1、Achieving leadership in China detergent market Project proposal Henkel (China) Investment Co. Ltd. ,Roland Berger & Partners International Management ConsultantsBarcelona Berlin Brussels Bucharest Budapest Buenos Aires Delhi Detroit Dsseldorf Frankfurt Hamburg Kiev Kuala Lumpur LisbonLondon Madrid M

2、ilan Moscow Munich New York Paris Prague Riga Rome So Paulo Shanghai Stuttgart Tokyo Vienna ZurichContentsPageA.Fierce competition from international and domestic players has imposed 3 great challenge on HenkelB. To achieve turnaround, Henkel should adopt an aggressive expansion strategy 10C.Roland

3、Berger will help develop the appropriate strategy: project outline12D. Project organization and time frame 22E. Value of the project 12F. Roland Berger is a best partner of Henkel to exploit China detergent market:12 selected referenceAnnex A: Case study - Qiqiang32Annex B: Case study - P&G42A. Fier

4、ce competition from international and domestic players has imposed great challenge on HenkelAfter fast increase in earlier 1990th, annual growth of China detergent market has slowed down in these yearsNational market volume of laundry detergentin Mio. tons199319941995199619972000* EstimationSource:

5、Chinese light Industry Yearbook(1999), Roland Berger & Partners analysis1.92.22.82.62.72.93.0+8.2% p.a.23%p.a.Gross profitability of Whitecat regular powderOvercapcity in detergent industryPrice reduction of Major brand(RMB/Kg)Overcapacity in detergent indudstry leads to price reduction and thus red

6、uces 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 lo

7、t 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%After having established prominent posi

8、tion 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：710RMB/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% Pr

9、oportion of low end market is 56.3%P&GOthersBenckiserUnilever P&GBenckiserOthersHenkelHenkelUnileverOthersResource: AC Nielson retailing audit 1999-2000Brand Share CompanyTide 6.0% P&GAriel 2.2% P&GOMO 2.4% UnileverPower 28 1.1% BenckiserPersil 0.1% HenkelMarket share of international playersbrands

10、in different segmentBrand Share CompanyGFL 2.2% P&GPanda 1.9% P&GWIPP 1.0% HenkelTianjin 1.8% HenkelDosia 1.0% BenckiserBack-upMarket stucture of middle end(Price：710RMB/Kg)Market structure of low end(Price：10RMB/Kg)Resource: AC Nielson retailing audit 1999-2000Although a late comer, Benckiser has s

11、uccessful penetrated north market with Dosia through well-designed entry strategy Through acquiring distributors from P&G, Dosia chose Liaoning province as its initial entry areaIn Heilongjiang and Jilin province, competitors are not so strong as that in other parts of China. local brands, such as T

12、iantian, are in dominant positions, so Dosia chose these two province as subsequent penetration areasCompetition 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 mar

13、ket and cultivate its qualified disbition channelIn 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

14、audit 1999-2000Some domestic players are also making efforts to achieve fast growth and national presenceMarket share of QiqiangMarket share of LibaiResource: AC Nielson retailing audit 1999-2000Fast growths of domestic players are supported by their rural focus strategy, nationwide manufacturing ne

15、twork 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 brandsInternational players have weak performance in rural areaLogistic cost i

16、s 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 townAfter achieving strong perfromance in rural area, then

17、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 outletstrong channel promotionAvoiding competing with strongs playersGaining marke

18、t share with comparatively low marketing investmentAvoiding competing with local playersReduction in logistic costFast market penetrationBut the sales expense is high and the sales force should be very diligentIn order to achieve turnaround, Henkel should adopt an aggressive expansion strategySix re

19、gional 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 marketStrategy formulation should be based on full understa

20、nding 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 marketPer capita consumption gra

21、dually decreases from south to north and from east to westConsumption of laundry detergent in Chinakg, per capitaSource: Roland Berger & Partners interview1.8823 kg per capita1.72 kg per capita3 kg per capita1.881.881.9521.821.953.351.951.952.352.353.351.6821.681.682.35Much low area2512(Shanghai)The

22、 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)Shanghai2

23、512738Tianjin866Chongqing362over 500 capita per square kilogram 276(Liaoning)866(Tianjin)738()209(Shanxi)443(Zhejiang)201(Guangxi)326(Hubei)188(Sanxi)177(Sichuan)400500 capita per square kilogram 300400 capita per square kilogram 200300 capita per square kilogram 100200 capita per square kilogram le

