Shiseido in China =)

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Shiseido In China

Table of Contents

Question 1.....................................................................................................................................................2

1.1 What are the functions performed by the distribution channels in cosmetic products?..................2

1.2 How are some of these functions performed in Shiseido’s operation in China?.............................4

Question 2.....................................................................................................................................................6

2.1 What are the advantages and disadvantages of selling cosmetic products through door-to-door

selling, speciality stores, department store counters, and supermarket and hypermarkets?...........6

2.2 How will the use of these channels vary with target market segments and brand strategies?......10

Question 3...................................................................................................................................................12

3.1 Why is Shiseido using voluntary specialty chain stores, besides their counters at department

stores?..........................................................................................................................................12

3.2 What are the advantages and disadvantages for each of these retail channels?...........................13

3.3 Which area should the company emphasize?..............................................................................15

Bibliography...............................................................................................................................................17

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Question 1

1.1 What are the functions performed by the distribution channels in cosmetic products?

A distribution channel is an organised network of agencies and institutions which, in

combination, perform all the functions required to link producers with end consumers to

accomplish the marketing task.

In particular, the distribution channel in cosmetic products serves as the link between

manufacturers (producers) of the cosmetic products and the ultimate consumers (buyers) of these

products, via intermediaries. To do so, the intermediaries in this channel perform a range of

functions, which can be categorised into transactional, logistical and facilitating functions. These

functions are summarised in figure 1 and will be elaborated below.

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Figure 1: Summary of functions of distribution channel

Transactional Function

Logistical Function

Facilitating Function

Buying Contacting and PromotingNegotiatingRisk-bearing

StoringSortingAssortingTransporting

FinancingGradingMarketing Information and reserach

i. Transactional Function

Transactional function refers to activities that involve adding value to the distribution channel by

bringing in the intermediary’s resources to established market linkages and customer contacts.

Performing a transactional function by the distribution channels in cosmetic products would

involve buying of the product from the manufacturer of the cosmetic, and then contacting and

promoting these products to the potential customers, who may be retailers or the ultimate

consumer. While contacting and promoting the products, intermediaries will also have to

negotiate for a reasonable price. All these activities results in the intermediary bearing risk in the

ownership of the inventory that can become obsolete or deteriorate, especially when the cosmetic

products are kept for too long periods or in unfavourable conditions.

ii. Logistical Function

Logistical function, in this case, involves the physical distribution of the cosmetics such as

storing these supplies at specific locations like retail stores where the end customers can have

access to them at ease. It also encompasses sorting of the products, which is the distribution of

bulk production from the manufacturer into smaller packaging and may include transportation of

these smaller packages to other intermediaries or retailers further down the distribution channel.

Besides these, creating an assortment of cosmetic product for sale is a logistic function as well.

For example, intermediaries such as the retailers or wholesalers could bundle facial products

together and sell them at a lower price with the aim of boosting sales volume.

iii. Facilitating Function

When the intermediaries perform facilitating functions, they are basically assisting the

manufactures in making the cosmetic products more attractive to the customers. This could

include financing the purchases or providing credit to allow the customer to buy the cosmetic

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product. For instance, retail stores selling the cosmetic products will have facilities that ensure

secure electronic transactions like credit cards or NETs services. This function is essential in the

distribution channel as it facilitates payment and makes it possible to close the sale. In addition,

grading of products could smooth the progress of the distribution channel through physical

inspection and categorisation of the cosmetic products based on quality. Lastly, marketing

information and research contributes by collecting data on market potential, consumers’ buying

habits and competitors, then reporting this information to management. This information could

be gathered through questionnaires or interviews. Accurate analysis of the size and

characteristics of the target group of consumers helps cosmetic manufacturers with future

product improvements and marketing strategies.

All 3 categories of functions need to be carried out in the distribution channel, though each

intermediary may not participate in all three. Since an intermediary could assume one or more of

the functions, to avoid a waste of resource due to repetition, intermediaries usually negotiate

about which specific function they will perform.

1.2 How are some of these functions performed in Shiseido’s operation in China?

Since Shiseido originates in Japan, Shiseido has a few intermediaries to aid the production and

sale of its product in China.

