(Diapers and Wipes for Babies)
In the present rapidly changing business environment, companies have to implement different changes and innovations to remain competitive. Such changes may refer to all the companies’ operation. For example, it may be necessary to add new products to the general product list of the organization in order to remain profitable and expand presence in the market of the certain country or region. As such, in the healthcare industry the company can develop some new products that relate to the consumer healthcare goods. This essay is devoted to the opportunity for GlaxoSmithKline to start manufacturing and sales of baby diapers and wipes in China.
1
GlaxoSmithKline (GSK) is a global science-led healthcare organization the aim of which is to deliver improving returns and growth to shareholders by means of the creation of innovative vaccine, pharmaceuticals, and products of consumer healthcare ("Annual Report 2015", 2015, p. 2).
The company has a large presence in the world employing 101,255 people located in over 150 markets, having 89 sites of manufacturing, and big centers of R&D in the US, UK, China and Belgium ("Annual Report 2015", 2015, p. 4).
In the conditions of long-term economic increase in the emerging markets, growing expectations for provision of healthcare, and changing lifestyles and diets are increasing healthcare products demand across all stages of life, particularly to treat chronic illnesses like cardiovascular and respiratory disease ("Annual Report 2015", 2015, p. 8).
Challenges and opportunities for the sector of healthcare include:
Growing standards of living and ageing populations cause the increasing healthcare demand, especially in the countries with the emerging markets;
Changing disease burdens pushed by the changing lifestyles;
Innovation opportunity created by scientific advances;
Purchaser concern with value and cost, causing the pressure on pricing and differentiated products demand;
High behavior standards expectation from healthcare organizations ("Annual Report 2015", 2015, p. 9).
1.a
China has been chosen as a country for new products’ launching as it is (1) an emerging market and has a largest number of population in the world, thus it has favorable economic and social conditions in comparison with the other countries; (2) the fact that two-child policy has been recently introduced in China; thus, the quantity of babies may increase in the nearest future, (3) growing middle-class that means that Chinese people will be able to spend more funds for the healthcare products.
While in China Procter & Gamble and Kimberly-Clark hygiene product brand owners (U.S.-based) still retain the leading positions in the market, Japanese Unicharm and Kao companies have a significant market share in Southeast Asia. Now the situation is changing because the above-mentioned manufacturers are heavily investing in marketing and new product concepts, capacity expansion, and strategies to compete for the wealthy middle class new generation consumers in Asia (Brand-Kirsch, 2016, p. 1).
The Market for Chinese Baby Diapers in 2014 in bn. Pieces
Source: Brand-Kirsch (2016)
The significant correlation between the country Gross Domestic Product per capita power purchasing parity (ppp) and the possibility that people will purchase products of absorbent hygiene. The intention to purchase products for hygiene begins at about $1000 per capita (ppp) GDP with products of sanitary protection. In case the economy of the country progresses per capita to $3500, customers will most probably begin purchasing diapers for babies (Brand-Kirsch, 2016, p. 2).
Such situation creates a significant growth potential especially in China that will remain one of the fastest-growing economies in the world in the nearest future, even though it exposed economic slowdown recently. It is estimated that the world middle class’s 66% will be living in the region of Asia by 2030. This region includes Southeast Asia and China. As domestic firms are constantly competing for their shares in the market, multinational organizations from Europe, the U.S., and Japan will increase their struggle for the new segment of consumers. Those companies that most thoroughly meet and understand requirements of the consumers will be the winners (Brand-Kirsch, 2016, p. 3).
China, the largest hygiene products’ market in Asia, is experiencing numerous changes now, e.g. crash of the stock market and economic slowdown. However, the country will remain an attractive global hygiene product market for local and international manufacturers. China’s industry of personal hygiene product is predicted to continue increasing at a CAGR of about 13% in retail sales value terms in 2019. Consumers are spending still, as is apparent from several circumstances:
sales on Alibaba portal increased 60% since 2014;
weakening of the one-child policy and start of two-child policy may lead to larger rates of birth;
increasing middle class is going to pay a high quality and convenience premium;
favorable economic development also in the non-metropolitan districts (Brand-Kirsch, 2016, p. 3).
The quickly expanding Chinese diaper market offers a significant business opportunity for producers of hygiene from Japan, Europe, and the U.S. A large part of the prospective increase may come from rural areas and lower-tier cities, in which the penetration of personal care and baby products remains insignificant (about 10%), in comparison with over 90% in the main metropolitan districts, in which it is gradually approaching maturity. In addition, the rate of birth in China’s metropolitan tier 1 cities is significantly lower in comparison with the other country’s areas (Brand-Kirsch, 2016, p. 3).
There is a new parents’ generation born in the 1980s that has become the first consumer mainstream group in China for diapers. Such people have better education they are richer and intend to spend funds to supply their children with the best conditions possible. As such, the high-priced diapers market share in China has increased to 15% (2013) from 10% (2010). Merries and Coon brands have been successfully copied by Chinese firms recently. The prices for the copies make $23-$28 (155-185 Yuan) for a 50 diapers pack; the price is the same as the one for the original product (Brand-Kirsch, 2016, p. 3).
