Shiseido in China

1. What are the functions performed by the marketing and distribution channels for cosmetics
products? Which of these functions are most important? Why? Distribution Channels in the cosmetics
industry consist of individuals and firms, involved in the process of making cosmetic products or
services available to consumers. Marketing channels make possible the flow of goods from a
producer, through intermediaries, to a buyer. Intermediaries perform 3 basic functions - Transaction,
Logistical, Facilitating. All 3 function must be performed in a marketing channel, even though each
channel member may not participate in all three. To reduce wastage of resources due to repetition,
channel members often negotiate which specific functions they will perform and for what price.
Distribution channels perform a transaction function that involves buying, selling and risk taking.
Performing a transactional function by the distribution channels in cosmetics products would involve
buying from the manufacturer of the cosmetics and reselling to other intermediaries, or intermediaries
who resells to consumers. Wholesalers performs the function of sharing risk with the producer when it
stocks the cosmetics products in anticipation of sales.

However, if the stock is unsold for reasons such as out of fashion or deteriorating over time, the
intermediary--not the producer-- suffers the loss. This is an important aspect of cosmetic product
purchasing as cosmetic products become obsolete quickly as they only have an average shelf life of
about one to two years and are more prone to deterioration. Logistical functions performed by
distribution channels involve preparing and getting the cosmetics products to buyers. Another
logistical role is to transport cosmetics products to either the next level of distribution channel or
directly to the customers.

Some of the distribution channels purchase different cosmetics products from several sources and
create product assortments to meet the demands of consumers. An example is to bundle facial wash
and facial cream together and selling them at lower price to boost sales volume. Intermediaries such
as retailers will store and display products at their retail stores which are easily accessible by
customers to perform the distribution function. Logistical functions also include assorting, which is
creating product assortments from several sources to serve customers or reach a target market.

Intermediaries also perform facilitating function to make transactions easier for buyers. Facilitating
function is the most important for cosmetics products. Intermediaries help to make the cosmetics
products more attractive to customers. Salesperson at departmental store cosmetic counters are
assigned the role of displaying cosmetic products to potential customers, providing forms of advice
and recommendations, information on cosmetics products and skincare knowledge, actively
promoting their cosmetic products to customers while providing customers with excellent services.
They also provide information to the consumers on which products are the best or most suitable. This
helps narrow down a consumer's evaluative criteria which they use to compare different products and
brands. It also helps consumers to make more confident decision to buy the particular brand or
product. This is important as they are many competitors in the cosmetics market.

They also act on behalf of their cosmetic companies by creating value for the customers, managing
relationships and relay customer and market information back to the company. Feedback collated
from customers and useful information such as competitive conditions and trends will be given to the
manufacturers to aid them in product improvement and future marketing strategies. Facilitating
function also includes grading of cosmetics products through inspection and test before assigning
them quality grades. At department stores, there are many other cosmetic counters located near each
other. Competition is stiff and therefore it is important for facilitating functions to help consumers
make choices and also to reach out to a larger market.

2. What is the marketing channel design in terms of channel length, channel intensity, and channel
types adopted by Shiseido in China? What factors influence its choice of the channel design and
strategy? What improvements would you make to the channel design? Channel length is the number
of intermediaries in a marketing channel. The marketing channel design adopted by Shiseido in China
has 1 intermediary, which is the retailers. It has a total of 3 levels, producer, retailers and consumers.
The retailers include speciality stores, department store counters, supermarkets and hypermarkets.
The channel, with a retailer added, is most common when a retailer is large and can buy in large
quantities from manufacturers (Shiseido). Wholesalers which are another form of intermediaries, are
omitted from the marketing channel. This is due to the short life span of cosmetics products. Cosmetic
products become obsolete quickly as they only have an average shelf life of about one to two years
and are more prone to deterioration. Cosmetics products may become obsolete when its being
stocked in the warehouses.

Thus, there will be a high inventory cost for wholesalers. It is a indirect channel because
intermediaries are inserted between the producer and consumers. When deciding on the marketing
channel, we have to consider which intermediaries can best reach out to the firm's target market
segment and satisfy the purchasing requirements of the target market. Best coverage of the target
market segment can be attained by focusing on density(number of stores within a geographical
region) and type of intermediaries to be used at retail level of distribution. Channel intensity is the
degree of distribution density that exist. Channel intensity is very dependent on the types of products
itself and the various sub-brands. In the case of Shiseido in China, its marketing channel design has
all 3 degrees of distribution density, based on its different products and specific group of consumers.

Intensive distribution means that a firm tries to place its products and services in as many outlets as
possible. It is usually chosen for convenience products or services such as candy, fast food,
newspapers and soft drinks. Intensive distribution channels such as supermarkets and convenience
stores are usually used when a brand is selling its product as a shopping good. Intensive distribution
is useful for a cosmetics brand if it aims to market its products as a commodity or even a convenience
product. Shiseido has a new series of products developed specifically for the Chinese mail-order
mark market (ranging in price from RMB90 to RMB230) under its Pure and Mild brand, which is
currently offered primarily at supermarkets, hypermarkets.

