HSBC BUSINESS CASE COMPETITION

HERBORIST: A CHINESE PERSONAL CARE

BRAND GOES ABROAD

Angry Pencils
TEAM

Jidny Rubaiyat Shoummo

Muhammad Touhidul Islam
Injamam-ul Alam
Md. Ayman Sadiq
OVERVIEW
1995 • A team was assigned to develop high-end cosmetics and personal care
products

1998 • The team developed two product lines

1998 • Herborist was officially launched

2002 • Herborist entered department store in Beijing

2005 • Entered into a joint venture with french cosmetics chain Sephora

2010 • Established 800 exclusive store in 80 cities in China

KEY ISSUES
• Targeting international market segment
• Creating a marketing strategy for each segment

OTHER PROBLEMS
• Conveying the core brand essence
• Expanding the market by prioritizing potential segments
• Acquiring sustainable growth in the new markets
• Fighting with the big players in a saturated market
• Making people aware of the herbal products and its
advantages
FIVE MODES OF ENTRY INTO FOREIGN MARKET

(Future Goal)
Indirect Direct
Exporting Licensing Investment

Direct Joint
Exporting Ventures
(Current Position)

Amount of commitment, risk, control and profit potential

SWOT ANALYSIS

Strengths Opportunities

• The first Chinese • Establishing an early

modern herbal market share and
personal care products building brand
• Product is in growing recognition
period with • Flexibility of changing
professional research the products according
and development team to customer feedback
SWOT ANALYSIS

Weaknesses Threats

• Lack of brand • Low sales volume and

recognition market share
• Over dependency on • Losing customer base
Sephora and and distribution chain
Mannings failure
• A lot of big players in • High promotional and
a saturated market marketing cost
ALTERNATIVE TARGET MARKETS

North America

Pros Cons
Huge market Decreasing growth rate

High per capita expenditure Saturated market

Absence of customer base

ALTERNATIVE TARGET MARKETS

South America

Pros Cons
High growth rate Absence of customer base

Absence of partner retail

Huge market
chain
Lack of awareness about
herbal products
ALTERNATIVE TARGET MARKETS

Europe

Pros Cons
Country Per capita
expenditure
(Personal Care)
France $374.53

Existing customer base Cultural difference

Germany $343.04
Joint venture with Sephora Narrow sales channel
Netherlands $321,28
Highest per capita expenditure
Italy $310.18
Aware of herbal products
ALTERNATIVE TARGET MARKETS
Asia

Pros Cons Country Growth rate

2008-09
China 8.7%

Highly aware of herbal India 12.4%

Low per capita expenditure
products
Lack of certifications & Indonesia 11.7%
Customer base
standards of herbal products

High growth rate Vietnam 9.2%

Joint venture with Sephora &

Mannings
RECOMMENDATION

Europe & Asia

• Already has a customer base

Acceptability • Aware of herbal products

• Joint venture with retail chains

Feasibility • Incorporating Spa concept

• High growth rate

Profitability • Highest per capita expenditure in Europe
 Retailers

THREE
Skin care
specialists/ Doctors INFLUENCING
FACTORS
While buying a herbal product

Loyal customer base

RETAILERS (PRICING STRATEGY)

Loss leadership strategy

(Pull strategy)
Market Domestic
(China)

Cutting the price of the most popular Channel Exclusive

product stores

Making the existing customer base Product T’ai Chi Line

more attracted towards the product

Increasing sales volume of other

products through the approach
RETAILERS (PRICING STRATEGY)

Reduction of price
(Push strategy) Effects
Profitable relationship with
Sephora
Offering Sephora lower price for its
products Increasing SKU of Herborist

Sephora will have a higher profit margin Promotion of its new products
per product

Herborist will increase it SKU through

the approach
DERMATOLOGIST/ DOCTORS

• Product sampling Efficiency Factors

• Making them aware of the brand
• Promotional pad for new products Low cost

Brand recognition

Reference power
 CONTROLLING THE
INFLUENTIAL
FACTORS
The process continues

Loyal customer base

(Brand recognition)
DELIVERING THE BRAND ESSENCE

Key Factors Solutions

Cultural difference Hiring professional local agency

Different communication mode Designing new visuals to emphasize the Chinese

heritage

Lack of international marketing experience Using familiar symbols (e.g. Yin Yang)

Lack of awareness about the herbal products Coordinating packaging and retail display
PORTER’S FIVE FORCES Threat of
New
Entrants

Current
Suppliers
• France Region: Supplier Competitive Buyer
Power rivalry Power
Sephora
• Hong Kong
Region:
Mannings
Threat of
Substitutes
APPROACHES OF
PRODUCT PROMOTION

Direct marketing
• Cost leadership strategy

SPA model
• Differentiation strategy
DIRECT MARKETING
(COST LEADERSHIP STRATEGY)
Herborist’s point of view
• It has shortest channel length and with high control of power

• It can reduce the cost of channel building and achieve cost leadership

• Direct marketing can integrate regional sales network, such as France as the center of
European sales network
• Direct marketing can increase the contact area between company and consumers

• It can minimize the dependency over the retail chains (e.g. Sephora, Mannings)

• Direct marketing can build the customer relationship & make consumer groups into loyal
customer asset
• Herborist can innovate the product portfolio according to the feedback of the customers
DIRECT MARKETING
(COST LEADERSHIP STRATEGY)

Customer’s point of view

• Direct marketing can greatly reduce the customers’ purchase cost

• Customers can use online and telephone purchasing

• Customers are aware of the customer service, online promotion activities, products portfolio,
product introduction and membership

• They can offer direct feedback to the company

• Customers have some sorts of influence over the product categories

SPA MODEL
(DIFFERENTIATION STRATEGY)

Pros Cons
It involves a number of foreign customs
Builds the brand image
and policy issues Alternative Idea
Gives a unique experience to the
Needs a huge amount of fund
customers
Flagship Store
Brings the customers closer to the
Costly promotional tool- lack of budget
cultural heritage of China

Establishing a club needs long term

Works as a sales center
cash flow
FORECAST OF FLAGSHIP STORE APPROACH

Flagship store is approximately equal to SPA club

• It has comparatively much lower cost than SPA

• Flagship store can build image for Herborist

• It can initially test foreign consumers’ response for the Chinese type SPA

• Flagship store can be used as a standard store and can be a special franchise model to
expand SPA network

• If SPA model is not feasible in European countries in a short time, then the store can be
combined deeper with direct marketing
DISTRIBUTION CHANNEL
Herborist

International Domestic
Channel Channel

Flagship Store Direct

Agencies Self Run SPA
(SPA) Marketing

Sephora Mannings Counter Store

MARKET EXPANSION PLAN (EUROPE)

France Germany Italy Netherlands

European hub Similar Similar Similar

demographic demographic demographic
Customer base
Growth rate 2.7 Growth rate 1.4 Growth rate 3.7
Partnership
Partnership Partnership Partnership
with Sephora
with Sephora with Sephora with Sephora
Expenditure Expenditure Expenditure Expenditure
374.53 343.04 310.18 321.28
MARKET EXPANSION PLAN (ASIA)

China India Indonesia Vietnam

Asian hub Similar Similar Similar

demographic demographic demographic
Customer base
Growth rate 12.4 Growth rate 11.7 Growth rate 9.2
800 exclusive
Huge market Huge market Partnership
stores
with Mannings
Aware of herbal Aware of herbal
Expenditure products Aware of herbal
products
374.53 products
THANK YOU
QUESTION & ANSWER SESSION