Case Study: Shiseido: Channeling Cosmetics in China Introduction Shiseido, the largest Japan¶s cosmetic manufacturer, was founded

by Arinobu Fukuhara in 1872 when he opened Japan¶s first Western-style pharmacy called Shiseido Pharmacy in Tokyo. The company manufactured its own pharmaceutical products in 1878 before later moving to cosmetics in which it combined Western technology with Asian ingredients. In 1923, Shiseido started a voluntary chain store system where the stores were operated by independent owners. The store provided exclusive retail space for Shiseido while the products were sold through consultative selling by trained staff provided by Shiseido. Shiseido established thousands of stores in Japan and remained the market leader despite high competition from Western cosmetic companies. The company expended to Taiwan, Singapore, Hong Kong, Hawaii and Italy in 1957. In 1980 it entered Germany by setting up a wholly owned subsidiary. That was followed by Great Britain in 1986 and France in 1990. In 1988 Shiseido entered the United States by acquiring Zotos International and other foreign brands. For Shiseido oversea business was the key driver for growth as shown in 2005 when foreign sales was 27 percent of the company¶s total sales. Question 1 a) What are the functions performed by the distribution channels in cosmetic products? Distribution channels are a set of interdependent organizations involved in the process of making a product or service available for use or consumption (Kotler, P.,Keller, K. L., Ang, S. H., Leong, S. M. & Tan, C. T. (2009)). In the cosmetic industry, the functions of distribution channels can be summarized as follows; 1. Provide exclusive retail space for the products. 2. Sell the products through consultative selling by trained staff.

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and hair style trends. Develop and disseminate persuasive communications to stimulate purchase. Place orders with manufacturers. 5. A joint venture company. Gather information about potential and current customers. How are some of these functions performed in Shiseido¶s operation in China? The functions performed in Shiseido¶s operation in China through the following channels. Assume risk connected with carrying out channel work. competitors. Introduction of products at tax-free department stores and hotels in Beijing in 1981. Provide for the successive storage and movement of physical products. Joint venture between Shiseido and local company Liyuan Corporation. 7. Oversee actual transfer of ownership from one organization or person to another. 9. Shiseido Liyuan Cosmetic Company (SLC) in 1991. Acquire the funds to finance inventories at different levels in the marketing channel. Provide for buyers¶ payment of their bills through banks and other financial institutions. 3. 2. 13.3. fashion. 6. a state2 . Question 1 b. 4. 8. 11. 1. 12. Provide equipment to diagnose the customer¶s skin condition scientifically. 10. A technology cooperation agreement that manufactured shampoo and conditioners in China under the brand name HuaZi in 1983. Act as information media which transmit the latest beauty information including knowledge about skincare. Reach agreement on price and other terms so that transfer of ownership or possession can be effected. and other actors and forcers in the marketing environment.

A Japan-based subsidiary FT Shiseido Company Limited in 2003 Sold its high-end toiletries by importing them directly from Japan. 7. Shiseido China Company Limited in 2004 to support and oversee all businesses in China. Started a holding company. 3 . A joint venture company. Pure Mild China. Duplicate its successful Japanese voluntary specialty chain stores concept in China in 2003. The brand was advertised in magazines and television featured local models. SLC developed a cosmetic brand only for Chinese consumers named Aupres.Shiseido name was put in front. Shanghai Zotos CITIC Cosmetic Company (SZC) in 1998. ASPLIR.owned enterprise. 5. WHITIA and SELFIT. SZC produced medium-priced cosmetic brands such as Za. 4. 8. Joint venture between Shiseido and China International Trust and Investment Corporation (CITIC). 6. Sold them at special sales corners in department stores and at cosmetic specialty stores through wholesalers. below the Aupes name. Engage privately managed cosmetic stores to sell its products under SLC. UNO.

