Strategy for Personal Care Products in Chinas Emerging Markets: Final ReportJohnson & Johnson ChinaFINALVersion 2.0FINALVersion 2.0Background and objectives of this study3Emerging Market defined5Overview of the Chinese Personal Care market13Challenges for entering Emerging Markets18Case Studies of companies acting in Emerging Markets22Summary of findings and conclusions80Recommendations89Appendix 1: Additional company information93Appendix 2: Personal Care market segment analysis95Back-up: Definitions and miscellaneous information126Strategy for Personal Care Products in Chinas Emerging Markets:ContentSectionPage2FINALVersion 2.0Background and objectives of this studyEmerging Market definedOverview of the Chinese Personal Care marketChallenges for entering Emerging MarketsCase Studies of companies acting in Emerging MarketsSummary of findings and conclusionsRecommendationsAppendix 1: Additional company information (click .xls file)Appendix 2: Personal Care market segment analysisBack-up: Definitions and miscellaneous informationStrategy for Personal Care Products in Chinas Emerging Markets:Content3FINALVersion 2.0The following document is the final report of a case study analysis focussing on Personal Care producers serving the Emerging MarketsBackground and ObjectivesBackgroundObjectivesAs Chinese economy evolves Tier 1 markets mature and Tier 2 to 4 markets get more attractiveIn response to these market changes MNCs in the Personal Care market start thinking about expansion strategies beyond their traditional Tier 1 marketsOffering products for Emerging Markets is seen as an attractive strategyHowever those markets require a new go-to-market approach in adapting products and cost structures for competition in low price marketsThe objective of the following report is to provide insights into conditions for acting in Chinas Emerging MarketsIt aims to support preparation for entering Emerging Markets through information onConditions for acting in emerging marketsGo-to-market models chosen by selected companiesIndication of cost structures and business priorities for companies that act in the Emerging MarketsThis document provides support for further internal evaluation and analysis. Recommendations are indicative and aimed at triggering the ongoing discussion about priorities for the emerging markets. 4FINALVersion 2.0Background and objectives of this studyEmerging Market definedOverview of the Chinese Personal Care marketChallenges for entering Emerging MarketsCase Studies of companies acting in Emerging MarketsSummary of findings and conclusionsRecommendationsAppendix 1: Additional company informationAppendix 2: Personal Care market segment analysisBack-up: Definitions and miscellaneous informationStrategy for Personal Care Products in Chinas Emerging Markets:Content5FINALVersion 2.0Emerging Market - Growth of income and consumption%RMBThe wage increase in China is growing quickly and disposable income will rise.Source: Industry Reports, National Statistics & CGEY AnalysisAnnual WageGrowthRMBPrivate ConsumptionGDPConsumption versus GDPChinas Average Annual Wage Growth (1998 - 2002)As private spending power is increasing throughout China private consumption is growing at rapid pace6FINALVersion 2.0Increasing income also for large group of lower income earners# of householdsIncome in RMBIncreasing income in major citiesIncome Spread for 1997Income Spread for 2002Increase in disposable incomefor low income groupsSource: CGEY AnalysisOverall rising income and the number of people earning more leads to a potential new market and overall increased disposable income.Whilst the majority of population still draws lower income range, rising income levels result in growth of disposable income in lower income groups as wellSCHEMATIC7FINALVersion 2.0Emerging Market - Increase of lower level household incomeSource: Industry Reports, National Statistics & CGEY Analysis.Note: For a list of Tier 1 and 2 cities and Tier/Region split see back up at the end of this document.20012006 (estimate)The number of households above RMB3,000 monthly income outside the major cities in China is more than twice compared to the major cities - and growing fast.Number of households earning more than RMB 3,000in million households 2001 and 2006 (estimate)Income uplift in the area of lower level household incomes is also reflected in the expected increase of households earning more than RMB30008FINALVersion 2.0Tier 1 Cities2002 Distribution of Population, Income, and GDP by cities in China Tier 2 CitiesLocation of Tier 1 & Tier 2 Cities Tier 1 CitiesTier 2 CitiesTier 3 CitiesTier 4 CitiesRural AreasThe bulk of Chinas disposable income lie inTier 3, Tier 4 and rural areas.80%80% of Chinas disposable household income lie outside Tier 1 and 2 citiesEmerging market - growing potential markets outside Tier 1 and Tier 2Source: Industry Reports, National Statistics & CGEY Analysis.Note: For a list of Tier 1 and 2 cities and Tier/Region split see back up at the end of this document.9FINALVersion 2.0Where income is available and what it is spent on % reference product sales by citiesTop 3 cities (Shanghai, Beijing, Guangzhou)Next ten citiesOther CitiesSignificant percentage of product sales potential lies outside the few top cities typically targeted by MNCs in China.% of total households by cities% of total high income households by citiesAn attractive market with high income and spending lie outside the top 13 citiesEmerging Market - Beyond the top 13 citiesSource: Industry Reports, National Statistics & CGEY Analysis.Note: For a list of Tier 1 and 2 cities and Tier/Region split see back up at the end of this document.(Figures in 2001 data)10FINALVersion 2.0We regard three combined market movements as drivers for the Emerging Market in ChinaSummary: Emerging Market driversOverall income increase leading to growing private consumptionsGrowing number of households with lower level income that experience a significant income increase (earning above RMB 3,000)Growing number of households outside of the top 13 cities with larger/growing incomeHousehold income increaseTier 1Number of householdsabove RMB3000/mTier 2Tier 3Tier 4Higher incomein less developed regionsAssumption: Higher household income will lead to higher consumptions for personal care products.123123Emerging MarketSCHEMATIC12FINALVersion 2.0Background and objectives of this studyEmerging Market definedOverview of the Chinese Personal Care marketChallenges for entering Emerging MarketsCase Studies of companies acting in Emerging MarketsSummary of findings and conclusionsRecommendationsAppendix 1: Additional company informationAppendix 2: Personal Care market segment analysisBack-up: Definitions and miscellaneous informationStrategy for Personal Care Products in Chinas Emerging Markets:Content13FINALVersion 2.0E: EstimateSource: Euromonitor 2003, CGE&Y AnalysisThe Chinese Personal Care market continues to offers great opportunities for manufacturers.Chinese Personal Care market growth 1997 - 2007E (Total retail sales, in mRMB)CAGR 1997-2002: 10.4%CAGR 2002-2007: 7.2%The Chinese Personal Care market is expected to continue its strong growth albeit at a slower paceOverall Personal Care market growthPersonal Care Market in China enjoyed strong growth in the past six years With rising affluence and growing product awareness, this market will keep growing with fast pace However saturation in developed markets will reduce speed of growthEstimateRMB 57,046mRMB 80,762m14FINALVersion 2.0While Disposable Paper, Skin Care, and Baby Care will show the strongest growth among the categories, Feminine Hygiene will continue to be the largest categoryBaby CareFeminine HygieneSkin CareHair CareDisposable PaperBath & Shower20022007EOverall 7.2%Total:RMB 57,046mRMB 80,762mSource: Euromonitor 2003; CGE&Y AnalysisEstimated Personal Care market growth by category Compounded Annual Growth Rate (CAGR) 2002-2007 in %Personal Care spit by categorycategory market shares 2002 and 2007E in %Due to combination of market share and growth Skin Care can be regarded as the growth driver in the coming 5 years.15FINALVersion 2.070% of the Personal Care market lies in developed regions and individual segments share within regions reflect geographical preferences and market maturityPersonal Care market 2002 by geography in %Source: Euromonitor 2003, CGEY AnalysisEast ChinaNorth and Northeast ChinaSouth ChinaMid ChinaSouthwest ChinaNorthwest China26%24%21%13%10%6%TotalRMB 57,046m14,53913,94212,0897,0775,7683,632RMB%70%34%24%17%7%16%31%17%31%8%11%42%21%15%11%9%33%21%23%42%24%22%10%5%9%8%Feminine HygieneSkin CareHair CareDisposable PaperBath & Shower45%19%16%12%7%2%2%1%2%1%2%Baby Care0%20%40%60%80%100%Personal Care market 2002by market categories per geography in %Link back to regional split17FINALVersion 2.0Background and objectives of this studyEmerging Market definedOverview of the Chinese Personal Care marketChallenges for entering Emerging MarketsCase Studies of companies acting in Emerging MarketsSummary of findings and conclusionsRecommendationsAppendix 1: Additional company informationAppendix 2: Personal Care market segment analysisBack-up: Definitions and miscellaneous informationStrategy for Personal Care Products in Chinas Emerging Markets:Content18FINALVersion 2.0SegmentsFeminine HygieneSkin CareHair CareBath & ShowerDisposablePaperBaby CareDemographic ShiftSegment DevelopmentHigh educational effort required to break the dominance of the Towel product segmentIncreasing income leads to higher consumer spendingTier 2 and Tier 3 cities are closing up to where Tier 1 cities were 3 years agoSkin Care, Disposable Paper, and Baby Care are expected to show the strongest growth potential but competition is increasing in all segmentsGrowing competition in the Personal Care marketStrong growth prospectsLarge share also in less developed regionSaturation in developed regions slowing overall growthSubstitution of strongest segment (2 in 1) starting Grow slowly as most Chinese consumers continue to favour bar soapRapid growth on the back of nappy and tissue growthEarly update in less developed areasStill in developing stagesEducation and brand building key to overcome luxury image in less developed regionsCompetitionSeveral top players with similar market shareMany small local playersSeveral stronger players but none above 10% market shareMarkets in less developed regions also with stronger shareOne very strong MNC playerMany runners upMany small local playersTwo MNCs in higher end marketMany small local players mostly in lower end (+bar soap) marketStrong local playersHeavy competition on priceOne dominant playerBut local players gaining slowly19FINALVersion 2.0Market maturity, competition & profitability remain key considerations as shifting demographics generate new marketsEntry barriers to new marketsShifts in demographicsAre we entering the right Market?Formulating solutions to key issues in entering new markets in China help companies gain market share and build brand equity.Can we Achieve Profitability?Market Maturity- Existence of new markets may show potential growth areas, however educating the market is another consideration. - Maturity of market life cycleKey QuestionsKey ConsiderationsIntensity of Competition-One or few dominant players may already exist in the market- The market may be very fragmented with intense competition between multiple partiesProfitability-Dealing with losses due to counterfeiting and intellectual property challenges may drive profits down.