More than 200 new brands of diaper, either domestic or foreign, have appeared since 2013 in the market, putting the total diaper brands’ number in China from 506 to 1200 firms by 2013. But the market is still concentrated significantly, exposing the 10 top brands possessing 80% of the total sales (Brand-Kirsch, 2016, p. 4).
Baby diaper and wipe usage in China do not go hand in hand, confirming that brands of baby wipe have a possibility to increase sales by means of consumer education and targeted marketing. Skin irritation avoiding is the principle driver of purchase for baby wipes and diapers. Companies have to consider marketing the hygiene and skin-related benefits of applying wipes ("CHINA’S BABY CARE & FEMININE HYGIENE MARKE", 2015, p. 1).
1.b
In case of starting manufacturing and selling baby diapers and wipes in China GSK will have an access to one of the world’s largest markets. This can generate increased profits and popularity for the company.
1.c
The risks of starting sales of baby diapers and wipes in China can be as follows:
Tough competition;
Parents’ preference of the cheaper articles;
Necessity of significant investments that may not be returned.
In order to avoid or decrease the above-mentioned risks, the company should: do a profound market research before starting manufacturing and sales of the new products; study what the local consumers need; generate competitive prices for its products; and give preference to the low-cost marketing (e.g. digital advertising).
2
GSK will include new products into its existing CRM system.
2.a
As it is the case with the other products, the employees of the company will have an access to all the necessary information about the products, customers, figures of sales and production, planning, etc. The employees will be encouraged to use CRM system while working with the new products and its customers in order to learn how to improve brand’s strength and sales.
3
The company will use the following distribution channel for its products in China:
Local manufacturing plant – Warehouse – Transportation (by road transport) – Retailers / Supermarket networks – Consumers.
3.a
GSK is already present in many countries worldwide. It is also present in China offering all the main categories of its products there. The company has existing contracts with the local suppliers and distributors and is familiar with the process of receiving permitting documents in China.
3.b
4
Pricing strategy. In order to become competitive in the Chinese baby diapers and wipes market, GSK should invest much and start sales with the average attractive prices. It is also useful to organize promotions, to distribute tester packages in order to deliver the information regarding the new products to the consumers.
4.a
In order to launch and promote its new products in the Chinese Market, GSK will face the following costs:
Purchasing and installing equipment for the new products’ manufacturing and storage (GSK already has production sites in China);
Expenses for staffing (hiring, training, salaries, employee benefits);
Purchasing raw materials;
Energy costs;
Legal costs (permits, licenses, certificates, etc.);
Marketing and promotion;
Distribution costs;
Other related expenses.
All the above-mentioned points will be considered while calculating the prices for the new products of the company.
4.b
In order to attract consumers, as mentioned above, the prices will be very reasonable for the initial period. Once the brand attains some strength in the market, GSK may consider the increase of prices. Due to the high quality of the products, well-known international name of the manufacturer and attractive prices, the company can expect that the new products will become rather popular soon.
4.c
In order to calculate prices for its new products, GSK should consider, for example, that Walmart offers the wipes from USD 2 per pack and diapers from USD 4 per pack (appr. 24 pieces). The prices for the products of GSK will be close the prices of P&G and Kimberly Clark (around USD 8-10 per pack).
5
Throughout the world, individuals rely on the low number of sources to get information regarding diapers; however, the source that is most typically used is family and friends recommendations, stated by 44% of total respondents’ number. It is the top information source in each region; however, in North America, it is much below average (32%) ("TRENDS IN THE BABY FOOD AND DIAPER MARKETS AROUND THE WORLD", 2015, p. 30).
Second most typically cited information sources are the TV ads. Over one-third of the surveyed individuals (35%) state that they received information regarding diapers from TV advertisement. Such source is especially important within the developing markets, mentioned by Latin American respondents (44%), Asia-Pacific (39%) and Africa/Middle East (37%). Also, the funds spent on TV as a total advertising costs proportion has grown in every of those markets during the recent 2 years. In North America and Europe, the countries, where expenses have fallen, less survey respondents state they received information regarding diapers from TV advertisements (16% and 24% respectively) ("TRENDS IN THE BABY FOOD AND DIAPER MARKETS AROUND THE WORLD", 2015, p. 30).
Within the category of diapers, health care experts’ recommendations are rated third in significance as awareness, mentioned by 27% of surveyed individuals, 9% less than those that utilize them to receive information regarding food for babies ("TRENDS IN THE BABY FOOD AND DIAPER MARKETS AROUND THE WORLD", 2015, p. 30).
Just an insignificant global respondents’ proportion received information regarding brands of diapers from online means; however, in Asia-Pacific its use is the largest. Around 25% of all region’s respondents (24%) state that they received information regarding diapers on websites for parents, in comparison with 19% worldwide. This region also exceeds the world’s average in emails and manufacturer/brand websites use (15% globally, 20% in the region), baby blogs (17% vs. 19%), internet advertisements (14% vs. 17%), websites of social media (14% vs. 17%) and emails and store app/website (11% vs. 14%). In this region, the social media use is especially significant in India and Southeast Asia ("TRENDS IN THE BABY FOOD AND DIAPER MARKETS AROUND THE WORLD", 2015, p. 31).
