Category: Business/Financial Management

Problem Description:

Nowadays, the daily chemical market is becoming more and more segmented. For example, toothpaste is used in the morning and in the evening. , not to mention cosmetics, a complete set of cosmetics will have many bottles. I wonder how much differentiation effect such complicated market segmentation can have? What is the market situation of this type of product? As a consumer, what do you think? Do you buy into this type of market segmentation?

Analysis:

1. Characteristics and attractiveness of China’s daily chemical industry

(1) From the perspective of domestic and foreign industrial development trends, as daily necessities, daily necessities The life cycle of the chemical industry is very long, and there is no danger of being replaced or declining in the foreseeable future;

(2) China has a large population and is the daily chemical market with the largest future growth potential and scale in the world. From 2005 to 2008, China will become one of the four largest cosmetics production and sales countries in the world;

(3) The main product categories have high added value and have good profit performance compared with other industries; < /p>

(4) With the improvement of residents’ living standards and China’s economic development, the industry has developed rapidly, and the market will maintain sustained growth in the foreseeable future;

(5) Due to the close relationship with national life Closely related, successful companies (such as Procter & Gamble) and brands will gain great social reputation.

2. Main product categories and market size of China’s daily chemical industry

According to traditional industry classification, the daily chemical industry is customarily divided into the following six categories, with an overall market size of approximately 850-900 RMB 100 million per year:

(1) The market size of cosmetics (including beauty cosmetics, cleaning cosmetics, skin care products, and hair cosmetics) is 45 billion yuan (2003);

( 2) The market size of detergent products (including soap, washing powder, detergent) is about 32 billion yuan;

(3) The market size of oral products (including toothpaste, mouthwash, etc.) is about 6 billion yuan; < /p>

(4) The market size of fragrances and deodorants is about 1 billion yuan;

(5) The market size of insect repellent and pest control products is about 2 billion yuan;

(6) The market size of other daily chemical products (such as shoe polish, floor wax, etc.) is approximately 1 billion yuan.

Entering the 21st century, with China's accession to the WTO, a series of changes have occurred in the entire Chinese market, which have had a profound and lasting impact on the daily chemical industry. China's daily chemical industry has already shown the characteristics of a transition period.

1. The key factor of industrial aggregation has changed from technology-led to market demand-led;

In the traditional sense, cosmetics and detergents mainly focus on the replaceability of technology, process and equipment. Classification, companies usually organize brand extension, product sales and other industry aggregation work accordingly. According to this way of thinking, for example, a brand of laundry soap can also produce soap, and a company that sells dish soap can definitely sell shampoo. If it has the production conditions, it is considered that it can be sold. Technology orientation has caused many enterprises to suffer setbacks in blind extension.

However, with the development of the market, more successful companies in cosmetics and detergents are actually organizing industry aggregation work based on market principles such as similarity of industry success factors, customer substitutability, and cost sharing. . In fact, according to international market classification, the daily chemical market can be divided into three main industry categories: cosmetics, personal care products, and home care products. Different industries have completely different market rules, which are intended to make it easier for companies to enter, develop, and extend products. , combined to make strategic judgments and investment choices. Successful leading daily chemical companies all adopt a gradual approach to extend their products (brands) around core product categories to other product categories in the same industry, but should remain cautious about entering other industries.

2. Products have gradually changed from high-priced and scarce luxury goods to relatively cheap and saturated mass consumer goods;

China’s daily chemical market has been continuously expanded by international and local companies in the past 20 years. , the main product categories of the daily chemical industry have almost all changed from luxury goods in the past to real mass consumer goods or even necessities.

Changes are reflected in:

(1) The unit prices of major products continue to decline. Only the price index of the laundry detergent category has dropped by nearly 35% in the past three years. Shower gel and shampoo also show the same trend;

(2) Consumer purchase volume has increased steadily;

(3) Product penetration remains at a high level. For example, the penetration rate of shampoo in the urban market has reached 98%.

These changes require companies to shift from focusing on product profit margins to focusing on product channel penetration and consumer satisfaction with prices, so as to truly provide consumers with products and services that offer great value for money and can be purchased anywhere. The success of Diaopai and the collapse of foreign laundry detergent brands are clear evidence. "Affordability" and "accessibility" are key issues that the main categories of the daily chemical industry will face and must solve in the long term.

