1、- 1 -Achieving leadership in China detergent market Project proposal Henkel (China) Investment Co. Ltd. ,Roland Berger & Partners International Management ConsultantsBarcelona Beijing Berlin Brussels Bucharest Budapest Buenos Aires Delhi Detroit Dsseldorf Frankfurt Hamburg Kiev Kuala Lumpur LisbonLo
2、ndon Madrid Milan Moscow Munich New York Paris Prague Riga Rome So Paulo Shanghai Stuttgart Tokyo Vienna ZurichNirmainterim-rpt- 2 -ContentsPageA.Fierce competition from international and domestic players has imposed 3 great challenge on HenkelB. To achieve turnaround, Henkel should adopt an aggress
3、ive expansion strategy 10C.Roland Berger will help develop the appropriate strategy: project outline12D. Project organization and time frame 22E. Value of the project 12F. Roland Berger is a best partner of Henkel to exploit China detergent market:12 selected referenceAnnex A: Case study - Qiqiang32
4、Annex B: Case study - P&G42Nirmainterim-rpt- -A. Fierce competition from international and domestic players has imposed great challenge on HenkelNirmainterim-rpt- 4 -After fast increase in earlier 1990th, annual growth of China detergent market has slowed down in these yearsNational market volume of
5、 laundry detergentin Mio. tons199319941995199619972000* EstimationSource: Chinese light Industry Yearbook(1999), Roland Berger & Partners analysis1.92.22.82.62.72.93.0+8.2% p.a.23%p.a.Nirmainterim-rpt- 5 -Gross profitability of Whitecat regular powderOvercapcity in detergent industryPrice reduction
6、of Major brand(RMB/Kg)Overcapacity in detergent indudstry leads to price reduction and thus reduces the product profitability At present, there are about 150 manufactures in detergent industry with capacity of 3.8 million tons, but total market volume is about 2.7 million tons, so the utilization ra
7、te of capacity is about 70% Marekt entry of detergent industry is pretty low and there lies a lot of unregistered factories, If taking their capacity into account, the utilizaition rate will be furthur reduced to about 50%-60%11%1998年 1999年3%TideOMO18.016.518.817.35.54.8Whitecat(regular powder)1998年
8、1999年Average price reduction of the whole industry is 10%Nirmainterim-rpt- 6 -After having established prominent position in high end market, P&G and Unilever begin to penetrate middle and low end marketMarket structure of high end(Price：10RMB/Kg)Market stucture of middle end(Price：710RMB/Kg)Market
9、structure of low end(Price：7RMB/Kg)Proportion of high end market is 11.9% Proportion of middle end market is 31.8% Proportion of low end market is 56.3%P&GOthersBenckiserUnilever P&GBenckiserOthersHenkelHenkelUnileverOthersResource: AC Nielson retailing audit 1999-2000Nirmainterim-rpt- 7 -Brand Shar
10、e CompanyTide 6.0% P&GAriel 2.2% P&GOMO 2.4% UnileverPower 28 1.1% BenckiserPersil 0.1% HenkelMarket share of international playersbrands in different segmentBrand Share CompanyGFL 2.2% P&GPanda 1.9% P&GWIPP 1.0% HenkelTianjin 1.8% HenkelDosia 1.0% BenckiserBack-upMarket stucture of middle end(Price
11、：710RMB/Kg)Market structure of low end(Price：10RMB/Kg)Resource: AC Nielson retailing audit 1999-2000Nirmainterim-rpt- 8 -Nirmainterim-rpt- 9 -Although a late comer, Benckiser has successful penetrated north market with Dosia through well-designed entry strategy Through acquiring distributors from P&
12、G, Dosia chose Liaoning province as its initial entry areaIn Heilongjiang and Jilin province, competitors are not so strong as that in other parts of China. local brands, such as Tiantian, are in dominant positions, so Dosia chose these two province as subsequent penetration areasCompetition is in c
13、hoas in Shandong, and distribution network is not well regulated with lots of small distributors/wholesalers competing with each other, so it is easy for Dosia to penetrate the market and cultivate its qualified disbition channelIn order to guarantee the success, channel penetration is also backed u
14、p by strong advertisement champaign Marekt share of Dosia in north China Market entry design Jan 1999Mar 1999May 1999Jul 1999Sep 1999Nov 1999Jan 2000Resource: AC Nielson retailing audit 1999-2000Nirmainterim-rpt- 10 -Some domestic players are also making efforts to achieve fast growth and national p
15、resenceMarket share of QiqiangMarket share of LibaiResource: AC Nielson retailing audit 1999-2000Nirmainterim-rpt- 11 -Fast growths of domestic players are supported by their rural focus strategy, nationwide manufacturing network and direct sales model Market penetration strategy taken by fast growi
16、ng domestic playersRural focus strategyNationwide manufacturing networkDirect sales modelRural market is large but is dominanted by weak regional brandsInternational players have weak performance in rural areaLogistic cost is high in detergent industry accouting for over 10% in total value Long dist
17、ance transportation in China is not oonvient For a new comer, it is not easy to get qualified local distirbutorsReason MethodResult First penetrate rural market and townAfter achieving strong perfromance in rural area, then penetrate city and large countyAcquiring local players in different areas (Q