Initially, Shiseido’s products were imported directly from Japan into China and sold in state-own

department stores, which suggest that Shiseido (the manufacturer) is responsible for the

transactional functions such as contacting and promoting its products to the Chinese government

so that Shiseido could sell its products in the department stores. In addition to the transactional

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functions, Shiseido also does physical transportation of its products from Japan to China and

then to the various department stores for sale. After which the department stores will take over

the responsibility of facilitating the sales by providing credit facilities.

Progressively, Shiseido established 3 joint ventures in China, namely Shiseido Liyuan Cosmetic

and Co., Ltd (SLC) in 1991, Shanghai Zotos Citic Cosmetic Co., Ltd (SZC) in 1998 and Shiseido

China Co., Ltd (SCH) in 2003. Upon the establishment of SZC, a manufacturing joint venture in

China, they produced more affordable brands in China and these brands are sold at special sales

corners at department stores through wholesalers. This implies that one more intermediary is

added to the channel. The wholesalers now undertake the responsibility of storing the inventory,

contacting the department stores as well as transporting Shiseido’s products to these retail

outlets. The retail outlets then facilitate the sales through advertising or well-trained beauty

advisors and sales personnel.

In 2003, Shiseido decided to introduce another retail channel to China: its successful voluntary

speciality chain stores. These stores are operated by independent owners who need not pay any

fee to enter this franchise. However, they are required to set aside exclusive retail space for

Shiseido products. These products are then sold through consultative selling by personnel trained

by Shiseido. The functions performed here are similar to that of selling at counters in

departmental stores, except that there is more facilitating of sales through sales consultants.

In 2005, Shiseido expanded its research and development in China with the construction of a

new research building. This helps to facilitate sales even further by conducting more in depth

research to improve the quality of its products as well as enhance its marketing strategies in

China.

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Question 2

2.1 What are the advantages and disadvantages of selling cosmetic products through door-

to-door selling, speciality stores, department store counters, and supermarket and

hypermarkets?

Door-to-door selling, speciality stores, department store counters, and supermarkets and

hypermarkets are different possible marketing channels for selling cosmetic products to

consumers. Marketing channels can be classified into two broad categories, namely direct and

indirect channels. When the direct marketing channel is employed, the manufacturer deals

directly with the ultimate consumers. Otherwise, the manufacturers goes through intermediaries.

Before considering the advantages and disadvantages of selling cosmetic products through the

various marketing channels, it is important to emphasize that the following discussion will have

a company focus. In other words, the advantages and disadvantages stated below will be from

the main company’s (the manufacturer) point of view.

i. Direct marketing channel: Door-to-door selling

Door-to-door selling is the most traditional form of direct marketing channel. Since there is no

intermediary, the manufacturer performs all three functions discussed in question 1.1 above.

An example is Avon Cosmetics that uses primarily door-to-door sales people who would sell the

cosmetic products to a consumer on her doorstep.

Advantages

Main reason for this form of marketing channel is because of the benefits it brings to the

customers which will directly affect the sales volume. Firstly, it provides convenience to

customers since the cosmetic product would be brought right to their door step. Hence, the

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company would be able to get customers who do not want to take the trouble to travel. Secondly,

it also allows customers to try on cosmetic products in privacy. Besides bringing convenience

and privacy to customers, valuable data could be collected during the door-to-door visits. In view

of the fact that marketing information and research is highly valued by the company, some data

such as lifestyles and consumption behaviour must be collected in consumers’ homes. Hence,

door-to-door selling makes this sort of information more accessible to the company. Lastly, this

marketing channel allows communication with target groups of customers and thus helps the

company build strong customer relationship, which may lead to brand loyalty.

Disadvantages

With the increased in crimes associated with door-to-door selling, such as distraction burglaries,

unsolicited visits could be viewed with suspicion. Furthermore, technological advancements

have made E-commerce more convenient with cosmetic products just a click away. This also

minimises physical contact with the sales person, hence reducing the possibility of related crime.

