Marketing Hero in China Mengniu Group Shenyang Fung

Marketing Hero in China - Mengniu Group Shenyang: Fung 1072373 Jeff 1051800 Eric 1172551 Olivia 1124839 Lan 1083401

Background of Mengniu n n n Founded in 1999 Based in Inner Mongolia CEO – Mr. Niu Gensheng worked at Yili for 17 years and brought experienced management team with him from Yili 23 production bases Annual production – 5. 5 million tons

Background of Mengniu n n n Leading dairy product manufacturer in China extraordinary growth and expansion in 8 years time (from no. 1, 116 to no. 1 in the market) 35% of liquid milk market share (2007) Competes with Yili and Bright Dairy & Food. The three companies controlled approximately 60% of the market http: //www. youtube. com/watch? v=4 r 85 Cyt. IT 1 Q

Strategies of Mengniu n n n n Strengthening the market share Exploring and developing new markets Strengthening raw milk supply base Developing effective secondary brand names Developing a comprehensive portfolio of dairy products Expanding production capacity Continuing to strive for employee and management excellence

Products of Mengniu Ultra-high-temperature (UHT) Milk Beverages

Products of Mengniu Yogurt Ice cream Other Dairy Products

Competitive Strengths of Mengniu n n Steady supply chain International production system Continuously emphasizing R&D initiatives Government program that promotes consumption of dairy products for their health and nutritional benefits

Discussion Time (5 mins) 1) How did Mengniu manage to establish a good brand image among Chinese consumers? Or what initiatives in marketing (promotions and public relations) has Mengniu taken to promote its brands and products? 2) Which one is a better approach to managing products and growing your business in China, diversification strategy or a focused strategy? How about brand or product extensions?

Question 1 n How did Mengniu manage to establish a good brand image among Chinese consumers? Or what initiatives in marketing (promotions and public relations) has Mengniu taken to promote its brands and products?

Analysis for Q 1 n 4 P Analysis price place product promotion

product n Golden brand name: eg. ‘Pure’ milk — 純牛奶 ‘Good morning’ milk — 早餐牛奶 ‘Good night’ milk — 晚上好牛奶 ‘Whatever’ ice cream — 隨便冰淇淋

product n Differentiation: Flavor Type Size build greater loyalty and repeat purchasing by considering customer needs and wants

price n Discount price= company expected price n More sales promotion Attract customers

place Supermarket： package besides single product n Convenient to household Expand the purchasing amount

promotion n Cooperator/supplier : SHEN ZHOU V Spacecraft NBA BOAO Forum for Asia n Fashion creator : Super girl n Fashion follower: famous spokesman n Charity: rural school Bring higher brand value

Chinese astronaut special-purpose milk

the only NBA designated milk supplier

Official Cooperator of BFA

Fashion creator Super girl A big competition among girls. n The champion can obtain a contract to be a new star. n

Fashion follower

Charity in rural school

Question 2 n Which one is a better approach to managing products and growing your business in China, diversification strategy or a focused strategy? How about brand or product extensions?

Competitor Most competitive brand: n “Yili” “light” n Foreign brand has withdrew from Mainland market: n Danone ( France) n Parmalat (Italy) n

Definition of Diversification n Diversification is a form of growth marketing strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets.

New Markets and Products Exploring and developing new markets for our products n Developing effective secondary brand names n

Market Old market: Beijing, Shanghai, Shandong, Heilongjiang, Jiangsu and Guangdong. New mainland market: Center China, southwest of China and northwest of China. New overseas market: South Asia, Russia, Japan and Korea.

Definition of Brand extension n Brand extension is using the leverage of a well known brand name in one category to launch a new product in a different category n It is a new product. It should use a well known brand. The brand should have leverage with customers of the new category.

Extension or not? Advantage : n Expedite the position of new products n Reduce the risk and the cost to enter market risk: customer can understand, accept and trust or not………. cost: to build a logo, to package, to promote…… n Strengthen the core brand n

Extension or not? Disadvantage: n Implication phenomenon Example: “Parker pen” n Trade-off relationship n Desalt characteristic of core product n

Parker’s fault n Park is a top grade produce, it is a symbol of status. People buy Park not only to write, but to show their status. But, in 1982, the new manager made a wrong decision, Park started to contest low grade market. It impaired the Park’s image as “the king of pens”. Two years later, Park still cannot enter the low grade market, what was worse, Park lose much of the top grade market shares.

