Marketing Management in Asia.

Stanley Paliwoda, Tim Andrews, Junsong Chen

• Publisher: Taylor & Francis
• Year: 2013
• Print ISBN: 9781138959781
• eBook ISBN: 9781136303814
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Asia is no longer simply the continent to which the world turns for outsourcing and off shoring of production, leaving retailing to Western countries. Asia now contains many of the world's largest markets plus many emergent markets as well. North America is fast ceding ground to China as the world's largest economic power. Europe has been able to make productivity gains from trade, fiscal and monetary harmonization to remain globally competitive while Africa, whose nations practice free trade, is largely ignored both in terms of forgiving debt and providing further credit.

Each chapter of this volume details the characteristics of an individual market in Asia and demonstrates the challenges that marketers are likely to face in these environments. Covering not just production or consumption but trade as it is practiced now, this book outlines the new norms, conventions and service performance levels that these markets demand.

1 China

Distribution in China

Jintao Wu and Junsong Chen

The movement for the reform and liberalisation of China’s economy is now over thirty-four years old. The rapid development of the economy and the proliferation of consumer products have led to a revolution in China’s marketing configuration. The most complete changes have occurred in the area of marketing channels. The process of creative destruction has been so complete that we can hardly mention the systems of the past in the same breath as today’s integrated channel systems. From control to cooperation, from conflict to appeasement, from collapse to reconstruction, the field of marketing channels in China has seen old equilibriums destroyed and new equilibriums gradually emerge. Furthermore, there is no doubt that as the market economy in China continues to develop, competition and cooperation through marketing channels will continue to create important new themes and trends.

The Importance of Diversification and Delayering

In the early days of reform, the government was very influenced by economic security and stability and therefore encouraged the continuation of old business patterns developed under the planned economy era. These were characterised by a single marketing channel, or more specifically, a single state-run wholesale market. State-owned department companies functioned exclusively as retail outlets. Manufacturing companies had no way to sell their goods to retail outlets directly but supplied them through a hierarchy of first-level, second-level and third-level wholesale markets. Foreign funded enterprises were prohibited from participating in retail and especially wholesale business in China.

The first sustained challenge to this status quo came from within the retail industry. Encouraged by the process of deregulation, and attracted by the potential of “the most valuable market in the world”, a number of international retail giants took the initiative to explore the Chinese market by conducting marketing research, developing networks and finally forming partnerships. Metro opened in Shanghai, Carrefour opened in Beijing and Wal-Mart opened its first shopping mall and Sam’s Club at Shenzhen. These first-movers demonstrated what was possible in China and served as a benchmark for other multinationals. Before long, a flood of multinational retailers, wholesalers and logistic service providers were moving into the China market one after another. This resulted in a proliferation of marketing channels as supermarkets, convenience stores, stockroom-style supermarkets, specialty stores, exclusive agencies and logistics companies opened up throughout the length and breadth of China.

Diversified Marketing Channels Hit the Mainstream

Vigorous growth and business diversification, on the one hand, combined with the clear benefits of co-ordination between marketing channels, on the other, led to the quick adoption of diversified marketing channel systems in China. This was especially true in the field of consumer electronics such as mobile phones and fast-moving consumer goods, such as soft drinks. Here, we look at the example of one Chinese company, Wahaha Group. Wahaha Group, founded in 1987, is the largest food and beverage manufacturer in China and the fifth largest in the world, behind only Coca Cola, Pepsi Cola, Cadbury and Cott. Wahaha Group started out by selling health drinks aimed at children. These were distributed through wholesale companies that were attached to the state-owned marketing channel within the sugar industry, alcohol industry, tobacco industry, subsidiary foodstuff industry and pharmaceutical industry. As Wahaha expanded into drinking water, dairy food, carbonated drinks, fruit juice beverage, sports drinks, tea drinks, food and healthcare products, they put a cooperative channel system in place called the “interlock/joint marketing” system.

