sufficient amount of data to base my work on Furthermore, I would like to thank to my parents for supporting me and my decisions all time long during my studies Moreover the person without who this thesis would be endangered - Maja Ahmić, and all others that have contributed in any respect

Table of contents

Chapter I – Introductory part 22

1.1 Preface 23

1.2 Problem definition 24

1.3 Research questions and goal 25

1.4 Methodology employed 26

1.4.1.Primary quantitative research 26

1.4.2.Secondary research 27

1.5 Brief introduction to the Company’ history 28

Chapter II – Theoretical background 29

2.1 Definition of marketing strategy 29

2.2 Definition of marketing plan 30

2.3 Marketing plan structure 30

2.4 PEST/PESTEL/PESTLE analysis 32

2.5 SWOT analysis – historical overview and definition 34

2.6 The five forces model of competition 36

Chapter III – Analytical part 39

3.1 Situation analysis 39

3.2 Textile production history in Bulgaria 39

3.3.PEST/PESTEL/PESTLE analysis 40

3.3.1 Political factors 40

3.3.2 Economic factors 42

3.3.3 Socio-cultural factors 44

3.3.4 Technological factors 46

3.3.5 Environmental factors 47

3.3.6 Legal factors 47

3.4 Competition 48

3.4.1 Domestic competition 48

3.4.2 International competition 49

3.5 The five forces model 51

3.5.1 Rivalry among competitors 51

3.5.2 Possibility of new entrants 52

3.5.3 Threats of substitutes 52

3.5.4 Bargaining power of suppliers 52

3.5.5 Bargaining power of buyers 52

3.6 SWOT analysis 53

3.6.1 Strengths 54

3.6.2 Weaknesses 54

3.6.3 Opportunities & Threats 55

3.7 Market segmentation 55

3.8 Target market 59

Chapter IV - Marketing Objectives 62

4.1 Theoretical overview 62

4.2 SMART goals – Yugomar d.o.o. 63

Chapter V – Tactics 66

5.1 Marketing mix 66

5.1.1 Product strategy 66

5.1.2 Place/distribution strategy 67

5.1.3 Pricing strategy 71

5.1.4 Promotional strategy 73

5.2 Marketing risks 76

Chapter VI – Budget 79

6.1 Financial issues 79

6.2 Sales forecast 80

6.2.1 Market build-up method 80

6.2.2 Chain ratios model 81

6.3 Expenses forecast 82

6.4 Expenses and marketing plan 83

Chapter VII – Control 85

7.1 Theoretical overview and importance of control 85

7.2 Variables affecting control system 86

7.3 DMAIC six sigma improvement process 87

7.3.1 Define 88

7.3.2 Measure 88

7.3.3 Analyze 89

7.3.4 Improve 90

7.3.5 Control 90

Chapter VIII – Conclusion 91

8.1 Summary 91

8.2 Contributions of the thesis 93

8.3 Limitations and suggestions 93

8.4 Self-evaluation 94

Chapter IX – Appendices 101

Appendix A: Estimated expenses for each proposed event 102

Appendix B: Questionnaire “Yugomar d.o.o.” 106

Appendix C: Interview with Mr Zoran Mitrović (owner of Yugomar d.o.o.) 120

List of tables

Table 1: Average spending on clothing and footwear 40

Table 3: Clothing and footwear spending in the average 41

Table 6: Population in aspect of age and employment 43 Table 7: Main international competitors of Yugomar d.o.o at Bulgarian market 48 Table 8: SWOT Matrix scheme for the Yugomar d.o.o (Bulgarian market) 50 Table 9: Market share of the biggest competitors in the Bulgarian market 58 Table 10: Typical Bulgarian customer in Yugomar stores 58

Table 12: SMART goal – Sales income increase 63

Table 15: Expenses and marketing plan linkage in EUROS 84

List of figures

Figure 6: Expenses and marketing plan linkage in euros 85

Intentionally left blank.

Chapter I – Introductory part

1.1 Preface

The recent crisis has highlighted many failures in traditional economics attempt to explain the way how market behaves and more important how to approach targeted market in a unique, effective and cost-effective way Hereby I am going to try to uncover and state some of the information which concerns textile retail industry both within Serbian and Bulgarian market, particularly having in mind “Yugomar d.o.o.” This company from South-eastern Serbia is one of the minor Serbian companies striving to get on the neighboring markets

Primarily based on primary and secondary researches that have been done previously, a huge amount of relevant information about Bulgarian market could be found; saying specifically Bulgarian market, taking into consideration the Company’s1

intention to launch its own business on that specific market But of course on the other side more profound analysis is required for constituting a firm base for delivering a marketing strategy which will be suitable and consistent with ongoing and current trends on the market

Within this thesis some of the minor improvements could be found primarily in order to overcome consequences of recent economic crisis which however affected textile industry severely Negative foretokens in the annual P/L2 statements of the textile retailer firms generally, is something that could be seen and found very often these days And this is definitely not the cause of satisfaction to the management Of course, textile retailer industry

is not the only one influenced in this case Furthermore, the post-socialistic context of both Serbian and Bulgarian economy makes this research even more complex bearing in mind limited availability of relevant and actual data and overall transparency of the institutions Adding the fact that entrepreneurships awareness of the locals in Serbia is on the level which

is not even worth mentioning – all this combined presented the huge challenge for me while working on this thesis

1

Here referring to “Yugomar d.o.o.”

