Industry Analysis: Porters 5 Forces Model

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20/04/17 Marketing Reference this

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Among all writing instruments, ballpoint pen is widely used today due to their low cost and convenience in writing on paper of different surfaces. The current Pilot Frixion ballpoint pen has its downside which one is advised not to use the pen on legal or official documents and examination papers. When the temperature reaches 60 ° C, the ink will be colourless but it will be seen again at -10° C in freezer. The modification to the current innovation is that by increasing the heat tolerance of the present thermo-sensitive ink to the auto-ignition point of paper of about 451 degrees Fahrenheit, or 233 degrees Celsius, unintentional erasure will be prevented. So far, only Pilot has this kind of erasable ballpoint pen in the market.

Situational Analysis

Industry Analysis: Porter’s 5 Forces Model

The likelihood of new entry

There is a proliferation of no name ballpoint pens due to the relatively small-scale equipment and facilities that is needed in manufacturing and no legal restrictions on the importation and sale of ballpoint pens in Singapore. However, the gov’t prohibits counterfeit merchandise. Despite of this, Pilot is the most preferred pen brand by consumers in the Singapore market (Reader’s Digest Asia, 2011).

The power of buyers

Since the ballpoint pens are products used every day and are basically consumable supplies, it exhibits constant and inelastic demand pattern (Jalan, 2012). Buyers acquire their preferred ballpoint pen out of necessity for work that needs to handwritten.

The power of suppliers

A wide range of raw materials are needed for the components of a ballpoint pen, including metals, plastics, and ink chemicals which are abundant. Pilot can easily secure the suppliers which cater to its requirement of raw materials at its own factories in Japan, or produced on an OEM basis in China.

The degree of rivalry

Ballpoint pens represent the largest as well as fastest growing product category in the writing instruments industry (Vocus, 2011). Brands like Parker, Montblanc and hundreds of other players compete among each other in the ballpoint pen market.

The substitute threat

The rapid expansion of computerization lessens the matters which need to be handwritten. The increasing trend towards a paperless world changes the consumers’ buying patterns particularly with regards to pens (Tan, 2012). However, writing instruments are still a vital part of daily routine of a student to an executive working in an office.

Find out how to implement Porter’s 5 Forces Model with this helpful guide.

Market Characteristics: PEST Analysis

Political/Legal

Singapore is a country with a small population and limited resources thus foreign direct investments is encouraged. The island republic is known as an enterprise friendly country because of being one of the least corrupt countries in the world and having a stable political system ever since independence in 1965. Factors such as corruption-free government, strong legal and financial business framework from deregulation and liberalization of key industries supported by an educated workforce, make businesses thrive in the country.

Economic

According to the World Bank, the Gross Domestic Product of Singapore expanded 2% in the second quarter of 2012 over the same quarter of the previous year. From 2007 until 2012, Singapore GDP growth rate averaged 5.8% reaching an all-time high of 36.4% in March of 2010. This shows that Singapore is a highly developed and successful free-market economy. It enjoys a per capita GDP higher than that of most developed countries meaning people are affluent and consumption is vibrant.

Social

Based on the Yearbook of Statistics Singapore (2012), the total population in Singapore was last reported at 5.183 million people in 2011, up by 2.1% from 2010 but the birth rate per 1000 population is declining from 13.7 in 2000 to 9.5 in 2011 as reflected by the decrease in net reproduction rate of females in the period of 10 years. Thus, there is decrease of number of students enrolled in educational institutions from the high of 704,719 in 2008 to 689,060 in 2011. Therefore, even though Singaporeans are affluent but the declining birth rate causes the dwindling number of students, the largest users of pens.

Technological

Aside from the prevalent use of technology in the corporate world, the Singapore government has initiated many IT related policies in order for educational institutions to create a more effective learning environment through the use of technology. Governments around the world are exploring ways to integrate the use of tablet computers into their education systems (Tan, 2012). Soon, schools in Singapore will follow the trend such as in a Bangkok school where paper and pen have been replaced by tablet computers in a language class moving towards a paperless education system (Tan, 2012).

