Herborist Case Study

On By In 1

Contents

i Executive summary 3

ii List of Chart/ Figure 4

1.0 Situation analysis 5

1.1 Company and products background 5

1.1.1Company introduction 5

1.1.2 Products introduction 5

1.2 Industry introduction 6

1.2.1 Market size and share 6

1.2.2 Developing trends 7

1.3 Macro-environmental analysis 8

1.3.1 Political and legal environment 8

1.3.2 Economic environment 9

1.3.3 Sociocultural environment 9

1.3.4 Technological environment 10

1.4 Competitive analysis 10

1.5 Customer analysis 11

1.6 Distribution channels analysis 11

2.0 SWOT analysis 12

2.1 Strengths 12

2.1.1 Good organic cosmetics brand image 12

2.1.2 Clear marketing position 13

2.1.3 Strong parent company 13

2.2 Weakness 13

2.2.1 Capital not strong as many international cosmetic companies 13

2.2.2 Lack of brand awareness 14

2.2.3 Huge room of improvement in operations management 14

2.3 Opportunity 14

2.3.1 Potential consumption capacity 14

2.3.2 2008 Olympic Games attract western to traditional Chinese elements (‘Chinese wind’) 15

2.4 Threat 15

2.4.2 16

2.4.3 Investment risk (ROI and cash flow) 16

2.4.4 Economic crisis 17

3.0 Objectives 17

3.1 Corporate objective 17

3.2 Marketing objectives 17

4.0 Marketing strategy 18

4.1 Target market 18

4.2 Positioning strategy 18

4.3 Marketing mix 19

4.3.1 Product strategy 19

4.3.2 Pricing strategy 21

4.3.3 Promotion strategy 22

4.3.4 Place strategy 24

5.0 Budget for the next three years 27

6.0 Projected profit and loss statement 28

7.0 Action program 29

8.0 Control & feedback 29

8.1 Sales analysis 29

8.2 Market share analysis 30

8.3 Profitability by product 30

8.4 Efficiency on advertising, sales promotion analysis 30

8.5 Sales-force efficiency 31

9.0 Reference 32

iExecutive summary

The marketing plan is aimed to outline a systematic marketing strategy for Herborist Cosmetic Company, which is specialized in herbal cosmetics. This marketing plan will firstly carry out a deliberate analysis on the market share, size, macro environment, distribution channel, competitor, customer and SWOT analysis for Herborist in Chinese cosmetic market.

And then, based on the analysis, it will state the corporate and marketing objectives of Herborist and then give proper marketing strategy recommendations for Herborist. On one hand the recommendations will include the aspect of market segmentation combined with targeting consumer statement as well as positioning strategy. On the other hand, the recommendations will also include the suggestions on marketing mix such as the product strategies, pricing strategies, distribution strategies and promotion strategies.

iiList of Chart/ Figure

Figure 1 Market share and growth of different cosmetics sub-sectors, 2009…………7

Figure 2 Skin care brands: share of total sales, 2008-09……………………………..10

Chart 1 Marketing budget chart for year 2011 to 2013………………………………27

Chart 2 Projected profit and loss statement (2011 — 2013)………………………….28

Chart 3 Implementation schedule……………………………………………………29

1.0 Situation analysis

1.1 Company and products background

1.1.1Company introduction

Shanghai Herborist Co., Ltd. launched in 1998, as a subsidiary of the leading cosmetic producer Shanghai Jahwa United Co., Ltd, is independently operated (Herborist official website 2010). As its great focus on using indigenous Chinese herbs in its natural beauty-care products, it has won population to a certain extent in the domestic cosmetic market of skin care aspect and was awarded with the title of “Shanghai famous brand” in 2005(Herborist official website 2010). And till the year 2008, Herborist has launched in European market through cooperation with Sephora, which is a leading cosmetics retailers owned by Louis Vuitton Moët Hennessy Group (Sephora official website 2010).

1.1.2 Products introduction

The personal care products of Herborist personal are born based on the concept of combination of both modern biotechnology and traditional herbal medicine. Under the emphasis of the balance between traditional Chinese medicine theory and the high-tech means of modern technology, these products in Herborist can effectively recuperate skin, body and spirit to achieve the original beauty and make the users’ skin as newly born (Herborist official website 2010).

Herborist’s products focus on not only the care of face and body but also the internal part, which always insist the concept of integrating Traditional Chinese Medicine into the latest fruits of modern biotechnology. Take its star product ‘Tai Chi Mud’ for example, it shows the last-for-ever Chinese aesthetic of balance via the compatibility of Yin and Yang. And at the same time, due to the opening of Herborist Spa since the year 2002, Herborist cooperate the oil from herbal essence and herbal water therapy to offer women with holistic care, which also shows its concepts of balance beauty and health on the basis of Chinese traditional herbal medicine (Herborist official website 2010).