2 Annual Profit and Loos statement hereafter P/L statement.

Another fact that should definitely be taken into consideration is that Bulgaria is EU member while Serbia is still candidate state on the other side This is important because of the differences in general legislation, tax legislation, custom legislation among EU and Non-EU states So once again, this imposes a necessity of huge adjustments in terms of the business operating to the valid EU standards and laws Moreover, the Company’s actual business locus

is being analyzed in order to find the exact room available for improvements, in order for Company to be unique and creative in launching its marketing activities

1.2 Problem definition

As a matter of time and consistency of doing a business with increasing profitability over time, the logical step forward is to expand and to strive to get as much benefits from the market as possible One of the possibilities is to go abroad, in order to compete internationally Maybe at the first sight this alternative seems to be easy achievable and manageable but it brings up to the surface enormous amount of barriers and obstacles that have to be overcome in a specific period of time with limited resources This step of going abroad is a critical point in firm’s existence, in both positive and negative terms On one side

it could skyrocket the revenues and profits, but contrary it could push the Company to the edge of existence and every day activities The list of negative examples of poor-prepared international performances of Serbian enterprises is quite long unfortunately

All in all, when going abroad sometimes even “shocking” amount of elements have to be taken in consideration Starting from Company’ long-run strategy goals over political/economic/social situation in the given country to the statistical data that would have

to be gathered conducting on-field researches Anyway, in several past years Yugomar d.o.o has tried to get abroad (unsuccessfully) This is due to the lack of effective marketing strategy and profound research of the targeted markets

The following aspects are considered when defining research questions:

1 The objective is to develop marketing strategy for Yugomar d.o.o and to describe how the Company should organize its appearance on the local Bulgarian market;

2 This research focuses on Bulgaria, based on actual data;

3 Due to the time frame, certain information were unavailable, therefore they are estimated

Considering the aforementioned facts few of the main goals I am going to strive to fulfill are:

1 Determine the focus group;

2 Determine the data in terms of average shopping, monthly income etc.;

3 Detection of marketing risks;

4 Introducing the implementation plan;

5 Introduction of modern strategies and tools;

6 Determining the costs of the proposed marketing activities

1.3 Research questions and goal

Each research demands certain questions that should be answered in a certain time frame in order to get sufficient amount of solid and relevant information to base marketing plan and strategy on This is for sure really delicate and demanding stage when Company decides to get abroad Moreover management should approach to this point with most of its attention as

a prevention of distorted data that might easily be gathered and collected These questions should accommodate decision makers to shape their own strategy and plan how to “conquer” the targeted market or segment

Listed down below are the crucial research questions that should direct me throughout the work

1 What are the biggest challenges of the given Company?

2 What are the expected benefits Company might get if perform internationally?

3 What combination of marketing mix Company should implement on a given market?

4 Should company standardize or localize offer?

5 Who are the main competitors (both domestic and international)?

6 What kind and amount of initial costs Company might expect?

Furthermore, I would strive to deliver affordable, creative and relevant marketing plan which

should help Company to have a smooth start on a foreign market (in this case Bulgarian) Of

course, underlining the fact this should be achieved bearing in mind limited resources and previously predetermined time frame The questions I listed previously should help me and

direct me toward the main aim of this paper – to come across with a remarkable marketing plan which is easy to put into practice and which will target certain niche of the market

1.4 Methodology employed

For the purpose of this thesis I employed and used both quantitative and qualitative methods Quantitative research refers to the systematic empirical investigation of social phenomena via statistical, mathematical or computational techniques (Given, Lisa M; 2008) Using quantitative methods numerous data could be collected, processed and interpreted for a variety of purposes This type of researches implies ‘on-field’ activities in order to gain as much relevant data as possible The relevancy of the information gathered is an enormous advantage, although rigorous research practices are required so as to render the research successful and of normative relevance

Qualitative research is a method of inquiry employed in many different academic disciplines, traditionally in the social sciences, but also in market research and further contexts (Denzin, Norman K & Lincoln, Yvonna; 2005).Qualitative researchers aim to gather an in-depth understanding of human behavior and the reasons that govern such behavior When I got to the segmentation part of my paper I realized instantly that proper segmentation and certain conclusions would not be possible without using some of the qualitative methods in the respect of the human behavior, psychological variables etc Worth emphasizing is the important fact that both quantitative and qualitative methods could be used within both primary and secondary researches

