罗兰贝格德国汉高公司进入中国市场策略项目建议书
- 1. Nirma\interim-rptAchieving leadership in China detergent market – Project proposal – Henkel (China) Investment Co. Ltd. ,Roland Berger & Partners – International Management Consultants Barcelona – Beijing – Berlin – Brussels – Bucharest – Budapest – Buenos Aires – Delhi – Detroit – Düsseldorf – Frankfurt – Hamburg – Kiev – Kuala Lumpur – Lisbon London – Madrid – Milan – Moscow – Munich – New York – Paris – Prague – Riga – Rome – São Paulo – Shanghai – Stuttgart – Tokyo – Vienna – Zurich
- 2. Nirma\interim-rptContents PageA. Fierce competition from international and domestic players has imposed 3 great challenge on Henkel B. To achieve turnaround, Henkel should adopt an aggressive expansion strategy 10 C. Roland Berger will help develop the appropriate strategy: project outline 12 D. Project organization and time frame 22 E. Value of the project 12 F. Roland Berger is a best partner of Henkel to exploit China detergent market: 12 selected reference Annex A: Case study - Qiqiang 32 Annex B: Case study - P&G 42
- 3. A. Fierce competition from international and domestic players has imposed great challenge on Henkel
- 4. Nirma\interim-rptAfter fast increase in earlier 1990th, annual growth of China detergent market has slowed down in these yearsNational market volume of laundry detergent [in Mio. tons]199319941995199619972000** EstimationSource: Chinese light Industry Yearbook(1999), Roland Berger & Partners’ analysis1.92.22.82.62.72.9~3.0+8.2% p.a.2~3%p.a.
- 5. Nirma\interim-rptGross profitability of Whitecat regular powderOvercapcity in detergent industryPrice reduction of Major brand (RMB/Kg)Overcapacity in detergent indudstry leads to price reduction and thus reduces the product profitability At present, there are about 150 manufactures in detergent industry with capacity of 3.8 million tons, but total market volume is about 2.7 million tons, so the utilization rate of capacity is about 70% Marekt entry of detergent industry is pretty low and there lies a lot of unregistered factories, If taking their capacity into account, the utilizaition rate will be furthur reduced to about 50%-60% 11%1998年 1999年3%TideOMO18.016.518.817.35.54.8Whitecat (regular powder)1998年1999年Average price reduction of the whole industry is 10%
- 6. Nirma\interim-rptAfter having established prominent position in high end market, P&G and Unilever begin to penetrate middle and low end marketMarket structure of high end (Price：>10RMB/Kg)Market stucture of middle end (Price：7~10RMB/Kg)Market structure of low end (Price：<7RMB/Kg)Proportion of high end market is 11.9% Proportion of middle end market is 31.8% Proportion of low end market is 56.3%P&GOthersBenckiserUnilever P&GBenckiserOthersHenkelHenkelUnileverOthersResource: AC Nielson retailing audit 1999-2000
- 7. Nirma\interim-rptBrand Share Company Tide 6.0% P&G Ariel 2.2% P&G OMO 2.4% Unilever Power 28 1.1% Benckiser Persil 0.1% HenkelMarket share of international players’brands in different segmentBrand Share Company GFL 2.2% P&G Panda 1.9% P&G WIPP 1.0% Henkel Tianjin 1.8% Henkel Dosia 1.0% BenckiserBack-upMarket stucture of middle end (Price：7~10RMB/Kg)Market structure of low end (Price：<7RMB/Kg) Brand Share Company Fangcao 2.5% Unilever Yunquan 0.8% Unilever Sunlight 0.2% Unilever Seagull 2.9% Henkel Tiantian 1.5% Henkel Guilin 1.2% Henkel Market structure of high end (Price：>10RMB/Kg)Resource: AC Nielson retailing audit 1999-2000
- 8. Nirma\interim-rpt
- 9. Nirma\interim-rptAlthough a late comer, Benckiser has successful penetrated north market with Dosia through well-designed entry strategy Through acquiring distributors from P&G, Dosia chose Liaoning province as its initial entry area In Heilongjiang and Jilin province, competitors are not so strong as that in other parts of China. local brands, such as Tiantian, are in dominant positions, so Dosia chose these two province as subsequent penetration areas Competition is in choas in Shandong, and distribution network is not well regulated with lots of small distributors/wholesalers competing with each other, so it is easy for Dosia to penetrate the market and cultivate its qualified disbition channel In order to guarantee the success, channel penetration is also backed up by strong advertisement champaign Marekt share of Dosia in north China Market entry design Jan 1999Mar 1999May 1999Jul 1999Sep 1999Nov 1999Jan 2000Resource: AC Nielson retailing audit 1999-2000