Since there is high sales personnel and consumer interaction, company will have to ensure that

their salesmen are well-trained to avoid any dispute with the customer, which will affect the

brand image. This makes it very challenging to recruit and train salesman, in spite of the

unattractive working conditions.

Indirect marketing channel

Indirect marketing channels involve intermediaries who act as links between manufacturers and

end customers. Thus, the various functions can be distributed amongst the intermediaries.

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ii. Indirect marketing channel: Speciality stores

Speciality stores are small stores that specialises in a

specific range of merchandised and related items. An

example of a speciality store selling cosmetic is The Face

Shop. These stores generally have an extensive amount

and variety of inventory of the brand that they specialise

in, and they provide high level of service and expertise.

Advantages

Speciality stores usually have well-trained personnel to assist and inform customer about their

product, so as to ensure that the customers can purchase the specific cosmetic product that fulfils

their need, depending on their skin type, habits, etc.. This high quality of service could help build

brand loyalty for the company. Also, the company can earn more profits by selling their products

at relatively higher prices since their target consumers are willing to pay the higher prices for

their services. Since speciality stores selling cosmetic will only have products of a particular

brand, they usually have a vast variety of its product all in one store. Hence, this would ensure

that customers would purchase their cosmetic products all from the particular brand of the

company.

Disadvantages

Market segment may be comparatively smaller since they are targeting at middle-high income

group of consumers who are willing to pay the price. Besides, having specialty stores may deter

customers who are unfamiliar with the product as they would not enter the store. This is unlike

selling in department stores where customers of all segments would be exposed to its products.

iii. Indirect marketing channel: Department store counters

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A department store counter is a display case where the products can be shown. This display case

is located at designated areas within department store. Cosmetics sold here are often high-end

products. Usually, beauty advisors (well-trained personnel) will be there to assist customers with

the products.

Advantages

More often than not, the beauty advisors at these counters would help customers do a make-over

on request. This allows customers to try on the product and then determine if they want to

purchase them. This could be essential as the cosmetic sold here are usually quite costly,

therefore, after the make-over; consumers may be more easily convinced into buying the

product.

Disadvantages

At department stores, there are many other cosmetic counters, all located near each other. Thus,

competition is stiff. A possible result could be that a consumer may purchase a set of cosmetic

product from different counters. For example, a consumer may purchase foundation, eye liner

and mascara of brand A but purchase the blusher from brand B.

iv. Indirect marketing channel: supermarkets and hypermarkets

A supermarket is a large retail market that sells a variety of food and other household goods,

while a hypermarket is a combination of department store and supermarket. Usually these retail

outlets are operated on a self-service basis.

Advantages

Since there are a large variety of products sold in supermarkets and hypermarkets, customers

usually visit these retail markets at least two to three time a month. Thus, selling cosmetics at

these places makes it very convenient for customers as they would be able to purchase these

cosmetics together with the other household products. In some cases, customers who did not go

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to marts with the intention to purchase the cosmetic may buy the product because they happen to

see it in the supermarket or hypermarkets.

Disadvantages

As states above, these retail outlets have limited service provided so customers will generally

have to look for the products that they want themselves. Absence of specific sale personnel

would mean that the company has to rely on consumer’s own discretion to purchase the product.

2.2 How will the use of these channels vary with target market segments and brand

strategies?

The choice of which marketing channel to use is essential as it provides a means for the firm to

implement its marketing strategy. Since the target market segments and brand strategy of the

firm will directly affect its marketing strategy, the choice of marketing channel will have to

depend on the target market segments and brand strategies.

i. Target market segments

When deciding on the marketing channel, we have to consider which intermediaries can best

reach out to the firm’s target market segment and satisfy the purchasing requirements of the

target market. Best coverage of the target market segment can be attained by focusing on density

(here referring to the number of stores within a geographical region) and type of intermediaries to be

used at retail level of distribution. If a firm targets the mass public, intensive distribution is

chosen. At this level of distribution, a firm attempts to place its products and services in as many

outlets as possible. Therefore, this type of firm tends to sell their products at

supermarkets/hypermarkets. On the other extreme, if a firm targets a specific group of consumer

(usually small), exclusive distribution is selected. Here, only cosmetic counters in department

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stores or speciality stores in a particular geographical area carries its product. This type of firms

usually targets the high end consumer markets, selling luxurious cosmetics.

ii. Brand strategies

An effective brand strategy will create a unique identity that will differentiate the company from

its competitors. Thus, brand strategy shapes operations and gives the company a reason for its

existence. Since this is the basis of the company, it is the underlying principle for any marketing

efforts and thus, the choice of marketing channel.