1.4.1.Primary quantitative research

Primary researches are experiments, investigations, or tests carried out to acquire data hand, rather than being gathered from published sources (www.businessdictionary.com).For the purpose of this paper and having in mind that customer’s perception of the given company is of the most importance, I have launched an online survey/questionnaire in order

first-to gather valuable data which could be further used and evaluated The survey consists of 20 carefully prepared questions Aforementioned questionnaire includes both open-ended and

closed-ended (in form of multiple choice) questions The process of gathering data through online-survey has been processed from 10.08.2012 to 29.08.2012 (twenty days) Furthermore, the volume and quality of the responses are extraordinary and of high importance for the relevance of this paper In terms of the respondents, by the end of collection period 1127 questionnaires have been successfully completed and submitted, a great number of which included constructive comments Primarily considering the most frequently visited virtual places of Yugomar’s customers, survey has been posted in Facebook, Twitter, LinkedIN, online portals, as well in the form of circular mail in order to gather as relevant as possible As is self-evident, the survey results feature heavily throughout the proposal itself For further reference, please find full questionnaire in the Appendix

1.4.2.Secondary research

Secondary research (also known as desk research) involves the collection and/or synthesis

of existing research papers and articles which are previously being published (Sunny Crouch,

Matthew Housden; 2003) Examples of secondary information include reports and studies by

government agencies, trade associations or other businesses within specific industry

In terms of resources and organizational issues, secondary researches techniques are much less demanding Such research implies taking information that has already been collected and processed by other individual, institution, company or authors I incorporated an array of reliable data during my research and test period Most frequently used keywords while searching were: marketing plan, marketing strategy, marketing analysis etc Indeed, it must

be said that without the possibility of acquiring and using data of this nature, the existence of this paper would have been endangered and its successful would be under huge question mark Hereby I would like to emphasize the fact of using numerous data from different authors, publishers, freelancers and management of a given Company

Furhermore, secondary sources are being used constantly through all the analysis stages that have been conducted Mainly referring to the Company’s internal documentation, official data of Statistical office of Republic of Serbia, information gathered from National Statistical Institute of Bulgaria, numerous web-sites and portals, as well as book based references

1.5 Brief introduction to the Company’ history

“Yugomar” doo is privately owned company which was established in December 1994 in Niš, Serbia The owner and general manager is Zoran Mitrović The main business activities

of the firm are designing, producing, distribution and selling of

the man-women clothes and accessories Established in very

harsh time for the Serbian economy, it has survived most of

what other firms could not even dream about At the beginning,

in autumn of 1994 it had exactly five employees Now, in 2013

– nineteen years later it has in total 250 employees The

progress is apparent, on-going and significant

The very first store in Serbia was opened in the city of Niš

(where actually is Yugomar’s headquarter and production lines are based), in the southern province of Niški okrug, in 1994, and the most recent in Kruševac 2010, Central Serbia region Today, Yugomar stores can be found in 17 cities overall

A majority would agree that the Company’s growing market share is primarily due to the extraordinary locations of the stores themselves Nevertheless, any meaningful research in this area must go beyond a single cause if it is to fully convey the reasons for the company’s success in Serbia As a results of managers open-mindedness and long-term strategies, Company plan to extend its operations (mainly retail sector) to the neighboring country (Bulgaria and FYR Macedonia are first on the list3) In order for these ambitious goals to be fulfilled in a decent time frame specific and carefully prepared actions have to be introduced Unfortunately Company already has experienced the consequences of poor preparation and research stage Namely, there was fiasco when Company tried to get to the market of Bosnia and Herzegovina in 2008 “Unsuccessfully” - is the polite word considering the financial tsunami that happened after that adventure

3 Internal documentation of the Company.

Figure 1: Yugomar logotype

Chapter II – Theoretical background

Marketing is about letting people know about the product or service you offer, and persuading them to buy or use it And for effective marketing one has to let people know about the products or services repeatedly and in unique way Pretty simply one-sentence proverb by Benjamin Franklin could easily bring up the exact meaning of marketing planning, regardless that it was not stated in context of economics and marketing:

“If you fail to plan, you are planning to fail 4 ”

- Benjamin Franklin (USA scientist and state official)

This practically means that if someone fails to set a proper plan on time, the probability of failure is increasing proportionally As I noted before this proverb has not been stated in any context of marketing, but definitely it has a lot to do with marketing strategy and plan Logical questions arise than: What is marketing strategy and further marketing plan? Are they interrelated and interdependent?

2.1 Definition of marketing strategy

Various definitions of marketing strategy can be found One that I found appropriate for the

purpose of this thesis, states that marketing strategy is a process that could enable an

organization to focus its resources and funds on the optimal opportunities with the aims of increasing sales and managing a sustainable competitive advantage (Baker, Michael; 2008)5

The marketing strategy is framed by Company’s overall business goals It includes a definition of business, a description of products/services offered, a profile of target users and clients, and further defines company's role in relationship to the competition It is essentially

a document that management uses to judge the appropriateness and effectiveness of specific marketing plans

To put it another way, marketing strategy is a summary of company's products and position in relation to the competition; your sales and marketing plans are the specific actions you are going to undertake to achieve the goals of your marketing strategy

Since the aim of this paper is not to work on marketing strategy, but instead to focus on the marketing plans, more attention will be attributed to marketing plan itself

2.2 Definition of marketing plan

“Customers can’t always tell you what they want, but they can always tell you what’s

wrong”

- Carly Fiona (Entrepreneurial Thought Leaders)

