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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.
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(http://www.marketingcrossing.com/article/220071/Why-Use-Intermediaries-in-Marketing-/)
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(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-
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Reference
(http://www.shiseido.co.jp/e/ir/ir_news/img/e047.pdf)
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