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In the process of Chinese market economy development, cosmetics industry is a booming industry, which is also one of the fastest growing industries in China. In the early 80’s, the national sales of the cosmetics industry was only 2 million, but this figure had grown to 700 million in 2007. In 2010, this figure was more than 1000 billion. In this huge market potential competition, Chinese domestic cosmetic brands are obviously in a losing battle. We can only find few domestic brands to against foreign brands. This is the painful experience of the entire Chinese cosmetic industry. After China has joins WTO, with the tariff reduction, the tendency which the Chinese cosmetic market internationalization is inevitable. By the end of 2007, almost entire world current mainstream cosmetics brands entered into Chinese market which led to a fierce competition between international brands and domestic brands.
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Faced with this situation, more and more Chinese domestic cosmetic operations have realized that it is essential for them to depend on their own unique cultural features, differentiated market position, expand market. Finally achieve internationalization. Herborist is one typical example.
At present, Herborist has more and more consumers all over China. Most of their consumers agree that their products are not only useful but with reasonable price. On the other hand, Cosmetics as daily use products have more opportunities. In addition, the most attractive factor is that their products have more features than other brands. As far as we know herbal medicine is very traditional and unique in China. Currently, more and more European consumers are interested in herbal medicine and provide a big chance for Herborist.
Because of the overproduction and excess capacity, Herborist need to find new customers and build core competitiveness. As they have already taken a little start in Europe market, it is time for them to focus on deep consideration on international marketing strategies for Europe market.
It is difficult for a marketer to do business in a foreign market, especially with a large difference. In order to get success, they require a comprehensive knowledge on this target market. In my thesis, the primary objective is to find out a reasonable method to help Herborist achieve internationalization. And we can formulate all these factors as a question: what is a good international marketing strategy for Herborist?
The aim of the thesis project is to provide valuable international strategy for Herborist and this is also my research problem. And the objective of the thesis is to help Herborist expand their operation, extend Europe markets, increase their profitability, and improve their global reputation.
The research will mainly base on the quantitative research. The date collection will be carried out by questionnaire. It will also utilize an interview with Herborist’s manager in order to get his suggestion towards my thesis and this belongs to qualitative research. There are lots of secondary data are involved. I got the secondary data from internet and literatures.
Questionnaire analysis is my main research method. The questionnaire is used to find out consumers’ attitude towards Chinese herbal medicine cosmetics. As well as their purchasing intention and buying habit so that I can depends on the result to figure out what is the best plan for Herborist.
THE CURRENT SITUATION OF CHINESE DOMESTIC COSMETICS MARKET
Chinese cosmetics market is known as “beautiful economy”. With the repaid development of 20 years, it has already obtained unprecedented achievement. Chinese cosmetic market is the largest emerging market in the world. In last 20 years, Chinese cosmetic industry was from small to big, from weak to strong, and gradually achieve technological superiority, and began to take shape. Gradually, there are more and more cosmetic operations and cosmetic products. Chinese cosmetic industry is developing rapidly, therefore, has become the new consumption hot issue.
2.1 Chinese Cosmetic Market
Because China has already stopped the limitation of import and export cosmetics, international cosmetics are gaining speed to expand their market. With this reason, local brands are suffering tremendous impact from the outside. In Chinese cosmetic market, foreign-funded enterprise or joint ventures account for the most market share. While domestic production only through the joint venture of cosmetics and introduced medium cheap products to meet the needs of Chinese consumers. This is a worrying reality. Although Chinese cosmetic market has double-digit growth every year, the real domination is international brands. Relevant research in 2007 shows that top five at cosmetic sales are still L’Oreal, Olay, Opal Levin, Shiseido and Lancôme. The high-end cosmetic market owns the largest sales and profitability. Chinese cosmetic market has basically been dominated by international brand.
International brands began to extend to secondary and tertiary markets, local brands are facing a survive teat. With the continuous improvement of the economic level, there is a considerable development of consumption level in secondary and tertiary cities. International brands depending on the over years’ realization for Chinese market, have already keen perceived this great business opportunity. In recent years, international brands have begun to focus on low-end market development which was original seen as a life support of market by national brands.
Chinese Cosmetics Market Position in Global Market
The relevant data shows that the sales growth of Chinese cosmetics market is at an average annual 23.8 present rate, the growth rate much higher than the national average growth rate. We can believe that Chinese cosmetic market has considerable potential for development. At present, Chinese cosmetics market sales ranks second in Asia, eighth in the world. There are 4,000 cosmetics manufacturers, 25,000 varieties of product species, sales increased by 200 times than in 1982.
