A2 Report - Grade: 7 PDF

Preview

Summary

I got a 7...

Description

A2: RESEARCH REPORT Analysis and Recommendations on The Chinese Market: A Research Report For Chemist Warehouse

AMB 336 – INTERNATIONAL MARKETING

N97 WORD COUNT: 1938

AMB336 – International Marketing Research Report

1. EXECUTIVE SUMMARY

As a result of Chemist Warehouse’s intentions to expand into the Chinese market, this report will contain a market analysis and breakdown before strategic recommendations will be made. Through the market analysis, it was identified that the tier 1 city of Shanghai would be the ideal city to target due to the high disposable income and consumption of consumers along with the advanced technological infrastructure. The market analysis also discusses how technology has transformed the retail sector along with the changing of consumer preferences and consumptions patterns. Consequently, developing technologies like Augmented reality emerge as one particular way Chinese retails have adapted in order to adhere to the changing market. The market analysis also discusses the outlook of the Chinese cosmetic industry of which can be classified as a highly lucrative opportunity for Chemist Warehouse. Based on the findings of the market analysis, a series of recommendations have been made. Firstly, it is recommended that Chemist Warehouse utilise their cosmetic brands Nude By Nature and L’Oreal in order to appeal to consumers preferences towards natural and luxury products. It is additionally recommended that Chemist Warehouse seek to leverage their relationship with L’Oreal to develop a mobile augmented reality experience of which allow consumers to digitally try on and test the company’s cosmetics products before purchasing online.

Ryley Morton - N9702873

2

AMB336 – International Marketing Research Report

2. MARKET ANALYSI S

As Chemist Warehouse seeks to expand in China, it critical for the entity to understand the market context and its challenges and opportunities. Within the Chinese market, tier-1 cities appear to be highly viable options for Chemist Warehouse to target their expansion strategies. More specifically, Shanghai appears to be a highly lucrative expansion option. Shanghai’s per capita disposable income in 2016 was CNY 49,617, 75% above the national average, making it the highest in the nation (National Bureau of Statistics of China, 2016a). Shanghai’s per capita consumption expenditure was also the highest in the nation at CNY 30400 (National Bureau of Statistics of China, 2016b). Additionally, research has indicated that the consumption patterns of middle-class consumers in the tier-1 cities and the top tier-2 cities are highly comparable (He, Zou & Jin, 2010; Zhan & He, 2012), meaning that Chemist Warehouse would be able to effectively continue to scale once they have established a presence in Shanghai. Shanghai is also quick to adopt new technology (Song, Drennan & Andrews, 2011; Gu, Zhu & Guo, 2013) making it one of the most economically and technologically advanced cities in the world (Csomós & Derudder, 2014). The development of technology in China has enabled e-commerce to emerge, causing fundamental changes to industries as a result of the changing consumer preferences. These changes have seen consumers shift away from in-store purchasing and towards purchasing online in a digital environment (Chong, Chan & Ooi, 2012). As wireless communication technology continues to evolve within China, mobile commerce (m-commerce) appears to be a hugely impactful business model of which will once again continue to change the way in which organisations do business (Chong, Chan & Ooi, 2012). The Chinese consumers are quick to defuse and adopt new technology (Wang, Yuan, Turel & Tu, 2015), causing technologies like e-commerce and m-commerce to establish themselves as fundamental elements within the Chinese market. However, one factor restricting the growth of technology within China is trust, concerning the security and privacy offered by e-commerce along with the uncertainty of the physical attributes and specifications of the product Ryley Morton - N9702873