1.2Industry introduction

1.2.1Market size and share

According to the research from Li and Fung (2009), it shows that the cosmetics market of China has enjoyed a continuous growth over recent years and China has become the second largest cosmetics market in Asia nowadays. And meanwhile, Chinese consumers’ increasing purchasing power and more and more Chinese women’s participation in the workforce have strengthened growth in the cosmetics market. Li and Fung (2009) also showed the data that retail value of China’s cosmetics has grown by 26.3% and even reached ¥48.83 billion CNY in 2008 from the National Bureau of Statistics (NBS).

Meanwhile, from Figure 1(Li & Fung 2009), we can see the skin care products have taken up a big market share even to 26.3% of Chinese cosmetic market. And meanwhile the major market share of skin care products still dominated by some famous foreign brands such as P&G, Shieido, L’Oreal and some local low-end price brands such as Dabao and Longliqi(Li & Fung 2009). As the up-rising star of the cosmetic brand, Herborist’s market share is about 0.3% out of the total market share till the first quarter of the year 2010 (Herborist official website 2010).

Figure 1 Market share and growth of different cosmetics sub-sectors, 2009

Source: Access Asia

1.2.2Developing trends

On the basis of the survey from AMA Communication Services (2010), there is a trend of growing health awareness among Chinese consumers due to the development of China’s economy. That’s why Chinese consumers prefer cosmetic products using natural ingredients than chemical products, especially the ones with strong attachment to Chinese Traditional Medicine (TCM), which is an essential part of Chinese culture.

Due to this special preference of Chinese consumers, there is a trend that more and more players, not only domestic but also foreign ones, begin to position their cosmetic products with mild chemical formulae as well as herbal and natural ingredients (Li & Fung 2009). P&G, for instance, added herbal ingredients such as Shouwu and Ginseng to its nourishing shampoos series of Chinese market. Lux of Unilever also launched its shampoos series with the addition of Chinese herbal ingredients including Danggui, Gingko and Bai Hao Yinzhen in Chinese market. Under this trend, Herborist Co., Ltd has launched series of natural beauty care products with the ingredients of herbs since the year of 1998, and now enjoys a good popularity of nature beauty care brand (Herborist official website 2010).

1.3 Macro-environmental analysis

Macro-environment is the outside factors including political, economic, sociocultural, technological and legal forces, which influence the survival of the organization (Elliott, Rundle-Thiele & Waller 2010).

1.3.1 Political and legal environment

In China, central government still encourages the domestic product’s growth, which is some kind of guarantee for the development of domestic cosmetic companies, such as Herborist Co., Ltd (Ting 2009).

While, at the same time, with the implementation of some tight regulations on cosmetic products such as the Hygiene Standard for Cosmetics (2007 Edition) and the Hygiene Standard for Cosmetics Manufacturers (2007 edition), Chinese government and consumers pay more and more attention to the safety of cosmetic products, especially after the Japan-based SK-II was tested and found to contain some unapproved substances in Chinese counter (Li & Fung 2009). For instance the total number of prohibited and restricted substances used in cosmetics is higher at 1,286, and there is also strict limitation on the use of certain ingredients contained in preservatives, sunscreen agent, coloring agent and hair dye agent. This also puts Herborist on alert to focus on their products safety.

1.3.2 Economicenvironment

The economic conditions in China offer Herborist Co., Ltd not only opportunities but also risks. China is the second large cosmetic market in Asia and the total retail sales of cosmetics in China is about ¥48.83 billion CNY in 2008, which shows the great potential consumption power for cosmetic players both global and local, including Herborist(Li & Fung 2009). While the tax rate for the skin care products in China is about 8% to 30% or so on and to comply with the World Trade Organization agreements, the import tariffs of cosmetic products has been gradually reduced over the past few years, which bring great pressure for Herborist to face not only the expensive product tax but also the hyper competition from products of foreign players due to the relatively cheaper price compared to the previous after the reduction of import tariffs.

1.3.3 Sociocultural environment

There is a special preference on natural ingredients specially the addition of herbal material in skin care products, due to the Chinese Traditional Medicine therapy is the essence of Chinese culture (AMA Communication Services 2010). As for Herborist, this preference on natural ingredients skin care products of Chinese consumers is a great advantage.

1.3.4 Technological environment

The increased usage of the internet in China is the result from the development of technology, which results in the popularity of expansion the online platform for product sale for most cosmetic companies. Under this situation, Herborist has also set up online platforms to show its products in order to reach more young customers (Herborist official website 2010).