Companies can employ various branding strategies like multiproduct branding, multibranding,

private branding or mixed branding. When a company uses multiproduct branding, it uses one

brand name for all its products. Therefore, it could use specialty stores as its retail channel since

they would have a wide range of products to meet the needs of customers. If a company employs

multibranding as its strategy, it gives each product a unique name. Multibrandig can be applied

in many different ways. For example, companies could differentiate their brands according to

price and quality, targeting different customer group. With this strategy, companies could use a

variety of retail channels, catering each group. If a company decides on private branding

strategy, it manufactures the product but sells it under the brand name of a wholesaler or retailer.

In this case, the company will have to sell its product either through specialty stores under the

brand of the store, or through a wholesaler before being sold at departmental stores. Lastly,

mixing branding strategy is used when a company sells its product under its own name as well as

a reseller because the company attracts a different market segment from the reseller. In this case,

the retail channel to be employed will depend on the type of market segment they attract.

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Question 3

3.1 Why is Shiseido using voluntary specialty chain stores, besides their counters at

department stores?

Generally, Shiseido in China produces cosmetics that targets middle- high end consumers.

However, in 2003, Shiseido started selling its high end cosmetic products by importing from

China. Thus, in order to cater to this consumer group, Shiseido decided to use another retail

channel, the voluntary specialty chain stores.

Furthermore, counterfeiting in China is rampant and this had affected the cosmetic counters at

department stores. Hence, to minimise this lost, Shiseido had to find other avenue to sell their

product. With the number of privately managed cosmetic stores rising, Shiseido saw this as a

chance of using this retail channel, which had been very successful in Japan. With another retail

channel, Shiseido aims to expand their customer outreach and further boost its sales volume.

Besides benefiting the company, Shiseido’s move would also help to contribute to China’s

economy by encouraging private enterprises and enhance the beauty and health of Chinese

women.

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3.2 What are the advantages and disadvantages for each of these retail channels?

The advantages and disadvantages of having counters at department stores as well as voluntary

specialty chain stores have been briefly discussed in question 2.1 (iii). Hence the discussion

below will be more specific to Shiseido in China.

i. Counters at department stores

Advantages

Department stores specialises in having a wide

range or products to satisfy consumers personal

and residential needs. Thus having a cosmetic

counter there increases the exposure of the

brand to consumers and this could enable

Shiseido get new customers. In addition,

customers are also free to try on the products

themselves or request for the beauty advisors to help them with it.

Disadvantages

The size of Chinese cosmetic market is expected to increase to US$2.3 billion by this year. This

has attracted many cosmetic manufacturers and marketers to enter into this market. This is

evident at the cosmetic counters at department stores where there are numerous competitors, all

selling cosmetics and providing similar services. Some of Shiseido’s competitors include

Lancôme, Estee Lauder as well as China local brand: Herborist, just to name a few. Having so

many brands being sold at the same area serves as stiff competition for Shiseido. To make the

situation worse, counterfeiting was occurring in China, affecting the sales at these counters in

department stores.

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ii. Voluntary specialty chain stores

Advantages

Shiseido designed its model voluntary specialty chain stores based on four concepts of genuine,

friendly, sincere and skincare specialist. These stores carry a wide variety of quality products

with well-trained and knowledgeable beauty consultants to respond to any enquiry or concern

about skin problems. The skin analyser installed enhances the professionalism of these beauty

consultants as they are able to diagnose customer’s skin condition scientifically. All these

professional and personal service provided enables Shiseido to attract the more financially

capable Chinese women. In addition, the availability of free space within the store allows

customer to try products freely and lessons on home beauty treatments would be conducted. This

helps enhance to beauty and health knowledge of Chinese women. Moreover, the wide brand

base that these stores carry provides customers with convenience and variety.