3

AMB336 – International Marketing Research Report

(Chong, Chan & Ooi, 2012). This is reflective of the risk avoidance culture typically expressed by Chinese consumers (Salazar, Wang & Oswald, 2011). Despite this, ecommerce appears to be a fundamental component of consumers purchasing habits with 46% of consumers actively making purchases on the web, well above the global average of 25% (Neilson, 2015). With 72.5% of households now connected to broadband internet, China’s digital landscape has continued to evolve and develop (Passport GMID, 2018a). Additionally, smartphone technology has enabled on-thego consumption for Chinese consumers of which has boosted purchasing frequency as a result of 96.5% of consumers now actively surfing the internet on their mobile devices (Passport GMID, 2018a). Consequently, the retail sector has established itself as one of the most digitally savvy industries, utilising technology to revolutionise offerings to the consumer (Passport GMID, 2018a). As a result of this growing interaction between consumers and their mobile phones, consumers have developed a preference for more personalised services and experiences (Chong, Chan & Ooi, 2012). As such, organisations within the Chinese market have continued to invest in developing digital infrastructures and technologies. Two such technologies are virtual reality (VR) and augmented reality (AR) of which can be used by brands to evoke a positive attitude towards the brand, stimulating the purchasing intentions of the consumer (Kerrebroeck, Brengman & Willems, 2017; Poushneh & Vasquez-Parraga, 2017). Kerrebroeck, Brengman & Willems (2017) concluded that technologies like VR and AR triggered significantly higher purchasing intentions and a more positive consumer attitude towards the brand when compared to 2D mobile advertisements. Consequently, Chinese retailers seek to implement these technologies in order to better the customer experience. Chinese e-commerce company, Jing Dong, appears to be leading the way with innovation inside the retail sector with the proposal of an AR makeup mirror, which will allow consumers to virtually try on different types of cosmetic products before sharing them to social media (Mclaughlin, 2018). Whilst this technology is evolving rapidly, their remains some limitations around AR. One primary limitation involves its scalability. Due to nature of AR, the variables of the individual’s user experience remains immense, making it incredibly hard to account for every possible situation and outcome (Mahmood, Butler, Zen & Jennings, 2018). Another consideration

Ryley Morton - N9702873

4

AMB336 – International Marketing Research Report

involves user privacy of which can be a notable barrier to entry for the consumer (Poushneh, 2018).

One notable opportunity for Chemist Warehouse involves the rising popularity of premium beauty and personal care products in China. In 2017, sales in this category increased by 15% to CNY13.2 billion (Passport GMID, 2018b) of which has been primarily driven by the growth in colour cosmetics. The uniqueness and distinct image of these products are what makes them so appealing to Chinese consumers (Zhan & He, 2012; Passport GMID, 2018b). The products are seen as an affordable indulgent product and are purchased by the middle-class consumer in order to conform to the social expectation of notable reference groups, adhering to the social needs of the consumer (Zhan & He, 2012). Whilst this industry does appear to be highly lucrative for Chemist Warehouse, there remains a number of notable concerns regarding the industry as a whole. The primary concern involves the presence of toxic metals in many eye-shadows manufactured in China, stemming from poor quality control and processes (Volpe, Nazzaro, Coppola, Rapuano & Aquino, 2012; Bocca, Pino, Alimonti & Forte, 2014). As a result, there has been an increase in the importance of corporate social responsibility from the perspective of Chinese cosmetic consumers amid fears of potentially using toxic substances (Chu & Lin, 2013). Consequently, there has been a shift in preference from domestic to foreign brands due to the perceived higher quality, resulting in Chinese consumers being willing to pay more for the product (Nguyen & Paluch, 2012). Another concern involves China’s mandatory animal testing policy of which could spark a series of ethical concerns for an Australian exporter like Chemist Warehouse (Min, Lee & Zhao, 2018; Smith, 2018).

Ryley Morton - N9702873

5

AMB336 – International Marketing Research Report

3. RECOMMENDATIONS

Due to the high demand for premium cosmetics within the Chinese market (as discussed in section 2), it is first recommended that Chemist Warehouse utilise their cosmetic range when penetrating the Chinese market. More specifically, it is recommended that Chemist Warehouse leads with the cosmetic brands Nude By Nature and L’Oreal, of which they already have a strong relationship within the Australia market. An integral part of the Nude By Nature brand is their commitment to producing 100% natural and ethically produced products, completely exclusive of harmful chemicals and substances (Nude By Nature, 2018a; 2018b). Amid the quality concerns expressed by Chinese consumers in the cosmetic market, this positive brand positioning remains particularly advantageous as it addresses the concerns of toxic metals and harmful substances of which are so prominent within the market. Additionally, the brand’s stance on ethical production indeed adheres to the positive perception of CSR within the Chinese cosmetic market (Chu & Lin, 2013), creating a positive perception of the brand. As mentioned in section 2, Chinese consumers have a distinct preference for foreign brands, resulting in a higher perception of quality (Nguyen & Paluch, 2012). This is particularly advantageous as both Chemist Warehouse and Nude By Nature are Australian brands, which will benefit the firm as it looks to expand. The distinct preference for foreign brands with naturally produced products within the Chinese market could justify a higher pricing strategy (Ahn, 2015), of which will enhance the brand’s positioning, making the venture more lucrative for Chemist Warehouse. Despite the benefits of this recommendation, there remains a fundamental concern surrounding China’s animal testing regime. As discussed earlier, this practice may be particularly damaging to the brand image of both Chemist Warehouse and Nude by Nature due to their strong stance on cruelty-