-Managing, creating and sourcing distribution is comparatively high cost20FINALVersion 2.0Background and objectives of this studyEmerging Market definedOverview of the Chinese Personal Care marketChallenges for entering Emerging MarketsCase Studies of companies acting in Emerging MarketsSummary of findings and conclusionsRecommendationsAppendix 1: Additional company informationAppendix 2: Personal Care market segment analysisBack-up: Definitions and miscellaneous informationStrategy for Personal Care Products in Chinas Emerging Markets:Content22FINALVersion 2.05 companies have granted interviews out of which 5 case studies have been preparedIn-depth Case StudiesCompanies ContactedInterviews conductedMultinational CompaniesHenkel Cosmetics China (Haier Mian)Major Domestic CompaniesC-BonsPeopleFrog PrinceGanon/TJoy5Case Studies Prepared523FINALVersion 2.0Five in-depth case studies have been preparedIn-depth Case Studies24FINALVersion 2.0Each of the in-depth case studies presented on the following slides is built of the same flow of subject areasBasic Case Study Building-Blocks and Subjects CoveredCompany Profile & Customer TargetsGo-to-Market Strategy Performance AnalysisImplications & Lessons LearnedCompany position in the marketStrategy overview and financial highlightsTarget customer assessmentFactors shaping customer acquisitionMarket competition and business riskBusiness strategy and product-market combinationsApproaches for S&M, advertising, distribution and productionCost structure implicationsKey success factors for multi-tiered marketsLessons Learned123Where are they and who are they targeting? How have they entered emerging markets? What works well and what can we take away? 25FINALVersion 2.0In-depth case study: People PibaoIn-depth Case Studies26FINALVersion 2.0People Pibao has established itself as a small niche player in Chinas medicinal skin care marketCompany Overview & PerformanceMedicinal Skin Care Products2002 Total Sales: 5.0 Billion RMBProduct PortfolioMarket Share56%20%11% 5% 4% 4%OthersXian-JanssenJinan Dongfeng999 HoldingsHuanan PharmaGuangdong ShunfengPeople Pibaos small gains have come amidst a high degree of competitive rivalry and market fragmentation.CremorScar-Cleansing CreamAcne Cream“Futeling” Cream0.3% People Pibao Relief of itching, bites and inflammation Skin repair cream Acne and blemish remover Anti-itch and inflammation cream30 products under the “People Pibao” brand, including:Source: Guangdong Jinyang Network; People Pibao Company Interview; CGE&Y Analysis27FINALVersion 2.0RegionsGenderIncomePeople Pibaos main customer targets are mostly male, mid-to-high income earners and regular users of traditional Chinese medicineCustomer Needs AssessmentPeople Pibao take a multi-faceted approach by treating each customer segment as a distinct sub-market.Source: People Pibao Company Interview; CGE&Y AnalysisAge500 10001001 20002001 40004001 63006301 83008301 1030010300Customer ProfileMostly maleFocusing on the middle-aged populationIncome levels can vary given that their medicinal products aim to hit critical massMalesFemales0 1415 1920 2930 4950 6465 7980Tier 1 CitiesTier 2 CitiesTier 3 CitiesTier 4 CitiesRural AreasPrimary targetSecondary target28FINALVersion 2.0OTC product awareness, price sensitivity and ability to buy are significant challenges to customer acquisition in developing regionsCustomer Limiting FactorsConsumer SpendOn MedicineBetween 20 to 7 RMB spent on OTC per monthThese regions make up 54% of spend on OTC skin medicineAwarenessCompanyPerformanceRegular users of OTC and Chinese medicine Strong emphasis on building brandPriceWillingness to spend on treatment and health productsNo variation in pricing as compared with developed regionsTier 3Tier 4Tier 2Tier 1People Pibao has positioned itself in second tier markets, making simultaneous approaches to first-tier cities and low-income areas.Source: People Pibao Company Interview; Pibao Website; CGE&Y Analysis50% Sales30% Sales20% Sales29FINALVersion 2.0Companies entering less-affluent developing markets can expect to encounter a high degree of business riskCompetition and Risks in the MarketEven as a regional small-sized player, People Pibao continues to face numerous challenges. Risk FactorsCompetitive RivalryLow PricingLate EntryImpactExplanationAggressive product marketing by market leaders dominates consumer mindshareMust try to build brand and thus meet increased advertising & promotion costs High degree of counterfeiting for established product brands by thousands of local factories in rural areas Price outweighs product brand in least developed regions Late entry into first-tier cities has stripped People Pibao of first-mover advantages, and thus it is focused on building brand to compete with MNCs and large domestic companiesNot a key risk in less developed markets as low-price can be used to reach more customersSource: People Pibao Company Interview; Pibao Website; CGE&Y Analysis30FINALVersion 2.0People Pibao leverages a Chinese medicine brand to take advantage of a growing middle class with uniquely priced and positioned productsGo-to-Market Strategy OverviewHistoric successEstablished regional focus in south ChinaPositioned with OTC product line focusing on traditional Chinese medicineBridging gaps in retail channels through close relationships with hospitals and institutesKey Market opportunityGrowing wealth in middle class in ChinaOTC and health consciousness for traditional Chinese medicineAppeals to all age groupsKey Market barriersLimited awareness of medicinal skin and OTC products in emerging areasLimited sophistication in retail infrastructure to attract and service specific needsKey CapabilitiesGrowing brand image of regional Pibao brand in south and east coastPrices can be held constant to hit desired segments across regionsStrong local distribution networksGo-to-market strategyHow to attract and educate middle-class consumers at all age groups and build brand loyalty?How to position middle-price products in a medical environment at affordable prices and avoidCompeting for and confusing consumers that are buying skin care and cosmetic brands in department storesDrowning in low-end mass consumer product OTC presentations of department and drug-storesBuild a dedicated distribution platform through hospitals in regions across China to act as distributors and target the middle-price segment.31FINALVersion 2.0People Pibao is targeting middle-income consumers with mid-end pricing Product-Market CombinationsCompany strategy has focused on using distribution channels into hospitals and pharmacies to gain proximity to consumers. AdolescentsYoung AdultsMiddle-AgedSeniorsLargest distribution of incomeCremorScar-Cleansing Cream“Futeling” CreamAcne CreamFocused GroupMassMarketCustomer TargetProduct PortfolioSegmentsSource: People Pibao Website; CGE&Y Analysis32FINALVersion 2.0Sales and marketing functions are structured by regions to increase contact with distributors and wholesalersSales & Marketing ApproachRegional teams direct local sales and marketing teams by focusing on expanding distribution channels and product brand positioning at the local level. -Sales Headquarters-Pibao Commercial Management SchoolGuangzhou Commercial & Sales CenterNorthern regionsSouthwest ChinaSouthern ChinaEastern RegionCompany has focused on presence in Southern stronghold and regional areas as a base for expansion into major cities Explore untapped regions with sales representativesIntroduce productsDevelop own distribution networkFocus on brandingSales teams work with distributor networkFocus on market penetration through hospitalsTier 1 CitiesTier 2 CitiesTier 3 CitiesSource: People Pibao Company Interview; CGE&Y AnalysisTier 4 CitiesSales Units Responsible for regional market, usually encompassing 2-7 cities Sales teams oversee all distributors and wholesalers in a city Responsible solely for People Pibao products Marketing Functions Carry out promotional efforts in regional area Marketing direction and campaigns formulated at central marketing base and executed by regional teamsExplanation33FINALVersion 2.0Distribution Network ManagementAbout 70% of People Pibaos product is sold through a network of distributors and the remaining through wholesalersShipment by truck from Guangzhou factory to major markets ShipmentDistributionOutletsDistributors (Network of hospitals) Wholesalers Hospital outlets Pharmacies Other OTC retailersSecondary Distributors One factory in Shantou producing all products for China 70% of sales handled by distributors (includes direct distribution with hospitals) 30% of sales handled by wholesalers that then work with secondary distributors Margin and payment terms do not vary greatly, and the average is between 10-15% given to distributors Some direct retail efforts by People Pibao has been carried out in developing regions in southwest ChinaSource: People Pibao Company InterviewAlignment with hospitals as distributors has worked well in helping the company quickly acquire a customer base for its OTC skin products. 34FINALVersion 2.0Operating Expenses: RMB 1.0 MillionSpend on advertising and marketing has the largest impact of cost structure composition, much more so than distribution Implications for Cost StructureAdvertising and promotion is the most cost-intensive area, while distribution takes up a smaller portion given the companys geographic concentration in a few key regions. 