Having a look at the statement above, one could easily draw a conclusion that nothing but ambiguity could be seen But when thinking more profound, this statement has sense One of the purposes of creating a marketing plan is to avoid business actions that are going to show

us “what is wrong” Primarily on basis on previously conducted researches company should have in mind how to act in order to get positive feedback from the customers

Definition of the marketing plan by which Susan Ward (2010) says that a marketing

plan defines the particular actions one plans to carry out to interest potential customers and

clients in one’s product and/or service and make them to buy the product and/or services one offers, in my opinion is the most appropriate one 6 Years of researching worldwide in this

area put into use a great variety of different definitions that considers marketing plan

2.3 Marketing plan structure

If a company with a serious vision and straight forward marketing strategy seeks to conquer a particular customer group, firstly it needs a vision Vision itself causes to make actions Action itself demands a high profile strategy which furthermore seeks for a well-organized

6 J Susan Ward; Development International Marketing Strategy; 2009; p 101;

plan and action It is a never ending circle of few main elements to perform a good quality marketing strategy

Marketing plan should be detailed and exact Innovation is one of crucial factors of well performed marketing plan It is not a simple, but rather a complex process for each individual, therefore for entire company

As Phillip Kotler said (in Cruch and Housde, 2003), marketing plan in general should

consists of situational analysis as a first step, defining the objectives as a second, shaping the strategy, defining tactics, estimating the budget and establishing the system of controls 7:

1 Situational analysis By situational analysis company examines the macro forces

(economic, political-legal, social-cultural, technological) employing different tools and considering different individuals in its environment (company, competitors, distributors, and suppliers) The company carries out a SWOT analysis (strengths, weaknesses, opportunities, and threats) PESTEL analysis is one more useful tool which implementation is strongly recommended

2 Objectives Based on identifying its best opportunities from its situational analysis,

the company ranks objectives and sets goals The company could also set objectives in respect to its stakeholders, image/reputation, technology etc

sub-3 Strategy Every goal could be achieved in a variety of different ways It is of the

greatest importance for the strategy to pick to most effective course of action

4 Tactics The strategy must be spelled out in great detail regarding the 4Ps and the

actions that will be taken in calendar time by specific individuals who are about to carry out the plan

5 Budget The company’s planned actions and activities involve costs that add up to the

budget that it needs to achieve its objectives

6 Controls The company must set review periods and measures that will reveal

whether it is making progress toward the goal When performance lags, the company must revise its objectives, strategies, or actions to correct the situation

One of the most critical stages is definitely situational analysis which provides a solid base for the further steps If the current situation (internal and external environment) is being analyzed wrongly all the further stages are going to present the distorted picture of reality In

7

Sunny Crouch, Matthew Housden; Marketing research for managers; The Marketing Series ; Chartered Institute of

Marketing Butterworth-Heinemann; 2003; p 19

case of Yugomar d.o.o that would mean that if any important fact would be neglected during one of the situational analysis it is going to affect the marketing plan as an outcome severely

As Dwight Eisenhower once said: “In preparing for battle I have always found that plans are

useless but planning is indispensable 8” On basis of this the benefit of planning might lie less

in the plan as itself than in the process of planning It might sound ambiguous, but the point is that during the process of planning information that we get are going to be included in the plan at the very end of the process

A marketing plan should not be a just a pure letter on the paper It must be put into practice Without detailed and well organized implementation in particular territory and with particular target group, plan is more or less doomed to fail To sum up the marketing plan is completely useless unless it is not putted into practice According to the Professor Quinn (in Cherington,

1980): “Marketing plans will not produce a dollar of profit if you don’t implement them”9And this perfectly makes sense, every plan is being made in order to be implemented so as marketing plans

2.4 PEST/PESTEL/PESTLE analysis

For the purpose of effective creation of marketing plan I employed PEST analysis Together with usage of internal micro-environmental factors and internal drivers it creates so-called SWOT matrix According to the Oxford University press PESTEL shapes the framework of macro-environmental factors such as political, economic/social and technological variables) used in the macro/ external environment scanning (Oxford University Press – Oxford digital journal; 2012) On the other side according to the some authors10

Legal component should be added and further acronym should look like to SLEPT (Oxford University Press - Oxford digital journal; 2012) Basing on the same source what is much more popular in the United Kingdom is PESTEL or PESTLE concept.However this extended variation of original PEST model includes both environmental and legal categories This way PESTEL analysis is more complex on one side, but provides much more information about the certain market

In the 1980s, several other authors (Fahey, Narayanan, Morrison, Renfro, Boucher, Porter) included variations of the taxonomy classifications in a variety of orders: PEST, PESTLE, STEEPLE etc.11 As far as I found out, there is no implied order or priority in any of the formats given

From my research, the earliest known reference referring to tools and techniques for

‘Scanning the Business Environment’ appears to be by Francis J Aguilar (1967) who discusses ‘ETPS’ – acronym for the four sectors of his taxonomy of the environment: Economic, Technical, Political, and Social On the other hand, Arnold Brown for the Institute

of Life Insurance (USA) reorganized it as ‘STEP’ (Strategic Trend Evaluation Process) as a way to organize the results of his environmental scanning12