Selective distribution allows the market coverage benefits of intensive distribution to be gained while
providing the company some control as to where the product should be sold and to which customer
groups. Selective distribution also means that a firm selects a few retail outlets in a specific
geographical area to carry its products. When a brand is selling its product as a shopping good,
selective distribution channels such as departmental store counters can be used. Shiseido has also
used selective distribution channels like special sales corners in department stores and at voluntary
cosmetics speciality stores to market its medium-priced cosmetic brands such as Za and Pure Mid
China. Usually, beauty advisors will be there to assist customers with the products. The beauty
advisors would help customers do a make-over on request. This allows customers to try on the
product and then determine if they want to purchase.

Exclusive distribution is the extreme opposite of intensive distribution because only one retail outlet in
a specified geographical area carries the firm's products. If a firm targets a specific group of consumer
(usually small), exclusive distribution is selected. In the case of Shiseido, it is branding itself as a
pioneer in the fusion of western and eastern knowledge in cosmetics. The brand aims to maintain
itself as an exclusive and up-market producer and distributor of quality cosmetic products. Thus,
exclusive distribution channels are more suited for such a company where the products sold are
mostly higher priced specialty products and there is more control over the market segment that the
company is targeting. Shiseido uses exclusive distribution for its higher-end products such as Aupres
aimed at the ultra-affluent consumers.

One factor that influence its choice of the channel design and strategy is Buyer Requirements. There
is consideration in channel design to satisfy at least some of the interests buyers might want fulfil
when they purchase a firm's products or services. These interests fall into different categories.
Information is an important requirement when buyers have limited knowledge or specific data about a
product or service. Properly chosen intermediaries communicate with buyers through in-store
displays, demonstrations and personal selling. Shiseido has a new series of products developed
specifically for the Chinese mail-order mark under its Pure and Mild brand, which is currently offered
primarily at supermarkets, hypermarkets. The mail-order business includes a new call center that
handles customer enquiries and an online counselling service that allows professionally-trained call
center staff to proposer products and beauty techniques that are optimized for the skin types and
needs of individual customers.

Prices are usually cheaper because retailers usually buy in bulk. Number of potential customers are
huge because a lot of people will visit supermarkets or hypermarkets to buy household items. In this
case, intensity distribution may be used even though there is no service staff so customers will
generally have to look for the products that they want themselves. Absence of specific sale personnel
would mean that the company has to rely on consumer's own discretion to purchase the cosmetics
products. Speciality stores usually have well-trained personnel to assist and inform customer about
their product, so as to ensure that the customers can purchase the specific cosmetic product that
fulfils their need, depending on their skin type, habits, skin sensitivity or allergies. Cosmetics sold at
display cases within department stores are often high-end products. Usually, beauty advisors (well-
trained personnel) will be there to assist customers with the products.

More often than not, the beauty advisors at these counters would help customers do a make-over on
request. This allows customers to try on the product and then determine if they want to purchase
them. This could be essential as the cosmetic sold here are usually quite costly, therefore, after the
make-over; consumers may be more easily convinced into buying the product. For some consumers,
convenience means a minimum of time and hassle. Since there are a large variety of products sold in
supermarkets and hypermarkets, customers usually visit these retail markets at least two to three
time a month. Thus, selling cosmetics at these places makes it very convenient for customers as they
would be able to purchase these cosmetics together with the other household products.
Variety reflects buyers' interest in having numerous competing and complementary items from which
to choose. In some cases, customers who did not go to marts with the intention to purchase the
cosmetic may buy the product because they happen to see it in the supermarket or hypermarkets.
Buyers will have numerous competing and complementary items to choose from. In this case, other
different cosmetics that are available at the supermarkets. At department stores, there are many other
cosmetic counters, all located near each other. Thus, competition is stiff. A possible result could be
that a consumer may purchase a set of cosmetic product from different counters. For example, a
consumer may purchase foundation, eye liner and mascara from Shiseido but purchase the blusher
other competing brands like Lancôme and Estee Lauder.

Another consideration in designing a channel is profitability, which is determined by the margins

earned for each channel member and for the channel as a whole. Channel cost is the critical
dimension of profitability. These costs include distribution, advertising, and selling expenses
associated with different types of marketing channels. The extent to which channel members share
these costs determines the margins received by each member and by the channel as a whole.

Shiseido in China launched the DQ brand after realizing the importance of the growing middle-class
consumers - many of them residing outside the major cities in China. Hence, Shiseido should venture
into a bigger market and open more speciality stores/set up department stores counters in other cities
such as Shenzhen and Fujian. This will lead to a greater convenience for those staying outside the
major cities in China as they can purchase Shiseido products more easily. Shiseido in China should
also introduce more e-commerce initiatives and electronic marketing. This aims to expand points of
contact with new customers in additional to existing sales channel in China. Furthermore, it can help
to reduce the distribution channel length, as retailers will not be required and buyers can purchase
directly online from Shiseido. This can help to maximise profits for Shiseido as they will receive a
larger margin earned.