90%3%7%RMB MillionsTotal Sales: 14.8Source: People Pibao Company Interview; ISI Emerging Markets Report; CGE&Y Analysis Advertising Marketing DistributionPeople Pibao Cost Structure Overview, 2002Note: Company provided CGE&Y with weighting only36FINALVersion 2.0Approaching diverse customer segments as distinct sub-markets has been core to People Pibaos strategy and market successKey Success FactorsLearnings for Chinas Personal Care MarketAggressive product marketing to build brand familiarity is key, while company branding matters littleFrequent product introduction and innovation matters in developed regions, but not at all in emerging marketsPositioning product quality as core value proposition transcends segment distinctions when targeting middle to high-end customersOTC Skin Products in ChinaExpect high degree of competition in this fragmented market from both MNCs, established local companies, and thousands of low-priced counterfeitersFocus on a selection of niche regions to push products before going for nation-wide expansionDevelop a distribution network of distributors (perhaps even hospitals) to gain strong channels to outlets and usersDirect marketing efforts on customer segments with understanding of OTC and Chinese medicine, while slowly educating segments in developing regions37FINALVersion 2.0In-depth case study: Frog PrinceIn-depth Case Studies38FINALVersion 2.0Frog Prince is a small player in Chinas baby care marketCompany Overview & PerformanceDespite its small share, the Frog Prince brand has reached some popularity in China through clever advertising and large product line.Source: Euromonitor 2002; Frog Prince Company InterviewJohnson & JohnsonHenkel28%12%7%53%Yu Mei JingOthersLarge number of smaller players with less than 2% share, of which Frog Prince is one 2002 Baby Care Market SharesTotal Sales: 915 Million RMBMore than 100 different product lines aremarketed under the Frog Prince brandShampooBath WashToothpasteBody SoapPerfumed WatersBaby PowderFacial CreamSkin CreamSkin Moisturizer39FINALVersion 2.0RegionsGenderIncomeMiddle-income earning young parents as well as young women make up Frog Princes customer targetsCustomer Needs AssessmentFrog Prince products are positioned to capture growing awareness of baby care products in developing regions.Source: Frog Prince Company Interview; CGE&Y AnalysisAge500 10001001 20002001 40004001 63006301 83008301 1030010300Customer ProfileMostly young mothers buying for use on babies, and younger females for self-useMiddle-income market across second and third-tier cities in ChinaCompany has not entered first-tier cities MalesFemales0 1415 1920 2930 4950 6465 7980Tier 1 CitiesTier 2 CitiesTier 3 CitiesTier 4 CitiesRural AreasPrimary targetSecondary target40FINALVersion 2.0Limited purchasing power and awareness of baby care products presents a challenge for deep penetration into emerging regionsCustomer Limiting FactorsPurchasing PowerAwarenessCompanyPositioningDemographic ShiftTier 3Tier 4Tier 2Tier 1Frog Prince products are positioned as affordable baby care items for a rising demographic of women in second and third-tier cities.Source: Frog Prince Company InterviewLarger numbers of women entering the workforceLimited awareness of baby care products and considered luxury items. Parents use adult products on babies.Limited purchasing power, as parents spend mostly on baby food.Exposure to advertising and established baby care brands.Highest purchasing power to spend on baby care products.Has yet to enter first-tier.41FINALVersion 2.0Growing competition between MNC and local companies will increase in the years aheadCompetition and Risks in the MarketFrog Prince places a high emphasis on increasing product branding to help its minimize risks and competitive threats. Risk FactorsGrowing Local CompetitorsCounterfeitingLow PricingImpactExplanation In the last several years, strong performance by local companies has been achieved through improved quality and lower prices Yumeijing and Xiao Ding Dang are notable examples Competition between MNCs and local companies will increase in coming years High degree of counterfeiting by thousands of factories Not just MNC products, but Frog Prince brand has also been copied heavily in the market“青蛙王子青蛙王子” has been copied by counterfeiters like “青蛙小子青蛙小子”Price difference for fakes between 30-50% Price competition have become a key differentiator in less developed regions Little emphasis on product series development Source: Frog Prince Company Interview42FINALVersion 2.0Frog Prince leverages a strong product brand in select regional markets as base for greater expansion and middle price products for young parentsGo-to-Market Strategy OverviewCore Competency10 years in the Chinese marketStrong base in its home province of Fujian and neighbouring provincesPositioned exclusively as recognized baby care brandKey Market opportunityGrowing wealth among younger women entering the workforceMove toward “all-natural” products for babiesGrowing awareness for baby careKey Market barriersLimited purchasing power for baby care products which are seen as luxuryIntense rivalry in the market and presence of fake productsKey CapabilitiesStrong sales network in Southeast and Central ChinaInnovator of many product lines with a R&D capabilitiesGo-to-market strategyHow to attract and educate middle-class young women and build brand loyalty?How to position baby care products in a newly developing markets at affordable prices and Gain share from MNC companies without competing directly with high advertising costsBuild a strong product brand that appeals to children and young parents, while working closely with regional distribution platforms.43FINALVersion 2.0Frog Prince employs a single-brand strategy to market a wide range of product lines to a select middle-income customer segment Product-Market CombinationsFocusing on emerging markets, Frog Prince has been able to build a customer base in provinces such as Henan, Hebei and Hubei. Source: Company Interview; Frog Prince WebsiteLinesPositioningBrandsSoapToothpastePowderPerfumed WaterBody WashDisinfectantBaby ToiletriesBaby Skin CareBaby Hair CareBaby Sun CareShampooHair conditionerFacial creamHand creamMoisturizerLip BalmSun blockChildren and young parents (women) are encouraged to use productsSimilar to Johnson & Johnson marketingIn terms of pricing, company targets middle segments across all lines Single brand under Frog Prince44FINALVersion 2.0Sales teams are structured in both developed and emerging regions, while marketing efforts are direct from a central base in FujianSource: Company Interview; Frog Prince WebsiteSalesMarketingWestern ChinaS&M FunctionsCentral ChinaSouthwest ChinaEastern ChinaChinaHQsRegionsCentralized marketing functionsdirected into regionsSales & Marketing ApproachFrog Prince organizes sales teams by regions -Sales team work with wholesalers and distributors at provincial and municipal level-Company frequently holds promotional sales events for distributors to purchase large volume orders at discounted prices (about 50 provincial distributors will attend such events where order volumes range from 20,000 to 48,000 RMB)-Only a small effort is made toward direct retailingMarketing efforts are coordinated from company headquarters-Company has attained national coverage through 40 distributors and sales offices (except for Tibet)-In Henan, Frog Prince claims to be the highest selling baby care product second only to Johnson & JohnsonFrog Princes sales and marketing setup is designed to provide support to a traditional trade platform with wholesalers and distributors. 40 distributors and sales offices providing national coverage (except in Tibet)45FINALVersion 2.0Distribution Network ManagementBuilding strong networks with wholesalers and distributors in provinces is key to maximizing push into emerging markets Cost requirements for direct retail very high and with small returns.Source: Company Interview; Frog Prince WebsiteWholesalerSecondaryDistributorPrimaryDistributorThird LevelDistributorRetailersDirect RetailFrog Prince WarehouseThird LevelDistributor20% Sales30% Sales50% SalesProduction and warehousing provided by Frog Prince until purchased into sales channelsFrog Prince has one major manufacturing cite in Fujian that covers R&D for new products, manufacturing of existing product lines, as well as production of product packagingWholesalers and distributors serve as the main channels into regions across ChinaDistributors rarely cover more than one region or province, but have strong local linkages into their respective home regionsDistributors look for high volume product with strong brand and reasonably low priceMargin retained by distributors between 10 to 15%Small effort placed on direct retail channelsCompany achieve this through direct orders from factory to consumers via phone and fax orders46FINALVersion 2.0Frog Princes spend on advertising is considerably lower compared with its competitorsAdvertising StrategyFrog Prince perceives the larger payoff is achieved through distribution rather than advertising in emerging markets. Brand Equity is seen as the core value proposition in the baby care market however, advertising and promotion does not take on a critical role in positioning its product line.Advertising is effective but the focus in emerging markets is on building a distribution networkAdvertising will take on more significance when company enters Beijing and Shanghai as part of the companys growth strategyCompany tries to work with distributors on promotion and advertising, allowing them to develop message for their particular region while Frog Prince provides funding and visionSource: Company InterviewProduct BrandCompetitive PriceProduct Quality12345Low ImpactHigh Impact47FINALVersion 2.0Frog Prince concentrates the bulk of its cost efforts on product marketing, promotions and new product developmentImplications for Cost StructureSource: Company InterviewConstant additions to the Frog Prince product line has placed an emphasis on development costs and new product introductionListing fees are non-existent given almost complete focus on wholesalingDistributionAdvertisingMarketingR&DMarket ResearchExpensesNote: Company provided CGE&Y with indicative weighting onlyGoing forward, Frog Prince plans to increase advertising and promotions costs upon entering into Beijing and Shanghai city markets. 48FINALVersion 2.0Strong regional marketing and close ties with distributors has brought Frog Prince gains in some provinces Key Success FactorsLearnings for Chinas Personal Care MarketWell-educated, more affluent consumers in urban areas will remain the core customer segment for some time to comeNew product development to increase line-up in market key to maximize push forcesProduct branding and promotions are crucial to bringing more awareness, particularly in rural areasWorking through distributors on traditional trade will likely make up the bulk of sales efforts in emerging tier-three and four citiesBaby Care in ChinaBaby care is still underdeveloped but is a rapidly growing category with a promising futureHigher quality baby care becoming the choice of consumers as purchasing power increasesPublicity and promotions required to educate and inform public on usage, particularly in developing areasBaby cares main KSF is strong product brand with affordable price and good qualityBe sure to target the 25% sales of baby care products consumed by young women49FINALVersion 2.0In-depth case study: C-Bons GroupIn-depth Case Studies50FINALVersion 2.0C-Bons Group brands cover a wide range of personal care categories and have well-established themselves in the Chinese marketCompany OverviewC-BonsBrands and ProductPortfolioGoing forward, the company plans to continue investment in new brands and product categories.Source: Euromonitor Industry Reports, China Cosmetics Sources, CGE&Y Analysis“Maestro” - Hair Care“Balance” - Skin Care“Hair Song” - Hair Care Hair Gel, Hair Sprays, Hair Dyes“Jett” Health ProductsC-Bons Pharmaceuticals Moisturizers, Facial Care, Sun care, Skin Whiteners Moisturizers, Facial Care, Sun care, Skin Whiteners“Laifa” - Cosmetics“Slek” Hair Care“S-Dew” Styling Hair Care Lip Sticks, Eyeliner, Foundation, Nail Polish“Lady Care” Sanitary Protection“U-Fresh” Feminine Care Shampoo, Conditioner High-end shampoos and conditioners aimed