1.4 Competitive analysis

As shown in figure 2 (Li & Fung 2009), the top 10 skin care brands accounted for nearly 80% sales in 2009 of Chinese market, in which the foreign players take up a large share in the mid-high and high-end segments such as P&G, L’Oréal and Shiseido. For Herborist these foreign brands including Olay, L’Oréal, Aupres, Yue-Sai, Avon, Shiseido and so on which also have the orientation on mid and mid-high segments are the powerful opponents.

Figure 2 Skin care brands: share of total sales, 2008-09

2009 2008

Brand

Company name

Share of

total sales (%)

Olay

Procter & Gamble

(Guangzhou) Ltd

29.71

Aupres

ShiseidoLiyuan Cosmetics Co Ltd

18.94

L’Oréal

L’Oréal China

11.83

Lancôme

L’Oréal China

7.60

Shiseido

Shiseido Liyuan Cosmetics Co Ltd

3.47

Yue-Sai

L’Oréal China

2.52

DeBon

LG Household & Health Care Ltd

1.32

TJOY

Nanjing Jianong Chemical Co. Ltd

1.11

Dabao

Beijing San Lu Factory

0.61

Pond’s

UnileverChinaLtd

0.61

Others

22.29

Brand

Company name

Share of

total sales (%)

Olay

Procter & Gamble

(Guangzhou) Ltd

34.20

Aupres

ShiseidoLiyuan Cosmetics Co Ltd

13.91

L’Oréal

L’Oréal China

8.36

Dabao

Beijing San Lu Factory

5.74

Longliqi

Jiangsu Longliqi Group Co Ltd

3.61

TJOY

Nanjing Jianong Chemical Co. Ltd

2.58

Yue-Sai

L’Oréal China

2.33

Avon

Avon (China) Co Ltd

1.36

Mininurse

L’Oréal China

1.08

Pond’s

UnileverChinaLtd

1.01

Others

25.82

1.5 Customer analysis

According to the research carried out by AMA Communication Services (2010), the average monthly expenditure on beauty and skin care products of female white collar consumers in Shanghai, Beijing reached 1,000 RMB (about 150 USD). And in other secondary cities of China, there is also large consumption capacity on skin care products. According to the data from Herborist official website (2010), there are at least 270,000 consumers as its members and near 90,000 core member, who contributes nearly 45% consumption of Herborist’s products. Moreover, most of the core members of Herborist are the ones who switch from using international high-end skin care products to Herborist’s products and they have great brand loyalty to Herborist. Meanwhile these core members are also have great influence on motivating other consumers choosing Herborist’s products.

1.6 Distribution channels analysis

There are diverse distribution channels for Herborist to deliver its products to domestic consumers such as opening counters in China’s major department stores and professional stores and setting up specialty stores to sell its products (Herborist official website 2010). For instance, Herborist has already opened nearly 450 specialty stores until 2008, 70% of them are franchises.

2.0 SWOT analysis

For Herborist, to have a better business performance, it is crucial to be able to understand the current opportunities in the market place, the major threat it may faced at the present as well as in the future, the strengths that Herborist owns compared with other competitors and the weakness which may affect its performance and future development (Elliott, Rundle-Thiele & Waller 2010). The SWOT analysis for Herborist will be implemented in the following, which will indentify the internal strengths, weakness, the external opportunities and threats related to Herborist.

2.1Strengths

2.1.1 Good organic cosmetics brand image

Since the year of 1998, Herborist has begun to distinguish itself via intergrating Traditional Chinese Medicine into the latest fruits of modern biotechnology. And till now, it has already built a good image of organic cosmetics. The philosophy via Yin-Yang balance to enable skin, body and spirit to reach idea harmony and radiate natural, individualized and healthy beauty, has welcomed by a great many Chinese consumers(Herborist official website 2010).

2.1.2 Clear marketing position

Herborist has posited itself as organic skin care brand and oriented itself targeted at middle and high income female white collar consumers, which attracts more than 270,000 consumers as its members and near 90,000 core members (Herborist official website 2010).

2.1.3Strong parent company

The parent company of Herborist is Shanghai Jahwa United Co., Ltd, a leading Chinese domestic cosmetics producer, which is good at integrating R&D, production, distribution and service. And meanwhile, Shanghai Jahwa has planed to invest ¥170 million to enhance the market share of Herborist, which can facilitate the development and maturity of Herborist(Herborist official website 2010).

2.2Weakness

2.2.1 Capital not strong as many international cosmetic companies

Although Herborist has the support from Shanghai Jahwa, the capital of it is still not strong as some international cosmetic companies, which limits its spending on research and development (Whiteman & Krug 2008).