It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations So as already mentioned PESTEL acronym includes specific categories and variables that are being considered and analyzed Hereby quick theoretical overview of the factors13 that are connected with PESTEL concept can be observed

 Political factors represent to what degree the government intervenes in the economy Furthermore this category includes areas such as tax policy, labor legislation, environmental law, trade restrictions, tariffs and overall political stability/instability Under political factors I assume goods and services that are subsidized by the local government

 Economic factors are of great importance for the given analyses, since they consider

variables and categories like economic growth, interest rates, exchange rates, inflation rate etc Getting familiar with this kind of information is imposed as a necessity for one company, regardless if it wants to get abroad Moreover this indicator represents the overall economic situation in the country

11

Lewis K S Lim; Development of Archetypes of International Marketing Strategy ; Journal of International Business

Studies, Vol 37, No 4; Jul 2006;

12

Lewis K S Lim; Development of Archetypes of International Marketing Strategy ; Journal of International Business

Studies, Vol 37, No 4; Jul 2006;

13

Lewis K S Lim; Development of Archetypes of International Marketing Strategy ; Journal of International Business

Studies, Vol 37, No 4; Jul 2006;

 Social factors on the other side include the cultural/religious/language context of the

given country Nowadays factors like population growth rate, age distribution, career attitudes, emphasizes on quality shape a company’s operating in a huge extent

 Technological factors include technological aspects such as research and development investments, technology incentives, rate of technological change etc These factors could determine and shape barriers for entry, efficient production level and further influence outsourcing decisions

 Environmental factors include ecological and environmental aspects such as weather,

climate, and climate change, which may especially affect industries such as tourism, farming, and insurance Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones Nowadays it became the necessity to operate in an “environmental-friendly” way

 Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law These factors can affect how a company operates, its costs, and the demand for its products

2.5 SWOT analysis – historical overview and definition

SWOT analysis came from the research conducted at Stanford Research Institute during the

1960‘s The research was funded by the fortune 500 companies to find out what could be done in order to prevent corporate planning failure

It all began with the corporate planning trend, which seemed to appear first at Du Pont in

1949 By 1960 every Fortune 500 company had a ‘corporate planning manager’14

However a unanimous opinion developed in all of these companies that corporate planning in the shape of long range planning was not working, did not pay off, and was an expensive investment in futility

14

Committee on the Next Decade in Operations Research; Operations Research: The Next Decade; Vol 36, No 4; July -

Aug 1988;

The fact remained, despite the corporate and long range planners, that the one and only missing link was how to get the management team agreed and committed to a comprehensive set of action programs

To create this link, Robert F Stewart at SRI in Menlo Park California lead a research team to discover what was going wrong with corporate planning, and then to find some sort of solution, or to create a system for enabling management teams agreed and committed to development work, which today we call ‘managing change’

The research carried on from 1960 through 1969 One thousand and four hundred companies and organizations were interviewed and a 250-item questionnaire was designed and completed by over 5,000 executives Seven key findings lead to the conclusion that in corporations chief executive should be the chief planner and that his immediate functional directors should be the planning team

They further discovered that they could not change the values of the team nor set the objectives for the team so we started as the first step by asking the appraisal question like

“What is good?” and “What is bad about operations?” Further they began by asking what is

good and bad about the present and

the future What is good in the

present should be Satisfactory,

good in the future is an

Opportunity; bad today is a Fault

and bad in the future is a Threat

This was called the SOFT analysis

Later on in 1964, Urick and Orr

changed the F to a W and called it

SWOT Analysis SWOT was then

promoted in Britain by Urick and

Orr as an exercise What was

necessary was the sorting of the

issues into the programed planning categories of:

1 Product - what are we selling?

Figure 2: SWOT matrix

Source:

www.it.toolbox.com/ accessed: 04.04.2013

2 Process - how are we selling it?

3 Customer - to whom are we selling it?

4 Distribution -how does it reach them?

5 Finance - what are the prices, costs and investments?

6 Administration - and how do we manage all this?

The second step then becomes ‘what shall the team do’ about the issues in each of these categories The planning process was then designed through trial and error and resulted finally in a 17 step process beginning with SOFT/SWOT with each issue recorded separately

on a single page called a planning issue

According to the Albert Humphrey SWOT analysis/matrix is a structured planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in

a project or in a business venture A SWOT analysis can be carried out for a product, place,

industry or person (SRI alumni newsletter; 2005).

Setting the objective should be done after the SWOT analysis has been performed This would allow manageable goals or objectives to be set for the organization On the figure presented: SWOT (Information Security in the Enterprise magazine – New Paradigm 8pt ; 2010)

Without using the PESTEL and SWOT analysis combined or separated it is very difficult to have relevant insight and clear picture of the whole situation That is one of the reasons why majority of authors recommend usage of these tools in order to get most proper outcome

2.6 The five forces model of competition

Porter’s five forces analysis has been made up in 1979 As Porter suggested five main forces

shape and distinct competition at the level of strategic units and that a detailed analysis of each in turn could assist managers to find out the keys to competitiveness in their particular area of industry (Hooley, Saunders, Piercy; 1993)