Customer Analysis

Writing instruments are still a vital part of daily routine of a student to an executive working in an office. In today’s fast-paced and technology-centric environment, consumers are constantly looking for products which enable them to best express themselves creatively (Tan, 2012). Moreover, consumer needs and preferences have changed and diversified, and nowadays writing instruments must be able to satisfy consumer status and brand name preferences that have made these articles into fashion articles with a sense of fun as much as practical necessities (ASEAN Promotion Centre on Trade, Investment and Tourism, 2004). Brand name preference is strongest among older adults, while young adults tend to be less interested in the brand label and more interested in functionality, style and fashion appeal (ASEAN Promotion Centre on Trade, Investment and Tourism, 2004). Taking the factors into account, Pilot has made the Frixion pen in such a way that every men and women of all ages can use and feels like having this ballpoint pen. The Pilot Frixion is targeted for students, the biggest users of ballpoint pen. For schoolgirls, ballpoint pens are a part of fashion, with cute design and rich color variation are important standards for them which are all found in the Pilot Frixion pen.

Competitor Analysis

Three companies hold the bulk of writing instrument market in Singapore namely Pilot, Montblanc and Parker. Pilot has been awarded the Platinum Award by the Reader’s Digest Asia Trusted Brands consecutively since 2009 over main competitors, Montblanc and Parker, which won the Gold Award respectively (Reader’s Digest Asia, 2011). The Platinum Award means that Pilot is way ahead of the other competitors three times or more as the most trusted brand by consumers in the pen category in Singapore.

Pilot Pen is constantly innovating itself to provide consumer with excellence, quality-driven and surprise products. The ASEAN- Japan Centre (2004) reports that different brands also stimulates demand by launching a number of unusual high added-value products that go beyond what people normally think of as writing instruments. Parker has released pens which “innovate new writing system” that will “revolutionize the look and feel of putting pen to paper (PR Newswire, 2011).” Montblanc (2012), on the other hand, has a contemporary line of pens that is defined by its “ergonomic and futuristic shape” with the combination of “innovative textures and pioneering design” giving it a smart modern look. Both competitors have products for all market segments but pens for the middle and lower income levels are priced more expensive than Pilot’s, thereby giving Pilot an upper hand in the middle income level. With all the innovation competitors have, none in Singapore market have introduced an innovative erasable ballpoint pen such as Pilot Frixion.

Product offering

Pilot Frixion merely looks like another ordinary ballpoint pen but it has rubber tip eraser that erases cleanly all of your errors using friction with no debris. The technology that underlies is the thermo-sensitive ink which allows erasing by friction cleanly and repeatedly without tearing the writing paper. It comes with different colours, refillable and needle point tip precision for clean lines. With this pen, one may do away with the blue pen eraser that leaves lots of eraser dust or shavings behind and probably a tear on the paper; or the correction liquid fluid which makes the paper ugly and messy at times.

SWOT Analysis

SWOT Analysis is an essential method to look into Pilot Frixion external and internal marketing environment.

Strength

Pilot Pen brand achieved leadership status as reflected by the awards it has attained over the years. Pilot Pen generates intense word-of-mouth marketing thru relentless promotions and marketing activities by tapping the patronage of the youth market which propelled Pilot pen to the top of the Singapore market. Therefore, Pilot has gained strong brand recognition, rising sales that contributes profitability, and market leadership.

Weakness

The initial investment spent on the research and development of the innovative erasable pen is relatively high. Also, the cost of production of the erasable pen is higher than other no name ordinary ballpoint pens. Therefore, the Frixion pen is more expensive than other no name ballpoint pens but is cheaper compared with branded main competitors.

Opportunity

There is the opportunity to introduce innovative products, accommodating the growing consumer demand for writing instruments that are fashionable with practical necessities by the customers who are young and hip such as students. New technology allows the improvement of the durability of a pen where the kind of raw material, metals and inks used while manufacturing these pens makes it more consumer friendly (Jalan, 2012).