Here again the positive friends and family feedback tops the list, mentioned by 35% of the total number of surveyed individuals; however, the price is a more important background for switching of diapers. 27% of the respondents of the world state that they switched brands of diapers as the item appeared to be cheaper, or on discount. In particular, in North America the price is very important. 42% of respondents in this country switched as the other item was less expensive, and 34% performed so as the other item was on promotion. Also, 30% changed brands as they got a coupon (in comparison with 10% in the world) ("TRENDS IN THE BABY FOOD AND DIAPER MARKETS AROUND THE WORLD", 2015, p. 34).
Consumers of baby care worldwide are more likely to buy goods for babies in a physical shop and not online; however, the situation is going to change as more people are using the online tools. Retailers that work on the basis of e-commerce are able to compete on convenience and price due to the decreased investment costs and, sometimes, the elimination of supply chain links ("TRENDS IN THE BABY FOOD AND DIAPER MARKETS AROUND THE WORLD", 2015, p. 39).
E-commerce sales expose significant growth year-over-year in China. During 2013-2014, infant formula sales online increased 32%, food for babies increased 44% and diapers increased 60%. Baby food online sales increased 43% in Europe.
Strength of e-commerce in Asia has been pushed by several factors. Increased internet and smartphone penetration and infrastructure improvements have delivered more prospective online shoppers, especially in rural areas. In addition, assortment of product online is significantly richer in comparison with the traditional shops ("TRENDS IN THE BABY FOOD AND DIAPER MARKETS AROUND THE WORLD", 2015, p. 41).
Sources for Influencing Purchases and for Learning about Diaper Products
(WORLD AVERAGE)
Source: "TRENDS IN THE BABY FOOD AND DIAPER MARKETS AROUND THE WORLD" (2015)
The promotional strategy for the new products will include the following activities:
TV advertising;
Digital advertizing;
Participation in the fairs;
Distribution of test packs.
5.a
GSK is going to advertize its new products on the Chinese TV channels that have the highest rating and on the most popular social media websites (e.g. Facebook, Twitter, and Youtube).
5.b
The main consumers groups for baby wipes and diapers are young parents, especially mothers, that usually spend much time at home and thus watch TV and are active users of social media websites. The products are intended to reach the large number of individuals (mass product), therefore the above-mentioned tool can be very helpful here.
5.c
During the trade fairs, the company is going to distribute coupons that will allow young parents receiving products’ tester packages for free in the points of sale. One of the promotions will offer to send sms with the secret code available on the packaging and win prizes.
There are several tips for manufacturers how to win the market:
Innovation. Research and development strategy should be focused on the key three things determined by the customers: excellent protection of skin, absorption, and comfort. Another important objective is thinness as it is a method to supply high level of comfort and decrease environmental impact and freight and material costs; also, thinner items occupy less space in the shelf that is good for distributors;
Costs control. Innovation may assist, but producers should also think how to decrease operating expenses by means of production optimizing and supply chain efficiencies’ improving;
Understanding the needs of the clients. Reasons of the consumers for diapers’ purchasing differ across regions. With the purpose to attract new buyers, companies have to be aware of what challenges clients face and which features they require. Companies need to understand regional product preferences’ differences and adjust lines of products accordingly ("TRENDS IN THE BABY FOOD AND DIAPER MARKETS AROUND THE WORLD", 2015, p. 37).
Conclusions
As it can be seen from the above information, manufacturing and sales of the diapers and wipes by GlaxoSmithKline may become rather perspective and profitable for the company. Due to the favorable economic conditions, large territory and population, local government’s two-child policy, growing middle class and other contributing factors, China is a very attractive and promising market for this organization. The company has already presence in this country (including manufacturing sites), but now it is recommended for it to introduce new products to the consumers and thus increase the popularity and strength of its brands either in China or in the whole Asia. The essay has analyzed the strategy and steps that should be taken by GSK in order to make this project successful.
References
Annual Report 2015. (2015). GSK, 2-9. Retrieved from http://www.gsk.com/media/1017500/annual-report-2015.pdf
Brand-Kirsch, S. (2016). Race to Win Over a New Generation of Consumers in Asia. Schlegel Und Partner, 1-4.
CHINA’S BABY CARE & FEMININE HYGIENE MARKE. (2015). Cotton Incorporated Supply Chain Insights, 1. Retrieved from http://www.cottoninc.com/corporate/Market-Data/SupplyChainInsights/China-Baby-Care-Feminine-Hygiene-Market/China's%20Baby%20Care%20&%20Feminine%20Hygiene%20Market.pdf
TRENDS IN THE BABY FOOD AND DIAPER MARKETS AROUND THE WORLD. (2015). Nielsen, 30-41. Retrieved from http://www.nielsen.com/content/dam/nielsenglobal/jp/docs/report/2015/20150829%20Global%20Baby%20Care%20Report%20Revised%20FINAL.PDF