With China’s accession to WTO, the impact of globalization has become more evident in the brand-led and focuses on high value-added cosmetics, skin care and other areas’ international companies such as Shiseido, L’Oreal, and Estee Lauder have a significant advantage. However, from the Da Bao, Long Liqi, Herborist and the emerging a number of local enterprises, bring a ray of hope for Chinese cosmetics.
EUROPEAN COSMETICS MARKET
European cosmetics industry originated in the last century, so far has gone through about a hundred years of development. Today, the EU Cosmetics has become the world leader in the cosmetics industry and a lot of the world’s leading cosmetics enterprises are emerged in EU. And there are lots of world-famous brands which have deep subjected to consumers of fancy and trust.
European cosmetics market is the largest cosmetics market in the world. According to the COLIPA data of 2005, EU market in 2004 sales was 34.3 billion euros, the United States, Japan were 25.7 billion and 11.9 billion euros respectively. The annual export volume of EU was 7 billion euro in 2004.
If we segment EU market share, from the national point of view, France, Germany, Britain, Italy, Spain, accounted for about 50% of EU market share. From product category perspective, the main products are toiletries, hair care products, skin care products, perfume products and beauty repair products.
International Famous Cosmetic Brands
According to global market research organization Euromonitor International research report, L’Oreal SA’s sales and profits reached a historical record in 2000, its sales about 4 billion U.S. dollars. In addition, Estee Lauder Company, Procter & Gamble Company, Revlon Inc. and Avon Products Inc. were the world’s top five. Shiseido Company Limited, Coty Inc., Kanebo Limited, Kose Company Limited and Chanel SA ranked the sixth to tenth respectively. In the total sales amount of 24.4 billion dollars’ global market, the sales of the top ten giant cosmetic industries totalled 15.15 billion dollars.
According to Euromonitor International research report, the cosmetics companies ranking from eleventh to the twentieth in 2000 were LVMH, The Body Shop PLC, Mary Kay Inc., Kao Corp., Yves Rocher SA, Pola Cosmetics Inc., Beiersdorf AG, Oriflame International SA, Alticor Inc. and the Boots Company PLC. Their sales accounted for 11percent of the global market. The sales of the world top twenty cosmetics companies accounted for about 73 percent of total sales of worldwide market share.
HERBORIST was established in 1998, Shanghai, China, a wholly-owned subsidiary of Jawha United Co., Ltd. inspired by million years’ herbal beauty culture. It is the first full sense Chinese herbal care brand. With the combination of typical Chinese beauty and modern biological technology, gradually Herborist has achieved “natural and balanced,” and created an herbal beauty care legend. Through applying Chinese medicine theory skin issue and modern brightening activating technology, open a new trend of herbal beauty care. Enjoy the natural green gifts, and return green beauty to natural. Since Herborist’s inception, it has been advocating the concept of green brand, raised “keep the beauty of the earth” green fashion statement. (Herborist Official Website 2010, Brand Story)
Jawha gives Herborist great freedom and allow Herborist to own the power of marketing, customer service and human resources, and Jawha only controls a part of the financial affairs. It is in this relative relaxed environment and Herborist developed the most detailed Marketing Department, the purest Brand Manager and the most comprehensive CRM system. Currently their Marketing Department is divided into Brand Department, Product Department, CRM Division and Media Communications Department. The reason why they have these different departments division is with brand expansion of the market segments, they need to meet new needs and add some areas. For example, new listing Herborist products play a decisive role on full year’s sales growth, so HERBORIST dedicated Product Development to improve the effectiveness. Herborist’s brand management framework is very detailed, some responsible for brand image management, and some responsible for plan brand activities, some others responsible for brand core elements management and maintain loyal customers. In the last year, they also set up Herborist’s chief designer whom is a separate role from brand manager.
Regarding to the maintenance of customer relations, establish Herborist membership is a brilliant idea. The feedback questionnaires analysis from their CRM database Herborist shows that a substantial proportion of customers who have purchased international brand cosmetics would to be their customers with high degree of brand loyalty. In order to enhance the viscosity with these customers, Herborist decided to develop membership, through the website, direct mail, magazines, regular meetings, exchange points and SPA etc. to effective maintenance customers’ brand loyalty. Herborist’s research results show that in sale of best-selling whitening and body care products, there are more than 50 percent of sales came from their members.