2.2.2 Lack of brand awareness

Although Herborist has gain a reputation of healthy and organic skin care brand, it still lack brand awareness among several Chinese consumers, due to the limited investment in advertising. For instance, Herborist only promotes its products in print advertisement while ignoring other channels such TV ads, radio ads and so on (Chinairn 2009).

2.2.3 Huge room of improvement in operations management

Operations management is another weak part for Herborist. It is reported that poor logistics management has led to long lead-time, high inventory as well as capital tie-up which place heavy burden on the future development of Herborist (Chinairn 2009).

2.3Opportunity

2.3.1 Potential consumption capacity

In September 2006, the products of SK-II was tested and found to contain some unapproved substances in Chinese counter, followed by other world famous cosmetic brand including Clinique, Lancôme, Dior and Estee Lauder whose cosmetic products were said to have prohibited substances (Ting, C. 2009). Due to these incidents, more and more Chinese consumers began to choose some organic and herbal skin care products, which is a great opportunity for Herborist to meet. According to the National Bureau of Statistics (NBS), the consumption power on cosmetic products will reach at ¥60 billion CNY in 2010, in which skin care products will take up nearly 30% of the total number, which for Herborist is really good new chance (Li & Fung 2009).

2.3.2 2008 Olympic Games attract western to traditional Chinese elements (‘Chinese wind’)

Because of the 2008 Olympic Games, all the attention was focused on China which brought a Chinese wind. In skin care aspect, not only the Chinese consumers began to switch to choose herbal and organic products but also the foreign consumers show great interest in the skin care products with traditional Chinese medicine inside (AMA Communication Services 2010). As organic cosmetic brand specialized in herbal cosmetics, Herborist has developed under the concept of intergrating Traditional Chinese Medicine into the latest fruits of modern biotechnology, which made Herborist become one of the most popular domestic organic cosmetic brands in Chinese market under the ‘Chinese wind’(Simon 2009).

2.4Threat

2.4.1 Tough competition

For Herborist, the biggest threat is the tough competition mostly from international players. Chinese skin care market is almost occupied by international cosmetics giants including L’Oréal, P&G, Estee Lauder Shiseido and so on (Li & Fung 2009). And because of the excellent brand building and management capability, massive advertising efforts as well as leading research and development capability, the products from multinational cosmetics corporations stand for quality, reliability and reputation in hearts of Chinese consumers compared with the local brands (Li & Fung 2009). For Herborist, to beat these international cosmetics giants and win more customers from them are really a big challenge.

2.4.2 Image of ‘made in China’

The tag of ‘made in china’ often stands for cheap price while poor quality, which also exits in skin care products (Wharton n.d). Just like the foreign brands stands for quality, reliability and reputation, the Chinese made skin care products for foreign customers means poor in quality and even the same for some Chinese consumers. For Herborist, this kind of phenomenon is a great threat to both expand the domestic market share and especially position itself for the international markets.

2.4.3 Investment risk (ROI and cash flow)

From the official website of Herborist (2010), the company has planed to invest ¥170 million to enhance the market share. Although it is good news for Herborist’s future development, it has to consider the issue on the period of return on investment (ROI). Herborist has the experience of too long time ROI, for instance, Herborist began to make profit after it came into the domestic cosmetic market seven years (Herborist official website 2010). If the return on this time’s ¥170 million investment still last too long, Herborist has to face the risk of cash flow problem, which may result in big financial dilemma for Herborist.

2.4.4 Economic crisis

Due to the economic crisis in the recent year, the purchasing power is reduced and preference is inclined to relatively cheap products which for Herborist oriented on middle to high cosmetic products is a kind of pressure (Li & Fung 2009).

3.0 Objectives

3.1 Corporate objective

Corporate objective for Herborist is to become a world class enterprise with the capability of innovation and creativity to not only continuously introduce high quality new products to meet the needs of the consumers but also maintain good quality products under the concept of integrating Traditional Chinese Medicine into the latest fruits of modern biotechnology (Herborist official website 2010).

3.2 Marketing objectives

The marketing objectives for Herborist include two parts. On the one hand, Herborist plans to expand its cover of domestic distribution channels to 170 main cities and enlarge the retail terminals from 700 to 1,200. On the other hand, Herborist plans to expand its market outside the China mainland market via the cooperation with Sephora (Herborist official website 2010).

Herborist aims to achieve ¥1.35 billion of sales revenue in the end of 2014 and increase the revenue as well as Compound Average Growth Rate (CAGR) to 21.98% within the next five years (Herborist official website 2010).

4.0 Marketing strategy

The following is the market strategy for Herborist including the targeted market, position as well as marketing mix strategies, which is based on the above analysis.