This model is widely used, not only for profit oriented organizations, as well organizations like public institutions and non-profit sectors organizations are using five forces model in order better to understand their customers, suppliers and other organizations (Terpstra, Sarathy;1999)

As Porter originally determined five categories15 after which this model got its name are:

1 Rivalry among existing companies The rivalry is likely to be more intense in

case some of the following characteristics appear: period of low market growth, where exit barriers are high and product’s differentiation is low etc

2 The threat of market entry Entry barriers could be low where some of the

following applies: entry costs are low, differentiation is low and there are gaps in the market

in terms of uncovered market segments etc

3 The threat of substitutes Substitutes might come either from new entrants or

from existing companies

4 Bargaining power of suppliers Suppliers tend to have more power in the

following cases: suppliers are more concentrated than buyers, cost of changing suppliers are high etc

5 Bargaining power of buyers Customers tend to be more powerful in the supply

chain if: they are more concentrated than sellers, there are alternative sources of supply or buying switching costs are low

To sum up, Porter's five forces include - three forces from 'horizontal' competition: the threat

of substitutes, the rivalry among existing companies and the threat of new market entrants; on the other side two forces from 'vertical' competition: the bargaining power of suppliers and

the bargaining power of customers.However, Porter's framework has been challenged by

other academics and strategists such as Stewart Neill16 and Kevin P Coyne17 They stated that three dubious assumptions underlie the five forces:

15 Robert M Grant; Porter's 'Competitive Advantage of Nations': An Assessment; Strategic Management

Journal, Vol 12, No 7; Oct 1991;

16

Ungemach C., Chater N & Stewart N.; Are probabilities overweighted or underweighted, when rare outcomes are

experienced (rarely)? Psychological Science; 2009; p 473-479.

17 Kevin P Coyne and Shawn T Coyne; A Better Approach To Breakthrough Ideas, HarperCollins Publishers; 2011;

1 That buyers, competitors, and suppliers are unrelated and do not interact and collude;

2 That the source of value is structural advantage (creating barriers to entry);

3 That uncertainty is low, allowing participants in a market to plan for and respond to competitive behavior

The relevance of this model for the importance of research conducted is very significant since

it provides the insights of the market in terms of competition that are already present Going through all five categories of the model should get the reader much closer to the appropriate conclusion

And at the end, why is Porter’s model so important for us? Why so much attention is dedicated to explanation of the whole point of Porter’s five forces?

In my opinion, this analysis (referring to Porter’s five forces model) is of great importance for every single company regardless which industry it operates in It provides the wide spectra of information which considers some of the main influential factor of company’s business In case of Yugomar it is, again, very relevant tool On basis of findings Company gets from this analysis it can much better anticipate its starting point on the given market, in this case Bulgaria

Chapter III – Analytical part

3.1 Situation analysis

A situational analysis is required for establishing a starting point in delivering a marketing strategy and plan that is effective and suited to the company’s needs The company’s present business situation is fully derived from local market data, which will pinpoint areas for further improvements in both the goods that Yugomar d.o.o offers and the means by which these goods are going to be presented to the customers The purpose here is to create a clear picture of the ‘do’s’ and ‘don’ts’s’ within a broader marketing plan that should deliver more value to the customer and more profit to the company

3.2 Textile production history in Bulgaria

Bulgaria is one of the countries that have relatively long and success tradition in textile industry The capacities are located in western and southern parts of the country, with cities

of Sofia, Plovdiv, Dragoman and Blagoevgrad as its strongholds Several firms are big players in Balkan markets The industry became in the recent years one of the most competitive branches in Bulgaria with a considerable investment and exports potential of Bulgaria textile industry is among the sectors defining its export profile Over the last ten years exports of textile materials and products marked the highest growth (over 4.5 times) compared with other sectors and reached a volume of 2.1 billion dollars In 2003 the export share reached a maximum level of 23.6%, which is 15 points above the 1995 In the coming years value of export should have been continuing increasing but at a slower pace due to the presence of the industry declined and reached the size of the end of last century - 17.7 percent This is undoubtedly affecting its position in the export sectors It took second place

as the first went up on the black and non-ferrous metals with share of 22 per cent Analyzing the dynamics of exports by commodity sections in the first years of the new century (up to 2010) found with advanced rates increased sales of machinery and transport equipment, household goods, products of vegetable origin and metals Supply of textiles to foreign markets is constantly growing, but at a slower pace In 2012 foreign exchange receipts from 2.1 billion dollars slightly exceed their levels from the previous year (2011)

This year the level of activity in export flows is

approximately the same For the first three months

(2013) the volume was about 2 percent higher than that

for the same period of previous year (2012)18

This quick view over the textile production expansion

(and export) in Bulgaria is worth piece of information

for Yugomar d.o.o to be familiar with because of the

current situation on the market Beside this reason, this fact provides the management of the company with the information how severe competition it might expect and what are the overall trends on the market Furthermore, according to the posts19 all the products that are made and sold in Bulgaria are market with the sticker I enclosed above In terms of Yugomar this is not the piece of information that could help On the other side, this kind of campaign sponsored by the government is directly against EU trade law principles20 Since Company comes from abroad it is in a way discriminated