Choose the right opportunity to extend Extension product have much similarity with the core brand n Product extension is ineluctable when all the competitors have done it. n Costumers need more choices n

Discussion Time (5 mins) 3) What are the advantages and disadvantages for domestic brands vs. foreign brands? 4) Given the mounting competition and increasing number of brands, how to position and build a brand in China to grow your business?

Question 3 n What are the advantages and disadvantages for domestic brands vs. foreign brands?

There are mainly two types of Chinese companies n State-owned enterprise: n (E. g. SINOPEC, Bank of China, China Mobile) n Non-State enterprise: n E. g. 联想(Lenovo) 李寧(Li Ning), 吉利汽車 (Geely Automobile Holdings Limited) n

n Advantages of domestic brands: -Monopoly (state-owned company) n Foreign companies are difficult to enter the market that domestic company monopoly in those industries. n (E. g. Banking, telecommunication) n

-Government support (state-owned company) To build a good relationship with the local government is essential in China. It affects whether the company can operate smoothly

-Familiar with local culture and business environment (state-owned and non-state company) Local companies are familiar with what Chinese customers’ Behavior

-Lower production cost (state-owned & non-state company) Cheap labor cost enables products to sell at a lower price than foreign products

Disadvantage of domestic brands: -Bad reputation (state-owned & non-state company) Chinese milk scandal damaged the reputation of China's food exports.

-Low quality product (non-state company) Local companies lacks of skills in controlling merchandising, production process and product control

-Lack of social responsibility (state-owned & non-state company) Entrepreneurs in China are much profitoriented, product safety are less concerned.

-Lack of financial management (nonstate company) Increasing price of factors of production causes bankruptcy of many companies

-Lack of Research and development (non-state company) Many Chinese companies do not have a strong financial support and technology to have research and development of new products.

Successful examples of domestic brand Sinopec (China Petroleum and Chemical Corporation ): It is one of the Fortune Global 500 enterprise in the world It is the major petroleum companies in China Business covers nearly all aspects of the oil industry Earning RMB 1, 076. 4 billion in 2006

Successful examples of domestic brand Geely Automobile (吉利汽车) It is one of the TOP 500 enterprise in China. Earning about HK$ 0. 315 billion in 2007 Good Research and development allows self development of automobile. Geely was the first Chinese automakers present at the Frankfurt Motor Show in 2005. Geely sells its products in some developing countries and is now planning to enter U. S. A and Europe.

Advantages of foreign brands: -Good reputation in customers’ mind Foreign brand are recognized as trendy, advanced and high quality by Chinese customers

-Advanced technology Foreign companies are able to develop new products because they have good research and development.

-Better managerial skill Foreign companies are more skillful in operating their business in a proper way

Disadvantage of foreign brands -Unfamiliar with local culture and business environment Foreign companies are less understand on Chinese

-Difficult to built good relationship with Chinese government It is essential to get permission from the government before they can enter China. (extra cost paid to local government)

Tips to build guanxi with Chinese -The best way to strengthen a guanxi network is to stay connected. -Send small gifts or ask for small favors to keep a relationship active. -Host an occasional get-together. -Remember the major Chinese holidays and send greetings. -Get to know your colleagues’ outside interests and find ways to support them, like getting tickets to a sporting event or concert.

-Communication problems It remains a significant language barrier between Chinese and Western companies. Mutual linguistic understanding can often be lacking.

-Fake Products ruin image Foreign brands are usually become target for others to imitate their brand name and products Also, companies have to cost a lot to protect their intelligence property

Reason: Unfamiliar with the Chinese consumers Google usage is far behind BAIDU in China Google doesn’t satisfy Chinese BAIDU is a Chinese based search engine. People use BAIDU because of the MP 3 search function and other factors that Google treats as sickness factors Google must get the local management team in place, delegate authority to them, and localize services

Question 4 n Given the mounting competition and increasing number of brands, how to position and build a brand in China to grow your business?