24、ss 100 capita per square kilogram For 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 developi

25、ng North and West of ChinaMiddle-end product take a higher share in East and South of ChinaHigh 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,000t778668537745High

26、 (10RMB/kg)Middle-end(710RMB/kg)Low-end(7RMB/kg)Resource: AC Nielson retailing audit 1999-2000East China is in intense competition and major players are all national brandsmarket volume by province 000 tonBrief analysis 115.7Jiangsu 307.570.3224.1HenanZhejiangShanghaiAnhui60.4Jiangsu and Henan have

27、the largest market volume in east ChinaJiamei, Whitecat, GiGE and Fangcao are traditional brands with strong regional market basesdistribution network is comparatively mature with some large distributors in dominanceQiqiang has successfully penetrate east China and established leadership with strong

28、 sales campaignLibai is planing to penetrate east ChinaDiaopai is also making efforts to enlarge its market share by offering high margin incentive to distributorsTotal: 778,000 tonsEastLow-end market size in South China000 TonSouthIn South, we recommend Hunan and Hubei are target market for market

29、entry because Libai almost control the whole low-end market in GuangdongCompetitive landscape 170Hunan190118179HubeiJiangxiGuangdongFujian84Libai almost control the whole low-end market in GuangdongResun as a regional brand holds half of Hunans low-end marketOne flower and Quanli has 30% and 20% of

30、low-end segment respectively in HubeiHunan and Hubei are the target market due to their large market size and weak competitorsTotal: 745,000 tonsWest region can only be Nirmas potential market in the second stage because of its limited market size and strong competitorLow-end market size000 ton77Sic

31、huan15469102GuangxiYunnanShanxiGuizhou69Qiqiang 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 marketWhitecat has setup a manufacturing site with 80,000 ton capacity in ChongqingLow pop

32、ulation density and per capita consumptionWest region can only be Nirmas potential market in the second stageTotal: 537,000 tonsWestAnalysis of opportunity Chongqin65Regional and local brands play the major roles in the Northern marketLow-end market size in North 1 and North 2000 tonCompetition volu

33、me shareNorth 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:Sha

34、ndong, Hebei, Shanxi, Tianjing14%North16%Shandong and Hebei are suggested as strategic focus in early entry periodmarket size in North 2 sub-region000 tonCompetition68Shandong18141.5132HebeiShanxiTianjing35.6In Shandong, Deer and Jiali holds 30% and 25% of the low-end market respectively. But weak f

35、inancial srength and less sophisticated marketing skill undermine their competitivenessIn 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 tons

36、NorthConsumeracceptanceProfile of major product formTrendProduct featureAverage price RMB/kgMarket shareMajor brandProductiontechnologyRegularConcen-trateUltra-concen-trateSpray dryDry mixAgglomera-tion TideWhitecatQiqiangArielWhitcatOMOGaochao(whitecat)90%8%2%7.911.418.0HollowLow densityFoamingHigh

37、 water solubilitySolidHigh densityNon-foamingExcellent stain removing efficacyHigh fluidityExcellent stain removing efficacyWell accepted in ruralHigh price undermines affordability and consumer acceptableNew productSpray-dry technology dominate the laundry powder industry sectorSource: Roland Berge

38、r & Partner interviewsRural consumer preferencePrice and money value are two most important factors influencing rural consumers purchasing decisionFoamingFragrantWater solubilityBig package size (400g, 750g)ProductPrimarily through grocery in village / townMarket / fair especially weekly marketPlace

39、Effective 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 interviewQiqiangs low price strategy proves to be successful in the low-end segmentRela

40、tive 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%Rural consumer behaviorImportanceKey factorPrice is the first decision factor for rural consumer

41、to buy detergent powerPriceStain removing EfficacyFoamingFragranceWater solubilityWhiteningEnzymatic+0-Price is the most important factor to affect consumer behavior in rural marketThe consumer also pay considerable attention to the stain removing efficacy of detergent powderThe rural consumer often

42、 evaluate the stain removing ability through the foaming effect of the detergent powderMost of the rural consumer also like the fraqrance brought by deterrent powderBecause in general fake product cant solubilized in water, the feature can help consumer distinguish real product with fake productThe