Herborist completely abandoned traditional channels such as supermarkets. On August 1995, Herborist opened its first exclusive store at the Hong Kong Plaza. Then Herborist established its first Hong-Kong-based exclusive store at Mongkok (see figure 5), signifying the first step of global operation. On Jul, 18, the second branch store was established in Causeway Bay, Hong Kong, and Shanghai. And marked Herborist has recognized as high-end cosmetics. Herborist has two types of single-store model, in order to ensure their first market, in Shanghai, Beijing and other nine center cities set up own stores. In other cities, they implement franchise system. (See figure 5)
New product development
As a high-end cosmetics brand, Herborist must be able to continue to provide new products. Jawha R&D center has provided a powerful support for Herborist. Before a Herborist product coming into the market, it often needs several processes, firstly is innovation concept, their sources including international competitor actions, technical personnel’s scientific research, such as the using of the new material, and consumer new demands report. Based on these three sources, then they depend on cost, feasibility, assessment standards for clear product description, with the Research Department’s R & D in a limited time, and finally put into production. And these processes usually take almost one year.
Figure 1. Herborist’s Channel mode( Marketing Manager Huang Zhen, Interview January 2011)
Figure 2. The development of Herborist (based on Herborist Official Website 2010, Brand History)
4.2 BRAND FEATURES
Relative stronger capital strength.
Strong company power is the basis to capture the market. Until 2007, the world’s top ten cosmetics companies have entered Chinese market. Before these international cosmetics entered into Chinese market, they almost have built strong market foundation in other counties with strong corporate strength and capital base. They came to the Chinese market and led Chinese cosmetics market to developing rapidly and improved a new level of entire Chinese cosmetics industry. Because of the fiercer competition, they demand more capital. These small size local cosmetics industries because of funds have led to companies’ sale and R&D investment cannot be extended and direct effect sustainable development. So they have faced a serious crisis of survival. Chinese cosmetics industry has begun to form a powerful strength that is needed to support the business development industry trend.
So far, due to late start of the cosmetics market, there is a few cosmetics companies have real strength. Jawha created “Herborist” became a leader in the domestic cosmetics industry. And there are a lot of companies which are represented by Chinese herbal medicine relying on the Chinese rich resources, committee to the development and use of Chinese herbal medicine industry. They are showing strong business strength and market competitiveness and thus won the capital in Chinese cosmetics market.
A more prominent R & D levels and the advantages
Technology is the primary productive forces and the same for cosmetics industry. Current market reality is that the cosmetics without technology are in a weak market competition position. Science and technology, research and development advantage have become the dominant part of the cosmetics market competition.
Currently, the local cosmetics general in a low level of scientific research, low-tech products, scientific research and development are still in imitation phase. However, the trend of the market determines without outstanding R & D strengths will not be able to ensure long-term rapid development. So some domestic vision and strength cosmetics companies have started to establish their own R & D departments to enhance their own R & D capability. Jawha, Shanghai Medical University and together with other five universities have established joint laboratories or research centres. “Herborist” has the products with their own emerging technologies, and showing the full development potential.
Express cultural advantages and implement differentiated marketing strategy
In recent years, Chinese consumers concern about the national culture and traditional Chinese medicine. This has become the society hot spots. In cosmetic industry, “natural, green” products have been considered as the most healthy consumer choice. Herbal medicine has re-recognized by consumers as a consumer fashion. Jawha use10 years to build high-end cosmetics brand “Herborist”. By creating high-end “herbal personal care experts” differentiated product characteristics, has become a typical in the high-end cosmetics market
In the current cosmetics market, the products without characteristics are very difficult to get success, “Herborist” though the herbal difference product feature creating the “Herborist” success, but also opened a new way to extend local cosmetics companies.
The use of local advantages to implement differentiated marketing
HERBORIST use store and SPA club models, and it has been established more than 300 stores nationwide. “HERBORIST” store, SPA club undoubted has stronger market penetration, not only avoid the high-end foreign brands monopoly stores status, and successful produce high end brand image.
Insist long-term brand development strategy
In the cosmetics industry, brand is fundamental for survival and development. When consumers choosing cosmetics, if the products with the same price and same functional, they often choose a more well-known brand. In consumers’ opinion, brands represent a more reliable quality and better service. Herborist determined high-end positioning in the market from the beginning, and thus forming a complete set of brand-building system. Use the herbal beauty theory concept as core characteristic, with “store + SPA + counter” trinity marketing network, member activities and member publications as the carrier to establish customer relationships. They also coupled with fresh and natural, highly China culture and advertising style. These factors all make HERBORIST’s herbal high-end cosmetics brand awareness gained a considerable success.
Quality and price benefit consumers
Product quality plays an important role during enterprise’s development process. Especially for the cosmetics industry, consumers particularly concern about the quality of products. After the domestic cosmetics quality crisis, some local cosmetics companies recognized that good product quality is the essence of sustainable development and growth. Herborist insists quality first as a business concept and introduced ISO9001 quality management system, the established the professional quality inspection department and strict raw material purchasing and product testing processes.
INTERNATIONAL MARKE ENTRY AND DEVELOPMENT
Firm plan to enter into the foreign markets, they have to think about some issues comprehensive to choose the best way and make the correct decision.
There are lots of factors will create an attractive conditions for development of international strategy and resource allocation. (Czinkota and Ronkainen 2009, 186) These factors can be concluded as following:
Through market diversification, they are seeking for more growth opportunities.
They can earn higher margins and profits.
Gain new ideas about produces, services, and business methods and achieve innovation.
They can better serve key and potential customers whom have relocated abroad.
To get more supply sources and gain benefit from global sourcing advantages.
Achieve lower-cost or better-value factors of production.
They can develop economies of scales in sourcing, production, marketing and research and development.
Take competition advantage in foreign market or remain core competition in the home market. (Cavusgil, International Business)
5.2 International Market segmentation
International market segmentation means enterprises according to certain segments standards, subdivide the whole international market into several sub-markets which with different demands. These sub-markets’ consumers have same or similar demand characteristics. They can select one or more from these sub-markets as their international target markets. The purpose of market segmentation is to increase the accuracy of corporate strategic objectives. With the premise of limited resources, through product planning, distribution channels, pricing strategies and other marketing mix to meet the needs of the sub-market and seeking for maximize profit. International market segmentation can be divided into macro segmentation and micro segmentation.
Based on the certain standard, such as economy, culture, geography, etc.to subdivides the whole international market into several sub-markets, and each sub-market with the similar marketing environment. Company can select one group or several countries as their target market. Macro segmentation is the bases of micro segmentation. Because only after company has decided which countries to enter, then they can do a further segmentation in these certain countries. The international market segmentation standards are including geographical standard, economic standard, cultural standards and combination method. There are two problems when we doing macro segmentation: the first one is to determine the basic steps of macro subdivision or process. The second one is to determine by which standard to subdivide international market.
After company entered into a certain foreign market, as consumers have different demands and it is impossible to meet all these demands, they have to subdivide their market into several sub-markets, then satisfied the needs of some certain sub-markets. The micro segmentation standards are including geographical environment of consumer markets, population, consumer psychology and purchase situation.
An effective international market segmentation should be accord with measurability, accessibility, substantiality and action-ability.
Choosing target market
International target market selection process is based on international market segmentation with several standards to evaluate and compare different submarkets and finally select appropriate countries and target customer types.
5.3.1 Selection process
Define the selection standards, such as market size, competition situation, operating cost, and business goal.
Define the relation between the selection standards and appropriate variables
Define the importance of each standard and variable
Evaluate each market and build hierarchy relationship depend on risks, cooperation, and barrier situation
Deeper research in the most potential markets
5.3.2 Target market selection criteria
Segment size and growth potential through estimate existing and potential or not saturated markets.
Competition situation, including whether have powerful competitors, new entrants facing threats, Substitute competition and potential competition situation.
Consistency with company goal and resources, which means whether segment markets conform to company’s general goal, whether can play a competitive advantage and whether company have enough resources condition and operation ability.
Risks and market access barriers. Such as exchange rate risk, political risk, natural disaster risk etc.
International market entry mode
Firms should determine the best mode to enter the target markets. There are five market-entry strategies can be chosen, namely indirect exporting, direct exporting, licensing, joint ventures and direct investment (Philip Kotler 2000, 374). And these modes all have their own advantages and disadvantages, so company must consider carefully and choose the best mode.
Amount of commitment, risk, control and profit potential
Figure 3. Five modes of Entry into Foreign Markets (Philip Kotler 2000, 374).
The selection of international market entry mode
There are three main factors which should be considered when choosing entry mode:
Foreign target market conditions, including target countries’ market scale, market competition situation, the economic base and policy.
The company’s conditions, including development goals, resources conditions and product characteristics.
The characteristics of various market entry modes. Such as investment scale, the risk degree, control degree, marketing experience and cost, profit level etc.
Marketing communication is usually utilized to communicate various elements of an organization’s offering to the target audience. This offer might be a product or a service, or even organization itself in order to build its reputation (Fill, 2009, 4). Enterprise use investigation, planning and communication as well as other public relation tools to provide advices and executive services for their achievement of marketing goals. It can help organization remain or promote their market competitive advantage and obtain higher sales profit. It participates in customer marketing strategy, including market orientation, research and development, production, sales, channel and after-sales, etc.
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Marketing communication is one of the most widely used marketing strategies. The purpose of marketing communication is to inform the product, service as well as their characteristics to target consumers or to create positive images of the organization or its offerings. And assist the consumer to make a positive buying decision. (Fill)
5.6.2 The main promotional tools
Sales promotion can help to deliver all kinds of information about the organization and their products to persuade or attract consumers to buy in order to achieve the purpose of expand sales. Sale promotion is a kind of market competition means and it can help to break “buying habits”, so it is a good tool for the first purchase. The purpose of sales promotion is to make customers accept products. Essentially, promotion is a kind of communication activity, namely marketers (information providers or sender) delivers various kinds of information to one or more of target (namely the information receiver, such as the audience, listener, readers, consumers or users, etc.) to affect their attitude and behavior.
The utilization of sales promotion can bring several benefits, such as reduce the process of new product introduction, motivate consumer to do the first buying, incent consumer buy again so that establish consumption habits, increase sales and drive related products market.
Personal selling refers to through direct interaction with consumers to marketing their products or services. Personal selling is an important role of marketing and it relies heavily on interpersonal interactions between consumers and sellers to achieve initiate, develop, and enhance customer relationships (????). It can be divided into three basic forms, that is, door-to-door selling, counter selling, meeting selling.
Advertising is through some forms of media, public to widely communicate information to the public for some specific needs. Usually, it is an important communication means between producers, operators and consumers. It is also the main form of enterprise occupies market, sell products and providing labor services. The main purpose is to expand economic benefits.
Advertising is different from general mass media and publicity activities. Advertising’s characteristic including:
Advertising is a kind of communication tool through which the producer or advertiser can deliver certain product information to target consumers.
Advertising should be paid and it may cost a lot.
Advertising is a communication activity with persuasion.
Advertising must be purposeful and it is a continuous activity.
Advertising not only benefits advertisers but also the audiences. Audiences may receive useful information by advertising.
Public relations refers to a series of sales promotion activities through which a certain organization can improve social public relations, gain understanding and support from public to establish good organization image or promote products selling. Public relation has several characteristics such as emotionality, bidirectional, universality, integrity and long-term.
It is a behavior which without marketing middlemen, use consumer direct channel to delivery and receive goods and services. The types of direct marketing are including direct mail, telephone directory marketing, interactive TV, Internet marketing and mobile equipment marketing.
We can get lots of benefits through direct marketing. For company, it is the most rapid channels of customer service and it can help to deal with the rising labor sales costs. For consumer, it avoids high driving expenses, traffic jams, parking trouble and time shortages.
Risks and risk management
5.7.1 Relative Risks
Because of the international business environment and complex international management lead to internationalized enterprises are facing more and more sophisticated risks.
Market risk: market is fluctuant all the time, because of market break, artificial segmentation, competition, inflation or deflation, consumer purchasing power decreasing and raw material purchasing supply risks which cannot be predicted result in market share has dropped sharply or anti-dumping and antitrust charges.
Product risk: new products and services’ development has met the needs, products quality and defects problems, obsolete, or renewal untimely lead to risk.
Business risks: because of the internal management confusion, causing insolvency or losses.
With the development and scale expansion of international enterprise will obvious lead to regional dispersion. As a result, it gets more and more difficult to control their human resources, finance and materials.
Political risks have a big influence on their trade. The risks from foreign countries including the economic, regulation and polity factors and the changes in different types of regulation as well as trade policies may cause a materially adversely effect on their sales, business and results of operations.
Culture is an unnegligible risk factor. The complexity and uncertainty culture environment make the fact profit goes against the expected benefits objective and even lead to the failure of the business activities. The misconception and conflict of the culture may danger to the achievement of their operation objective.
Currency risk is always a main risk almost for every international company. The exchange rate fluctuations have a large influence on their net sales, costs and results of operations.
5.7.2 Risk Management
Risk identification: namely determine what risks may influence on enterprise, and clearly describe these risks and characteristics. Generally speaking, risk identification is a repeated process and should be as comprehensive as possible to identify the risks may be faced. Risk classification and induction are common used in risk identification method.
Risk analysis: the process to evaluate the identified risks’ possible consequences and impacts. Risk analysis can use either qualitative or quantitative analysis method to further define the impact of identified risks. According to their impacts to rank risks in order to identify the key risk items and guide risk response planning.
Risk response: focus on the risks to develop risk response plan and organize the necessary resources. Aim to effective control the risks to avoid the risk out of control and evolve into crisis. Risk response plan should include the main categories of current and future risks which business
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