Tag Archives: George J. Stigler

Cool Things and New Markets

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This is a second part blog that follows upon the Barriers to Entry that was posted earlier. Enjoy.

When I first started in International Marketing, we would play a game called ‘Noogle night life’ (a combination of Newman and Google).  We would name a client (one that we wanted to work with), the age for the target audience and the number of attendees for the event and with a given max budget. We would all attempt to name the best venue in London, which led to some debate. But I learned that this game could be used in other areas of marketing and use it with Cool Sculpting.

Using George Stigler’s definition of barriers to entrance, I thought it might be a fun idea to discuss the possible barriers to market entrance that certain real life products might face.  And see if anyone has thoughts or feedback on their own challenges of bringing products to market. For our first posting of this project, I thought that we would look at Cool Sculpting by ZELTIQ.

This is a non-surgical option to liposuction that involves a one- to three-hour procedure that crystallizes fat, which is then eliminated from the body.  Cool Sculpting is our product, with barriers to entrance being the topic of discussion.  To make it more interesting I thought that we would look at barriers to entrance for Germany. Not simply because I find myself in Germany, but because the International Society of Aesthetic Plastic Surgery has just released research showing that Germany is the top country in Europe for aesthetic surgery.

Barriers to entrance:

  • Training – It is going to take time, time for doctors, doctors-assistants and nurses who will learn the procedure before they recommend it to patients. Live demonstrations during events and other types of fundraisers should be used to generate awareness and interest among doctors, nurses and doctors assistants.
  • Awareness – Looking at a Google search, there is little known about the Cryolipolysis procedure (the procedure of using cold temperature to destroy fat), and in Germany there is almost zero awareness of this product. A PR campaign should be the first point to generate knowledge and positive attitudes. We would look into promoting Cool Sculpting to a younger target audience.  As this is a less expensive procedure and as it is non-surgical it is possible to generate awareness among younger people who are not more than the 10-15 pounds overweight, as described by Cool Sculpting.
  • Price – According to European Medical Tourist,“Prices in Germany are normally 75% below the cost of liposuction in the US and are individually quoted.” These costs are lower due, in part to a national healthcare system that enforces price regulations. This is important to consider when pricing the procedure for Europe.  While there is no direct competitor on the market, this procedure does overlap with liposuction and should be priced appropriately.
  • Distribution Partners – The middleman is very important. Distribution partners are essential to developing and promoting products in Europe.  Having been to the Hannover Messe and CeBIT, we have learned first-hand the importance of locating and finding the best partners for your products.
  • Competition in the Market PlaceCool Sculpting seems to be first in this new niche market.  But this does not mean that there is not already a surplus of competing products on the market.  This does appear to create a competitive oligopoly.
  • DiversificationCryolipolysis procedures are relatively new, PR efforts can be used to generate awareness and bridge it indirectly to Cool Sculpting.  Germans tend to be more homeopathic in nature, opting to have natural sedatives rather than taking drugs. This is a strong advantage for Cool Sculpting in this market.
  • Regulations from healthcare authority – Each country in Europe has its own regulatory body that reviews and decides if new medications and or procedures are able to be placed on the market. A new product can take anywhere from several months up to 3 years of testing, depending on the procedure or drug. I would suggest networking and building contacts with the ISAPS, BAAPS (UK), the BVL and BfR (Germany). Also, we would consider to applying for a sher gut test. While this isn’t necessary for most cosmetic procedures, it has been proven helpful for products that may later face market competition from similar products to distinguish themselves early on.As for traditional advertising, consult a local boutique agency, ie. Life Healthcare Communications for the UK. Because regulations are extremely strict for anything relating to healthcare advertising in Europe, you must have someone in the market who understands what is possible.

“And what would you have us do, merchant?”

It would be our suggestion that you enter the European market in two ways. A PR campaign to tie Cool Sculpting to the success seen in the United States that will generate general awareness among the public. But this should be done carefully as to not fall into the obesity problem in the US, and Cool Sculpting being seen as just another quick fix.

Secondly, plan events to promote Cool Sculpting to dermatological doctors and surgical specialists with the topic revolving around Cryolipolysis. Have them lead discussions regarding other possible uses for this procedure. Promoting KOLs who are not only relevant in this area of expertise, but if they should also be indirect spokespersons for Cool Sculpting. We wouldn’t recommend general advertising in the first instance.

Creating an event sponsorship budget, for any medical boards that relate to either Cryolipolysis, liposuction, the ISAPS, BAAPS, EADV and EMAA, is also high on our ideas for effective market entry.

Finally, social media carries a lot of weight in Germany. For instance Xing.com, the German equivalent of LinkedIn, has just begun their first above the line marketing campaign. We

Note: This is a hypothetical case, NPL in no way represents nor works with Cool Sculpting. The purpose of this is to generate feedback from people and see what their thoughts are regarding barriers to entry. If we have misrepresented anyone, product or organization then contact as soon as possible and we will attempt to correct this. Now that the legal is done, the floor is open for discussions about what you would do.

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Barriers to entry, a short review

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George J. Stigler won an Alfred Nobel Prize in 1982 for his work in economics sciences, and his thoughts on barriers to entry have been shaping marketing ever since. Barriers to entry are obstacles or areas that block the path of a company who is attempting to enter a market.

For those of us who either slept through marketing economics, or it has blurred together between not sleeping and partying, I think a little refresher is in order. This is just a brief overview of barriers to market entry, so let us not over examine it.

Barriers protect firms who are competing in a market, by keeping newcomers out. They are also key to a company’s pricing power, giving a company the ability to raise or lower prices without losing customers.

Common types of barriers include: Advertising, Control of resources, Customer loyalty, Economies of scale, Distributor agreements, Government regulations, Inelastic demand, Intellectual property, Network effect, Predatory pricing, Research and development, Sunk costs and Vertical integration.

Michael Porter, the Bishop William Lawrence University Professor at Harvard Business School has defined some clear effects of high and low entry and exit barriers of market entrance.

  • High entry barriers have very few players, creating higher profits.
  • Low entry barriers have many players, creating lower profits.
  • Markets with high exit barriers are seen as unstable, causing profits to fluctuate.
  • Markets with low exit barriers are more self-regulated, and profits do not fluctuate as much.

There are also four general types of competition that relate to these theories:

  1. Perfect competition: Almost no entry barriers
  2. Monopolistic competition: Low entry barriers
  3. Oligopoly: High entry barriers
  4. Monopoly: Extremely High, almost Absolute entry barriers

So what does it all mean?
Simply, that if you think about things before you act then you’re twice as likely to accomplish your goals. But more importantly, there are many things that you should consider before launching a product into a new market. And as always, I have a quick example from my school days.

Example: Nike Air Jordans are for Gods
I remember, only slightly, reviewing case studies relating to missing the mark with product launches. One such case study that has always stuck with me is the case of Nike vs. CAIR. The article revolved around how Nike, in 1997-98 was force to recall 800,000 shoes because they had almost directly translated the word “Air” into “Allah.” This is probably one of the best cases of how a company must be aware of cultural differences when entering a new market, and how different cultures now play into market entrance.