3. The average profits of each product category have returned from high huge profits to a reasonable distribution according to the level of consumer demand;

The daily chemical industry, especially the cosmetics industry, has experienced long-term decline in the past period of time. Suppressed, the restorative growth after entering reform and development and the huge market demand gap have caused the industry to grow rapidly. In a seller's market where demand exceeds supply and the market is opaque, the profits of entering companies are extremely considerable.

However, according to the laws of the market, price must reflect value. With the popularity of the entire product, the profits of each product category in the daily chemical industry must be determined by the level of demand that the product meets. Just as the profit of perfume is usually not lower than that of soap, and the profit of dishwashing liquid is not higher than that of shampoo, in fact, each product category is continuously distributed according to the level of people's needs and the average profit margin of the product. This distribution is long-term and stable. Although some products exceed the profit range of the product category in individual periods, it cannot change the status and profitability of the entire product category in the entire daily chemical market in the long term; the same applies. If a certain product makes consumers more satisfied through innovation in technology or promotion, it will also perform better in terms of profits.

4. The market growth mode has changed from rough imitation growth to intensive innovative growth;

"Post-development effect" refers to the growth achieved through imitation of mature experience or technology. The domestic daily chemical market has achieved rapid growth by imitating product imitation technology and marketing imitation in mature markets. After 20 years of market development, the "post-development effect" of the cosmetics and synthetic detergent market has weakened, growth has slowed, the market size has steadily expanded, the profit level of mature products will decline, and the market structure has stabilized.

In the future (2005-2010), the growth of the cosmetics market will still be higher than the growth of the national economy. Although the synthetic detergent market is not growing rapidly, it may still achieve rapid growth in some market segments. Market growth will mainly come from product and function innovation, developing new market segments and meeting special needs, increasing category penetration, satisfying customers' higher psychological needs to increase product average selling prices, etc. Innovation will become the main driving force for market development in the future.

5. Industrial concentration has changed from polarization to capital increasingly concentrated in dominant enterprises;

By the end of 1998, there were 3,514 companies nationwide that had obtained cosmetics production licenses, including The vast majority are small and medium-sized enterprises that have neither scientific research advantages nor brand advantages. According to statistics in July 2000, there are more than 270 detergent manufacturers, including 105 soap-making companies with a production capacity of 1.5 million tons, and 124 synthetic detergent companies with a production capacity of 4 million tons, indicating excess production capacity.

In 2003, the output value of my country's cosmetics industry was only US$5.4 billion. Compared with developed countries, there were only more than 500 companies producing cosmetics and toiletries in the United States in 1996, with annual sales of nearly US$40 billion. It is a basic fact that China's entire daily chemical industry has excess production capacity and too many manufacturing companies. In recent years, taking the shampoo and laundry detergent markets as examples, the process of survival of the fittest is accelerating under the guidance of market forces. With the gradual formation of overall market barriers, consumers' brand awareness has initially awakened. Especially in the market scouring in recent years, a number of companies have been eliminated, and capital is concentrating on companies with comprehensive advantages such as Naisi. Among them, according to the national industrial policy, as a market competitive industry, the gradual withdrawal of state-owned economic components in the daily chemical industry will be inevitable, and the exit of many small and medium-sized cosmetics companies will also be inevitable.

6. The core market segmentation has gradually transformed from a dual or even diversified urban and rural market into an integrated Greater China market;

The Chinese market is vast and varied due to geography, culture, and economy. There are huge market differences caused by people, ethnicity, especially the long-term economic and cultural differences between urban and rural areas, resulting in a dual market between urban and rural areas. These differences are reflected in many aspects such as transaction methods, channel structures, consumer behaviors, etc., and are usually reflected in urban brands. It is difficult to enter rural areas, and it is difficult for brands selling in rural areas to enter cities. This is also a basic fact that many fast moving consumer goods brands must face in the marketing process in China.

