Part 1 Oishi’s Strategic Marketing Plan
Oishi is the leading snack food manufacturer in China. Since its establishment in 1993, Liwayway Holdings Company Limited, owner of the Oishi brand, has been in the cutting edge of innovation and aggressive marketing activities. The company rapidly expanded across the country and established a large distribution network. The Oishi brand has also become one of the most recognized snack food brands in China. Children have been the main consumer group of the Oishi products.
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However, market changes in the perception of snack food have occurred. Children’s parents become wary of the growing obesity problem among the children. The obesity dilemma has been attributed largely to salty snack foods being consumed by children. Numerous studies were conducted showing the direct relationship between “junk foods” and obesity. Parents are now shifting to healthier food for their children. The market for the traditional salty snack food and other similar food will be affected significantly by this change in consumer behavior.
Hence, Oishi should develop a new marketing strategy to maintain its leadership and overcome the threat of its consumers changing or shifting to other food. In this marketing plan are proposed steps to improve its current marketing activities and provide new and additional alternatives. The development of a marketing mix geared toward manufacture of new food products that satisfy customer needs and wants is the major proposition in this marketing plan. A shift in target market segment is also recommended, identifying the young adults (ages 18-34) as the new primary consumer base for the Oishi brand and products.
Oishi is a leading snack brand in China manufactured in more than 100 variants of snack foods. The brand is manufactured under various product lines of salty snacks such as potato chips, prawn crackers, peanut crackers as well as other snack food including cookies, popcorn and corn curls, cereals, and marshmallows. Among China’s vast market, Oishi’s principal consumers are children.
The Oishi brand is owned by Liwayway Holdings Company Limited (LHCL), which traces its roots to the Liwayway Marketing Corporation (LMC) established in the Philippines in 1946. Carlos Chan, owner of the LMC, embarked on an ambitious expansion plan in China in 1984 and set his attention to Shanghai. Nine years later, Chan established the LHCL to manufacture, distribute and sell Oishi products in the country. The company aggressively marketed the Oishi brand targeting the children segment of the market as its primary consumers.
LHCL grew rapidly in the following years by expanding outside Shanghai and building manufacturing and distributing facilities in other parts of China. The company established sales and distributions across the country, which included urban cities and smaller inner towns. LHCL was able to establish a network of more than 400 dealers nationwide. Due to the aggressive marketing strategies and strong management capabilities of LHCL, the Oishi brand became a famous snack brand in the country. Oishi was eventually recognized as a Shanghai Famous Brand in 2001 and was awarded as a China Famous Brand in 2006. The company took bolder steps and entered the market of Vietnam in 1997 and Myanmar in 2006. At present, expansion in Thailand and Indonesia is under development (Oishi.com.cn).
3 Strategic Objectives
The creation of strategic objectives of the marketing plan is necessary, as it will serve as the company’s guide and measurement in achieving its goals. The firm’s strategic objectives will aid it in gaining competitive edge in the industry and maintain its leadership. The primary objectives for this marketing plan are the following:
- To be the industry’s leading manufacturer and seller of healthy and quality snack foods
- Deliver customer satisfaction and establish long-term relationships with customers
- Improve production and distribution process by establishing long-term relationship with both suppliers and distributors
- Increase profitability by providing quality snack food with added value but at lower costs
In order to achieve these strategic objectives, the following specific marketing objectives and strategies will be employed:
- Raise market share to 20% for the next five years
- Increase advertising and promotional activities by utilizing all forms of media communications – broadcast, print and electronic (primarily the Internet) – to increase greater awareness of the Oishi brand and its products
- Augment and amplify nationwide presence by establishing more distribution points and getting more sellers and distributors
- Increase production and offer more product variants that use health-enhancing ingredients to capture other segments of the market
- Improve worker productivity
The above strategic marketing objectives will serve as a guide in the creation and employment of a marketing plan.
4 Environmental Scan of Factors that Affect China Snack Industry Competition
China is an attractive market due to its large population and strong economic potential. In almost any industry, numerous firms are vying position to become a leading player. The snack market is not an exception to this competition. China’s snack food industry is highly competitive with various companies seeking competitive advantage. The Chinese snack market is a $3-billion-a-year industry (Terhune, 2005), hence foreign and domestic companies are competing to gain a sizeable percentage of the market share from this profitable industry.
5 Five Forces Model
Harvard Business School professor Michael Porter (1998) said that the state of competition in an industry is dependent on five basic forces, which ultimately will determine the profit potential in the industry. These five forces are intensity of industry rivalry, threat of new entrants, and threat of substitute products, bargaining power of buyers, and bargaining power of suppliers. Combined, these forces dictate the profit potential of the industry and its competitiveness. In table 1, a summary of the five forces affecting the industry competition is shown.
5.1 Industry Rivalry
The Chinese snack market is composed of domestic and international players competing for a share of the market. Among the major competitors of the Oishi brand are foreign companies like Pepsi as well numerous local firms such as Wangwang, Master Kong and Dali. These competitors offer almost similar products but of different brands or trade marks, making the industry highly competitive. Due to the highly competitive characteristics of the industry, the there are many companies competing. It will be too costly as well to leave the industry and change products. However, despite the number of companies competing, China’s large population with an increasing number of people capable of purchasing the snack food, the China market remains competitive and is far from maturity or being exhausted.
5.2 Threat of New Entrants
The threat of new entrants is high as barriers to companies entering the competition are relatively low. Government regulations on the formation of companies entering the snack market are not too strict. Even community-owned companies can enter into the competition. Capital requirements for entering into the snack food industry do not need to be large. However, if a new company wishes to compete with the largest companies, this will serve as a barrier to them. As stated earlier, product differentiation is not present. Although brand identification is an important barrier to new competition, smaller Chinese companies can easily set up business although at a local level. As such, many smaller firms manufacturing and selling snack food are being set up across the country.