- 10. Nirma\interim-rptSome domestic players are also making efforts to achieve fast growth and national presenceMarket share of QiqiangMarket share of LibaiResource: AC Nielson retailing audit 1999-2000
- 11. Nirma\interim-rptFast growths of domestic players are supported by their rural focus strategy, nationwide manufacturing network and direct sales model Market penetration strategy taken by fast growing domestic playersRural focus strategyNationwide manufacturing networkDirect sales modelRural market is large but is dominanted by weak regional brands International players have weak performance in rural areaLogistic cost is high in detergent industry accouting for over 10% in total value Long distance transportation in China is not oonvient For a new comer, it is not easy to get qualified local distirbutorsReason MethodResult First penetrate rural market and town After achieving strong perfromance in rural area, then penetrate city and large countyAcquiring local players in different areas (Qiqiang) Signing OEMcontracts with local players in different areas(Guangdong Libai)Directly selling products to low level dealers or retailing outlet strong channel promotionAvoiding competing with strongs players Gaining market share with comparatively low marketing investmentAvoiding competing with local players Reduction in logistic costFast market penetration But the sales expense is high and the sales force should be very diligent
- 12. Nirma\interim-rptIn order to achieve turnaround, Henkel should adopt an aggressive expansion strategySix regional brands with comparative weak market performanceDeterioration of market share for each brand, defeated by strong international or domestic brands one by oneAggressive expansion strategyNo change Turnaround pointLeadership in detergent market
- 13. Nirma\interim-rptStrategy formulation should be based on full understanding of China detergent market and full consideration of three strategic issuesStrategy formulationChoice of focus brand and strategic expansion routeEstablishing reliable and low cost logistic networkDeveloping rural entry modelFull understanding of China detergent market
- 14. Nirma\interim-rptPer capita consumption gradually decreases from south to north and from east to westConsumption of laundry detergent in China [kg, per capita]Source: Roland Berger & Partners’ interview1.882~3 kg per capita1.7~2 kg per capita<1.7 kg per capita••••••••••••••••••>3 kg per capita1.881.881.9521.821.953.351.951.952.352.353.351.6821.681.68•2.35Much low area
- 15. Nirma\interim-rpt2512(Shanghai)The high population density is located in the North China plainSource: Roland Berger & Partners’ interview146(Jilin)343(Hebei)586(Shandong)578(Henan)715(Jiangsu)273(Fujian)308(Hunan)392(Guangdong)108(Yuannan)362(Chongqing)471(Anhui)Back upMunicipality population density (includeing suburb area) Shanghai 2512 Beijing 738 Tianjin 866 Chongqing 362over 500 capita per square kilogram 276(Liaoning)866(Tianjin)738(Beijing)209(Shanxi)443(Zhejiang)201(Guangxi)326(Hubei)188(Sanxi)177(Sichuan)400~500 capita per square kilogram 300~400 capita per square kilogram 200~300 capita per square kilogram 100~200 capita per square kilogram less 100 capita per square kilogram
- 16. Nirma\interim-rptFor different region, market segment structure is also different because of various income level and consumption habitSegment structure by regionCommentsNorthWestEastSouthLow end market account for over 50% of total market and is especially large in the low developing North and West of China Middle-end product take a higher share in East and South of China High end market is comparatively higher in south market because of its high income level and accptance of concentrate powder50.9%56.7%57.3%40.9%45.9%30.6%31.8%39.9%9.2%11.5%12.1%13.2%Total [,000t]778668537745High (>10RMB/kg)Middle-end (7~10RMB/kg)Low-end (<7RMB/kg)Resource: AC Nielson retailing audit 1999-2000