4.1 Target market

As the organic cosmetic company, Herborist is specialized in herbal cosmetics. In the full of furious competition cosmetic market of China, the primary consumer target for Herborist is middle to upper income white collar females who prefer natural, mild but effective skin care products. The secondary consumer target is college female students, who look for mild products to maintain their young and fresh skins. This segment is focused on these female college students who prefer buying international cosmetic brand while have pressures on the pricing part. According to the survey that there is an increasing rate on the purchasing capability of female college or university students towards middle to high end cosmetic products, which is an important segment for Herborist to focus(AMA Communication Services).

4.2 Positioning strategy

Herborist will position itself as the middle to high end cosmetic products which focuses on the balance between traditional Chinese medicine theories adherence to Chinese elements of Tai chi, lotus, green and the high-tech means of modern technology to continuously introduce high quality new products to meet the needs of the consumers on their skin care.

4.3 Marketing mix

Marketing mix describes these different elements such as price, product, promotion, place, people, and process and so on that marketers need to consider (Elliott, Rundle-Thiele, & Waller 2010), which is essential for Herborist to consider in its marketing process to achieve better performance. The following will analyze four areas of marketing mix including the aspects of price, product, promotion, and place for Herborist’s marketing process.

4.3.1 Product strategy

Product is defined as a good, service or idea offered to the market for exchange, which plays a vital role in the marketing process, which is the means for companies to satisfy the functional, social and psychological needs, wants and demands of customers (Elliott, Rundle-Thiele, & Waller 2010). For Herborist, it is important to emphasize the importance of the product strategy.

4.3.1.1 Product diversification strategy

Palmer (2009) advocated the importance of product diversification strategy, which is also proper for Herborist. Products all have their lifecycles and especially the skin care products have the relatively short lifecycle (Kotler& Armstrong 2008), so it is important for Herborist to focus on the product innovation and providing a wider product portfolio to meet the market requirements under deliberate market analysis. Moreover, besides the innovation on skin care products, Herborist is recommended to enhance its R&D capacity on color cosmetics, hair care, and men’s cosmetics to perfect it products range of cosmetic products. Only under these activities can Herborist meet Chinese customers’ consumption concept of pursuit for practical, fresh, beautiful as well as top quality.

4.3.1.2 Establishing strong brand loyalty

Kotler and Armstrong (2008) believe the importance of establishment of brand loyalty. For Herborist, besides the already built membership system, it is also recommended to apply for the ISO9001 quality system certification, which can enhance the customers’ confidence of Herborist to improve customers’ favorable attitude and purchasing behavior towards Herborist’s products.

4.3.1.3 Maintenance its orientation

As the organic cosmetic brand, it’s important for Herborist to maintain its advantage on herbal cosmetics. To search the future development, it’s so essential for Herborist to maintain its image of Chinese characteristics. Only depending on this distinctiveness, can Herborist have more chances to become world famous cosmetic brand just like the road of the body shop and Shiseido does.

4.3.1.4 Developing the packing and design of products

One of the important means for gaining more market share is to have a distinct product design and packing (Elliot, Rundle-Thiele & Waller 2010). For Herborist, it is essential to focus more on packaging design to attract more consumers with high quality packaging materials for different products series and give people impression of domestic goods while foreign quality. For instance, the introduction of Chinese elements can be adopted in the product designing and packing such as Chinese painting, lotus and so on are all very Chinese style and give people an impression of elegance and fresh, which is fit for Herborist’s image of herbal cosmetics.

4.3.2 Pricing strategy

The price of products setting has great influence on companies’ profit and marketing process, as the competitive environment changes, companies are recommended to consider when to initiate prices change and when to respond to them (Kotler &Armstrong 2008). For Herborist, it is important to consider proper pricing strategy to respond to the fluctuant marketing environment.

4.3.2.1 Prestige pricing strategy

To maintain the image of middle to high end cosmetic brand and accelerate the pace of advance to the high-end market, Herborist is recommended to adopt prestige pricing strategy (Kotler & Armstrong 2008), which requires Herborist to introduce its new products as a relatively middle to high price. For instance, with the gift box priced at ¥500 CNY, New Tai Chi Mud Mask ¥380 CNY and so on, Herborist has set a relatively good image of middle to high end cosmetic brand which shows the image of prestige, quality and exclusively to Chinese consumers who often hold the opinion that high price means high quality(Whiteman & Krug 2008).

4.3.2.2 Product bundle pricing

The price of Herborist’s products is almost at the same level with the international middle to high end cosmetic products especially the Shiseido. To strengthen its position of middle to high end cosmetic brand, it isn’t recommended for Herborist to discount its products too much and too often, because there is a deep rooted concept among Chinese consumers that cheap means low quality. While to attract consumers, it is necessary to offer discount. So it is recommended for Herborist to adopt product bundle pricing, which means combining several products together and offering the bundle at a reduced price (Kotler & Armstrong 2008), which can help Herborist improve profit via motivating more buying power.