at young and wealthy segments OTC medicines and capsules Tampons, pads, panty liners Massage devices, herbs and health products Pads51FINALVersion 2.0Ladycare (Jie Ting) feminine napkins and Slek shampoo are the largest C-Bons Group brands in the product portfolioCompany PerformanceSource: Euromonitor Industry Reports, China Cosmetics Sources, CGE&Y Analysis56.0%Others6.6%8.0%9.4%(Hengan)11.9%FeminineHygieneMarket Shares20034.1% Moisturizers, Facial Care, Skin Whiteners, Sun Care48.5%OthersAlticor 1.8%(Amway)3.3%Kao(Sifone)6.7%9.3% Unilever(Hazeline, Lux)30.4%P&G(Rejoice, Pantene, Pro-V, Head & Shoulders, Vidal Sasson)Hair CareMarket Shares2003Even with a huge product portfolio, Slek shampoo was C-Bons Groups core product making up close to 70% of revenue in 2003.4.0%(P&G)(Uni-Charm)(JnJ)(KimberlyClark)C-Bons Group(Slek)LadyCare (C-Bons)52FINALVersion 2.0History in ChinaC-Bons Groups rise to strong market position began with modest beginnings in facial creams and cosmetics in 1989Source: Industry Reports; CGE&Y AnalysisEarly entry began in tier-two cities helped C-Bons Group gain a customer base before expanding in new regions and products.Note: Performance schematic is based on information gathered from secondary research1989C-Bons Group is established in WuhanSlek shampoo launched in China; C-Bons has revenue of 300M RMBLadyCare sanitary napkins launchedC-Bons Group stands at 11 JVs & WOFEs as one of Chinas largest companiesC-Bons Group focuses on large retail promotions with complete control over distributionCorporateTimelineMajorMovesProductsFacial CreamFacial LotionCosmeticsPenetrationChengduXianDalian1991Product Line expanded; first & second-tier markets enteredProductsFacial CreamSkin CreamEye CreamCosmeticsPenetrationShanghaiBeijingGuangzhouChangshaKunming1996ProductsFacial CreamSkin CreamEye CreamShampooSanitary NapkinsNew entitiesEstablished:Chemicals GroupSanitary NapkinsPharmaceuticals1997Present20012000Balance and other brands expanded to present 10 personal care product categoriesProductsFacial CreamSkin CreamEye CreamShampooSanitary NapkinsPenetration:Sales Network covering major first, second and third-tier cities in ChinaCosmeticsPharmaceuticalsBeauty InstitutesReal EstateBiotechnologyGuilinLanzhouHangzhouChongqingInitial targeting in second-tier cities53FINALVersion 2.0Distribution Network EvolutionC-Bons Groups self-established distribution network helped it gains share quickly when state-owned distributors were dissolvedSource: Industry Reports; CGE&Y AnalysisC-Bons Group was able to leverage strong distribution and product positioning to take share from P&G in the shampoo category.C-Bons GroupState-owned DistributorsDivestmentC-Bons Distribution NetworkP&G faces hugeCounterfeiting challenge P&G leaves vacuumWhile stocking newlypackaged productsP&G pushprices downKeyCompetitors54FINALVersion 2.0Distribution Network ManagementC-Bons Group maintains a country-wide distribution by adopting distributors into its group, keeping tight control of its supply chainSource: Company interview; CGE&Y AnalysisTraditional Wholesale- C-Bons Group works in collaboration on distribution of product (unlike companies that sell to distributor and relinquish control of products)- Distributors oversee transport and storage, while C-Bons provides funding on advertising and promotionInventory at factorystock points-3 major production centers in Guangzhou-3 major production centers in HubeiSales Offices- 360 Sales Offices staffing 20,000 employees across ChinaCustomerBaseRetail-endPromotionsEnterprise Direct DistributionC-Bons Group views a balance of traditional wholesale distribution and direct retail as important factor in increasing market penetration.55FINALVersion 2.0Distribution & Promotional EffortManaging and streamlining its distribution network is key to C-Bons Groups future successSource: Industry ReportsControlling & managing the distribution network it owned was a key difficulty in reducing its prices, also a major challenge to its future competitiveness in the personal care market.DistributionEffortPromotionalEffortPromotionalEffort20002003Promotionalefforts had been reducedP&G started lowering the prices of their productsC-bons reduced their promotional efforts which resulted in a sales declineC-bons found it difficult to further reduce the price of their Slek shampooKey NotesDistributionEffort56FINALVersion 2.0 Advertising Marketing Distribution5%7.7%Implications for Cost Structure (2001)Net Sales: 195.6mC-Bons Groups distribution structure contributes to its high distribution costs 87.3%Source: ISI company Profiles; CGE&Y AnalysisCOGS 87.3%Operating Expenses: RMB 15 MillionNote: Company provided CGE&Y with weighting onlyWhen P&G pushed its shampoo prices down, C-bons was unable to follow.C-bons Cost Structure Overview, 200157FINALVersion 2.0Identifying opportunities, leveraging local advantages & owning its own distribution network were key to C-Bons Groups winning performanceGo-to-Market Strategy OverviewHistoric successEstablished brand though heavy advertising & promotions in the hair care market.Survived and remained competitive even when traditional state owned distribution infrastructure was dissolvedKey Market OpportunitiesGrowing wealth in middle class in ChinaSignificant growth, demand and scale for hair care productsAppeals to almost all age groupsKey Market barriersFierce competition from other large competitorsThe market is already maturing and quite developedKey CapabilitiesEstablished key “Slek” brand image & equity Control of its own distribution network helps it to control prices through various regions and marketsStrong promotional team and infrastructureTook a focused approach to build a single product line and brand amidst its entire portfolio of products.Leverage its control over its distribution & retail network to push its promotions & product placement.58FINALVersion 2.0Identifying opportunities, leveraging local advantages & owning its own distribution network were key to C-Bons Groups winning performanceKey Success FactorsLearnings for Chinas Personal Care MarketC-Bons Groups investment in its own distribution network kept it afloat and competitive when state-owned distribution firms were dissolved.Leverage innovation & exercised intense promotional efforts to boost sales, gain brand equity and market share.Hair Care Products in ChinaAgile management quickly identified and leveraged counterfeiting challenges faced by the MNCsAgile management quickly identified and leveraged stock vacuum left by MNCs as they changed the packaging of their productsFocus on building brand equity & market share a key product in its entire product portfolio59FINALVersion 2.0In-depth case study: HenkelIn-depth Case Studies60FINALVersion 2.0Henkel Cosmetics China has achieved significant gains in baby care, and a foothold in the highly competitive bath & shower marketCompany Overview & PerformanceBoth Haier Mian and Fa brands are growing quickly in China helping Henkel gain share vis-vis market leaders.Source: Euromonitor 2002; Company Interview; CGE&Y AnalysisHaier Mian 11.8%Yumeijing 7.6%Others 46.4%Xiao Ding Dang 4.6%J&J 27.9%Others 56.2%Unilever 16.6%Kao 4.6%Far East1.3%Jahwa 1.2%Henkel 0.7%P&G China 19.4%Henkel Cosmetics China Market Shares, 2002 Baby Care Market Bath & Shower MarketBrand Portfolio of Henkel Cosmetics China Henkel China Brand PortfolioFaHaier MianKemengGuangmingHaier Mian brand was established in 1982Haier Mian formed a joint venture with Henkel in 1996Henkel later acquired the Haier Mian brand 61FINALVersion 2.0Henkels product-market combinations take into account diverse buying habits and needs in emerging marketsProduct-Market CombinationsSource: Company InterviewProducts geared toward emerging markets have not been altered since Henkel acquired Haier Mian and Kemeng brands customer loyalty and comfort with basic presentation and low price.In tier 1 cities, Fa and Haier Mian products target mid to higher-end markets Tier 1 preferences are distinct from segments in emerging regions, whereMore colourful and elaborate packagingGreater need for being first-mover and aggressive product marketingMaintaining price levels up to create feel of premier productIn non tier 1 areas, low-price is not the only factor driving demand but also:Using a rural formula of strong fragrances and packaging colourNeeds are more basic (soap sells while shower gel does not; black hair colouring sells but rich colours do not)Regional differences (Creams are thicker in North to account for dryness, while those marketed in the South are lighter)BeijingGuangzhouShanghaiTianjinDalianChongqingNanjingHarbinChangchunXianWurumuqiLhasaHenkels own Fa brand focus exclusively on T1 citiesHaier Mian and Kemeng product lines find their way into T2/3 and some T4 regionsT1T2T3T4T1 accounts for 50% SalesT2/3/4 accounts for 50% Sales62FINALVersion 2.0Leveraging a series of mid and high-end brands, Henkel has focused on more traditional push strategy for emerging areasGo-to-Market Strategy OverviewGo-to-market strategyHow to attract and increase reach to mid to low-end customer segments with build brand loyalty in emerging regions?Build strong distribution platform through traditional channels in emerging regions, and focus bulk of marketing and pull factors in tier-one markets.Core CompetencyStrong presence in the market since 1996Established international brand with a range of premium and mass market brandsLoyalty for Haier Mian and Kemeng brands in emerging regionsKey Market opportunityGrowing middle class to leverage on with various brands, but still vast purchasing power variationGrowing awareness for baby care & body and showerKey Market barriersNo distributors with inter-regional reachNo infrastructure for aggressive product marketing in non-T1 citiesKey CapabilitiesStrong brand name Company growth exceeding industry growthSales-end well-integrated between traditional trade and modern trade63FINALVersion 2.0Wal-MartCarrefourDistributorsRetailersMarket-facing departments are focused almost exclusively on Shanghai, Beijing and Guangzhou and some second-tier citiesSource: Company InterviewHenkel believes pull strategies will begin to be effective in emerging markets once overall purchasing power and economic development improves.Sales, Marketing & PromotionSales teams comprises of traditional trade and key account teamsTeams are divided by regionSales teams kept lean since Henkel avoids heavy involvement in distribution or retailSalesMarketingAdvertisingMarketing teams are organized by brand, providing promotional planning and product designMarketing efforts are focused almost exclusively on T1 cities and some T2 citiesAdvertising campaigns are carried on a per-city basisVery little advertising done in T3 or 4, and almost all concentrated on T1Advertising often done for sake of distributors to demonstrate the “movement” and demand of new product (this is necessary since distributors typically do not pay if keeping stock is requiredTraditional Sales ShanghaiHQRegionsCentralised functionsMarketingAdvertisingDirect Key AccountsRegion CRegion BRegion