However, with the development of the household registration management system, the improvement of education levels, the standardization of transaction methods, and the consistency of communication methods, the differences between urban and rural areas have gradually disappeared, and the market has increasingly become a unified market. In particular, the rapid advancement of modern retail forms has accelerated the process of market integration. For most daily chemical companies, regional advantages will still exist, but they must pay more attention to chain KA stores and the national market. At the same time, due to the continuous strengthening of China's economic strength and economic globalization, Taiwan, Hong Kong, and Macau are increasingly becoming part of the Greater China market. Although dualized urban and rural markets will exist for a long time, market integration will eventually come.

7. The industrial environment has changed from disorder and chaos to relatively standardized, transparent and in line with international standards;

The operating environment of the daily chemical industry has been poor for a long time, and local protection and multi-party management have prevailed. Especially driven by high profits, fake and shoddy products flood the market. At the same time, due to the widespread cash transactions in rural markets, tax evasion has become a common business behavior among daily chemical companies. This also results in a lack of transparency in the development of the industry and a large number of gray areas. It is estimated that the sales of this part alone are close to 20 billion yuan.

As China joins the WTO, the country will intensify market supervision and introduce international standards and practices. Regulations and policies will be further standardized and aligned with international standards. With the transparency of market transactions and the spread of successful experiences, it will be easier than ever for companies to obtain key information for entering the market. On the other hand, as the industry matures and the market order gradually becomes standardized, companies must move from the gray area to the sunshine (such as some Chaoshan companies relocating to Guangzhou) based on development needs, or even transparency (such as companies going public). Business operations are becoming increasingly rational and self-disciplined, which not only helps reduce the risks of the entire industry but also helps reduce the business risks of the company itself.

8. Competition among enterprises has changed from single market competition to multiple and comprehensive competition;

Due to the relatively closed and independent market, competition among daily chemical enterprises in the past was mainly concentrated within the industry. market competition. From now on, this situation is changing. On the one hand, more capital factors outside the industry have joined the industry competition, such as Wuliangye, Hengan and other companies investing in the cosmetics industry.

On the other hand, with the development of enterprises and markets, among the many enterprises in the daily chemical industry, state-owned enterprises generally have low competition levels due to institutional problems; while small and medium-sized enterprises have flexible mechanisms, but it is difficult to solve management and R&D problems, coupled with practical reasons such as the difficulty in raising funds through listings, loans, etc., have limited the company's subsequent development; while international companies will still be impacted by domestic companies due to incomplete localization. Therefore, in the face of challenges, it is difficult to solve them with a single means of market competition. This actually means that daily chemical companies have entered a higher stage of development and are faced with solving deeper internal contradictions after the company survives. Companies need to use various forms of comprehensive games to strengthen their competitiveness. , such as corporate restructuring, mergers and acquisitions (such as L'Oreal's intention to acquire Little Nurse, Unilever's intention to acquire Nanfeng), listing (Shanghai Jahwa, Soft), enterprise alliances (such as Naisi's establishment of cooperative production relationships with 22 domestic companies ), joint ventures (such as the joint venture between Chuanfa and Kao), and the establishment of research institutions to obtain lasting competitive advantages.

9. The market competition pattern has changed from being dominated by strong international brands to being dominated by both local and international brands;

In a survey of more than 2,500 cosmetics companies in my country in the mid-1990s , state-owned enterprises account for 12.3%, collective and private enterprises account for 54.2%, foreign-funded enterprises account for 21.4%, and other economic factors account for 12%. Among them, more than 450 joint ventures account for more than 70% of the Chinese cosmetics market.

With China's accession to the WTO, the impact of globalization has become increasingly obvious. International companies such as Shiseido, L'Oréal, and Estee Lauder have significant advantages in the fields of cosmetics and skin care products that are brand-led and focus on high added value. However, we can also see from the rise of a number of local companies such as Naisi, Liby, Sibao, and Longliqi that local companies have their own advantages in the field of mass consumer goods that focus on price and distribution, such as the washing powder and shampoo markets. It will still make a difference. The dominance of international brands in the entire daily chemical market will surely be broken. Instead, local brands and international brands will compete in an orderly manner in their respective segments based on their respective advantages, and jointly dominate the market