4.3.3Promotion strategy

Promotion is the creation and maintenance of communication with target markets, which makes potential consumers, partners and society aware of. Deliberate designed promotion strategy can help Herborist make consumers aware of and interested in its products and effectively and efficiently communicate its message about the products to the market place (Elliott, Rundle-Thiele& Waller2010,). The promotion strategy for Herborist is as below.

4.3.3.1 Outstanding special features

Because China’s consumers are almost pragmatists, if we only use some abstract and vague slogan and general propaganda tactics, it is difficult to persuade consumers to buy the products. The professional TCM report plus practical description in advertisement is recommended to highlight the effect of Herborist’s products to strengthen the confidence of consumers’ brand loyalty. And meanwhile, it is also recommended for Herborist to offer some free trial to consumers to get more feedback after they used, which can also help Herborist promote its products.

4.3.3.2 Advertising and brand ambassador

Based on the survey from Solomon (2009), celebrities and beauty experts have huge influences on cosmetic purchases in Chinese market, which results in consumers relying on trial and error from celebrities and beauty experts rather than spending too much money on their own cosmetic trials. Due to this special scenario, finding a proper brand ambassador is recommended for Herborist to attract more customers via the convincing power from celebrities. The proper brand ambassador can help Herborist reach the needs of more consumers and strengthen its healthy and fresh image as herbal cosmetics and enhance its brand cognition.

At the same time, it is also wise for Herborist to strengthen its propaganda coverage via ads on the newspapers, magazine as well as in public places such posting large poster in bus station, MTR station and other public places to attract more attention, which can largely incent consumers’ desire to purchase Herborist’s products. Furthermore, sponsoring TV and radio programs on healthy life and beauty can also help Herborist to portray the image of advocating healthy, natural brand.

4.3.3.3 Perfect customer relation management (CRM)

Palmer (2009) claimed that it is so crucial for companies to develop good customer relationships because good quality alone may be insufficient for a company to gain competitive advantages in increasingly competitive markets, while good customer relation management can supplement a firm’s competitive advantage. For Herborist, it is necessary to improve the pre sales and after sales service. For instance, before purchasing products from Herborist, it is necessary to give proper and professional suggestions and guidance, which is an important part of brand building. Furthermore, providing professional beauty care lectures for consumers, free skin analysis under the help of professional skin analytical instrument as well as providing customers with improved return protection to enhance the reputation and the customers’ sense of belonging are all good approaches.

4.3.4Place strategy

Herborist has already built a diverse distribution channels to deliver its cosmetic products to consumers, such as opening counters in China’s major department stores, professional stores and setting up specialty stores to sell its products (Herborist official website 2010). To become a world class Chinese cosmetic enterprise, Herborist is recommended to expand and strengthen its distribution channel.

4.3.4.1 Open counter in big chain supermarkets

Big chain supermarkets in China are important sales channels for lower-priced cosmetics products in a long history. While due to the launching of middle–range brands of broadening products such as Mininurse, Garnier and Maybelline in these retail chains by L’Oréal, P&G and other cosmetic giants, big chain Supermarkets in China have become new channels for middle price cosmetic brand to reach a wider audience (Li & Fung 2009). These foreign-owned hypermarkets and supermarkets such as Carrefour and Wal-mart as well as locals such as Lianhua , Hualian as well as Trust mart are often the initial choices. For Herborist, it is also recommended to open counters to launch its middle price range products in these hypermarkets and supermarkets just like L’Oréal, P&G and other leading cosmetic companies do, which can help Herborist to reach its secondary consumer target of college female students and other consumers who are searching for middle price cosmetic products in supermarkets and hypermarkets.

4.3.4.2 Online sales

Online sales may just represent a small share in overall cosmetics sales, but we can’t ignore its potential. And on the basis of the data got from the China Internet Network Information Centre, in the first half of 2007 there are more than 70% of the 162 million Internet population aged under 30 (Li & Fung 2009), for Herborist it is a powerful channel to reach parts of its primary and secondary consumers such as the young female white collar and college students. Although Herborist has set up online platforms to show its products, it hasn’t begun its online sales. To capture the huge potential, Herborist is recommended to launch online sales on its online platform, just like other successful cosmetics players have done, including DHC from Japan, SaSa and Sephora (Li & Fung 2009). For launching online sales, it can help Herborist to save more cost in hiring stores. For instance, some professional software for online sales such as Integrated Distribution System adopted by P&G have the distinctiveness of quick, effective, low cost, low risk, which is recommended for Herborist to adopt (AMA Communication Services 2010).