A64FINALVersion 2.0Cost requirements for direct retail very high and with small returns.Source: Company InterviewWholesalerPrimaryDistributor2nd & 3rd LevelDistributorsRetailersDirectKey AccountHenkel Warehouse15% Sales85% Sales0% SalesHenkels distribution is organized into direct retail accounts and the traditional trade through distributors across ChinaDistribution Network ManagementHenkels sales channel relies on direct key accounts (DKA)-Hypermarkets like Carrefour prefer dealing direct with manufacturer-Listing fees are paid to retailers-Shipment to retailers is outsourced to distributors for road transportand large-scale distributors across China-Only province/city-based distributors are used and they will in turn resale down to smaller second and third level distributors-Price is fixed with distributors and there is little bargaining or rebates given for high volume-Distributors seek products with proven sales, whereas new products are better positioned for modern trade into key accounts-Product is stored at Henkel warehouse after production and then purchased and shipped by truck to distributors65FINALVersion 2.0Cost structure composition in emerging markets is focused less on trade marketing than on setting up the right distribution networkImplications for Cost StructureGoing forward, Henkel plans to continue to focus costs on first-tier market priorities in marketing, product development and advertising. Source: Company InterviewTier 1 CitiesTier 2/3/4 CitiesExplanationMost advertising efforts in T1 (some in T2) where pull approaches most effectiveNo advertising spent in emerging markets as it is not effectiveSome advertising used to demonstrate “movement” to distributors, particularly television commercialsPromotional budget given to distributors to encourage product marketing but most is swallowed into their marginNo substantive effort made by distributors at retail end nor do they pass on promotional budget to local distributorsListing fees costs at highest in tier 1 cities when distributing to hypermarkets (Carrefour/Wal-Mart)Very little emphasis is placed on smaller retail chains (Lianhua) in tier 1 cities Local distributors typically will not pay for listing feesNot a cost in emerging markets since retail infrastructure still developingHenkel avoids handling distribution itself given high costs and required investments (logistics, staff and warehousing)Thin margin retained by distributors (about 0.5%)AdvertisingPromotionsListing feesDistribution1234512345LowHigh LowHigh66FINALVersion 2.0The success of Henkels multi-brand strategy and multi-tiered distribution approach continues to bring it growth in the marketKey Success FactorsLearnings for Chinas Personal Care MarketAcquisition strategy in China can be rewarding if planned and executed wellProduct brand matters in developed and developing markets (affordable prices can take you only so far)Develop on pull strategies (marketing, promotions, retail implementation) in developed regionsFocus on push strategies in developing regions, where making product customers want accessible is keyBaby Care in ChinaIdentify customer needs byRegion/cultural differenceIncome levels and purchasing powerSales teams can be organized to cover several brands and product categories, but marketing functions should be separated by brandLargest return on advertising costs are in tier-one citiesConsider key accounts as sales channels but be prepared for additional costs of modern trade67FINALVersion 2.0In-depth case study: GanonIn-depth Case Studies68FINALVersion 2.0Ganon has focused on carving a specific niche in the sun-care market, of sun-care and skin whiteningCompany Overview & PerformanceSun Care Products 2000 MarketTop 9 PlayersProduct PortfolioMarket Share56%12.6%9.8% 6.8% 2.7% 3.1%OthersP&GPondsYue SaiJia HuaAvonGanon is a relatively new entrant into the sun care market only starting in 2000 but has been able to carve out a niche in sun-care with whitening effect products.Facial CleansersLip CareSun-careSkin Protection3% Ganon Facial Cleansers for a number of skin types Lip protection Whitening effect and sun blocking Moisturizers & toners for facial and body careAbout 20 products under the “TJOY” brand, including:Source: Industry Reports, China Cosmetics Sources, CGE&Y Analysis10.7%KaoMini Nurse 1.1%Mens Products Various Skin & Facial Care products for men69FINALVersion 2.0Ganon targets mainly young to middle aged females with a middle to higher level of income in less developed urban areasCustomer Needs AssessmentGanon takes a multi-faceted approach by treating each customer segment as a distinct sub-market. It focuses on potentially lucrative regional markets and target customer segments.Source: Ganon Company Interview; CGE&Y AnalysisCustomer ProfileMostly femaleFocusing on the young to middle-aged populationIncome range aims to hit the middle to higher income groups in less developed urban areasPrimary targetSecondary targetTargetCustomer15 1920 2930 49MalesFemalesUnder 14Above 50500 - 10001001 - 2000Above 2000Tier 2 CitiesTier 3 CitiesTier 1 CitiesTier 4 Cities71FINALVersion 2.0Promotional efforts to compliment advertising & addressing price sensitivity are key elements to Ganons growthCustomer Limiting FactorsConsumer SpendOn Sun-careT2 and T3 are the companys main focus (make up 70% of sales)AwarenessCompanyExpansionRural market is still seen as untappedPriceWillingness to spend onsun-care productsNo variation in pricing across regionsTier 3Tier 4Tier 2Tier 1Ganon has positioned itself in second tier markets and is looking at penetrating the more developed cities.Source: Ganon Company Interview; China Cosmetics Website Article; CGE&Y Analysis72FINALVersion 2.0Niche & brand facilitated Ganons initial growth, expansion to new markets pose similar challenges other players face Competition and Risks in the MarketEven as Ganon has built up a brand name and a niche market, it faces various challenges in continued expansion.Risk FactorsCompetitive RivalryLow PricingLate EntryImpactExplanationAggressive promotion at the point before consumer purchase seems to reap the most resultsBuilding a brand is important as it is a first step to help consumers recognise and then purchase their productHigh degree of counterfeiting for established product brands by thousands of local factories in rural areas Price outweighs product brand in least developed regions Ganon sees being a first mover as extremely important, it chose empty niche markets with no or little players to compete in to establish a critical market share and brand mind-shareSource: Ganon Company Interview; Pibao Website; CGE&Y Analysis73FINALVersion 2.0Ganon uses innovation to leverage infrastructure laid by larger players and compete in unexplored marketsGo-to-Market Strategy OverviewHistoric successEstablished brand though heavy advertising & promotions in a niche market.Positioned its product by emphasizing skin whitening effect and natural ingredientsTargeted 20% of the market to get 80% of the profitsKey Market OpportunitiesGrowing wealth in middle class in ChinaDemand for natural ingredients and skin whitening productsAppeals to all populous young & middle-aged groupsKey Market barriersLimited awareness of sun care products in less developed areasLimited sophistication in retail infrastructure to attract and service specific needsKey CapabilitiesGrowing brand image of regional Ding Jia Yi brand Prices can be held constant to hit desired segments across regionsTake a focused effort to build a brand in unexplored but related markets, by region and by product.Let larger competitors educate markets on base product while Ganon differentiates on points of natural ingredients and skin whitening effect.74FINALVersion 2.0Sales & marketing approach is customized specifically for each region and target marketSales & Marketing ApproachGanon does not take a Tier approach towards its target markets but its sales and marketing teams in various regions take customised strategies in targeting their specific markets.Ganon HeadquartersGanon had earmarked 9 regional target markets to penetrate and have adopted customized strategies to tackle each one. Tier 1 CitiesTier 2 CitiesTier 3 CitiesSource: Ganon Company Interview; China Cosmetics Website; CGE&Y AnalysisSales Teams by Province30% Sales50% Sales20% Sales75FINALVersion 2.0Distribution Network ManagementGanon uses exclusive agents to help distribute their products & promotions to increase sales Ganon retains uniform pricing for sale of product to distributors and wholesalers Margins given to distributors will be reflected in price set down the distribution channelPricing not altered to accommodate customerretailers get about 20%-25% margins Source: Ganon Company Interview; Industry ReportsDistributors & agents make up of Ganons core distribution efforts.Delivery by truck to major marketsDistributors- accounts for 50% of the sales Wholesalers- accounts for 20% of the sales CustomerRetail-end PromotionsRetailers (Direct)-accounts for 30% of sales 76FINALVersion 2.0Advertising builds brand recognition & implicit good quality, coupled with promotions to boost salesAdvertising StrategyHigh focus on television advertising, particularly in the targeted marketsNo large difference in the overall advertising strategy, but techniques are different in various regionsEmploy location-specific promotions to support TV advertisementsProduct BrandCompetitive PricingProduct QualityExample where all weights are equal (2.5)Ganons weightsEffective advertising coupled with intensive promotions helps Ganon build the “Ding Jia Yi” brand mind share.Source: Ganon Company Interview77FINALVersion 2.0Spend on advertising and marketing has the largest impact of cost structure composition, much more so than distribution Implications for Cost StructureAdvertising and promotion are the most cost-intensive area, while distribution takes up a smaller portion.63.1%Source: Ganon Company Interview; ISI Emerging Markets Report; CGE&Y AnalysisNet SalesRMB 21.1m0.1%Operating Expenses: RMB 7.8 MillionNote: Company provided CGE&Y with weighting only36.7%63.1% Advertising Marketing Distribution78FINALVersion 2.0Focus, sensitivity and leveraging various aspects of larger competitors are key contributing factors to Ganons successKey Success FactorsSun Care Products in ChinaStill a small segment of the overall skin care marketFocus on a selection of niche regions to gain critical mass, mind share and product portfolioLearns and adopts strategies and marketing approach from successful local companies such as c-bonsLeveraged the educational efforts of larger players in the sun care market and spent more on promotion and building its brandLearnings for Chinas Personal MarketCoupling of intense advertising efforts and promotions at retailers to increase brand equity and boost salesSensitivity to trends and early adoption in marketing effort such as the skin whitening effects and the use of natural ingredientsFocus on key market product segments and user groups to first gain brand equity which it leverages later to expand regionally as well as in its product portfolio79FINALVersion 2.0Background and objectives of this studyEmerging Market definedOverview of the Chinese Personal Care marketChallenges for entering Emerging MarketsCase Studies of companies acting in Emerging MarketsSummary of findings and conclusionsRecommendationsAppendix 1: Additional company informationAppendix 2: Personal Care market segment analysisBack-up: Definitions and miscellaneous informationStrategy for Personal Care Products in Chinas Emerging Markets:Content80FINALVersion 2.0Emerging markets have become a growing portion of business for major companies in Chinas personal care industryEmerging Market PenetrationTier 1 CitiesTier 2 CitiesTier 3 Cities Tier 4 Cities Sales Revenue Split for Regions in China, 2003Source: Company InterviewsGo-to-market strategies and subsequent costs composition will determine a companys ability to capitalize on attractiveness of growing emerging markets. Note: Frog Prince has not entered first-tier markets in China81FINALVersion 2.0Baby care, bath&showerMedicinal skin careBaby careHair care, fem.hyg., cosmetics, health, sanitary, skin careSun care, skin whiteningThe case studies analysed show differing emphasis in overall amount and distribution of operating expensesComparison cost structure implicationsSegment Focus21614.8n.a.195.621.1Net Sales (2001) (mRMB)n.a.1n.a.157.8n.a.7n.a.7.736.7Operating Expenses (mRMB)% of net salesWeightAdvertisingMarketingDistribution1) For Tier 2/3/4 Citiesn.a.