- 17. Nirma\interim-rptEast China is in intense competition and major players are all national brandsmarket volume by province [’000 ton]Brief analysis 115.7Jiangsu 307.570.3224.1HenanZhejiangShanghaiAnhui60.4Jiangsu and Henan have the largest market volume in east China Jiamei, Whitecat, GiGE and Fangcao are traditional brands with strong regional market bases distribution network is comparatively mature with some large distributors in dominance Qiqiang has successfully penetrate east China and established leadership with strong sales campaign Libai is planing to penetrate east China Diaopai is also making efforts to enlarge its market share by offering high margin incentive to distributorsTotal: 778,000 tonsEast
- 18. Nirma\interim-rptLow-end market size in South China [’000 Ton]SouthIn South, we recommend Hunan and Hubei are target market for market entry because Libai almost control the whole low-end market in GuangdongCompetitive landscape 170Hunan190118179HubeiJiangxiGuangdongFujian84Libai almost control the whole low-end market in Guangdong Resun as a regional brand holds half of Hunan’s low-end market One flower and Quanli has 30% and 20% of low-end segment respectively in HubeiHunan and Hubei are the target market due to their large market size and weak competitorsTotal: 745,000 tons
- 19. Nirma\interim-rptWest region can only be Nirma’s potential market in the second stage because of its limited market size and strong competitorLow-end market size [’000 ton]77Sichuan15469102GuangxiYunnanShanxiGuizhou69Qiqiang takes 44% of low-end market with three manufacturing sites (Sichuan, Guizhou and Sanxi) P&G take over one major local brand (Nanfeng) in chongdu to expand low-end market Whitecat has setup a manufacturing site with 80,000 ton capacity in Chongqing Low population density and per capita consumptionWest region can only be Nirma’s potential market in the second stageTotal: 537,000 tonsWestAnalysis of opportunity Chongqin65
- 20. Nirma\interim-rptRegional and local brands play the major roles in the Northern marketLow-end market size in North 1 and North 2 [’000 ton]Competition [volume share]North 228%22%3%North 130%37%TiantianOthers2%14%30%QiqiangYunquanMulanJialiQiqiangDeerJialiJianlongSeagullOthersSource: by Henkel (Tiantian) and Unilever (Yunquan)Except Qiqiang four local brands are the major players in North 1 and North 2North1: Liaoning, Jiling, Heilongjiang458210North2: Shandong, Hebei, Shanxi, Beijing Tianjing14%North16%
- 21. Nirma\interim-rptShandong and Hebei are suggested as strategic focus in early entry periodmarket size in North 2 sub-region [’000 ton]Competition68Shandong18141.5132HebeiShanxiTianjingBeijing35.6In Shandong, Deer and Jiali holds 30% and 25% of the low-end market respectively. But weak financial srength and less sophisticated marketing skill undermine their competitiveness In Hebei the detergent market is highly fragmented with Qiqiang winning less than 20% market share, the rest are insignificantIn Shandong and Hebei a strong and dominant brand is non-existent yetTotal:458,000 tonsNorth
- 22. Nirma\interim-rptConsumer acceptanceProfile of major product formTrendProduct featureAverage price [RMB/kg]Market shareMajor brandProduction technologyRegularConcen- trateUltra- concen- trateSpray dryDry mixAgglomera- tion Tide Whitecat QiqiangAriel WhitcatOMO Gaochao (whitecat)90%8%2%7.911.418.0Hollow Low density Foaming High water solubilitySolid High density Non-foaming Excellent stain removing efficacyHigh fluidity Excellent stain removing efficacyWell accepted in ruralHigh price undermines affordability and consumer acceptableNew productSpray-dry technology dominate the laundry powder industry sectorSource: Roland Berger & Partner interviews
- 23. Nirma\interim-rptRural consumer preferencePrice and money value are two most important factors influencing rural consumers’ purchasing decisionFoaming Fragrant Water solubility Big package size (400g, 750g)ProductPrimarily through grocery in village / town Market / fair especially weekly marketPlaceEffective tool to induce trial during introduction period Using daily necessities as prize is well acceptedPromotionPopular acceptable price in rural market: 6.0 RMB/kg Price rangeSource: Roland Berger & Partners’ interview