4.3.4.3 Choosing proper agent

The failure of Herborist in Hong Kong market is as below (Herborist official website 2010). At first, Herborist directly copied the sales model of the mainland market, which can’t localize itself it the Hong Kong market. Secondly, Herborist invest too much to build its sales channel, which largely increased its sales cost. Thirdly, the strong resistance to the new brand such as Herborist in the Hong Kong market, which cost Herborist too much to enhance its brand cognitive. For Herborist, it is more suitable to find proper local agent to facilitate it expand in the market outside mainland China. For instance, it is recommended for Herborist to relaunch its products in Hong Kong market via the cooperation with SaSa. As a Hong Kong-based cosmetics retailing and beauty services provider, SaSa has already built well sales network and is experienced in solving the problems on new brand cognitive as well as has a good image of cosmetics retailing and beauty services provider (Li & Fung 2009), which can facilitate Herborist successfully come into the Hong Kong market.

4.3.4.4 Pharmacies

As a organic cosmetic brand and specialized in herbal cosmetics, Herborist is recommended to launched its products in pharmacies just as these successful cosmeceutical brands do, including French Eau Thermale Avéne, Vichy and La Roche-Posay, Japan’s Kanebo, Freeplus and Shiseido Ferzea and so on. As the research from AMA Communication Services (2010) showing, the skin care products in pharmacies to Chinese consumers means mild, soft, effective and professional, that’s why most of the Chinese cosmetic consumers have begun to switch their choices to cosmetic products in pharmacies, especially after the Japan-based SK-II was tested and found to contain some unapproved substances in Chinese counter. For Herborist, pharmacies are recommended distribution channels to gain more potential consumers.

5.0 Budget for the next three years

The Chart below outlines the following three years budgets of Herborist on sales, promotions, distribution, and other related areas from 2011 to 2013.

Chart 1 Marketing budget chart for year 2011 to 2013

Items

Budget for 2011

Budget for 2012

Budget for 2013

Advertisement&Promotion

¥30,000

¥40,000

¥50,000

Saleforce training and stimulation

¥5,000

¥5,000

¥5,000

Distribution channel expansion

¥3,000

¥4,000

¥5,000

Distribution channel maintenance

¥2,000

¥2,500

¥3,000

Website maintenance

¥2,000

¥2,000

¥2,000

Website improvement

¥10,000

¥8,000

¥8,000

Public relations

¥4,000

¥4,000

¥3,000

R&D

¥20,000

¥22,000

¥25,000

Total

¥76,000

¥87,500

¥101,000

In thousands (CNY)

6.0 Projected profit and loss statement

The chart below is the d profit and loss statement forecast of Herborist for year 2011 to 2013

Chart 2 Projected profit and loss statement (2011 — 2013)

Subjects

Time ¥ Thousands (CNY)

Total ¥Thousands(CNY)

2011

2012

2013

2011

2012

2013

Total sales revenue

¥1,200,624

¥107,052

¥1,093,572

¥1,253,049

¥120,493

¥1,132,556

¥1,367,446

¥135,240

¥1,232,206

Advertisement&Promotion

¥30,000

¥40,000

¥50,000

Saleforce training

and stimulation

¥5,000

¥5,000

¥5,000

Distribution

channel expansion

¥3,000

¥4,000

¥5,000

Distributionchannel

maintenance

¥2,000

¥2,500

¥3,000

Website maintenance

¥2,000

¥2,000

¥2,000

Website improvement

¥10,000

¥8,000

¥8,000

Public relations

¥4,000

¥4,000

¥3,000

R&D

¥20,000

¥22,000

¥25,000

Tax

¥21,052

¥21,961

¥23,997

Other expenses

¥10,000

¥11,032

¥10,243

Total expenses

Profit

  In thousands (CNY)

7.0 Action program

Herborist will implement series of activities to facilitate itself achieve its business objectives in from the year 2011.

Chart 3 Implementation schedule

Subject

1

2

3

4

5

6

7

8

9

10

11

12

Total ¥(CNY)

76,000,000

Saleforce training and stimulation

×

×

5,000,000

Modification and improvement on website.

×

×

12,000,000

Integrated propagandas campaign

on targeting consumers via on

print, radio, TV, internet means

×

×

×

×

×

4,000,000

sales promotion with the

continuing of the multimedia advertising campaign.

×

×

×

×

30,000,000

Research and development on products

×

×

×

×

×

20,000,000

Deliberate research to expand

its distribution channels and maintenance

×

×

×

×

×

×

2,000,000

Expansion of its business

to more locations.