=not available1)Note: C-Bons data for Slek brand only82FINALVersion 2.0HenkelC-BonsPeople PibaoFrog PrinceGanonMost companies are similar in their basic value proposition for personal care products brought to marketGo-to-Market Strategy - Value Proposition Comparisons (level of importance)Product BrandPricingQuality1234512345LowHigh LowHigh1234512345LowHigh LowHighSource: Company InterviewsDifferences in value proposition are mostly product-driven and reflect each companys relative position in their respective sub-market. 12345LowHigh83FINALVersion 2.0Tier 3/4 Cities & RuralUnderstanding diverse and sometimes divergent customer needs are key to formulating strategy and product-market combinationsGo-to-Market Strategy - Customer Needs PerceptionTier 1/2 CitiesHigh exposure to new products and advertisingLoyal to brands but conscience of priceLook and feel of the product is critical to uptake in rapidly changing market with entry of more and more choicesTargeting the middle market with a familiarity of OTC medicineDiverse gender consumption (mostly males)54% of the medicinal skin market is comprised T1/2 citiesBe sure the leverage of familiarity with TCMHigher end segments require more complexity in packaging and clever advertisingLargest numbers of women entering the workforce, and huge market for Frog Prince, as many young women use baby care products for their hair and skinMiddle market has largest attractiveness for C-Bons, given their cost-competitive yet brand loyalty buyingWin over consumers with a Chinese national brandAlong with T1, there is large demand in T2 among mostly the younger middle market (largely female) for skin careMain targets are mid to low end income earnersBasic needs still being met and awareness is limited for products like shower gel or flashy hair coloringCustomers still want safe and quality products despite price sensitivityConservatism towards sticking with product/brand they knowLittle awareness for OTC once one moves further into T4Purchasing power is limited (about 20 to 7 RMB spent on OTC per month)Highly price sensitive segment that regards products as luxury item and unessential to basic needsLower purchasing power (average pay 1000-4000 month)In T4 areas, choices are very basic between buying baby food and clothes, rather than baby care shampoo and soapGrowing awareness for baby care, particularly in T3 citiesMostly low end consumers that require lower-priced alternatives and product awarenessIn-store promotions perceived as strong way to speed up customer acquisition at supermarkets and hypermarketsT3 cities can also be made focus markets by targeting the mid- to low-endOnsite promotions help buy in consumers at retail end, particularly in rural areasIn T4, basic needs coverage may not include skin care buying84FINALVersion 2.0Sales & marketing strategy is primarily driven by tier-specific requirementsGo-to-Market Strategy Sales & MarketingT1 & 2 CitiesT3 & 4 CitiesHair CareBody & WashSkin CareHenkel: Integrate sales approaches between direct key accounts and traditional trade through distributorsHenkel: Focus on clever packaging, hair colour and brand optionsHenkel: Mix traditional trade through distributors with sales large-scale retailers, using distributors to manage transportPeople: Along with traditional distributors, consider aligning OTC product lines with hospitals to act as distributors for productsFrog Prince: Needs are simpler in developing regions as are product preferences Black hair coloring as opposed to colors Simple packaging Low price (4 RMB)C-Bons: Target low-end consumers through promotion at supermarketsHenkel: Leverage traditional trade channels to maximize push into market by having a regional distribution networkGanon: Price points will vary by region given margins retained by distributorsPeople: Use sales representatives to explore developing regions without too much riskHenkel: Tailor products to meet cultural and regional differencesBaby CareHenkel: Direct accounts in major urban centres are keyFrog Prince: Retain only a small effort at retailing and establish distribution networks on regional basisFrog Prince: Plan for large-scale, one-time sales events where distributors purchase high-volume orders with rebates and discounted prices85FINALVersion 2.0Distribution strategy is primarily driven by tier-specific requirementsGo-to-Market Strategy DistributionT1 & 2 CitiesT3 & 4 CitiesHair CareBody & WashSkin CareHenkel: Large-scale hypermarkets (Wal-Mart) prefer dealing direct with the manufacturer, and listing fees are paidPeople: 80% of sales in this region, and 70% of this was managed through traditional tradeHenkel: Distributors are the common sales channels in these regions, and Henkel stores product at its factory in Shanghai before being shipped by roadGanon: 50% of sales are managed by distributors who act as exclusive agents of GanonBaby CareHenkel: Distribution must be well-integrated with sales and distributor targetsFrog Prince: Aim to establish a distribution defined by various provincial and local players there is no such thing as a national distributor86FINALVersion 2.0Advertising and promotion strategy is primarily driven by a combination of tier specific and product lifecycle requirementsGo-to-Market Strategy Advertising & PromotionsHair CareBody & WashSkin CareT1 & 2 CitiesHenkel: Advertising carried out on a city by city basis, and concentrated all in T1 citiesHenkel: Advertising can sometimes be used a method to inspire distributors that a product has “movement”People: Product brand are core to OTC, and thus ads and promotion take on a large priority in the marketT3 & 4 CitiesHenkel: Very little if any advertisement done in non-T1 cities.Ganon: Television advertising is focus on low-end segments in T2 and T3 citiesBaby CareFrog Prince: Company has announced that future movement into the cities (Beijing/Shanghai), will require a large investment in advertising87FINALVersion 2.0Go-to-Market Strategy Key Success Factors & Market ApproachesOverall RankingRanking for Tier 3/4 Cities & RuralMarket approaches for developing and developed regions do show slight dissimilarities Ranking for Tier 1/2 CitiesFirst-mover advantagesFrequent new product introductionAggressive product marketingStrong brand nameDesign region-specific productsLow priceHigh volumeProduct qualityCompany brandingN/AN/AN/AN/AN/AN/AN/ASource: Company Interviews88FINALVersion 2.0Background and objectives of this studyEmerging Market definedOverview of the Chinese Personal Care marketChallenges for entering Emerging MarketsCase Studies of companies acting in Emerging MarketsSummary of findings and conclusionsRecommendationsAppendix 1: Additional company informationAppendix 2: Personal Care market segment analysisBack-up: Definitions and miscellaneous informationStrategy for Personal Care Products in Chinas Emerging Markets:Content89FINALVersion 2.0Cost structure composition for entry into emerging regions depends on the right balance between push-pull market approaches (1/2)Implications for Cost StructureDefining a cost structure composition for entry into Chinas emerging markets depends on-Product category-Target customer segments-Target regionsCurrent company location/starting point has to be considered-Geographic concentration and coverage-Distribution network in place (traditional wholesale trade versus modern key account trade)-Existing product line size and brand portfolioSetting up the right distribution approach/network has been a critical success factor for many of Chinas largest personal care companies-Distributors in traditional trade seek low-priced products that move quickly in the distribution channelAdvertising spend is often necessary to generate buzz and thereby convince distributors of high demand for the product More often however they will prefer to take on tried and tested, proven products-Some companies have attempted to manage their distribution on regional/local level themselves with limited successRequired high investment in warehousing, staff and logistics make this an unprofitable undertakingResult has often been complete failure with heavily losses90FINALVersion 2.0Cost structure composition for entry into emerging regions depends on the right balance between push-pull market approaches (2/2)Implications for Cost Structure (contd)In first tier cities the “pull” market approach prevails and requires greater emphasis on modern marketing through budget priority in-High advertising spend to win mindshare away from competitors-Tiered promotion and marketing that takes into account layers of segments within large tier-one cities-Listing fees required to penetrate into key direct accounts with Chinas growing number of hypermarkets-New product development to keep innovation levels constantIn emerging markets, companies must place a greater emphasis on maximizing “push” market approaches by allocating spend in-Balancing wide geographic reach with warehousing and transport costs-Managing a large network of wholesalers and distributors Who will typically sink promotional budgets as pass through to the bottom lineOr provide higher discounts onto already razor thin marginsWhich requires no listing fees as there is no sufficient retail infrastructure and distributors stick with traditional trade-Limiting advertising spend which has shown not to be particularly effective in developing regionsAdopting an emerging market strategy needs to be based on a profound understanding of potential differences in customer needs and internal company barriers.91FINALVersion 2.0Choosing the right positioning and distribution channel for a product go hand in hand