43、rural consumer seldom care for the whitening and enzymatic ability of detergent productExample: Decision factors of rural consumerThe customer behavior is fit with Nirmas low price strategySource: Roland Berger & Partners interviewBack-upLocation of manufacturing site of QiqiangMarket share by regio

44、nIn order to reduce the transportation cost, Qiqiang set up seven mainfacturing site national wideSource: Roland Berger & Partners interviewEastSouthWestNorthGuizhouBenxiSichuanNeimengShanxiAnhuiXianNo manufac-ture siteExample: Qiqiangs manufacturing site vs. Market performanceQiqiangs headquarterBa

45、ck upFocus on one regional market and concentrate the marketing resources at the beginningUsing accumulated experience to expand new market3 A systematic expansion strategy should be applied DescriptionSource: Roland Berger & Partners interview and analysisARegional penetrationBLow priceCFront attac

46、kDMotivated dealerEBenefited customerRecommended retail price is about 5.56.0 RMB/kgHigher price in the beginning to build up brand imageAllocating strong sales team to a new market by intensive marketing and promotionDelegate the built up market to a qualified distributor to manage Development a in

47、centive sales policy to motivate the dealers along the distribution channelAdopting well-acceptable approach to promote in the rural marketRetail price of major brand in ChongqingRMB/kgB The target retail price for Nirma should be less than 6 RMB/kg6.25Libai7.15.36.5WhitecatQiqiangNirmaSource: Rolan

48、d Berger & Partners survey and analysisResun2)5.56.01) Libais headquater is in Guangzhou and it is mostly produced by Resun in Hunan2) Local brand in Hunan province6.0RMB (0.72USD)/kg is the most popular accepted price for rural marketThe suggested retail price for Nirma is 5.5 6.0 RMB/kgThe whole s

49、elling price is about 80% of retail priceThe initial retail price should be higher for setting up brand imagePrice positioningSuccess 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

50、.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 ChinaRetail price: 6 RMB/kg- Drreet approach low-level wholsaler - Use strong promotion to push productLocal manu

51、facture & local sales- Seven manufacturing sites national wide with headquater in shanxiWell financed - 390 million RMB (47mio USD) was financed in stock market in April 199780%p.a.Example: Success factors for QiqiangBack upExampleDescription of approachDevelop customers and build up sales networkDe

52、legate a reliable distributor to manage the networkThe team is assigned to another new marketBuild 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

53、 sales team to support agent to promote as well as build up own know-howTake over the sales network and directly sell to whole sellersJoint attackDiaopaiYuxiuPower 28 (benckiser)Weibai (Henkel)Establish own sales branch locally Directly sell product to wholesalers and large retailerDirect attack(sel

54、l)Tide (P&G)OMO(OMO)QiqiangSource: Roland Berger & Partners? interviewC Front attack strategy is recommended for Nirma to penetrate new marketEmploy distributor and its own sales force (about 2000) to explore market in the meantimeDistributor focus on existing channels and areasWhitecat sales force

55、focus on unexplored new marketsBe flexible to different market situationLow reliance on distributors Possible conflict between distributors and its own sales forceTherefore, distributors may lose interest to work with WhitecatSlow response to changing market with hieratial management, e.g. the appro

56、val for a promotion plan will last 3 monthsC Whitecat uses distributor as well as its own sales force to jointly explore marketsDistributorWholesalerDescriptionWhitecats distribution channel mappingStrategyCONSSecondary distributorRetailerEnd consumerWhitecat regional sales officeEnd consumersRetail

57、erBack upWholesalerDistributorWhitecatSource: Roland Berger & Partners? interviewPROSIncapable to response to changing market and consumersDescriptionQiqings distribution channel mappingDispatch huge sales force to directly approach wholesalers and retailersSales Rep. regularly visit wholesalers and

58、 retailersProvide efficient logistics support and serviceRapid penetration into rural areaBuild fist-hand market an consumer knowledge Quick learningDifficult to manage huge sales force (about 2000)Delay of money collection and poor credit-term managementHigh selling expensesChannel conflictC Qiqian

59、gs distribution system greatly facilitates its market expansion despite of unprofessional managementRegular market/Fair*End consumersWholesalerSecondary wholesalerRetailer* Qiqiangs sales force promote and sell product in weekly market activity in rural areaStrategyPROSCONSHigh risk in the mature phaseQiqiangSource: Roland Berger & Partners? interviewBack upC After penetrating the new market by front attack, Nirma sh