3. The promoting/ sales representatives can explain and even demonstrate complex products. 4. It builds long-term personal relationship so that will reduce selling cost. 2. Advantages and Disadvantages of Door-to-door Selling Distribution Channel Door-todoor selling Manufacturers¶ View: 1. There is opportunity to learn more about individual consumers. Customers¶ View: 1. There are many advantages and disadvantages of selling cosmetic products through door-to-door selling as shown in the following table. The profit or loss will be a lot of accurately judged. specialty stores.Question 2 a. Advantages 4 . It is a zerolevel channel where the manufacturer sells directly to the final customers. It offers good value to customers as there is no price hike due to wholesalers or retailers. their lifestyle and consumption behavior so that company can respond with market offerings to their need. and supermarkets and hypermarkets? 1. What are the advantages and disadvantages of selling cosmetic products through door ±to-door selling. department store counters. Table 1. 5. Door-to-door Selling Door-to door selling is the most traditional form of direct marketing channel. Potential sales representatives are easily available every time and everywhere.

Sales Representatives¶ View: 1. and easy to bring other individuals who need to be involved. 4. This type of business is highly competitive. Seles persons cannot be monitored and managed closely. Flexible working schedule Sales representative can excess to training and Distribution Channel Door-todoor selling Manufacturers¶ View: Disadvantages 1. support. 2. 3. Creates job opportunities. 3. Initial distributors¶ cost is cheap. 3. 5 . 5. It offends some purchasers who do not endorse it as they are saying it inhibits their private lives. 2. 4. It encourages and creates business opportunities and activities thus improve local economy. The customers can ask questions and get advice in a relaxed environment. Lower initial commitment because of not career of choice. 4. 5. 6. The company needs to well-train sales representatives. Sales representatives turnovers are high.2. 7. It id convenience to customers as the products would be brought right to door step . Sales persons do not support company strategy or unethical. especially in network direct-selling organization. It allows the customers to try the products in privacy.

Promoting this type of business can be very time consuming 5.Sales Representatives¶ View: 1. Unsolicited visits could be viewed with suspicion. Salesperson travelling time and cost could be significant. This type of business is highly competitive 6. It also provides well-trained staff from the product brand company. Will get quite a bit of rejection before finding people who will buy what you have to offer 7. Shiseido has implemented this marketing channel system in Japan since 1923 and it has expended the system throughout the whole countries where it does its operation. 2. The store has an extensive numbers and variety of the particular brand products that it specialized in. The store also installs skin analyzers to diagnose the customers¶ skin condition scientifically. 2. From producers¶ point of view. The following tables show the advantages and disadvantage of specialty stores in selling cosmetic products. Must good in training and management skills to build net working. The staff role is as a beauty consultant who fully responds to question about the products and skin problem. Trapped in fraud of pyramid selling schemes. 6 . cosmetic specialty stores have many advantages. 3. 4. specialty store is a small store specialized in a particular brand of cosmetic products and related items. Specialty Stores In cosmetic business.

The display case is located at designated areas within the 7 . Products can be sold at relatively higher prices. 6. 3. Targeted market segments are huge. 5. The target consumers are willing to pay the higher price for the good services. Value added services such as beauty consultation and customer skin analysis and diagnosis. Need to well-train staff as the beauty and sale consultants. Department Store Counters A department store counter is a display case in a department store where products can be shown to the customers. 3. The high quality service help to build brand loyalty to the company. Increase sales through well-trained personnel to assist and inform customers about the products.Table 2. 2. 4. Advantages and disadvantages of Specialty Stores Distribution Channel Specialty Stores Manufacturers¶ Views: 1. Advantages Distribution Channel Specialty Stores Disadvantages Manufacturers¶ Views: 1. All products under a particular brand are available.

3. department stores don¶t have well-trained staff to assist the customers. Customers have many product choices. Manufacturers may be asked to pay µslotting fees¶ to the stores as payment for guaranteed shelf space for particular products. Cosmetics sold here are often high-end products. welltrained beauty advisors will be there to assist customers with the products.department store. 8 . The following table show the advantages and disadvantages of selling cosmetics through this distribution channel. Advantages Distribution Channel Department Store Counters Manufacturers¶ View: Disadvantages 1. 2. Cheaper prices because of bulk of buying by the stores. Convenience for customers all segments of customers 3. Competitions are high from other brands. Usually. Manufacturers need to advertise heavily for new products as the stores prefer to sell established products. Customers¶ View: 1. Large range of goods. Normally. Low quality service. Table 3. Advantages and disadvantages of Department Store Counters Distribution Channel Department Store Counters Customers¶ View: 1. 2.