- 24. Nirma\interim-rptQiqiang’s low price strategy proves to be successful in the low-end segmentRelative price comparison in low end segment (<7RMB/KG) [Total low end segment =100%]012345675.25.46.06.26.36.4TiantianResunYueyuehongFangcaoSeagullQiqiangQuanliMianghuaPrice (RMB/kg)Volume share3%3%30%6%5%3%3%3%
- 25. Nirma\interim-rptRural consumer behaviorImportanceKey factorPrice is the first decision factor for rural consumer to buy detergent powerPrice Stain removing Efficacy Foaming Fragrance Water solubility Whitening Enzymatic+++ ++ ++ + 0 - -Price is the most important factor to affect consumer behavior in rural market The consumer also pay considerable attention to the stain removing efficacy of detergent powder The rural consumer often evaluate the stain removing ability through the foaming effect of the detergent powder Most of the rural consumer also like the fraqrance brought by deterrent powder Because in general fake product can’t solubilized in water, the feature can help consumer distinguish real product with fake product The rural consumer seldom care for the whitening and enzymatic ability of detergent productExample: Decision factors of rural consumerThe customer behavior is fit with Nirma’s low price strategySource: Roland Berger & Partners’ interviewBack-up
- 26. Nirma\interim-rptLocation of manufacturing site of QiqiangMarket share by regionIn order to reduce the transportation cost, Qiqiang set up seven mainfacturing site national wideSource: Roland Berger & Partners’ interviewEastSouthWestNorthGuizhouBenxiSichuanNeimengShanxiAnhuiXi’anNo manufac- ture siteExample: Qiqiang’s manufacturing site vs. Market performanceQiqiang’s headquarterBack up
- 27. Nirma\interim-rptFocus on one regional market and concentrate the marketing resources at the beginning Using accumulated experience to expand new market3 A systematic expansion strategy should be applied DescriptionSource: Roland Berger & Partners’ interview and analysisARegional penetrationBLow priceCFront attackDMotivated dealerEBenefited customerRecommended retail price is about 5.5~6.0 RMB/kg Higher price in the beginning to build up brand imageAllocating strong sales team to a new market by intensive marketing and promotion Delegate the built up market to a qualified distributor to manage Development a incentive sales policy to motivate the dealers along the distribution channelAdopting well-acceptable approach to promote in the rural market
- 28. Nirma\interim-rptRetail price of major brand in Chongqing [RMB/kg]B The target retail price for Nirma should be less than 6 RMB/kg6.25Libai7.15.36.5WhitecatQiqiangNirmaSource: Roland Berger & Partners’ survey and analysisResun2)5.5~6.01) Libai’s headquater is in Guangzhou and it is mostly produced by Resun in Hunan 2) Local brand in Hunan province6.0RMB (0.72USD)/kg is the most popular accepted price for rural market The suggested retail price for Nirma is 5.5 ~6.0 RMB/kg The whole selling price is about 80% of retail priceThe initial retail price should be higher for setting up brand imagePrice positioning
- 29. Nirma\interim-rptSuccess factors for QiqiangMarket share of QiqiangB Qiqiang fast expansion stems from its appropriate marketing strategy and manufacturing strategy12.6%Aug.-Sep. 977.2%13.2%8.3%Dec.-Jan. 98Apr.-May. 98Aug.-Spt. 98Low cost & low price - The salary level in Shanxi is about half of whitecast in Shanghai - raw-material advantage its Na2 So4 has 35% market share in China Retail price: 6 RMB/kg - Drreet approach low-level wholsaler - Use strong promotion to push product Local manufacture & local sales - Seven manufacturing sites national wide with headquater in shanxi Well financed - 390 million RMB (47mio USD) was financed in stock market in April 199780%p.a.Example: Success factors for QiqiangBack up
- 30. Nirma\interim-rptExampleDescription of approachDevelop customers and build up sales network Delegate a reliable distributor to manage the network The team is assigned to another new market Build up a long-term agent relationship with the distributorExample: New market entry approach in ChongqingFront attackUse several qualified agents to sell product with long-term credit term (3 months) Send a sales team to support agent to promote as well as build up own know-how Take over the sales network and directly sell to whole sellersJoint attackDiaopai YuxiuPower 28 (benckiser) Weibai (Henkel)Establish own sales branch locally Directly sell product to wholesalers and large retailerDirect attack (sell)Tide (P&G) OMO(OMO) Qiqiang Source: Roland Berger & Partners? interviewC Front attack strategy is recommended for Nirma to penetrate new market