in emerging marketsEmerging Market characteristics and recommended prioritiesMarket CharacteristicsDeveloped MarketEmerging MarketOpen to spend more for good valueHigher sophistication in product requirementsFeaturesBrandingPackagingMore familiar with advanced marketing methodsMore easily convinced to switch productsSpend on basic needs onlyFocusing on what is needed to Gain/maintain healthSustain basic hygienePersonal Care products compete with basic needs like foodHands on experience and education about products convinces more than flashy marketingStick to what is provenRecommended Priorities for Emerging MarketStick with Distribution Channels established in the target region.Position the product as being connected to basic needs.Save on Advertising, focus on promotion in the field.Grow penetration of the distribution channel only as markets mature.Acquire an Emerging Market brand or establish a new one to reduce risk of negative impact on developed brand throughCounterfeiting which is more likely and difficult to fight in emerging marketsDiminishing brand positioning by lowering price point of established products Vs.Whilst consumers are price sensitive we believe there is willingness to spent if the value proposition connects to basic needs like health.92FINALVersion 2.0Background and objectives of this studyEmerging Market definedOverview of the Chinese Personal Care marketChallenges for entering Emerging MarketsCase Studies of companies acting in Emerging MarketsSummary of findings and conclusionsRecommendationsAppendix 1: Additional company information Appendix 2: Personal Care market segment analysisBack-up: Definitions and miscellaneous informationStrategy for Personal Care Products in Chinas Emerging Markets:Content93FINALVersion 2.0Price Comparison People PibaoPrice List People PibaoAdditional Financial Datafor companiesIn addition to the information used and presented in the main report we have collected some additional information that may be of use for further analysisDouble-click on the worksheet icons access information in Excel files. Additional Information compiled after report presentation 94FINALVersion 2.0Background and objectives of this studyEmerging Market definedOverview of the Chinese Personal Care marketChallenges for entering Emerging MarketsCase Studies of companies acting in Emerging MarketsSummary of findings and conclusionsRecommendationsAppendix 1: Additional company informationAppendix 2: Personal Care market segment analysisBack-up: Definitions and miscellaneous informationStrategy for Personal Care Products in Chinas Emerging Markets:Content95FINALVersion 2.0Baby CareFeminine HygieneSkin CareDisposable Paper ProductsHair CareBath & Shower ProductsPersonal Care market by categoryLink back to original96FINALVersion 2.0Overall Feminine Hygiene market13,22620,68621,88723,10224,29025,44826,565As growth slows down in urban areas competition is expected to increase further.The feminine hygiene market is forecasted to continue its positive growth at a reduced rateStronger growth in rural areas-Higher consumer income-More product awareness and acceptance-Lower prices due to the competitionSlower growth in urban area-Market is getting mature-Penetration of market in major cities are closed to 100%CAGR 1997-2002: 9.4%CAGR 2002-2007: 5.1%Chinese Feminine Hygiene market growth 1997 - 2007E (Total retail sales, in mRMB)Estimate43%14,65615,90317,50119,158Source: Euromonitor 2003; CGE&Y AnalysisLink back to original97FINALVersion 2.0Female Hygiene market 2002 by product segments in %Total: RMB 20,686mProducers of Panty liners and tampons will need to step up education to increase market share for these niche segments.Panty linersTowels continue to be the main preference for Chinese womenFemale Hygiene product segmentsMarket penetration of towels has reached 85% in cities and 25% in rural areasGrowth in volume terms was maintained as rural consumers continued to switch from the traditional alternatives to towelsTampons0.89%0.02%Towels99.10%Source: Euromonitor 2003; CGE&Y AnalysisLink back to original98FINALVersion 2.072%Feminine Hygiene market 2002by geographical region in %Total 20,686mLess developed regions offer great potential as women still use traditional means of feminine hygiene.East China accounted almost one third of the total market shareIn major cities like Beijing and Tianjing, market penetration has reached close to 100%Women in less developed regions still use toilet paper instead of feminine hygiene products-Toilet paper is much cheaper-People are less concerned with their personal hygieneDeveloped regions accounted for 72% of the Feminine Hygiene marketFeminine Hygiene geographical splitSource: Euromonitor 2003; CGE&Y AnalysisLink back to original99FINALVersion 2.0Market share 2002 and 2001 of Feminine Hygiene product producers, in % of total salesTotal sales: 2001=19,158, 2002=20,686As the market matures competition for market share will increase when local players move convert volume into revenue share.The top twelve producers including some strong local players cover 50% market share with the top 4 owning 38% of the market valueProducers market shares in Feminine HygieneP & G gains market share while closest competitors loose-Strong brand building-Better advertisement-Lower pricesJohnson & Johnson is catching up-Set prices at middle range-Good market coverage selling both urban and rural areasCompetition is intense-Multinationals take larger share in value terms -Domestic players target lower-end of the market38%Source: Euromonitor 2003; CGE&Y AnalysisLink back to original100FINALVersion 2.0Baby CareFeminine HygieneSkin CareDisposable Paper ProductsHair CareBath & Shower ProductsPersonal Care market by categoryLink back to original101FINALVersion 2.01Including Sun CareSource: Euromonitor 2003; CGE&Y AnalysisAlthough the growth of the skin care market is expected to slow down, it will remain on the highest level compared to other categoriesOverall Skin Care marketRising living standard in China will increase awareness of personal appearance This is expected to be be the main driving force behind the growth of skin care categoryIn value terms the market is expected to grow strong expanding by 59% until 2007-Adding RMB7.345m from 2002 to 2007 -Compared to the RMB5,889m growth from 1997 to 2002CAGR 1997-2002: 13.5%CAGR 2002-2007: 9.7%6,65412,54314,12115,63717,07718,46919,8887,5478,5339,64010,990Chinese Skin Care market growth 1997 - 2007E1 (Total retail sales, in mRMB)Skincare is THE major growth market among Personal Care products.+RMB7.345m+RMB5,889mLink back to original102FINALVersion 2.0With more attention to the personal image and appearance, facial care has been one of the most welcome product by Chinese women.Skin Care market 2002 by product segments in %Total: RMB 12,543mHand CareSun Care2%1%Body CareFacial Care7%90%Facial Care products accounted for 90% of the total skin care market valueSkin Care product segmentsChinese people pay more attention to their faces, which almost equates with personal groomingFacial care has been segmented carefully with wider choices for different peopleSource: Euromonitor 2003; CGE&Y AnalysisLink back to original103FINALVersion 2.0Skin Care market 2002by geographical region in %Total RMB12,543mHowever as geographical aspects determine consumer preferences the Skin Care market shows stronger portion of value in western regions.The eastern geographies account for 66% of the Chinese Skin Care marketSkin Care geographical splitNorthern regions is the largest market for skin care in China-Large number of women in work force-People have better product knowledge-People are more aware of the importance of healthy skinDespite being a developing region, Northwest China has a large share-Dry and windy whether with frequent dust storms-Local consumers inclined to spend more on good (high price/value) skin care products66%Source: Euromonitor 2003; CGE&Y AnalysisLink back to original104FINALVersion 2.0Market share 2002 and 2001 of Skin Care product producers, in % of total salesTotal sales: 2001=10,990, 2002=12,543It appears that providing target niche brands for the highly fragmented market still provides some protection in the growing market. Skin care market is highly competitive and fragmented with second and third tier brands owning over 60% of the marketProducers market shares in Skin CareP & G gained market share in 2002-Widely advertisements and popularity of the brands-Belong to the second tier of the mass products sold both in supermarkets and hypermarketsMost of the leading companies are gaining the market share will the many small players loose share-Continually launch new products-Lower prices to attract more consumers-Strong brand building with more promotionSource: Euromonitor 2003; CGE&Y AnalysisLink back to original105FINALVersion 2.0Baby CareFeminine HygieneSkin CareDisposable Paper ProductsHair CareBath & Shower ProductsPersonal Care market by categoryLink back to original106FINALVersion 2.0Chinese Hair Care market growth 1997 - 2007E (Total retail sales, in mRMB)Nevertheless the absolute market value increase in the coming five years is expected to be higher than in the last five years.As large urban markets reach saturation the Chinese Hair Care market will continue to grow at a slower paceOverall Hair Care marketPenetration of hair care products has reached almost 90% in urban areas and 60% in rural areasGrowth will remain relatively stableGrowth will be led by new products development Leading companies are expected to focus on -Innovative products, -New packaging, and -Advertising7,0957,9298,8389,76710,72211,56412,41013,29614,25415,24316,262CAGR 1997-2002: 10.3%CAGR 2002-2007: 7.1%+RMB4,699m+RMB4,469mSource: Euromonitor 2003; CGE&Y AnalysisLink back to original107FINALVersion 2.0As markets mature we expect to see gaining of joint market share of Shampoo and conditioner over 2 in 1 products.2 in 1 products lead sales of hair care products with 67% of the market in 2002Hair Care product segmentsWith lower prices and higher convenience of use, majority of consumers prefer 2 in 1 products Shampoo and conditioners are growing in sales since urban people started to switch from 2 in 1 products to more sophisticated featuresIn parallel rural growth is fueled by consumers switching from soap to using 2 in 1 productsHair Care market 2002 by product segments in %Total: RMB 11,564mSource: Euromonitor 2003; CGE&Y AnalysisLink back to original108FINALVersion 2.0Low penetration suggests that continued market growth will especially require educational efforts by manufactures.Geographical aspects like climate seem to have contributed to development of market value-South ChinaMore better-developed areasWarm weather condition-Northwest China Dry and cold weather conditionLower living standardPenetration of Hair Care products as a whole is much lower in less developed regionsAmong all Personal Care categories Hair care products show the strongest geographical concentration in South ChinaHair Care geographical splitHair Care market 2002by geographical region in %Total