PROBLEM SITUATION Launch of a shower cream under the Liushen Brand ECONOMIC & DEMOGRAPHIC DETAILS OF CHINA 1) 2) 3) 4) Large population of around 1.2 billion A focal point of global business GDP growth of 10% Allowed private ownership as a change to the state infrastructure policy 5) Rapid urbanization taking toll on farming land 6) Growing regional income disparity COSMETICS INDUSTRY 1) 2) 3) 4) Industry growth started after liberalization in 1980’s and 90’s 1500 companies operated in this industry 25 had annual sales of between 100 million and 1.5 billion RMB Many companies were small start ups that operated in the regional areas 5) Industry was concentrated in the richer regions of China FIE’s 1) Foreign players preferred to set up local manufacturing units to avoid high import taxes 2) The major players were P&G, Unilever, J&J, Henkel etc 3) Had the strengths of international brands, superior products, marketing expertise and financial resources DOMESTIC PRODUCERS

1) Had limited resources for product development and marketing efforts
2) Competed on price, with low quality and often short lived presence in the market COMPETITION 1) FIE’s were selling at 500% premium over local brands

2) Multinationals quickly established benchmarks for the industry and
3) 4) consumers Advertising budgets were huge and were capitalized by the multinationals Shower cream was launched in China by Unilever a. Offered a wide range of products b. Planned joint ventures to set up units in Shanghai to lower costs and thus reduce product prices c. Products were sold at a 100-200% premium to attain a high quality image d. Brands were focused and consistently positioned e. Extended the established Lux brand to launch the shower cream The crux was on building better lifestyle, beauty and glamour, personal success and professional care, which was well handled by the FIE’s. Traditional beauty soap was considered a major competitor a. Purchased either on price or fragrance b. Positioned on basis of skin type, beauty, fragrance and natural ingredients

5) 6)

c. Retail price at top end was increasing and range was widening
MARKET DISTRIBUTION 1) Forecasted revenues of 30 billion RMB in 2000

2) Uneven distribution with urban consumption 5-10 higher than rural
areas a. Products in rural markets tended to low priced, colorful, oily and heavily fragranced b. Selections in local shops was very limited c. Even in urban markets, there were differences between regional cities and provincial capitals, inland provinces and coastal provinces; thus there was a very diverse market in front of the marketers. 3) Coastal regions tended to be well populated with higher exposure to outside world through television, magazines etc. 4) Similar options were not available in small cities and islands TARGET MARKETS and SEGMENTS 1) The messages and advertising played well with the affluent young urban market

2) The chosen market was between 18-35 years of age 3) The affluent to middle income women were the key target segment a. Expected spending on cosmetics by these consumers was 20% of the income b. The segment tended to be fashion oriented c. Open to new concepts and willing to try new products d. Easily accessible through mass media, magazines e. They patronized downtown department stores SHANGHAI JAHWA 1) Had well regarded brand names such as Shuangmei 2) Launched a number of successful products under a variety of brands such as Liushen, Mingxing and Chinf de Chinf

COMPANY MANAGEMENT 1) Firm believers of modern management techniques and modernized industry 2) Aimed to set up several specialized manufacturing plants in the vicinity of Shanghai, to lower costs and increase quality 3) Rationalized the product line and set minimum contribution bars for products 4) Looked at offering higher value products to increase revenues ORGANIZATION STRUCTURE 1) Implemented the brand manager system 2) Recruitment of college educated managers for market research, new product launches , design and execution of marketing plans 3) New product development and quality improvement were fundamental 4) Good working environment with transparency DISTRIBUTION NETWORK 1) Changed to a sales network of 24 regional offices from a sole distributor network 2) Developed local distributors, supervision and management was handled effectively 3) Aim was to get closer to customers and consumers

PROBLEM AREAS 1) 2) 3) 4) Adoption of shower creams in the Chinese markets was slow It was a luxury item for most of the Chinese people Did not fit the lifestyles and habits of Chinese customers People were used to the dryness of the soap rather than the moisturizing effect of the cream

LIUSHEN BRAND 1) Was launched for the eau de toilette range 2) Launched in the form of tablets which were widely used in the summer season 3) Capture 25% of the market along with the other Jahwa brands 4) Products were widely distributed and retailed for RMB2 in 200 ml bottles 5) There was little advertising 6) Price differentials across brands were narrow 7) Was considered as a mature product 8) Jahwa was aiming to increase the share a. Launching a new product line associated with traditional therapies b. Liushen eau de toilette was launched at 100% premium over existing products c. Positioned as an improved product targeted at mainstream households

d. Investment was done intensively in television advertising, radio
and newspapers LIUSHEN SHOWER CREAM 1) Prototypes developed by Jahwa were standard formulations blended with the Liushen extract

2) Tests confirmed conformance to international specifications
3) Consumers identified Liushen brand as traditional and reliable 4) Liushen far led the competition in terms of reliability and quality

5) It was associated with words such as freshness, therapy, summer and

6) Strength of Liushen brand gave an incentive to allow the
extension to the shower cream

a. The focus group and in home test results were encouraging but not overwhelming

b. Only 20% had heard of a shower cream, and mainly through the
Lux advertisements c. It was perceived as a luxury product for women d. The consensus was on the right proportion of the Liushen extract SOLUTIONS 1) Using a soap based formulation rather than the moisturizing effect 2) Look at a differentiation point a. P&G focused on the anti-bacterial property which was very attractive to the Chinese consumers 3) Change the perception from a luxury brand a. Introduce varieties under the same brand with differential pricing b. Introduce sachets

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