Marketing channel diversification is a big test of a company’s marketing management competence. Channel conflicts can arise due to an asymmetry to benefits, and this can quickly erode distribution efficiency. Under the condition of limited resources, it is very important for companies to develop institutional arrangements which lead to a harmonious win-win environment between marketing channels. It is important that there is a reasonable differential price structure that protects the interest of channel members at different levels. Products can even be specialised for each channel so as to differentiate between channels and reduce cross channel competition. Furthermore, distributors need to be chosen using collaboration criteria and a selection system which highlights those with both a good reputation and potential strength as a strategic partner. Finally, the internal sales department needs to be fully committed to supporting the distributors’ sales activities. Now, we come back to the “interlock/joint marketing” system used by Wahaha Group. It gives us a good picture of how to construct a cooperative channel system which clearly defines the interests and obligations of manufacturer, distributors and point-of-sale terminals. First of all, Wahaha increased their sales force to 2,000 strong. The sales people were sent to different regions by the head office, and were responsible for selecting, serving and supporting distributors in order to exploit market opportunities. Second, Wahaha focused its marketing channel network on the so-called second- and third-tier cities (less economically important cities/subordinate cities). They reached these areas by recruiting over 1,000 first-level agents with outstanding reputation and credentials, as well as an extensive network of second-level agents for whom the selection criteria were less strict. Although Wahaha dealt directly with the largest wholesale customers, such as hypermarkets or large-scale supermarket chains, they used this network to cover a wide range of secondary customers such as smaller supermarkets, restaurants, canteens and other small stores.

The Increasing Power of Distributors

The rise of diversified marketing channel systems is initially beneficial to each of the parties involved. Over time, however, it can lead to increased competition both between manufacturers and distributors and between different distributors. As large distributors gradually gain the ability to dictate terms to the manufacturers, they can even try to force manufacturers to redesign their marketing channel system, with a profound impact on the operations, profitability and brand promotion of these manufacturers. Gome (listed company, HKG: 0493) is one of the biggest home appliances retailers in China, and Gree (listed company, SHE: 000651) is the largest specialised air-conditioner enterprise in the world. These two giant companies have been fighting since they fell out in 2004. In March 2004, Gome’s head office in Beijing circulated a memo titled “an urgent notice concerning clearing up the inventory of Gree air-conditioners”. This stated that all branches should return Gree air-conditioners to the manufacturer and henceforth terminate all business with them. The fallout was to a large extent caused by the conflict of interest between Gree’s main marketing channel strategy and Gome’s chain-store operation. Gree’s marketing channel strategy involved establishing a shareholding system between Gree and many provincial-level distributors. This meant that Gree allied themselves to a number of powerful distributors, with Gome as just 1 of over 10,000 distributors that sold Gree products. The sales volume of Gome’s Beijing headquarters therefore only accounted for 5 percent of Gree’s sales. However, Gome, with more than 200 retail stores, were striving to become the top-ranking home appliance retailer in China and had their sights set on surpassing their main domestic competitor “Suning” and even more powerful foreign competitor “Best Buy”, sometime in the future. In order to reach their goal, they were putting increasing pressure on manufacturers. According to Gree, Gome required a kickback two to three times higher than that of other distributors and 40 percent of the cost of air-conditioner installation as a fee. Of course, Gree were very opposed to favouring any one of their distributors over the others. One of these other distributors said, “Gome’s low price is based on putting the screws on their manufacturers. To be specific, even though their net profit exceeds our gross profit, Gome want to set the price of the air-conditioner themselves, take 12% of the total profit but leave the after-sales services to us.”

Faced with a domineering distributor, manufacturers might consider cooperating with other less powerful distributors to form checks and balances. While Gome was severing their relationship with Gree, Dazhong, another giant household electrical appliance retailer, stepped in. Dazhong offered Gree their best display space and promised to try and make Gree one of their top three brands of air-conditioner by sales volume. Gree also maintained a good relationship with Suning, Gome’s main competitor.

Finally, it is very beneficial for manufacturers to implement the so-called “walk on two legs” strategy, not only relying on distributors and agents but also building their own sales force. Gree developed their own-brand stores after falling out with Gome and firmly believe that this will become the main marketing channel long term. Despite already having two own-brand stores in Guangzhou, Gree opened up a third store, directly opposite Gome’s Guangzhou headquarters, in a move some commentators viewed as a sign of aggressive intent.