RMB11,564m72%Source: Euromonitor 2003; CGE&Y AnalysisLink back to original109FINALVersion 2.0However some local players seem to be gaining share and some of the leading players are focusing on niche markets primarily.P& Gs success is due to careful market segmentationDomestic company C-Bons performed well in the market with wider recognition of its brand SlekMany mass manufacturers targeting rural consumers by selling low-end productsPrice war between player leads the intense competitionCompanies try to gain market share by continually developing the new productsInternational brands dominate the Chinese Hair Care market, with P&G at 30% share far ahead, owning more market than the pursuing 11 competitors togetherProducers market shares in Hair CareMarket share 2002 and 2001 of Hair Care product producers, in % of total salesTotal sales: 2001=10,722, 2002=11,56425% joint market share 2002Source: Euromonitor 2003; CGE&Y AnalysisLink back to original110FINALVersion 2.0Baby CareFeminine HygieneSkin CareDisposable Paper ProductsHair CareBath & Shower ProductsPersonal Care market by categoryLink back to original111FINALVersion 2.0While the overall market is maturing there may still be stronger growth potential due to substitution between segments. The Bath & Shower market is showing a signs of saturation, -Particularly in major cities due to high penetration-At the same time the largest segment (soap) will be under pressure due to substitution from Hair Care productsHowever the market will be expanding by about the same amount in the coming years as it did between 1997 and 2002Bath & Shower shows the slowest growth among the Personal Care market categoriesOverall Bath & Shower marketChinese Bath & Shower market growth 1997 - 2007E (Total retail sales, in mRMB)CAGR 1997-2002: 5.4%CAGR 2002-2007: 4.2%4,7535,0365,3215,6185,9266,1756,4176,6866,9667,2757,591+RMB1,416m+RMB1,421mSource: Euromonitor 2003; CGE&Y AnalysisLink back to original112FINALVersion 2.0Growing household income and consumer sophistication will help the Body Wash/Shower Gel segment expand at expense of other segments. Bath & Shower market 2002 by product segments in %Total: RMB 6,175mBar soap continued to be the mainstay-Dominant product in rural areas-Choice for low income households due to affordabilitySales of body wash/shower gel increase rapidly in urban areas-More popular for more sophisticated consumers, especially young people-High income makes it more affordable for most urban consumersBar soap, still the #1 choice for the majority of Chinese consumers when in comes to Bath & Shower productsBath & Shower market segmentsSource: Euromonitor 2003; CGE&Y AnalysisLink back to original113FINALVersion 2.0Bath & Shower market by regionYear 2002 in %Total RMB 6,175mCurrent low penetration levels in less developed regions suggest that these will become growth markets as households income increases.South and east shows comparatively stable growth-People started to switch soap to shower gel/body wash-Better living standards and living behaviorNorthwest is the smallest market -Lower living standards-Cold weather and longer winterThe North & Northeast region continues to be the largest market for Bath & Shower productsBath & Shower geographical split76%Source: Euromonitor 2003; CGE&Y AnalysisLink back to original114FINALVersion 2.0However the high number and combined market share of small players suggests high competition especially in the rural and low end market.Market share 2002 and 2001 of Bath&Shower product producers, in % of total salesTotal sales: 2001=5,926, 2002=6,175International brands dominate the market, especially in-Tier 1 and Tier 2 markets and-High-end market for Body Wash/Shower GelWider brand recognition for leading companiesDomestic companies perform stronger in low-end marketMultinationals dominate the Bath & Shower market with a combined 41% share of market valueProducers market shares in Bath & Shower41% joint market share 2002Source: Euromonitor 2003; CGE&Y AnalysisLink back to original115FINALVersion 2.0Baby CareFeminine HygieneSkin CareDisposable Paper ProductsHair CareBath & Shower ProductsPersonal Care market by categoryLink back to original116FINALVersion 2.0The Disposable Paper market shows by far the strongest dynamic among all Personal Care markets.Chinese Disposable Paper market growth 1997 - 2007E (Total retail sales, in mRMB)Rapid growth due to-Improving living standards-Increasing awareness of hygiene-Consumers in search of more convenient lifestylesFuture growth fuelled through-Higher level of education -Increasing hygiene concernsThe Chinese Disposable Paper market showed strong growth in the past and is expected to expand by 76% over 2002 until 2007Overall Disposable Paper market2,4112,7493,2423,7434,4245,1645,9956,8117,5998,3659,106CAGR 1997-2002: 16.5%CAGR 2002-2007: 12.0%+RMB3,943m+RMB2,753m+76%Source: Euromonitor 2003; CGE&Y AnalysisLink back to original117FINALVersion 2.0Disposable Paper market 2002 by product segments in %Total: RMB 5,164mUntil 2002 primarily Nappy and tissue markets developedWith busier lifestyle in China other market segments are expected to expand Growing marketing and advertising efforts help increase awareness of these productsThe majority of sales in the Disposable Paper is generated through Nappy products and TissuesDisposable Paper product segmentsTissuesIncontinenceProductsWipes0.5%1.0%2.9%47.3%48.3%Nappies, Diapers, PantsCotton wool/budsSource: Euromonitor 2003; CGE&Y AnalysisLink back to original118FINALVersion 2.070%Developing rapidly in urban areas-More awareness of the products-Greater demand for well-known foreign brandsHuge potential in rural areas-In particular for the top product segmentsFuture market development is expected to be highly competitive -Especially in less developed regions-Due to low technology required to produce paper productsMarket value outside the top three regions is larger compared to other Personal Care segmentsDisposable Paper geographical splitDisposable Paper market by regionYear 2002 in %Total RMB 5,163mSource: Euromonitor 2003; CGE&Y AnalysisLink back to original119FINALVersion 2.0Disposable Paper products market is highly competitive in particular segmentsProducers of Disposable Paper productsGold Hongye Paper was the market leader in 2002, followed by Procter & Gamble and Hengan FujianHighly competitive market in particular in the Nappy and Tissue segmentsContinually launch of new products gave consumers more choices but more intense competition between the playersBrand building, product quality, and price are critical to win in this marketSource: Euromonitor 2003; CGE&Y AnalysisLink back to original120FINALVersion 2.0Baby CareFeminine HygieneSkin CareDisposable Paper ProductsHair CareBath & Shower ProductsPersonal Care market by categoryLink back to original121FINALVersion 2.0 The Baby Care market is among the Personal Care categories with the strongest growth in coming years especially in urban areas.Source: Euromonitor 2003; CGE&Y AnalysisStrong annual growth rate until 2007 fueled through-More awareness of the products-Improving living standards-Willing to spend more on their childrenMuch of the growth is expected to come from urban areas stillChinese Baby Care market growth 1997 - 2007E (Total retail sales, in mRMB)6106647207798439159861,0651,1531,2491,350CAGR 1997-2002: 8.4%CAGR 2002-2007: 8.1%+RMB435m+RMB304m+47%Whilst on a small base the Baby Care market is expected to expand until 2007 by 47% over 2002 Overall Baby Care marketLink back to original122FINALVersion 2.0Educating consumers will be the key to more segment growth. Source: Euromonitor 2003; CGE&Y AnalysisBaby care market 2002 by product segments in %Total: RMB 915mSkin care accounted over the half of the market share-People pay more attention to babys skin-Young women favor baby skin care for their natural additives and better careBaby hair care still new to Chinese people-Fewer brands and limited products-Limited education about productsBaby skin care is the most popular baby care product in ChinaBaby Care market segmentsLink back to original123FINALVersion 2.0Baby Care market by regionYear 2002 in %Total RMB 915m74%Baby Care geographical splitSource: Euromonitor 2003; CGE&Y AnalysisMost baby care products are consumed in urban areas-Higher living standard-More influenced by Western consumer preferencesLess-developed regions shown less interest in Baby Care products so fare-Limited awareness of products-Limited purchasing power-Baby Care product often regarded as luxuryThe share of developed regions accounted for most of the Baby Care marketCurrent low penetration levels in less developed regions suggest that these markets have potential as education and income level rise.Link back to original124FINALVersion 2.0Source: Euromonitor 2003; CGE&Y AnalysisMarket share 2002 and 2001 of Baby Care product producers, in % of total salesTotal sales: 2001=RMB843m, 2002=RMB915mHenkel is the closest competitor with less then half Johnson & Johnsons market share-Building strong brands in the market -Devoted considerable effort to product promotion and launches-Lower prices attract more consumersYumeijing is the leading Chinese player in the Chinese Baby Care market-7% share of sales value in 2002-Concentrates on baby skin care products aloneJohnson & Johnson is clearly leading the market with close to 30% market shareProducers market shares in Baby Care but the next three competitors appear to be gaining ground.Link back to original125FINALVersion 2.0Background and objectives of this studyEmerging Market definedOverview of the Chinese Personal Care marketChallenges for entering Emerging MarketsCase Studies of companies acting in Emerging MarketsSummary of findings and conclusionsRecommendationsAppendix 1: Additional company informationAppendix 2: Personal Care market segment analysisBack-up: Definitions and miscellaneous informationStrategy for Personal Care Products in Chinas Emerging Markets:Content126FINALVersion 2.0Tier 1 Tier 2 CitiesOverview of Tier 1 and Tier 2 citiesSource: Industry Reports, National StatisticsShanghaiBeijingGuangzhouDalianYantaiQingdaoJinanNanjingSuzhouWuhanHangzhouWenzhouChengduChongqingChongshanZhuhaiShenzhenQingdaoDongguanFuzhouNingboTop 3 Cities(Tier 1 Cities)Tier 2 CitiesLink back to original slide127FINALVersion 2.0Tier TableOverview: Number of cities by Tier and RegionSource: Industry Reports, National Statistics & CGEY AnalysisRegionTier 1Tier 2Tier 3Tier 4TotalNorth China1152330Northeast China0142934East China110264178South China24105672Southwest China0212023West China0031720Total41849186257Link back to original slide128FINALVersion 2.0Overview: Definition of Regional OrganizationRegionsProvince, Municipals & Administrative AreasNorth & NortheastEast MidSouthSouthwestNorthwestHeilongjiang, Jilin, Liaoning, Tianjin, Beijing, Hebei, ShanxiShandong, Jiangsu, Zhejiang, Anhui, ShanghaiHenan, Hubei, Hunan, JiangxiFujian, Guangdong, Guangxi, HainanTibet, Sichuan, Yunnan, Guizhou, ChongqingXinjiang, Qinghai, Gansu, Ningxia, Shaaxi, Inner MongoliaSource: Euromonitor Industry ReportsLink back to original slide129