×

×

×

×

×

×

3,000,000

8.0 Control & feedback

8.1 Sales analysis

 Herborist is planning to strengthen the systems for sale analysis, due to the timely data on sales is curial for the whole marketing plan. Furthermore, the sales analysis is recommended to be implemented monthly, which can facilitate Herborist to develop contingency plans to address the fast moving environmental changes, especially the customers’ needs (Kotler & Armstrong 2008).

8.2 Market share analysis

Under the stage of expansion, the market share analysis is necessary for Herborist to conduct which is recommended to be done quarterly in order to watch the market closely.

8.3 Profitability by product

 To facilitate R&D programs of Herborist, the profitability by products analysis can be done yearly and used as reference to help Herborist decide its future investment on products’ modification and innovation which can bring better profit for the company.

8.4 Efficiency on advertising, sales promotion analysis

To analyze the efficiency of advisements and sales promotion quarterly for Herborist quarterly is essential, which can make Herborist have a clearly picture of the effectiveness its promotion strategy and facilitate the modification and better orientation of the advertising and sales promotion campaign more effectively in the following quarter.

8.5 Sales-force efficiency

 The sales force efficiency should be measured both on the bases of the sale volume that they have brought to the company, and the potential capability of staffs in the sale force, which help Herborist best position its sale forces to win more income.

9.0 Reference

AMA Communication Services 2010, High-end cosmetics trends in China, greenbook.org, viewed 11 July 2010,

<http://www.greenbook.org/marketing-research.cfm/high-end-cosmetics-trends-in-china>

Chinairn 2009, 民族日化品牌崛起的成功案例分析(Successful case study on domestic cosmetic industry), chinairn.com, viewed 12 July 2010,

<http://www.chinairn.com/doc/70310/469327.html>

Elliott, G., Rundle-Thiele, S & Waller, D. 2010, Marketing, John Wiley & Sons Australia, Ltd, Australia,

Herborist official website 2010, Company profile, herborist.com.cn, viewed 11 July 2010,

<http://www.herborist-spa.com/en/1_1.php>

Kotler, P. & Armstrong, G. 2008, Principles of marketing, 12th edn, Pearson Education International, New Jersey,

Li & Fung 2009, Latest developments of China’s cosmetics market, Li & Fung Research Centre, viewed 11 July 2010,

<http://www.idsgroup.com/profile/pdf/industry_series/Issue14_Cosmetics.pdf>

Palmer, A. 2009, Introduction to marketing theory and practice, 2nd edn, Oxford University Press, New York,

Sephora official website 2010, Sephora stories, sephora.com, viewed 11 July 2010,

<http://www.sephora.com/help/stores/index.jhtml>

Simon 2009, Herborist: A successful Chinese cosmetics brand, enovate 2010, viewed 13 July 2010,

<http://enovatechina.com/blog/herboist-a-successful-chinese-cosmetics-brand/>

Solomon, J. 2009, Skincare companies dominating the cosmetic market in China, seekingalpha.com, viewed 14 July 2010,

<http://seekingalpha.com/instablog/499089-john-solomon/32242-skincare-companies-dominating-the-cosmetic-market-in-china>

Ting, C. 2009, China’s homegrown makeup gains popularity, Beijing kswchina.com inc., viewed 12 July 2010,

<http://waiyu.kswchina.com/jryy/zh/yd/528862.html>

Wharton n.d., Special report: New challenge for made in China, electronic version, Boston Consulting Group,

<http://knowledge.wharton.upenn.edu/papers/download/BCGChina20090603.pdf>

Whiteman, G. & Krug, B. 2008, Beauty and the beast: Consumer stakeholders demand action in China, vol. 1, Journal of International Business Ethics,

Xia XH. 2010,给佰草集品牌战略的建议(Suggestions on strategic branding for Herborist), China’s science and technology research center of citation index evaluation, viewed 14 July 2010,

<http://www.bianjibu.net/guanlixue/pinpaiguanli/1125.html>

Category: Sample of English Assignments By Chinese Students

Case | HBS Case Collection | August 2010 (Revised October 2014)

Herborist

John Deighton, Leora Kornfeld, Yanqun He and Qingyun Jiang

Global brands such as L'Oreal and Oil of Olay dominate China's skin care market. A Chinese domestic brand, after some success in partnership with Sephora in Europe, aspires to challenge the French and U.S. brands' hold on the China market. It must decide how to segment the market, how to position against global assurances of quality and purity, and how to balance its Chinese heritage claims with claims of modernity. The China skin care market is growing extraordinarily fast. Is that an asset or a liability?

Keywords: Cross-Cultural and Cross-Border Issues; Product Marketing; Product Positioning; Demand and Consumers; Competitive Strategy; Segmentation; Beauty and Cosmetics Industry; China;

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