In Ipoh for example. Price is cheap because the retailers buy in bulk. there are many supermarkets such as Ocean and Giant. Distribution Channel Supermarkets and Hypermarkets Manufacturers¶ View: Disadvantages 1. Manufacturers may be asked to pay µslotting fees¶ to the stores as payment for guaranteed shelf space for 9 . 2. Supermarkets and Hypermarkets Supermarket is a large retail market that sells a variety of products such as food. It is convenient as cosmetics can be purchased while buying household products. Hypermarket is the combination of department store and supermarket as we can see from Tesco and Wall Mart. 2. other household goods and cosmetics. Advantages and Disadvantages of Supermarkets and Hypermarkets Distribution Channel Supermarkets and Hypermarkets Manufacturers¶ View: Advantages 1. Customers¶ View: 1. Number of potential customers are huge because a lot of people come to supermarkets or hypermarkets to buy household items. There are many advantages and disadvantages of selling cosmetics through this channel as shown in the following table.4. Table4. Sales volume is high because customers buy in bulk.

The following table show how the channel use varies with target market segments. The marketing strategy is derived from the target market segments and brand strategy of the firm. Therefore. Lack of service and sometimes no well-trained staff. Therefore. a manufacturer has to consider which intermediaries can best reach out to the firm¶s target market segments and satisfy their purchasing requirements. Competitions are high from other brands. the choice of marketing channels will have to depend on the target market segments and the brand strategies.particular products. Target Market Segments When deciding on the marketing channel. Question 2 b. Manufacturers need to advertise heavily for new products as the stores prefer to sell established products. 10 . 2. 3. the use of the channels varies depending on the target market segments of the company. How will the use of these channels vary with target market segments and brand strategies? The choice of which marketing channels to use is essential to manufacturer as it provides a mean for the firm to implement its marketing strategy. Customers¶ View: 1.

executives. Specialty stores. service and speed.Table 5. informed. Supermarkets and Hypermarkets. Specialty stores. Department store counters Door-to-door selling. Any climate Demographic Medium income. Behavioral Regular occasion and special occasion. Department store counters. Target Market Segments and Marketing Channels Segmentations Target Market Segments Geographic City . medium. Department store counters. Department store counters. desirous and intended to buy. middle east. 11 . Supermarkets and Hypermarkets. achievers and experiencers. businesspeople. upper class Psychographic Innovators. interested. Door-to-door selling. all countries except those involved in wars. regular user. Specialty stores. urban and suburban. quality. certain African countries. Specialty stores. managers. thinkers. Department store counter Door-to-door selling. middle class Marketing Channels Used Door-to-door selling. professionals. medium user and heavy user. potential user and first-timer. Supermarkets and Hypermarkets. High income. enthusiastic and positive toward Specialty stores. strong and absolute loyalty status.

The following table shows how the use of channels varies with the firm brand strategies. Pantene. Table 6. 12 . Specialty Stores. A firm can employ various branding strategies such as individual product names. separate family names for all products and corporate name combined with individual product names. Example: Procter & Gamble (Head & Shoulders. Supermarkets and Hypermarkets. Specialty stores. blanket family names. Supermarkets and Hypermarkets. Separate family names for all products Example: Matsushita (Panasonic for audio-visual products and National for household good) Door-to-door selling. Rejoice) 2.Brand Strategies A company brand strategy is another factor to consider in choosing marketing channels. Supermarkets and Hypermarkets. Brand Strategies 1. right marketing channels should be applied. Brand Strategies and Marketing Channels Marketing Channels Used Department store counters. Department store counters. Individual names The products are given individual names . In order the strategy to be effective. Blanket family names Example :Hitachi Door-to-door selling. 3. Department store counters.