Positioning n n n Marketers try to build an image or identity in the consumers’ minds for its products Positioning is a relative competitive comparison their product occupies in a given market as perceived by the target market. (Perceptual Map) Tips : Position should not be too crowd

A Brand Should Be… Help consumer to identify & distinguish from competitors n Consistent Image n Brand Personality ( Associated with Human Characteristics) n Unique n

For the New China The General Market is too crowded n No company can serve the whole economy well choose a market segment which is profitable (serve the niche) n Economic Growth People have more $ to spend n Brand can be position in a higher class (higher price) n

Case Study : Milk Deluxe 特崙蘇

Milk Deluxe 特崙蘇 n n n Sub-Brand of Mengniu Meaning in Mongolian is “Gold Medal Milk” Deluxe Reflect social status Selling at RMB$7/pack which is the 2 -3 times of the ordinary Mengniu Smoother, Taste Better High Nutrition (Protein 3. 3 g/100 ml , higher than national requirement by 13. 8%)

Milk Deluxe 特崙蘇 n n n First one to enter/open the High-end Milk Market Best Geographical Location for Production High Quality Control (Satisfactory Results of Testing of Melamine on 16/09/08 by HK Centre of Food Safety) Award of New Product Development at the 27 th IDF International Dairy Conference The Best Lifestyle Brand in China中国生活方式最 佳品牌

Production Line

Consumer Profile n n n Mid – High Income Class Yuppies/Chuppies (the young generation of Chinese yuppies) RMB$5000 RMB$9999/month Enjoy Life Own Life Style Concern on their Health

Brand Image High Class n Healthy n High Quality n Relaxation n High Quality of Life n

Positioning n High Quality & High Price

Integrated Marketing Communications – Tools For Branding n - n Printed Advertisement Focus on Lifestyle Successful Life Concern Less on Health TV Advertisement http: //hk. youtube. com/w atch? v=c. N 0 CL 3 o. PZx. A

Integrated Marketing Communications – Tools For Branding n n Web Site (Separate from Mengniu) Customer Hotline

Integrated Marketing Communications -Online Community

Integrated Marketing Communications - Sponsor Travelling TV Program

Integrated Marketing Communications -Packaging

Increase Brand Loyalty -Membership Scheme n n Member earn points by purchasing their product Use the points to Redeem Present

Increase Brand Loyalty -Health Network n n n n A health centre operate by Milk Deluxe in Beijing For Members Gym Aerobics Yoga Hip Hop Dance Boxing Dance

Learn from Milk Deluxe to Build up Brand in New China Serve the Niche Market (Profitable & Require Less Resources ) n Know the Market ( Catch the Rising Chuppies) n Well Established Parent Brand Reputation (Mengniu) n Let the consumers to involve in your brand increase Brand Loyalty (e. g Health Network + Membership Scheme) n

Learn from Milk Deluxe to Build up Brand in New China Good IMC (Tools of Branding) - Online Community (Interactive Platform allow users to exchange their opinions on different hobbies) -Sponsor Relevant TV Program (Easier to access the target customers) n Customer Oriented (Customer Service Hotline) n First Mover Advantage n

The Tainted Milk Crisis n n n 17 th September, 2008 China government announced 22 milk companies had produced melamine(三聚氰胺)-tainted milk The suppliers added melamine to the milk formula to artificially inflate the reading for protein levels Several thousand babies in China are seriously ill, having suffered acute kidney failure Reputation of Chinese milk market was plummeted Estimate Milk sales drop from 131 billions last year to 45 billions Foreign countries restrict Chinese milk to import n Shares in Mengniu Dairy tanked nearly 66 percent to a 33 month low of HK$6. 85, dropped from its closing price of HK$20 before the event

The Tainted Milk Crisis Mengniu’s response: n All poisoned product have been removed from the store and destroyed n Other products were cleared of melamine contamination in government tests n Strength the examine management n Apologize for the incident and any inconvenience caused to the public n Take response for the kidney failure patients

The Tainted Milk Crisis Recommendation: n n n Introduce business ethic Strengthen the quality control Invite 3 rd party to hold independent examine for the product Control the suppliers Reverse the reputation

The Tainted Milk Crisis Opportunities: n n n Small companies are fail to survival Large company like Mengniu can increase the market share by acquire the small companies Entry barriers to new companies has been enhanced because the quality examine is strengthened by the government

Thank You The End