In the area of marketing channels, just as in most areas of business, no one is an enemy forever. Undoubtedly, these two parties will eventually be able to re-establish an acceptable institutional arrangement as long as there is a will to cooperate in the long run. However, once trust has been lost, it is hard to recover. There are indeed some clues that suggest that Gome and Gree might reconcile their differences sometime in the future. Gome did not get rid of Gree’s product right away but removed the product from six retail stores in Chengdu in the first six days, and in the rest of the country only later. The Gome store in Beijing continued to sell Gree air-conditioners in apparent disregard of the memo from head office. A year after the split, reports came out that the two companies were planning to start cooperating again and some of Gome’s retail stores in Beijing and Tianjin began to stock Gree products. However, when the news media tried to verify the story, both protagonists denied it. To this day, Gree’s products are seldom sold at Gome and consumers loyal to the brand must shop elsewhere.

Intense Competition for Point-of-Purchase Marketing

Channel delayering means that resources are often highly concentrated in the hands of distributors. This has led to fierce competition over point-of-purchase marketing. Latecomers to the market need to understand how the different marketing channels work together in order to discover the weak spots of market leaders. Once these are identified, they need to develop an innovative marketing channel strategy to exploit these weak spots.

C-Bons was founded in Wuhan in 1989 by Liang Liangsheng, a Hong Kong businessman. C-Bons initially concentrated on the women’s cosmetics industry but quickly diversified into hair shampoo, hair care and hairdressing. It took only half a year to raise its sales revenue from zero to 1 million RMB, another one and a half years to reach 10 million RMB, another two years to reach 100 million RMB, another five years to reach 1 billion RMB and another two years to reach 2 billion RMB¹. By 2006, their two most famous brands, “Slek” and “S-dew”, had reached the top ten by sales volume in China’s domestic hair shampoo market with “Slek” taking fourth place. Furthermore, “Maestro”, its hairdressing product, had been top ranked for each of the past four years. These achievements made C-Bons an acquisition target and potential international suitors, Avon, Colgate-Palmolive Company and Beiersdorf all expressed an interest. Beiersdorf won out, and purchased 85 percent of the stock of the toiletry products of C-Bons Group with 317 million Euros (approximately 3.5 billion RMB), to gain control of the “Slek”, “S-dew”, “Hairsong” and “Maestro” brands. The keys to C-Bons’ rapid growth were twofold. First, they understood the tremendous efficiency of point-of-purchasing marketing, and second, they capitalised on this by introducing a stream of innovative promotions.

C-Bons initially selected Wuhan as their first location in mainland China because of Wuhan’s superior geographical position. Under the traditional wholesale model in China, Wuhan was an important commodity distribution centre which supplied all the surrounding provinces. Unlike many other manufacturers, C-Bons understood the importance of forming good relations with wholesalers rather than just delivering goods to them. In general, while the wholesalers were responsible for the handover of goods and payments, C-Bons was in charge of promotion.

At the same time as cooperating closely with wholesalers, C-Bons set out to implement a direct marketing channel. As the Chinese saying goes, “Two legs walk more steadily than one”. Even after numerous private and state-owned commercial distributors emerged, following the breakdown in the state-owned wholesale distribution station, C-Bons insisted on developing their own direct marketing capability. This strategy soon bore fruit. As the distribution system in China underwent further reform, many manufacturers who relied heavily on the traditional wholesale stations disappeared. C-Bons, who walked on two legs rather than just one, not only held onto their current business, but also took the opportunity to expand and construct an extensive distribution network.

Furthermore, through direct contact with consumers, C-Bons discovered a number of interesting insights. First, they discovered that Chinese consumers can be emotional and impulsive so that stimuli at the sales site (including advertisement, publicity, personal selling, sales promotion, events and so forth) play an important role in their buying decisions. Second, Chinese consumers are sensitive to the buying behaviour of others, so that seeing people rush to buy a product or speak highly of a product can spark interest and influence their buying decision. Based on these insights, C-Bons did not spend much energy advertising through mass media but instead concentrated on the point-of-purchase, the last step in a consumer’s buying decision. As a result, C-Bons became pioneers in point-of-purchasing marketing and were the first to introduce a number of marketing techniques in China. These included the following:

• Trained shopping guides. C-Bons provided each shopping centre with shopping guides, who were trained and rewarded by C-Bons and whose responsibilities included showcasing C-Bons products, recommending suitable products for customers, according to their requirements and personalities and educating consumers about product usage, healthcare and grooming.
• Brand publicity at point-of-purchase. C-Bons employed distinctive billboards, lighting and even cashiers to draw attention to the C-Bons’ brand and strengthened the link between the brand and the product family.
• Large-scale promotion and public relations activities at sales sites.
• Promotional gifts. C-Bons pioneered the practice of giving promotional gifts to customers when they purchased C-Bons products.