Specialty Stores. China has produced bigger segments of middle class and upper class consumers. Question 3 a. In order to cater these consumer groups. Firstly. Why is Shiseido using voluntary specialty chain stores. About 90 million women in urban areas are willing to spend 10 percent of their income on beauty products. Secondly. Department store counters.5 billions in 2006 to US$2. the cosmetic market is growing drastically from US$1. SonyWalkman. Supermarkets and Hypermarkets.4.3 billions in 2009. Shiseido products are in growth stage while the brand name is already positioned well in China markets. Example: Sony (Sony Bravia. the system also fit well with the company¶s brand strategies. As a result. Corporate name combined with individual product names. Shiseido has to use another retail channel. With the number of privately managed cosmetic stores is raising in 13 . besides their counters at department stores? Shiseido is using voluntarily specialty stores besides their counters at department stores because of a few reasons. the specialty store system will help to maximize company¶s revenue and profit. In the stores products can be sold at relatively higher prices and consumers are willing to pay the higher price for the good services. Due to economic liberalization. Shiseido uses multi brand strategies and the strategies need various right channel to perform. Furthermore. the specialty chain store system has many advantages as discussed in previous question. the system also fit very well with company¶s targeted market segments. So. Sony Playstation) Door-to-door selling. The company will increase the sales through the service of the well-trained consultants that consult and assist the customers. The quality service in the specialty stores also will help to build brand loyalty to the company.

consumers lifestyle and preference were different. 2. Shiseido distribution channel model had been drawn based on the development of infrastructure in China. and manufactured the products locally of imported them from Japan. Often. It was Shiseido¶s strategic objective to use the voluntary specialty chain stores as its channel because the channel was proven successful in Japan. Only after a few years Shiseido was allowed to open its own subsidiary in China. This could be seen when Shiseido first entering the China market where it could only sold its products in department stores and hotel. China also lack organized. goods are not handled according to internationally accepted standard. 1. Development of infrastructure in China Same as many Asia¶s emerging markets. but only with the state-owned enterprises. Consumers lifestyle and population density At the earlier stage when Shiseido entered the China market. Later on. Therefore.China. 3. centralized delivery and transportation network. Shiseido was allowed to open a joint venture company. They were not familiar with Western cosmetics. 14 . and only elite customers and foreigners were allowed to buy the products. However. They rallied on Chinese herbal cosmetics. Later on they had changed after Shiseido introduced its products to them. Legal regulations and restrictions As China practiced Socialist Communist doing business in the country would face a lot of restriction and regulation. there are a few factors that prevent the company from using the channel earlier. The use of the channel not only will improve its sales but also reduce competition from other manufacturers as the privately managed stores might be used by its competitors. educated and consulted them with the products. Shiseido see it as an opportunity to use the retail channel which is successful in Japan.

Large range of goods. 2. 4. 2.Question 3 b. All products under a particular brand are available. What are advantages and disadvantages of each retail channel? The advantages and disadvantages of the retail channels can be summarized in the following table. The target consumers are willing to pay the higher price for the good services. Have well-trained personnel to assist and inform customers about the products. The high quality service help to build brand loyalty to the company. Products can be sold at relatively higher prices. Value added services such as beauty consultation and customer skin analysis and diagnosis. 5. Table 7. Advantages and disadvantages of Department Stores and Specialty Stores Distribution Channels Department Store Counters Advantages For customers 1. Customers have many product choices. Cheaper prices because of bulk of buying by the stores. 15 Specialty Stores . For Manufacturers 1. 3. Convenience for customers all segments of customers 3.

department stores don¶t have welltrained staff to assist the customers.Distribution Channels Department Store Counters Disadvantages For Manufacturers 1. Specialty Stores Manufacturers¶ Views: 1. Need to well-train staff. Question 3 c. 2. For Customers 1. Manufacturers need to advertise heavily for new products as the stores prefer to sell established products. Which area should the company emphasize? The company should emphasize in using voluntary specialty chain stores in urban areas. 16 . 3. so company will maximize profits. Low quality service. Competitions are high from other brands. 1. Normally. Manufacturers may be asked to pay µslotting fees¶ to the stores as payment for guaranteed shelf space for particular products. The products are in growth stage.

. (2009) 17 .. Conclusion Shiseido has used various market channels to penetrate its products in China due to many constrains it has faced. M. Leong. Ang. The brand name is already positioned in China markets 5. With right channels supported by right strategic objectives. Sizes of target segments are growing (Economic liberalization produces many upper class and middle class consumers). brand strategies and marketing strategies. 3. & Tan.. S. 4. The cosmetics market is growing drastically ( from US$1.Keller. S.2. T.5 billions in 2006 to US$2. C. Competitions is getting higher. Source: Kotler. L.3 billions in 2009). Shiseido will be successful in China. P. H. K.

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