Professional Documents
Culture Documents
How Danone as a Global Brand has developed its International Marketing Strategy
in the Chinese market
In this essay we will study the Danone brand, which is primarily used for Fresh Dairy
Products and represents 60% of the group’s sales (Danone, 2012)1. We will assess the
strength of the Danone brand globally and discuss the entry into the Chinese market, where
the Danone logo is used for the bottled water, biscuit and fresh dairy segments. Finally we
will review the challenges it will face in coming years.
This is however not to say that a global brand cannot be successfully used, as Cateora and
Ghauri (2000) point out, they can enhance efficiency and cost savings by using a global
approach.
1
2009 Figures
2
Both consistently ranked as top global brands on several reputable Brand value rankings (Interbrand ,2011),
(the global brand, 2011)
We must therefore consider the extent to which Danone can be considered a Global
Brand, considering the level of local recognition, the level of local adaptation and the
strength of the Brand across the globe.
According to the 2011 annual report Danone is clearly present in the extended triad though
it appears to be a largely home region oriented company with over 50% of its sales taking
place in Europe (Rugman and Verbeke, 2003, Danone annual report, 2011).
Asia
57%
14% Rest of
World
Europe Europe
30% 35%
43% Asia 46% Asia
Rest of Rest of
27% 19%
World World
Figure 2 : Danone plant location (Annual Report 2010) Figure 3: Danone employee location (Annual Report 2010)
A large focus on geographical diversification and in particular on Asia was started upon the
arrival of Franck Riboud as CEO in 1996 (Bloomberg Businessweek, 2012). Sales have
gradually become less focussed on Europe, apart from the recent Russian acquisition of
Unimilk which can arguably be placed in Europe or Asia(Food and Drink Business, 2010). Not
only does it have a healthy split across regions in terms of sales (It is present in over 60
countries across 5 continents Figure 4), but its employee and production plant split shows
increased focus on the Asia-Pacific market, the only continent where it is not yet number
one in fresh dairy products.
According to geographical presence in sales and production plants as well as its brand
recognition it is clear that Danone truly is a global brand.
In order to enter China Danone had to assess the Macro and Microeconomic factors, as well
as the cultural and psychic distance to develop an appropriate management and marketing
strategy.
The difficulty of doing business in China was highlighted in the DoingBusiness report (2012)
where China is ranked 91 out of 183 economies. Additionally the psychic distance of a
French company entering a Chinese market is rated 90/100 according to Hakanson and
Ambos (2010), a particularly high rating implying care and research upon entry. A Pestle
analysis mainly points out the political and legal difficulties involved with investment in
China in terms of facilitating business, where companies struggle with local counterfeit
products, little government support in legal battles and particularly a thriving double
bookkeeping mentality if too little control is present. (Kan, 2008)
3
China GDP growth reached 14.2% in the early 90s with a minimum growth rate of 7.6% in the late 90s (IMF,
2012]
According to Kogut and Singh (1988) the
method of Joint Ventures is one that is
favoured by companies with French
headquarters such as Danone, and supports an
Uppsala model (Figure 5) of partial knowledge
and commitment to the market.
We will now discuss the extent to which Danone developed a globally standardised or a
locally customised marketing strategy.
In terms of standardisation Danone has managed to keep its strong consistent marketing
brand and image (Keeping the same logo and colour attributes Figure 6 as
well as a similar product offerings) however it has focussed its strengths
The difference in yogurt consumption is a huge barrier for Danone with an average yearly
consumption of 7kg compared with 20kg in Western Europe (Danone, 2012c). However the
company has managed to take advantage of a recent study mentioning a deficiency in
calcium and vitamins (Wang et al. 2010) which spawned government initiatives to
encourage calcium consumption (KPMG, 2008). In terms of the customisation of ads, the
use of local celebrity Jet Li in the Maidong drink adverts (Jetliang, 2006) contributed to
making it the preferred drink among teenagers (Coyle, 2010).
With few expatriate employees present on the ground Danone has favoured a local
approach and customised product offering in China (Giorgini, 2009). The main issue
however has been that control was low and therefore opened up the danger of
mismanagement.