- 31. Nirma\interim-rptEmploy distributor and its own sales force (about 2000) to explore market in the meantime Distributor focus on existing channels and areas Whitecat sales force focus on unexplored new marketsBe flexible to different market situation Low reliance on distributors Possible conflict between distributors and its own sales force Therefore, distributors may lose interest to work with Whitecat Slow response to changing market with hieratial management, e.g. the approval for a promotion plan will last 3 months C Whitecat uses distributor as well as its own sales force to jointly explore marketsDistributorWholesalerDescriptionWhitecat’s distribution channel mappingStrategyCONSSecondary distributorRetailerEnd consumerWhitecat regional sales officeEnd consumersRetailerBack upWholesalerDistributorWhitecatSource: Roland Berger & Partners? interviewPROSIncapable to response to changing market and consumers
- 32. Nirma\interim-rptDescriptionQiqing’s distribution channel mappingDispatch huge sales force to directly approach wholesalers and retailers Sales Rep. regularly visit wholesalers and retailers Provide efficient logistics support and serviceRapid penetration into rural area Build fist-hand market an consumer knowledge Quick learningDifficult to manage huge sales force (about 2000) Delay of money collection and poor credit-term management High selling expenses Channel conflictC Qiqiang’s distribution system greatly facilitates its market expansion despite of unprofessional managementRegular market/Fair*End consumersWholesalerSecondary wholesalerRetailer* Qiqiang’s sales force promote and sell product in weekly market activity in rural areaStrategyPROSCONSHigh risk in the mature phaseQiqiangSource: Roland Berger & Partners? interviewBack up
- 33. Nirma\interim-rptC After penetrating the new market by front attack, Nirma should shift the distribution to a qualified distributorPhase: Growth periodProvincePhase I: Entry periodPrefecture municipalCountryTownRuralWholesalerSecondary* wholesalerRetailerEnd consumersRegional sales office / teamRegional sales officeFirst-tier distributionSecond-tier distributionWholesalerSecondary wholesalerRetailerEnd consumers* Only partly exist in coastal market, E.g. ShandongSource: Roland Berger & Partners? interviewLeverage distributor to multiple sales and coverage Shift credit risk
- 34. Nirma\interim-rptD Attractive incentive package should be developed to motivate dealer to promote NirmaKey success factorsKeep channel members motivated with sufficient incentive Avoid channel conflict Provide efficient logistics support Keep close communication with channel membersImpetus in the distribution channelDiscountMarginSubsidyBundling salesFirst-tier distributorSecond-tier distributorWholesalerSecondary wholesalerRetailer
- 35. Nirma\interim-rptCertain percentage of sales value, E.g. 3% if one dealer sells over 5,000 tonsD There are four driving forces in the distribution channelDefinition Source: Roland Berger & Partners’ interviewDiscountMarginSubsidyBundling-salesThe margin between in-stock price and out-stock price, E.g. 1-2% of out-stock priceManufacturer pay the transportation fee or promotion fee for distribution with good performanceWholesaler sell product to 2nd wholesaler or retailer by bundling the fast-moving product with slow-moving but high margin goods Back up
- 36. Nirma\interim-rptAcceptability by rural consumersApproachBrandTide Power 28 Weibai Diaopai Whitecat Qiqiang Bestowal(detergent 100g/bag) Buy 2 get 1 free Lucky draw Bestowal ( a year calendar) Recruit local resident to deliver billboard Daily necessity as prize Recruit local student to promote from door to door Daily necessity as prizeExample: promotion approach in Chongqing rural marketE Nirma should adopting a well-accepted approach to promote its brand and product based on the survey of target consumersSource: Roland Berger & Partners’ interview
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