3.3.PEST/PESTEL/PESTLE analysis

As already stated the PESTEL21 framework is a method to analyze the macro environment of

a company As defined six such types of factors exists: political, economic, socio-cultural, technological, environmental and legal Moreover, these factors are not mutually exclusive and can affect a company from more than just one angle (Lynch; 2006) In the respect of a given Company understanding of the external variables that might influence its operations is necessity Yugomar d.o.o cannot expect to achieve any success if PESTEL analysis of the surroundings is neglected and not done properly

3.3.1 Political factors

Political issues are very relevant for any industry and can influence the profitability of a given company considerably This is especially true for countries that have a government

21 Referring to PEST/PESTEL/PESTLE analysis – since the different acronyms exist in practice.

Figure 3: Made in Bulgaria sticker Source: http://www.textil-bg.com

accessed: 15.02.2013

which efficiency is something that is not on the proper level Currently paying most of the attention to the Yugomar’s interest, some of actual trends are as following:

1 Political instability – during the time of writing this thesis Bulgaria however have got

two governments one after another in just a couple of months This just shows the negative picture to the Yugomar d.o.o since the state as an institution is obviously inefficient In case of any legal disputes with the locals22 or any problems that might occur, Yugomar d.o.o might experience huge amount of problems

2 Influence of government policies that control the business – hereby worth mentioning

is that government as a biggest employer23 in the Bulgaria has its own interest for protecting certain areas and industries like cement industry, fragrance industry etc Luckily to the Company neither textile nor retail industry are the areas with big state owned companies Therefore they are not under the governmental protection and in so-called “support mode”24

3 Government directions regarding consumer protection – in the respect of protection

of consumer, Bulgarian institutions are introducing laws and legislation in line with those

in other EU countries This is especially practiced since 2007 On one hand this might be

a problem for a Company since such a practice does not exist in Serbia But on the other side it is a challenge which if accomplished successfully might present Yugomar d.o.o as

a customer-friendly firm which really cares about their needs

4 Overall government economic policy – once again political instability caused the huge

variations among the economic policies over the years From one government to another, starting from 1990 economic priorities have been constantly changing and therefore economic policies which support them as well Worth mentioning is the fact that neither textile industry nor retail/trade industry have not been on the top priority agenda of the Bulgarian governments any time in past 20 years of post-socialistic period25

Based on several different sources Most important:

Harry Schwartz: Recent Activities of post-Soviet Economics; The American Economic Review, Vol 36, No 4; Sep 1996;

3.3.2 Economic factors

Economic factors also play an important role that affects a textile Company such as Yugomar d.o.o and many others from other industries

1 Average salaries and wages 26 - the graphic below shows that with an average of 402

euros per month, the highest salary holders are to be found in the Central (Sofia) region Behind is Northern-eastern region, averaging 331 euros, and the lowest still is the South-western region, at 291 euros In aggregate terms, annual Bulgarian GDP per capita is 341 euros per month Thus, owing to the inclusion of Bulgaria’s capital city, the Central (Sofia) region has both the highest average salary and largest urban area in the country

This parameter is of really huge importance for the company as it gives insight of the income available monthly On basis on this statistical information Company should strive to reach those regions with the highest incomes

2 Average spending on clothing and footwear (C&F) in Bulgaria - in the table 1 data

about household incomes in Bulgaria per major regions can be found On the other side, average amount spent of household budget on Clothing and Footwear (hereafter C&F) is calculated Also, there is summed value of money spent on C&F per major region and Bulgaria in whole Figures presented are based on the statistical information available at National Statistical Institute of Bulgaria

Category Bulgaria Central(Sofia) North-eastern South-western

Available monthly income 439 € 488 € 456 € 407 € Personal monthly consumption

% spending on C&F 5.00% 3.50% 6.2% 3.92% Monthly spending on C&F per

Number of households 2,536,714 575,107 704,232 1,257,375 Total yearly spending on C&F in

euros 638,095,957 € 118,573,960 € 243,896,045 € 275,285,544 €

3 Salary trend comparison - the table below concerns both nominal and actual salary

changes in Bulgaria for the period 2012 – 2016

Relative nominal

change

100% 108.00% 116.64% 125.97% 136.05% Nominal

monthly salary

BGN 834 BGN 900 BGN 967 BGN 1024 BGN 1136 Actual monthly

Table 2 above shows that over the next five years, the average nominal salary should increase

by about 36% On the other hand, actual salary is expected to increase by cca 12.5%27 Again, this is important for the Yugomar d.o.o since it is directly interested in purchasing power of the local population Information in previous table is subject to the constant changes and they are dependent on many different variables Due to this reason Yugomar d.o.o should closely observe development of the trend over the years

4 Clothing and footwear spending in the average Bulgarian household

Table 3 presents expected clothing and footwear spending in the next 5 years

Average monthly percentage of

Monthly C&F spending –

Monthly C&F spending -Euros 20.96 € 21.47 € 22.51 € 25.57 € 28.88 €

27 This is author’s conclusion based on the extrapolation of economics trend.

Table 1: Average spending on clothing and footwear

Source: D.Mladenovic based on Household Income, Expenditure and consumption during the 2011/2012