The success of C-Bons led to increased competition over point-of-sale promotion between P&G, Unilever and many other brands. A huge variety of marketing tools quickly emerged to compete for limited space in shopping centres. As the market has become saturated, not only have the costs of promotion increased rapidly but the efficacy of such marketing tools has dropped dramatically as well.

New Marketing Channels Emerge

As point-of-purchase marketing became saturated and competition for this limited resource increased fiercely, new channels such as telephone, television, mail order and the Internet were emerging. Of these, the Internet has proven to be the most popular. The 21st Century Business Herald, published data on July 31, 2008, showing that the national e-commerce market is currently growing 50 percent per year. It also predicted that the B2C market would grow more than 100 percent in 2008 and perhaps as much as 400 percent in 2009. Many companies, such as dangdang.com, Joyo.com, Jingdong mall, “red child” and the B2C rising star “Vancl” are benefiting from this exponential growth in e-commerce.

With the increasing number of Internet users in China, the gradual maturity of the e-commerce environment and the growing maturity of settlement and logistics systems, more and more consumers in China are now using the Internet as one of the channels through which they shop. For some, online shopping has become an indispensible part of their shopping experience.

Taobao was founded on May 10, 2003, as a subsidiary of Alibaba Group to serve both the C2C and the B2C markets. It has since grown into the largest Internet retail website in China. By the end of Q1 2008, Taobao had over 62 million registered users. Taobao now accounts for over 70 percent of online shopping in China, with more than 80 percent of the C2C market. In 2007, Taobao facilitated 43.3 billion RMB transactions, up by 156.3 percent compared with 2006. This made it the largest online retailer in Asia, with sales surpassing the joint sales volume of international giants Wal-Mart and Carrefour combined. Furthermore, Taobao is leading a revolution in terms of retailing configuration in a wide variety of industries. The clothing sales volume at Taobao exceeds that of the 100 million RMB shopping malls in Beijing combined; Taobao is the biggest single distributor of maternal products and baby accessories in China; the volume of mobile phones sold on Taobao is nearly the same as that of “D.phone”, the leading national mobile phone vendor; more makeup is sold on Taobao than through 6,400 Avon stores; the sales volume of rechargeable mobile phone cards on Taobao is equal to half the annual net profit of China Unicom.

In 2004, in order to address concerns about the security of online shopping, Taobao introduced a settlement management system named “Zhifubao” (www.alipay.com). Under this system, participating banks hold the payment of goods temporarily until the buyer confirms that he/she has satisfactorily received the goods.

With no storefront cost and little channel costs, online marketing has a significant cost advantage. However, online marketing has its own challenges, such as ensuring dependable product supply, building efficient distribution centres and supply chains, creating ap...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables
• List of Figures
• Introduction: Marketing Management in Asia
• 1 China: Distribution in China
• 2 China: Consumer Behaviour in China
• 3 China: Celebrity Endorsement within the Chinese Beauty Industry: Views from Beijing's Female Consumers
• 4 China and the Milk Powder Contamination Scandal
• 5 India: Culture and Consumer Behaviour Influences on Sales Promotion Practices in India
• 6 Japan: Marketing Management Issues in Japan
• 7 Taiwan: Consumers' Reactions to Tesco's Market Entry in Taiwan: A Comparison with the UK Experience
• 8 Thailand: Relationship Marketing in Thailand: A Case of the Real Estate Industry
• 9 Thailand: Marketing for Life in the Economic Recession Time: The Case of Thailand
• 10 Turkey, the EU and the Third Wave of MNCs
• 11 Vietnam: Marketing in Vietnam: Culture and Quality Considerations
• List of Editors
• List of Contributors
• Index