One of the main challenges which plagued Danone and other European entries in China is
competition from local firms offering similar products at lower prices (Poiroux, 2006). As a
result Danone has recently changed its pricing strategy from middle range to a luxury
product ranges (Le Figaro, 2011). This was supported by a study linking Danone “Bio” yogurt
with positive effects preventing constipation (Danone, 2009) which increased the luxury and
health product brand image. Danone has shown the ability to adapt its products to the local
culture by linking its products to health benefits, an important aspect of the Chinese culture.
This changed its pricing strategy from a Market penetration to a Market Skimming
marketing strategy. Grey Markets from competition remain a strong issue in China. To
respond to this threat Danone has either seeked collaboration with counterfeit product
sites, or had to resort to legal actions, though most government control generally had little
impact on this issue (Poiroux, 2006).
Danone has managed to retain a global communication strategy by using a similar logo,
similar name and encompassing the same values while focussing on the specificity of the
Chinese culture and consumer by offering new products locally and emphasizing small
entrepreneur-like geographical business units with a high proportion of local workforce. In
this respect Danone has managed to attribute a local feel to a global brand.
FUTURE CHALLENGES
The slow trend of an aging population (Coface, 2011) justifies a larger market opening up for
the sale of yogurt and health related products. Danone’s shift in positioning will be
beneficial in the long-term as it allows retained profits and a protection against rising wages,
which are bound to impact local producers. As a luxury product Danone can appeal to urban
consumers with urban disposable income growing (KPMG, 2008), a category which is
growing4 and could prove a successful strategy for Danone.
The situation in China seems to be a struggle and a source of concern for Danone.
While great growth prospects could yield great results and diversify a portfolio that is overly
reliant on Home country results, at the same time Danone has faced great difficulties in its
Joint Ventures. A relatively high power distance coupled with a high uncertainty avoidance
rate is culturally high in France (Hofstede, 1980) which justifies the use of high control entry
models. However in the case of the JV with the Wahaha group it actually offered little
control with “Danone officers having never participated in the day-to-day activities”
(Giorgini, 2009). In 2009 it ended its Joint Venture with the Wahaha group due to the
development of camouflaged parallel companies run by its business partner and JV CEO
Zong Qinghou (New York Times, 2009). This public scandal further harmed the group as
Danone was branded a ‘rascal’ and imperialist, which are negatively linked to the Country of
Origin effect (Schooler, 1965).
On the other hand due to recent food scares involving Mengniu in particular the negative
country of origin effect may be counteracted by association with higher safety standards, as
this would fit in well with the new higher quality price and positioning strategy.(Culliney,
2012)
A recent press release has clarified Danone’s aim in China is to remain present and build on
its baby food strengths to develop financial returns and be able to attack and growth in
china in the next 10-15 years.(Bouckley, 2012) This is a troubling thought as Danone appears
to be reducing its presence and production capabilities in mainland China. Such a move
4
Growing GDP per capita (7000$ in 2009 to 8400$ in 2011) CIA, 2012 And growing GNI per capita since 1962
(17% growth 2019-2010) Index Mundi, 2010
coupled with a recent increase in price and change in positioning as well as a stronghold of
local brands taking over the Chinese market make it perhaps more important than ever to
carefully manage brand awareness and presence. It retains a steady 16% market share in
shanghai with its BIO product which gives it a stable foothold in the Chinese market until it
decides to redevelop its activities there.
CONCLUSION
To conclude Danone has successfully developed its brand across the world with a high level
of standardisation in its company values and image. It has however developed independent
geographical units which enable it to partner with successful local brands and develop a
highly customised product offering and marketing strategy. While there are issues with its
model, particularly in terms of the amount of control that can reasonably be delegated, it
has managed to remain successful and profitable in the markets it chooses to operate in. A
careful assessment of future developments in the dairy industry will enable the highly
reactive company to continue to entice the Chinese population and jump into the market
when dairy consumption becomes part of the Chinese daily life.
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APPENDICES:
Appendix 1: