Growing Up In China Financing Of Babycare Ltd Marketing Essay

1957 words (8 pages) Essay

1st Jan 1970 Marketing Reference this

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BabyCare Ltd., a Beijing-based company founded by Chris Mumford and Matthew Estes on 1998. The company’s aim is to establish itself as the premium brand of nutritional and vitamin supplements for the lucrative mother-and-child segment. BabyCare delivered a product line of premium nutritional product via a well-trained direct sales force that was equipped to answer the consumer’s need for information on pregnancy the child rearing. BabyCare also provided training and healthcare education for expecting and current parents. The two executives of BabyCare want to open retail centers in all the cities in China and they are seeking $2-$3 millions of expansion capital fund. The company had already received two investments from potential investors. Now, series of meeting going-on for a potential 3rd round inventors.

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BabyCare business model was different from traditional business model in China. Unlike traditional consumer products companies in China that relied on distribution, wholesalers, and retailers, BabyCare took a direct approach to selling, handling every stage of supply chain from packaging to the end-customers. The venture stage financing was still uncommon in the Chinese business environment, and the insufficient distribution channels and tight regulations complicated implementing the business plan. The BabyCare concept was a novel business model that would directly address the real-world challenges to be overcome in achieving profitability in China, the world’s largest baby care market.

By design, The Company could operate with minimal capital requirements. Sales all occurred at BabyCare centre are were paid in cash. BabyCare has no credit sales and no receivables. Estes and Mumford felt that BabyCare was still too young to undertake a full-scale public offering. BabyCare needed $2.5 million of financing to get to the point where expansion capital was self-generating from existing markets. Working capital requirements were also growing as a result of the long supply chain and growing depended.

The PRC health supplement market doubled from $3 billion in 1998 to $6 billion in 2000, and according to market research firm Pro Re Nata (PRN) the PRC market would represent 20% or $10 billion of worldwide sales of $51 billion by 2010. China healthcare spending 10% of the healthcare budget for education related to childbirth, which is insufficient. One-child policy resulted in every child having two parents and four grandparents, all dependent on this child’s future success, so that the parents wants their best from day-zero to make their child successful in the life. To look all above the factors it proof that there is lot of potential growth for BabyCare in China and the region. The projected income statement of BabCare can be turn to reality as the plan drawn by the two executives and I don’t think any venture capitalist need to hesitate to invest in BabyCare even the China’s regulation don’t favors the model of BabyCare.

Q: Why you Invest in the BabyCare?

Ans: “China’s demand for baby care products has grown at a fast pace in the past decade. In the next five years (2009-2014), both production and demand will continue to grow.”1 According to the China’s population clock, the total no. of birth in 2009 as on dated 19 Oct, till 6pm 12697494 million. In 2008, the no of babies born was higher than the normal rate of birth because of the Olympic (big events often dictating birth rate in China). In China, the large no. of one-child families inevitably allows higher spending on each individual child.”2 One-child policy resulted in every child having two parents and four grandparents, all dependent on this child’s future success, so that the parents wants their best from day-zero to make sure that their child successful in the life. “Chinese parents don’t regard toys as anything, it seems, more than a means to amuse kids.”

BabyCare, seeking to cash in on the 23 million children born in China every year by dispensing advice on parenting-and by selling vitamins, formula, and toys. BabyCare adopted grass-root approach, where BabyCare sells its vitamins and supplements to young mothers who attend direct-sales sessions. The first centre opened in 1998 in Beijing to educate woman on pregnancy and child rearing- and sell them supplement at the same time. In addition to selling products through its centers, BabyCare employs an army of 4,500 sales representative, most of whom were customers.

Until Nov 2005, BabyCare operates 20 centers in 16 cities and plans to expand to eight more cities in 2006. Sales are expected to increase 100%, to $20 millions, in 2005, and double again, to $ 40 million. The great bulk of BabyCare’s 95% revenues come from the sales of vitamins, baby formula, and educational toys and 5% from the centre’s classes.

It is hard to change 5,000 years of tradition just doing an advertisement to introduce the product and its benefit. Not all the people are educated so it is also difficult to choose right medium of advertisement. Advertizing is costly in China, and advertizing would increase the product cost or reduce the profit margin of the product. 1st pregnancy of a women is a crucial phase of the life, a totally different new experience and moral support as well information about the personal and infant will be always beneficial. In China, only spend 10% of the annual budget on the health education, which is not sufficient for a largest population. The executives of BabyCare understood the upcoming market demands and opportunity so they decided to provide training and healthcare education to current and expecting parents. It also helps to make a strong relation-ship with new customers and provide better information about the product and services. One so the baby products market is really blooming in the country and the resign.

There are many opportunities to expansions the BabyCare business in lies with the current services and products ranges. The opportunities as following areas –

Education services (Play group and Kindergarten)

Medical Services (Pregnancy-related diagnostic tests, pre & post pregnancy healthcare of the mother)

Complementary therapy/education for kids (Enrichment class, CCA)

Educational toys & products

Educational talk shows and seminars

It will be a question mark that for any company that how a company will be specializes in all the areas. I am agreeing that it is difficult but not impossible and there are success several stories. Here my suggestion for BabyCare is not invest directly instead of partnership with 51% share with leading services products ranges for baby and Mother. So that BabyCare will be specialized in Baby-Mother, segment and needy people only think about the Brand.

Q: How is (or isn’t) BabyCare’s business model tailored to idiosyncrasies of an emerging market?

Ans: BabyCare’s direct-to-consumer model (grass-root approach) is a typical model and which has several key respects:

All BabyCare products sold at standard retails prices at BabyCare centre’s shelves. Where mostly in Chinese market consumer products sales Multi-level marketing* model such as “two-level channel” (Kotler, 2009:408) three-level channel” (Kotler, 2009:409). The Government will received an appropriate and standard sale tax where MLMs* have different marked-up price at different levels.

BabyCare customers’ representatives are itself customers of the Brand and they receive base salary as well commissions from the sales. Which benefits direct to the society where MLMs model a large amount of benefits limited to the individual agents.

Direct-to-consumer+ model enhance the homemaker to work full time or per time. So that newly mother sometime has difficulty to return, the job because of physical changes or changes the new family structure.

DTC+ model has no need a big investment for a poor family to start a business. Where MLMs need big investment to start a business and it is continues pressurizes job to perform better or to increase the sales volume.

DTC model not only solve the financial need of a representative whereas it informative for himself/herself for the representative.

DTC model enhance the company could operate with minimal capital requirements. Sales all occurred at BabyCare centre are were paid in cash. BabyCare has no credit sales and no receivables. It will help the company to invest the business or invest in other business which indirectly help the China’s emerging capital

Asia is a tough place for small companies to compete with multibillion dollars global business. BabyCare’s business model is suit the emerging Chinese market where venture capitalist tries to invest carefully with expectation of high profit.

China still is one of the most regulated economics in the world and the venture capital companies in currently faces major restrictions on their a funding source. BabyCare pyramid business model is different from other consumer products or services here customers are not investing a certain amount for a time being, rather they are using the product for their own child as well for herself for around 4 years and to compensate the expenditure they are selling the products. The initial intensions of the customers are not making money with this system. Even in this, system expecting and current parents get education, which make the new generation healthy. With this knowledge, parents can judge the right products available in the market. BabyCare not only making the money although they are educating the parents in which China government is lacking due to any reason. In US and many other countries sales tax is only charged at final sale to the final consumer, thus there are no sales taxes paid at wholesale or production level. In an immerging economy infrastructure and business development is important than taxation amount on goods.

Q: How would you evaluate BabyCare’s funding opportunity?

Company Analysis:

Rich-Gumpert Evaluation System

More desirable

Product Service Level

Level 4

Product /service fully developed. Many satisfied users. Market established

4/1

4/2

4/3

4/4

More Desirable

Level 3

Product /service fully developed. Few (or no) users yet. Market assumed.

3/1

3/2

3/3

3/4

Level 2

Product /service pilot operable. Not yet developed for production. Market assumed.

2/1

2/2

2/3

2/4

Level 1

A Product /service idea, but not yet operable. Market assumed.

1/1

1/2

1/3

1/4

Level 1

A single would be entrepreneur

Level 2

Two founders. Additional slots, personnel not identified

Level 3

Partly Staffed management team. Absent members identified, to join the tem

Level 4

Fully staffed, experienced management team

Management Status

Company’s Strength

Company’s Weakness

Community/ Climate Analysis:

Foot Notes

Research and Market, AMID Co. Nov 2005, Page No 205, http://www.researchandmarkets.com/reports/29864/

Consumers worried about Johnson & Johnson, Andrew Moody (China Daily) http://www.chinadaily.com.cn/bizchina/2009-04/27/content_7718793_2.htm

Updated: 2009-04-27

BabyCare Ltd., a Beijing-based company founded by Chris Mumford and Matthew Estes on 1998. The company’s aim is to establish itself as the premium brand of nutritional and vitamin supplements for the lucrative mother-and-child segment. BabyCare delivered a product line of premium nutritional product via a well-trained direct sales force that was equipped to answer the consumer’s need for information on pregnancy the child rearing. BabyCare also provided training and healthcare education for expecting and current parents. The two executives of BabyCare want to open retail centers in all the cities in China and they are seeking $2-$3 millions of expansion capital fund. The company had already received two investments from potential investors. Now, series of meeting going-on for a potential 3rd round inventors.

BabyCare business model was different from traditional business model in China. Unlike traditional consumer products companies in China that relied on distribution, wholesalers, and retailers, BabyCare took a direct approach to selling, handling every stage of supply chain from packaging to the end-customers. The venture stage financing was still uncommon in the Chinese business environment, and the insufficient distribution channels and tight regulations complicated implementing the business plan. The BabyCare concept was a novel business model that would directly address the real-world challenges to be overcome in achieving profitability in China, the world’s largest baby care market.

By design, The Company could operate with minimal capital requirements. Sales all occurred at BabyCare centre are were paid in cash. BabyCare has no credit sales and no receivables. Estes and Mumford felt that BabyCare was still too young to undertake a full-scale public offering. BabyCare needed $2.5 million of financing to get to the point where expansion capital was self-generating from existing markets. Working capital requirements were also growing as a result of the long supply chain and growing depended.

The PRC health supplement market doubled from $3 billion in 1998 to $6 billion in 2000, and according to market research firm Pro Re Nata (PRN) the PRC market would represent 20% or $10 billion of worldwide sales of $51 billion by 2010. China healthcare spending 10% of the healthcare budget for education related to childbirth, which is insufficient. One-child policy resulted in every child having two parents and four grandparents, all dependent on this child’s future success, so that the parents wants their best from day-zero to make their child successful in the life. To look all above the factors it proof that there is lot of potential growth for BabyCare in China and the region. The projected income statement of BabCare can be turn to reality as the plan drawn by the two executives and I don’t think any venture capitalist need to hesitate to invest in BabyCare even the China’s regulation don’t favors the model of BabyCare.

Q: Why you Invest in the BabyCare?

Ans: “China’s demand for baby care products has grown at a fast pace in the past decade. In the next five years (2009-2014), both production and demand will continue to grow.”1 According to the China’s population clock, the total no. of birth in 2009 as on dated 19 Oct, till 6pm 12697494 million. In 2008, the no of babies born was higher than the normal rate of birth because of the Olympic (big events often dictating birth rate in China). In China, the large no. of one-child families inevitably allows higher spending on each individual child.”2 One-child policy resulted in every child having two parents and four grandparents, all dependent on this child’s future success, so that the parents wants their best from day-zero to make sure that their child successful in the life. “Chinese parents don’t regard toys as anything, it seems, more than a means to amuse kids.”

BabyCare, seeking to cash in on the 23 million children born in China every year by dispensing advice on parenting-and by selling vitamins, formula, and toys. BabyCare adopted grass-root approach, where BabyCare sells its vitamins and supplements to young mothers who attend direct-sales sessions. The first centre opened in 1998 in Beijing to educate woman on pregnancy and child rearing- and sell them supplement at the same time. In addition to selling products through its centers, BabyCare employs an army of 4,500 sales representative, most of whom were customers.

Until Nov 2005, BabyCare operates 20 centers in 16 cities and plans to expand to eight more cities in 2006. Sales are expected to increase 100%, to $20 millions, in 2005, and double again, to $ 40 million. The great bulk of BabyCare’s 95% revenues come from the sales of vitamins, baby formula, and educational toys and 5% from the centre’s classes.

It is hard to change 5,000 years of tradition just doing an advertisement to introduce the product and its benefit. Not all the people are educated so it is also difficult to choose right medium of advertisement. Advertizing is costly in China, and advertizing would increase the product cost or reduce the profit margin of the product. 1st pregnancy of a women is a crucial phase of the life, a totally different new experience and moral support as well information about the personal and infant will be always beneficial. In China, only spend 10% of the annual budget on the health education, which is not sufficient for a largest population. The executives of BabyCare understood the upcoming market demands and opportunity so they decided to provide training and healthcare education to current and expecting parents. It also helps to make a strong relation-ship with new customers and provide better information about the product and services. One so the baby products market is really blooming in the country and the resign.

There are many opportunities to expansions the BabyCare business in lies with the current services and products ranges. The opportunities as following areas –

Education services (Play group and Kindergarten)

Medical Services (Pregnancy-related diagnostic tests, pre & post pregnancy healthcare of the mother)

Complementary therapy/education for kids (Enrichment class, CCA)

Educational toys & products

Educational talk shows and seminars

It will be a question mark that for any company that how a company will be specializes in all the areas. I am agreeing that it is difficult but not impossible and there are success several stories. Here my suggestion for BabyCare is not invest directly instead of partnership with 51% share with leading services products ranges for baby and Mother. So that BabyCare will be specialized in Baby-Mother, segment and needy people only think about the Brand.

Q: How is (or isn’t) BabyCare’s business model tailored to idiosyncrasies of an emerging market?

Ans: BabyCare’s direct-to-consumer model (grass-root approach) is a typical model and which has several key respects:

All BabyCare products sold at standard retails prices at BabyCare centre’s shelves. Where mostly in Chinese market consumer products sales Multi-level marketing* model such as “two-level channel” (Kotler, 2009:408) three-level channel” (Kotler, 2009:409). The Government will received an appropriate and standard sale tax where MLMs* have different marked-up price at different levels.

BabyCare customers’ representatives are itself customers of the Brand and they receive base salary as well commissions from the sales. Which benefits direct to the society where MLMs model a large amount of benefits limited to the individual agents.

Direct-to-consumer+ model enhance the homemaker to work full time or per time. So that newly mother sometime has difficulty to return, the job because of physical changes or changes the new family structure.

DTC+ model has no need a big investment for a poor family to start a business. Where MLMs need big investment to start a business and it is continues pressurizes job to perform better or to increase the sales volume.

DTC model not only solve the financial need of a representative whereas it informative for himself/herself for the representative.

DTC model enhance the company could operate with minimal capital requirements. Sales all occurred at BabyCare centre are were paid in cash. BabyCare has no credit sales and no receivables. It will help the company to invest the business or invest in other business which indirectly help the China’s emerging capital

Asia is a tough place for small companies to compete with multibillion dollars global business. BabyCare’s business model is suit the emerging Chinese market where venture capitalist tries to invest carefully with expectation of high profit.

China still is one of the most regulated economics in the world and the venture capital companies in currently faces major restrictions on their a funding source. BabyCare pyramid business model is different from other consumer products or services here customers are not investing a certain amount for a time being, rather they are using the product for their own child as well for herself for around 4 years and to compensate the expenditure they are selling the products. The initial intensions of the customers are not making money with this system. Even in this, system expecting and current parents get education, which make the new generation healthy. With this knowledge, parents can judge the right products available in the market. BabyCare not only making the money although they are educating the parents in which China government is lacking due to any reason. In US and many other countries sales tax is only charged at final sale to the final consumer, thus there are no sales taxes paid at wholesale or production level. In an immerging economy infrastructure and business development is important than taxation amount on goods.

Q: How would you evaluate BabyCare’s funding opportunity?

Company Analysis:

Rich-Gumpert Evaluation System

More desirable

Product Service Level

Level 4

Product /service fully developed. Many satisfied users. Market established

4/1

4/2

4/3

4/4

More Desirable

Level 3

Product /service fully developed. Few (or no) users yet. Market assumed.

3/1

3/2

3/3

3/4

Level 2

Product /service pilot operable. Not yet developed for production. Market assumed.

2/1

2/2

2/3

2/4

Level 1

A Product /service idea, but not yet operable. Market assumed.

1/1

1/2

1/3

1/4

Level 1

A single would be entrepreneur

Level 2

Two founders. Additional slots, personnel not identified

Level 3

Partly Staffed management team. Absent members identified, to join the tem

Level 4

Fully staffed, experienced management team

Management Status

Company’s Strength

Company’s Weakness

Community/ Climate Analysis:

Foot Notes

Research and Market, AMID Co. Nov 2005, Page No 205, http://www.researchandmarkets.com/reports/29864/

Consumers worried about Johnson & Johnson, Andrew Moody (China Daily) http://www.chinadaily.com.cn/bizchina/2009-04/27/content_7718793_2.htm

Updated: 2009-04-27

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