Ryley Morton - N9702873

6

AMB336 – International Marketing Research Report

free production. However, a recent law change has enabled foreign retailers to sell online without the need to test on animals (Humane Society International, 2014). Provided that the products are exclusively sold through e-commerce, Chemist Warehouse will be able to address this concern. Additionally, Chemist Warehouse would be able to offer a more premium brand to their Chinese consumers through L’Oreal, whom of which have a strong perception inside the market as a result of their country of origin (Nguyen & Paluch, 2012). The brands luxury image helps conform to the consumer’s desire to adhere to social expectations and social reference groups (as discussed in Section 2), of which satisfies their need for uniqueness. It is also recommended that Chemist Warehouse opt for a higher pricing strategy here to help enhance the brand image of the product and positively position Chemist Warehouse in the market as a supplier of quality goods (Winer, 2017; Hinterhuber & Liozu, 2018). As a result of the Chinese consumers shifting preference towards more personalised experiences (Chong, Chan & Ooi, 2012), the second recommendation involves the utilisation of mobile augmented reality to display Chemist Warehouse’s cosmetic range, as it would appear on the user. Similar to the AR Makeup mirror developed by Jing Dong, the proposed solution will allow the users to try on the makeup before making their purchase decision. The proposed solution will allow for a direct path to purchase, allowing for the consumer purchase after trying the product, further facilitating the consumer’s preference to on-the-go consumption (as outlined in Section 2). One of the primary concerns with purchasing online is the risks associated with not knowing exactly what is being purchased (Iconaru, 2012). Ideally, consumers should be able to try the products on before purchasing (Brito & Stoyanova, 2018). This AR technology enables consumers to gain greater clarity surrounding the appearance of the product and how the product will look on. Additionally, AR will be able to generate a more unique and personalised experience, creating a significantly more positive attitude towards the brand whilst also stimulating purchasing intentions (Kerrebroeck, Brengman & Willems, 2017; Poushneh & Vasquez-Parraga, 2017). As discussed in section 2, one of the primary concerns surrounding AR is its scalability as a result of the variables associated with the technology. The proposed solution seeks to eliminate the number of variables associated with the user experience by restricting the environment due to the Ryley Morton - N9702873

7

AMB336 – International Marketing Research Report

stationary perspective of the user. This system is known as a marker-based system, where the AR technology relies on image recognition and physical anchors in order to display the interface (Brito & Stoyanova, 2018). This type of technology has proven to be more user-friendly to consumers, compared to the other types of AR (Brito & Stoyanova, 2018) of which rely on intangible elements like gestures. Whilst the benefit of this technology remains immense for Chemist Warehouse as they seek to expand in the Chinese market, the relative cost of developing such technology remains monumental of which posses a notable concern. For this reason, it is recommended that Chemist Warehouse leverage their existing relationship with L’Oreal following their recent acquisition of Modiface (Carman, 2018), an Augmented Reality beauty company (see Appendix 1). A partnership of such would enable Chemist Warehouse to effectively execute this recommendation without any real research and development implications. As discussed in Section 2, 96.5% of consumers now actively surf the internet on their mobile ( Passport GMID, 2018a), which means this technology is highly accessible to Chinese consumers. The recommendations discussed above will allow Chemist Warehouse to differentiate themselves inside a highly competitive market. The marketing strategies should be primarily driven by a focus on brand awareness and sales. The above recommendations have been formulated in order to maximise profitability and brand exposure for Chemist Warehouse, allowing them to establish a notable presence in China.

Ryley Morton - N9702873

8

AMB336 – International Marketing Research Report

4. REFERENCES

Ahn, S. (2015). The Effect of Luxury Products On Consumer’s Perceptions About CSR Activities. Academy of Marketing Studies Journal, 19(3), 1-14. Retrieved from