18、iqiang)Signing OEMcontracts with local players in different areas(Guangdong Libai)Directly selling products to low level dealers or retailing outletstrong channel promotionAvoiding competing with strongs playersGaining market share with comparatively low marketing investmentAvoiding competing with l
19、ocal playersReduction in logistic costFast market penetrationBut the sales expense is high and the sales force should be very diligentNirmainterim-rpt- 12 -In order to achieve turnaround, Henkel should adopt an aggressive expansion strategySix regional brands with comparative weak market performance
20、Deterioration of market share for each brand, defeated by strong international or domestic brands one by oneAggressive expansion strategyNo change Turnaround pointLeadership in detergent marketNirmainterim-rpt- 13 -Strategy formulation should be based on full understanding of China detergent market
21、and full consideration of three strategic issuesStrategy formulationChoice of focus brand and strategic expansion routeEstablishing reliable and low cost logistic networkDeveloping rural entry modelFull understanding of China detergent marketNirmainterim-rpt- 14 -Per capita consumption gradually dec
22、reases from south to north and from east to westConsumption of laundry detergent in Chinakg, per capitaSource: Roland Berger & Partners interview1.8823 kg per capita1.72 kg per capita3 kg per capita1.881.881.9521.821.953.351.951.952.352.353.351.6821.681.682.35Much low areaNirmainterim-rpt- 15 -2512(
23、Shanghai)The high population density is located in the North China plainSource: Roland Berger & Partners interview146(Jilin)343(Hebei)586(Shandong)578(Henan)715(Jiangsu)273(Fujian)308(Hunan)392(Guangdong)108(Yuannan)362(Chongqing)471(Anhui)Back upMunicipality population density (includeing suburb ar
24、ea)Shanghai2512Beijing738Tianjin866Chongqing362over 500 capita per square kilogram 276(Liaoning)866(Tianjin)738(Beijing)209(Shanxi)443(Zhejiang)201(Guangxi)326(Hubei)188(Sanxi)177(Sichuan)400500 capita per square kilogram 300400 capita per square kilogram 200300 capita per square kilogram 100200 cap
25、ita per square kilogram less 100 capita per square kilogram Nirmainterim-rpt- 16 -For different region, market segment structure is also different because of various income level and consumption habitSegment structure by regionCommentsNorthWestEastSouth Low end market account for over 50% of total m
26、arket and is especially large in the low developing North and West of China Middle-end product take a higher share in East and South of China High end market is comparatively higher in south market because of its high income level and accptance of concentrate powder50.9%56.7%57.3%40.9%45.9%30.6%31.8
27、%39.9%9.2%11.5%12.1%13.2%Total,000t778668537745High (10RMB/kg)Middle-end(710RMB/kg)Low-end(7RMB/kg)Resource: AC Nielson retailing audit 1999-2000Nirmainterim-rpt- 17 -East China is in intense competition and major players are all national brandsmarket volume by province 000 tonBrief analysis 115.7Ji
28、angsu 307.570.3224.1HenanZhejiangShanghaiAnhui60.4 Jiangsu and Henan have the largest market volume in east China Jiamei, Whitecat, GiGE and Fangcao are traditional brands with strong regional market bases distribution network is comparatively mature with some large distributors in dominance Qiqiang
29、 has successfully penetrate east China and established leadership with strong sales campaign Libai is planing to penetrate east China Diaopai is also making efforts to enlarge its market share by offering high margin incentive to distributorsTotal: 778,000 tonsEastNirmainterim-rpt- 18 -Low-end marke
30、t size in South China000 TonSouthIn South, we recommend Hunan and Hubei are target market for market entry because Libai almost control the whole low-end market in GuangdongCompetitive landscape 170Hunan190118179HubeiJiangxiGuangdongFujian84 Libai almost control the whole low-end market in Guangdong
31、 Resun as a regional brand holds half of Hunans low-end market One flower and Quanli has 30% and 20% of low-end segment respectively in HubeiHunan and Hubei are the target market due to their large market size and weak competitorsTotal: 745,000 tonsNirmainterim-rpt- 19 -West region can only be Nirma
32、s potential market in the second stage because of its limited market size and strong competitorLow-end market size000 ton77Sichuan15469102GuangxiYunnanShanxiGuizhou69 Qiqiang takes 44% of low-end market with three manufacturing sites (Sichuan, Guizhou and Sanxi) P&G take over one major local brand (
33、Nanfeng) in chongdu to expand low-end market Whitecat has setup a manufacturing site with 80,000 ton capacity in Chongqing Low population density and per capita consumptionWest region can only be Nirmas potential market in the second stageTotal: 537,000 tonsWestAnalysis of opportunity Chongqin65Nirm