Shiseido started these model voluntary specialty chain stores with the aim of having other private

cosmetic stores to model after these stores. If successful, Shiseido could reach out to a even

larger consumer group since these private cosmetic stores tend not to congregate in one specific

area. Also the stores are likely to be more accessible to all customers, unlike department stores

which are usually located in the town area only.

Disadvantages

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The cost of maintaining these stores may be relative high as the equipments are relatively costly

and Shiseido will have to train its beauty consultants to ensure their professionalism. Also, since

these specialty stores only sells cosmetic, Shiseido may not be able to attract first-time cosmetic

users into the shop.

3.3 Which area should the company emphasize?

Before deciding on which area the company should emphasize, the company should consider

some factors that affect its business, and ultimately the area that the company should emphasize

as part of its marketing strategies. These factors would include environmental, consumer,

product and company factors.

Environmental factor

In recent years, more and more China women are putting on makeup to shape their appearance

and some even strongly believe that “As women get older, they ought to wear makeup to shape

their appearance.” Also, commercials and department stores have been encouraging an

increasingly indulgent way of life, full of beauty, wine, fashion and romance. Such a trend has a

positive effect on the Shiseido’s business as it shows that its potential customers view

importance in its products and thus Shiseido can expect customers who patronise Shiseido’s

outlet with the intention of purchasing cosmetics. Hence, the advantage that department store

counters have over the voluntary specialty store is diminished.

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Consumer factor

This factor directly affects the choice of the retailing channel as the reason for these retail

channels is to link with the customers. Thus, we have to consider who our target market segment,

as discussed earlier. From that discussion, we can see that the reason of venturing on a new

alternative was due to the crime rates as well as in new product lines that Shiseido has come up

with. Moving on, Shiseido should focus on its new target customers but yet still maintain their

original group of customers. Hence, it should emphasize more on the new voluntary specialty

chain store but still maintain its counters in departmental stores.

Company factor

A company’s capabilities will affect the channel choice directly as this will determine if the

company is able to make use to the chose retail channel to the fullest. In this case, the new retail

channel that Shiseido in China is exploring has a long success story from its Japan origin. Hence,

the company clearly has the expertise and experience in this form of retail channel. On the

contrary, the problem of counterfeiting in department stores in China poses a threat to the

company. There is a limitation to the amount they can do to avoid this problem and hence, they

would have to depend on the local police force.

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Therefore, summing the above analysis, i feel that Shiseido should emphasize on the specialty

stores instead of the cosmetic counters in department stores. However, having said this, Shiseido

should still maintain the counters at the department stores, just that they should point in more

efforts in promoting the franchise idea to the private enterprises.

Bibliography

M.C. Cant, J. W. Strydom, C. J. Jooste, P. J. du Plessis (2009). Juta and company Limited:

Marketing Management

(http://books.google.com/books?id=6uU-Dz-

sCIQC&printsec=frontcover&source=gbs_summary_r&cad=0)

Surajit Sen Sharma: Why Use Intermediaries in Marketing?

(http://www.marketingcrossing.com/article/220071/Why-Use-Intermediaries-in-Marketing-/)

Westburn Publishers Ltd (2002), The Westburn Dictionary of Marketing: door-to-door selling

(http://www.westburnpublishers.com/marketing-dictionary/d/door-to-door-selling.aspx)

WiseGeek: What is a Specialty store?

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(http://www.wisegeek.com/what-is-a-specialty-store.htm)

Sheryl WuDUNN (May, 1990), The New York Times: Cosmetics from the West help to change

the Face of China

(http://www.nytimes.com/1990/05/06/world/cosmetics-from-the-west-help-to-change-the-face-of-

china.html)

The Shiseido (China) Website

(http://www.shiseidochina.com/index.html)

Reference

(http://www.shiseido.co.jp/e/ir/ir_news/img/e047.pdf)

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