https://gateway.library.qut.edu.au/login?url=https://search-proquestcom.ezp01.library.qut.edu.au/docview/1768357445?accountid=13380 Bocca, B., Pino, A., Alimonti, A., & Forte, G. (2014). Toxic metals contained in cosmetics: A status report. Regulatory Toxicology and Pharmacology, 68(3), 447–467. https://doi.org/10.1016/j.yrtph.2014.02.003 Brengman, M., & Willems, K. (2018). Leveraging advertising to a higher dimension: experimental research on the impact of virtual reality on brand personality impressions. Virtual Reality, 1–19. doi:10.1007/s10055-018-0344-5 Brito, P., & Stoyanova, J. (2018). Marker versus Markerless Augmented Reality. Which Has More Impact on Users? International Journal of Human–Computer Interaction, 34(9), 819–833. https://doi.org/10.1080/10447318.2017.1393974 Carman, A. (2018b). L’Oreal acquires Modiface, a major AR beauty company. Retrieved from https://www.theverge.com/2018/3/16/17131260/lorealmodiface-acquire-makeup-ar-try-on. Chong, A., Chan, F., & Ooi, K. (2012). Predicting consumer decisions to adopt mobile commerce: Cross country empirical examination between China and Malaysia. Decision Support Systems, 53(1), 34–43. doi:10.1016/j.dss.2011.12.001 Chu, S., & Lin, J. (2013). Consumers’ Perception of Corporate Social Responsibility in the United States and China: A Study of Female Cosmetics Consumers. International Journal of Strategic Communication, 7(1), 43–64. https://doi.org/10.1080/1553118X.2012.711401

Ryley Morton - N9702873

9

AMB336 – International Marketing Research Report

Csomós, G., & Derudder, B. (2014). Ranking Asia-Pacific cities: Economic performance of multinational corporations and the regional urban hierarchy. Bulletin of Geography. Socio-Economic Series, 25(25), 69–80. https://doi.org/10.2478/bog-2014-0030 Gu, X., Zhu, Y., & Guo, X. (2013). Meeting the “Digital Natives”: Understanding the Acceptance of Technology in Classrooms. Journal of Educational Technology & Society, 16(1), n/a. Retrieved from http://search.proquest.com/docview/1287029509/ He, Y., Zou, D., & Jin, L. (2010). Exploiting the goldmine: a lifestyle analysis of affluent Chinese consumers. Journal of Consumer Marketing, 27(7), 615–628. https://doi.org/10.1108/07363761011086362 Hinterhuber, A., & Liozu, S. (2018). Thoughts: premium pricing in B2C and B2B. Journal of Revenue and Pricing Management, 17(4), 301–305. https://doi.org/10.1057/s41272-018-0138-0 Humane Society International. (2014). China Implements Rule Change in First Step Towards Ending Animal Testing of Cosmetics. Retrieved from http://www.hsi.org/news/press_releases/2014/06/china-implements-rulechange-063014.html Iconaru, C. (2012). Perceived Risk When Buying Online: Evidence From A SemiStructured Interview. Studia Universitatis Vasile Goldis Arad, 22(2), 63–73. Retrieved from https://doaj.org/article/467a16b1fb8447eba54eefd041d11269 Kerrebroeck, H., Brengman, M., & Willems, K. (2017). When brands come to life: experimental research on the vividness effect of Virtual Reality in transformational marketing communications. Virtual Reality, 21(4), 177–191. doi:10.1007/s10055-017-0306-3 Mahmood, A., Butler, B., Zen, H., & Jennings, B. (2018). Key Early Verticals, Challenges and Limitations in Implementation of Augmented Reality. doi: 10.1007/978-3-319-08234-9_273-1

Ryley Morton - N9702873

10

AMB336 – International Marketing Research Report

Mclaughlin, B. (2018). This Week In China Tech: Pharmacies And Warehouses Go 100% Automated and Retail Gets Augmented. Retrieved from https://www.forbes.com/sites/baymclaughlin/2018/05/28/this-week-in-chinatech-pharmacies-and-warehouses-go-100-automated-and-retail-getsaugmented/#72f64e62f9c8 Min C., Lee E., Zhao L. (2018) Mining Social Media Data to Discover Topics of Sustainability: The Case of Luxury Cosmetics Brands and Animal Testing. In: Lo C., Ha-Brookshire J. (eds) Sustainability in Luxury Fashion Business. Springer Series in Fashion Business. Springer, Singapore National Bureau of Statistics of China. (2016a). Per Capita Disposable Income of Households by Region. Retrieved from http://www.stats.gov.cn/tjsj/ndsj/2017/html/EN0617.jpg National Bureau of Statistics of China. (2016b). Per Capita Consumption Expenditure of Households by Region. Retrieved from http://www.stats.gov.cn/tjsj/ndsj/2017/html/EN0619.jpg Neilson (2015). E-commerce Is Opening Doors of Opportunity for Brands and Consumers in China. Retrieved from https://www.nielsen.com/us/en/insights/news/2015/e-commerce-is-openingdoors-of-opportunity-for-brands-and-consumers-in-china.html Nguyen, A., & Paluch, E. (2012). Consumer behavior toward foreign versus domestic branded cosmetics: A case study in Shenzhen, China. ProQuest Dissertations Publishing. Retri...