34、ainterim-rpt- 20 -Regional and local brands play the major roles in the Northern marketLow-end market size in North 1 and North 2000 tonCompetition volume shareNorth 228%22%3%North 130%37%TiantianOthers2%14%30%QiqiangYunquanMulanJialiQiqiangDeerJialiJianlongSeagullOthersSource: by Henkel (Tiantian)
35、and Unilever (Yunquan)Except Qiqiang four local brands are the major players in North 1 and North 2North1:Liaoning, Jiling, Heilongjiang458210North2:Shandong, Hebei, Shanxi, BeijingTianjing14%North16%Nirmainterim-rpt- 21 -Shandong and Hebei are suggested as strategic focus in early entry periodmarke
36、t size in North 2 sub-region000 tonCompetition68Shandong18141.5132HebeiShanxiTianjingBeijing35.6 In Shandong, Deer and Jiali holds 30% and 25% of the low-end market respectively. But weak financial srength and less sophisticated marketing skill undermine their competitiveness In Hebei the detergent
37、market is highly fragmented with Qiqiang winning less than 20% market share, the rest are insignificantIn Shandong and Hebei a strong and dominant brand is non-existent yetTotal:458,000 tonsNorthNirmainterim-rpt- 22 -ConsumeracceptanceProfile of major product formTrendProduct featureAverage price RM
38、B/kgMarket shareMajor brandProductiontechnologyRegularConcen-trateUltra-concen-trateSpray dryDry mixAgglomera-tion Tide Whitecat Qiqiang Ariel Whitcat OMO Gaochao(whitecat)90%8%2%7.911.418.0 Hollow Low density Foaming High water solubility Solid High density Non-foaming Excellent stain removing effi
39、cacy High fluidity Excellent stain removing efficacyWell accepted in ruralHigh price undermines affordability and consumer acceptableNew productSpray-dry technology dominate the laundry powder industry sectorSource: Roland Berger & Partner interviewsNirmainterim-rpt- 23 -Rural consumer preferencePri
40、ce and money value are two most important factors influencing rural consumers purchasing decision Foaming Fragrant Water solubility Big package size (400g, 750g)Product Primarily through grocery in village / town Market / fair especially weekly marketPlace Effective tool to induce trial during intro
41、duction period Using daily necessities as prize is well acceptedPromotion Popular acceptable price in rural market: 6.0 RMB/kg Price rangeSource: Roland Berger & Partners interviewNirmainterim-rpt- 24 -Qiqiangs low price strategy proves to be successful in the low-end segmentRelative price compariso
42、n in low end segment (7RMB/KG)Total low end segment =100%012345675.25.46.06.26.36.4TiantianResunYueyuehongFangcaoSeagullQiqiangQuanliMianghuaPrice(RMB/kg)Volume share3% 3%30%6%5%3% 3% 3%Nirmainterim-rpt- 25 -Rural consumer behaviorImportanceKey factorPrice is the first decision factor for rural cons
43、umer to buy detergent powerPriceStain removing EfficacyFoamingFragranceWater solubilityWhiteningEnzymatic+0-Price is the most important factor to affect consumer behavior in rural marketThe consumer also pay considerable attention to the stain removing efficacy of detergent powderThe rural consumer
44、often evaluate the stain removing ability through the foaming effect of the detergent powderMost of the rural consumer also like the fraqrance brought by deterrent powderBecause in general fake product cant solubilized in water, the feature can help consumer distinguish real product with fake produc
45、tThe rural consumer seldom care for the whitening and enzymatic ability of detergent productExample: Decision factors of rural consumerThe customer behavior is fit with Nirmas low price strategySource: Roland Berger & Partners interviewBack-upNirmainterim-rpt- 26 -Location of manufacturing site of Q
46、iqiangMarket share by regionIn order to reduce the transportation cost, Qiqiang set up seven mainfacturing site national wideSource: Roland Berger & Partners interviewEastSouthWestNorthGuizhou Benxi SichuanNeimengShanxiAnhuiXianNo manufac-ture siteExample: Qiqiangs manufacturing site vs. Market perf
47、ormanceQiqiangs headquarterBack upNirmainterim-rpt- 27 - Focus on one regional market and concentrate the marketing resources at the beginning Using accumulated experience to expand new market3 A systematic expansion strategy should be applied DescriptionSource: Roland Berger & Partners interview an
48、d analysisARegional penetrationBLow priceCFront attackDMotivated dealerEBenefited customer Recommended retail price is about 5.56.0 RMB/kg Higher price in the beginning to build up brand image Allocating strong sales team to a new market by intensive marketing and promotion Delegate the built up mar
49、ket to a qualified distributor to manage Development a incentive sales policy to motivate the dealers along the distribution channel Adopting well-acceptable approach to promote in the rural marketNirmainterim-rpt- 28 -Retail price of major brand in ChongqingRMB/kgB The target retail price for Nirma
50、 should be less than 6 RMB/kg6.25Libai7.15.36.5WhitecatQiqiangNirmaSource: Roland Berger & Partners survey and analysisResun2)5.56.01) Libais headquater is in Guangzhou and it is mostly produced by Resun in Hunan2) Local brand in Hunan province 6.0RMB (0.72USD)/kg is the most popular accepted price