Threat

First, it is a highly competitive cut-throat industry. Not only does Pilot Pen need to compete against the cheap pens from China, but also have to address competition from established competitors. Another threat is the unstable economy brought about by the Global Financial Crisis which can dampen market demand for all type of products including pens. Furthermore, threats from the diversification of consumer needs, computerization has reduced demand for pens and a decrease of number of students caused by a declining birth rate in Singapore.

Marketing Research and Information

The information gathered from the marketing research, through market test feedbacks, surveys and focus groups will be invaluable to us in perfecting the Frixion pen. Likewise, we will look into the success and efficacy of our advertisements with the use of brand awareness research. Lastly, we will analyse customer’s outlook towards the competitors to measure market reaction. The collected data will have a positive and profound effect on the project’s success.

Marketing Strategy

Vision and Mission

Mission: To provide great quality, innovative, user friendly pen with an affordable price to allow users to express themselves freely.

Vision: To be known in the history of writing instruments for the invention of the world’s first erasable ballpoint pen.

Marketing Objectives

We have set aggressive but achievable objectives for the first and second year of the product’s entry in the market.

• First-Year Objectives. We are aiming for a 50% share of Singapore’s student market through unit sales volume of 350,000, half of the student population.

• Second-Year Objectives. Our second-year objective is to achieve 90% of whole student population of Singapore of approx. 700,000 individuals.

Financial Objectives

We will aim to generate a minimum of SGD 700,000 in sales revenue during the first year of the product introduction into the market, conservatively forecast if there are no repeat customers. We will enforce that the maximum cost of the product accounts for 50% of the sales revenue and at the same time find ways of lowering them to be more price competitive in the market but not compromising on quality. We will wisely spend on advertising that will only give best value possible for the product and monitor its expenses within the budget allocated.

Target Market and Segmentation

The target market of Pilot Frixion pen involves all people who can write, lead active lifestyles in school or leisure. The aforementioned customers tend to write a lot, which makes the students the most frequent clientele of Pilot Pen. The target market is 40% male and 60% female as young female tends to use more of our pens that comes with different colours; youth age group as these customers are attending secondary school up to polytechnic which has the most student population; coming from medium-income families in Singapore as our pen is neither expensive nor cheap.

Students use ballpoint pens all the time when taking exams or doing home works, letter or essay writing, playing Sudoku or crossword puzzles as well as drawing and sketches. More often than not, in these activities, one makes mistakes and needs to either scribble it up or crumple the whole piece of paper away. The Frixion pen saves all these hassles and frustrations commonly experienced by the students.

Positioning

Using product differentiation and innovation, we are positioning Pilot Frixion pen as the world’s first erasable ballpoint pen that is trustworthy, reliable, user-friendly and stylish for literate users targeting on the student population. Our marketing will focus on the strengthening the brand equity that Pilot pen has in Singapore because of its innovative designs, reliability, and value of money that differentiates the Frixion pen from competitors.

Broad Overall Strategy

The long-range goal of Pilot Frixion pen is to not only dominate the writing instruments ballpoint pen market, but to also create an iconic product in the history of great inventions.

We need to position or define the Pilot Frixion as a new innovative and revolutionary product specially made for students in the writing instruments industry. Therefore, effort should be put on widening the product awareness among students to develop customer loyalty. Online advertising in social media is an effective means of directly connecting with the target market and at the same time being cost effective. Therefore, in the future when students become working adults, they will continue patronizing the Pilot brand and there is a set of products suitable for them in the waiting.

Strengthening and widening the partnerships with Singaporean educational institutions by continuing the sponsorship of the school’s badminton tournament is essential. Over the years, the ‘Pilot Pen Cup’ has successfully established good relationships with students (Swenson & Ongpin, 2005). We have succeeded in influencing the buyer behaviour according to our previous market research. The company is intensifying with its image of a nurturing student to be well-rounded both academically and sports. For the launching of Frixion pen, we will use this method to better communicate with our target market and clearly understand consumer perception towards the brand. We will also collaborate with some non-profit organizations for charity work, provide scholarships for students, thereby fulfilling our obligation to the society of our corporate social responsibility, in order to enhance the image and enrich the value of whole organization.