Table 2: Salary trend comparison

Source: D.Mladenovic based on Household Income, Expenditure and consumption during the 2011/2012

Table 3: Clothing and footwear spending in the average

Source: D Mladenovic based on Household Income, Expenditure and consumption during the 2011/2012 and questionnaire results

The predicted increase is a rise from 20.9628 euros to 28.88 euros Taking into consideration prices increases in the clothing and footwear market itself, conclusion can be drawn that there are proportionally increasing chances gathering profit and it goes without saying that a predicted market growth of this figure is a very desirable, and one which promises high profit margins if pursued with the right strategy Definitely market potential exists but on the other side considering political issues it is huge uncertainty how the situation is going to develop on the market That is why close and constant monitoring of this indicator is imposed as a necessity for the Company

3.3.3 Socio-cultural factors

1 Attitude towards foreign goods and services – based on the information

gathered from the National Statistical Institute of Bulgaria about the preferences and affinities29, conclusion could be drawn that Bulgarian locals do not have problems with purchasing foreign goods This is again confirmed with launching the survey in which useful comments are being putted exactly on this topic This is definitely extraordinary news for the Yugomar d.o.o since this attitude directly affects it and its future activities on the market

2 Demographics of the population – total number of citizens

Presented in both figures and percentage points, the table 4 is based on expected population changes during the next five years This table is of quite a big importance for the Company if observed in the context of the target group It provides the broader view of the demographic on-going trend One more fact that negatively might influence the Company in the long term is the ageing population30

Nominal numbers 7,441,295 7,407,261 7,363,387 7,329,672 7,286,115 Percentile change 100.00% 99.53% 99.06% 98.60% 98.13%

National Statistical Institute of Bulgaria; Demographic processes; October 2011;

Table 4: Demographics of the population

Source: D.Mladenovic based on National Statistical Institute of Bulgaria; Demographic processes; October 2011

3 Urbanization degree in Bulgaria - table 5 reflects the degree of urbanization in

Bulgaria as of 2012 The urban/rural divide is roughly equal, with just under half

of the population residing in urban areas This fact is of great significance, given the fact that Yugomar d.o.o stores are going to be located in urban areas, which in turn reduces and the size of the focus population by around 50% The age of the average rural inhabitant is 3931, meaning the circumstances are somewhat simpler for the company both statistically and geographically Therefore, it can be said that with a mostly urban focus population aged 12 – 39, and with all stores located

in these urban areas, Yugomar theoretically has exposure to around 70% – 80% of the population between 12 and 39 years of age These figures are based on official data at National Statistical Service of Bulgaria

Population Percentage

4 Population in aspect of age and employment - in the table 6 information

considering population in Bulgaria between age of 12 and 39 could be found, and

moreover divided into categories of Employed, Unemployed and Not active This

information is of great importance for the Company in order to follow the target group As its obvious “12-39”32

segment is pretty wide and in the table below segments could be observed

* Employed category considers population that finished school and has employment This population spends 7%

of average salary on C&F

** Unemployed category considers population that finished school, but is still unemployed This population spends 4% of average income on C&F

31

National Statistical Institute of Bulgaria; Demographic processes; October 2011;

32

According to the internal documentation of Yugomar d.o.o this age group is targeted in Serbia.

Table 5: Urbanization degree Source: D.Mladenovic based on National Statistical Institute of Bulgaria; Demographic processes; October 2011

Table 6: Population in aspect of age and employment

Source: D.Mladenovic based on National Statistical Institute of Bulgaria; Demographic processes; October 2011 and

***Not active category considers population that is unable to work due to other obligations or incapability,

example: pupils, students or handicapped people This population spends 4% of average salary on C&F

In the table presented above we can see that focus population of Yugomar in Bulgaria

is about 2.2 million people That is nominal number, but the real number of focus population (taking into account degree of urbanization) is between 1.5 and 1.8 million people Population between 19 and 29 experiences rapid decrease of “Not active” population and increase in “employed” category “Unemployed” population increases also but in a lower degree After the age of 29 the trend changes again Unemployed population starts to drop, Employed population continues to grow and Not active still drops down This is just overall conclusion in order to comment the findings from the table

Once again table above shows that employed population spends more than 230 million euros on C&F annually, than comes not active population with almost 167 million euros and in the end Unemployed population with 67 million euros of money spent on C&F Unemployed and Not active population is funded by their family (parents, grandparents, relatives abroad etc.) Population between age 12 and 39 spends about 464.7 million on C&F which is about 72 % of total market value Based

on the personal experience and research done by author in the previous years on other projects could be said that this percentage goes above 90 %

3.3.4 Technological factors

Technological progress is important for textile/retail companies, especially for those like Yugomar that strive to be innovative all time long Technological progress has been astonishing in any aspect in the last 20 to 30 years and will keep advancing in the future

1 Modern communication channels – communication channels with the customers

are present to the sufficient extent without any limitations Yugomar d.o.o would not have any problems to communicate with the customer and potential customers

2 Overall technology of doing a business – once again most of the technique

equipment necessary for the purpose of operating in Bulgaria is possible to purchase on the local market without any limitation or restrictions Worth