3. What retail strategy is adopted by Shiseido in China? How is this strategy related to its
segmentation, targeting, and branding strategies? Shiseido uses a multichannel retailing strategy. A
multichannel retailer sell to the public via more than one distribution channel - through mail order
catalogues, retail stores, online, and via mobile technology. It is related to its multi-branding strategy
whereby Shiseido gives each product a distinct name. Multibranding can be applied in many different
ways. For example, companies could differentiate their brands according to price and quality,
targeting different customer group. With this strategy, companies could use a variety of retail
channels to cater each group. Each brand is intended for a different targeted market segment.
Shiseido’s brand philosophy is its flexibility in modifying and customizing its offerings. It not only does
these in different markets in line with its unique needs, cultures, but also in its brand management
practices.

Shiseido’s success is that the brand has been able to span markets from the premium segments to
the value segment by creating distinct brand identities and personalities for its product lines. By
tracking the trends of the customers and the associations that they had about certain products with
certain places, Shiseido created their distinct stories. An example, for makeup products, customers
preferred a good and elite image and that was conveyed by creating a brand personality with an
American undertone. For skin care products, customers preferred quality and reliability which was
conveyed by creating a brand personality with a Japanese undertone with the brand Pure & Mild.
This kind of flexibility in its brand management model has helped Shiseido to take on different market
segments in different markets quite successfully. The choice of which marketing channel to use is
essential as it provides a means for the firm to implement its marketing strategy. Since the target
market segments and brand strategy of the firm will directly affect its marketing strategy, the choice of
marketing channel will have to depend on the target market segments and brand strategies. Shiseido
adopted 3 main types of retail channel.

Firstly, department store for middle level products along with personal counselling to customers.
Shiseido has used special sales corners in department stores and at cosmetics speciality stores to
market its medium-priced cosmetic brands such as Za and Pure Mid China. Usually, beauty advisors
will be there to assist customers with the products. Cosmetics sold here are targeted at the mid-
income ladies and mass market because of its medium-priced products. It is also related to its
targeting strategy of selective distribution. Secondly, Shiseido's voluntary chain stores selling a wide
range of luxury and also middle level products along with personal counselling to customers. The
products are targeted at a specific group (usually small), the middle to high income ladies. When
Shiseido entered China in 1981, it introduced a sub-brand called Aupres, and positioned it as an elite
brand. It was catering only to the top 1% of the market and are available in these stores selling only
Aupres products. Shiseido has the freedom to design the store in a way that they deem fit for the
market segment they are targeting.

The model store in Shanghai, Huan Cai Kong Jian, has specialized equipment like the skin analyzer
that is used to diagnose a customer’s skin conditions. Having a specialty store also means that
Shiseido can train and employ skincare specialists and knowledgeable beauty consultants to provide
specialized service to customers who need help with choosing their purchase. Shiseido is also able to
customize the experience for their customers at the specialty store, for example, there is space for
customers to try products freely and lessons on home beauty treatments are conducted daily. This
improves the customer’s experience at Shiseido and serves to make it an easier choice for
consumers to decide on Shiseido as their chosen brand. Shiseido's repositioned Clé de Peau Beauté
brand and will be designated as the company's second flagship brand in its premium range.

A voluntary specialty store also functions as an exclusive space for Shiseido to market and display
their products. This makes Shiseido’s products more exclusive and separates them from competition
from other brands. Further it reinforces its branding strategy as a premium beauty brand. Greater
market penetration in affluent market segment. The brand aims to maintain itself as an exclusive up-
market producer and distributor of quality cosmetic products. Thus, exclusive distribution channels
are more suited products sold at mostly higher priced specialty products and there is more control
over the market segment that the company is targeting.

Lastly, convenience and drug stores through which it sells middle to mass market products by
launching self-cosmetics (no counselling provided). For a brand that aims to be more commonplace
and is targeting a large consumer group/mass market, intensive distribution is used whereby attempts
to place its products in as many outlets as possible. Shiseido has a new series of lower-priced
products developed specifically for the Chinese mail-order mark under its Pure and Mild brand, which
is currently offered primarily at supermarkets, hypermarkets.

The new line of products, with environment-friendly features that include packaging made from
bagasse paper, targets young, post-80s consumers who prefer natural products. Shiseido launched
the DQ brand, sold exclusively through drugstores, in a bid to expand its business in this much
desired market across different channels. DQ also carries a lower price point than Shiseido's key
premium brands, allowing the company to tap into the lower-income consumer segment.

References

Jian, S. (2011, July 28). Shiseido Expands into Mass Cosmetics with Diverse Product Strategy.
Retrieved from EuroMonitor International: http://blog.euromonitor.com/2011/07/shiseido-expands-into-
mass-cosmetics-with-diverse-product-strategy.html Nakamoto, M. (2011, Jan 21). New Shiseido chief
is in no rush. Retrieved from Financial Times: http://www.ft.com/cms/s/2b528944-258f-11e0-8258-
00144feab49a.html Theng, L. G. (2013). Marketing in Asia, Second Edition. McGraw-Hill Education
(Asia).

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