Marketing Mix

Pilot Frixion Pen’s marketing mix is comprised of the following approaches to product, price, place and promotion.

Product: The Pilot Frixion pen, including all the features described in the earlier Product Offering section and more, will be sold a warranty that the ink will not be disappearing on a temperature below the auto-ignition point of paper or else refund or replacement will be accepted. Thereby, enforcing tight control measures to closely monitor quality and customer satisfaction. We will ensure that there is ample supply of replacement parts such as ink refills and other types of after-sales service. Pilot’s iconic brand and logo is distinctly placed in our pen’s packaging as well as in all marketing campaigns.

Price: The pen will be introduced at a retail price of SGD 2.20, same price as the current Frixion pen in the market. The pricing scheme is calculated to include the production cost and the cost for research and development of the product. We try to keep the selling price constant for the years ahead in line with our intention to make high-quality product reasonably priced.

Place: Our focus is to retail the Frixion pen at partner educational institutions’ bookshop to make it convenient for students to purchase. We will also channel our products at major bookstores and stationary shops thru wholesalers and distributors all over Singapore.

Promotion: With the utilization of all kinds of media, we will highlight the Pilot brand equity and the product differentiation of the Frixion pen. The advertising agency will help us in generating buzz before and during the product introduction, then advertisements is undertaken on a seasonal basis to maintain brand and product awareness. We are emphasizing on the partnership with educational institutions in sports and academics to fulfil our corporate social responsibility of nurturing students to be well-rounded.

Financials

This section will offer a financial overview of Frixion pen. We will address break-even calculation, sales forecasts, and expense forecasts.

Breakeven

Our break-even calculation is set at revenue of $2.20 per unit, based on the current price of existing Pilot pen in the market. Variable cost is assumed $1.00 per unit: 45% of the selling price, and estimated fixed costs of SGD $300,000. Based on these assumptions, the break-even calculation is as follows:

Sales Forecast

Based on market research, students on average purchase 3 pens in a year. We will count on repeat customers. With this information on hand, we are planning to sell 1.05 million units from the assumption that 50% of the student population of Singapore (350,000). For the 2nd year, we are planning to capture 90% of the student population in Singapore of almost 700,000 which has potential sales of 1.89 million units for average of 3 pens purchased by a student each year.

Expenses Forecast

The marketing expenses for marketing research are budgeted highly in the first year to gather customer feedback thru polls and surveys needed for making improvements and check if the plan is effective. Internal marketing department fund has been set aside for a fixed amount each year. We also allocated a big portion of the budget to advertising so more money is spent in the first year as a means for making visibility for this new product and it will decrease in the second year but seasonal advertisement is made during the start of the school year.

For advertisement, the biggest portion goes to sponsorship of an educational institution’s sports tournaments and academic research. This method is effective for Pilot’s other product line that propelled the brand to being on top of the Singapore market. The rest are celebrity endorsements, TV advertisements, vehicle wrap advertising, billboards, online advertising and others.

Control Procedure

The management will observe the progress of the marketing plan by monitoring customer feedback through polls and surveys and make adjustments according to the results of the feedback. We will also compare the projections from marketing plan to the actual sales from the target market to see if any changes need to be made. We will closely monitor the marketing budget used for advertising, market research studies and internal department costs to minimize spending and maximize profitability. Lastly, we will examine the target market share percentage to see if it surpass or fall short of expectations and rectify as needed.

Contingency Plan

Below are the remedies to some possible eventualities. These will enable us to react very quickly to correct any problems that may occur.

If the customer feedback shows that our marketing campaigns is not well-liked by the public, it should be replaced immediately.

If sales are down for the target market, we need to conduct more market research to comprehend why the target audience is not responding to the marketing. If the original target market was inaccurate, we will change to a new target market based on sales data gathered.

If the marketing expenses exceeded the budget allocated, we will examine it and find out exactly where spending increases come from and see if it is necessary or not.

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