5.3 Threat of Substitute Products
Substitute products for salty snack foods are foods manufactured with health-enhancing ingredients. Consumers, most especially the health conscious parents, can easily shift to these products for their children. The prices of the substitute products are also almost the same with the traditional snack foods being sold. Thus, consumers will not hesitate to buy substitute foods that are enriched with healthy ingredients. The USDA Food and Agricultural Service stated in a report that youth perception in food consumption is changing toward a healthier diet, especially those living in Shanghai (Global Agriculture Information Network [GAIN] Report 3).
5.4 Bargaining Power of Suppliers
Suppliers can possess significant bargaining power with regard to the pricing of their products if they act as a group dominated by a few companies and they more concentrated than the industry they sell to (Porter, 1998). However, in the case of China, suppliers are scattered around the country and are not acting in a group. They also do not offer unique or differentiated materials to sell to the industry players. Suppliers also do not possess that capability to integrate forward into the industry. Thus, suppliers do not have sufficient bargaining power in the Chinese snack food industry.
5.5 Buyers’ Bargaining Power
Porter (1998) said that buyers can exert influence in the industry if the following characteristics are met:
- They act as a group,
- Purchase in large volumes,
- The products are undifferentiated, forms component form of the product and represents a significant portion of the cost,
- The quality of the product is unimportant to the consumer,
- The product does not save the buyer a money,
- The buyers pose a credible threat of integrating backward to make the company’s product.
Except for the products being undifferentiated, buyers do not possess the capacity to exert influence in the industry since most of the characteristics mentioned above are not present. Hence, Chinese consumers are not significant in influencing the industry players. However, with the recent trend of the changing consumer perception and demands on higher quality products, the consumers are now looking for healthier snack foods. Thus, they are beginning to acquire power to influence the manufacturers of snack food to create health-enhancing processed food.
In sum, the Chinese snack food industry is highly competitive but is far from maturity. Profitability is still achievable at a high rate due to the large market of China. However, with the numerous companies jockeying for position in the industry and the changing consumer needs and value perception on snack food, LCHL needs to adopt a new strategic marketing plan in order to sustain its current leadership.
6 SWOT Analysis
After identifying the factors affecting the competitiveness of the industry, an analysis of the organizational strength and weaknesses is also necessary in order to determine the aspects it needs to improve and alter. The identification of opportunities and threats is also important to aid the organization in drafting a marketing plan and identify the areas it needs to put focus on. A summary of the SWOT analysis is shown in table 2.
Table 2 SWOT Analysis on LHCL Organization
* Strong brand recognition
* Good reputation in the industry
* Adequate access to raw materials
* Numerous varieties of products to choose from
* Good networking and distribution system
* Lesser appeal to the other segments of the market, especially the young adults
* High cost structure
* Insufficient patent protection
* Large portion of domestic market still not saturated
* Shift or diversification to health-enriched food ingredients
* Potential of expansion in the international market
* Advancement in technology
* Loosening up of international trade barriers
* Shift in consumer choice from traditional snacks to health-enhancing snack food
* Emergence of new products
* Flood of substitute products
* Growing number of smaller firms entering the industry
The company’s primary strength is its strong brand recognition across the nation. Oishi is a nationally recognized brand being awarded numerous titles. LHCL also has built a good reputation in the industry through its organizational management and innovativeness. The company has adequate access to raw materials and developed a good relationship with its distributors and sellers. Another strong point of the Oishi brand is the wide selection of product variants. Customers can choose from a range of products that suit their needs.
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A weakness of the Oishi brand is its lesser appeal to the other segment of the market, most especially young adults in the range of 15-25 years old. This segment comprises a significant portion of the population and can increase the revenue substantially. LHCl also has a high cost structure, by having numerous facilities and employees. Although this characteristic can be considered as strength that the company possesses over its smaller rivals and in order to achieve a greater market share, this could be a potential weakness in terms of reacting rapidly to strategic market changes. The company also has insufficient patent protection. Protecting the company’s formulas and ingredients in creating products is an advantage over competitors. This provides differentiation for the Oishi brand over other brands in the market.
A large portion of the domestic market in China is not yet fully saturated, thus providing core opportunities for LHCL to grow. The company can still expand its operations inside the country to reach more consumers, especially in the inner towns. The advancement in technology such as the increasing utilization and importance of the Internet also provides opportunity for the company to have greater access to consumers. Technological advancements also offer improvements in the manufacturing processes of the company and in research and development area to improve its products. There is also a potential to expand in the international market as developing countries become more responsive to globalization. The relaxing of trade barriers in many countries such as tariffs due to globalization provides an opportunity for Oishi to penetrate overseas markets.
The biggest challenge that company faces is the changing consumer taste in snack food. Consumers are now more conscious about their health, most especially parents of children that eat or consume the products. Numerous studies show that “junk foods” such as salty snacks are a cause of obesity. Marshall et al (2007: 175) suggested that parents’ overindulgence to their children’s whims such as requesting so much junk foods cause obesity, thus they recommended that parents should not give in to their children’s requests. With this changing consumer perception is the emergence of new snack food products that are enriched with healthier ingredients. Substitute products are now also flooding the market due to the growing awareness on obesity among children. These serve as threat to Oishi’s traditional snack food products. Also, the increasing number of smaller firms poses a threat to the company as they can eat up a significant portion of market. Although they operate on a smaller scale, they are numerous and present in every market where LHCL operates.
7 Marketing Plan
Strategy involves the creation of a plan that integrates the organization’s objectives, principles, policies and decisions and sequences of action into a cohesive whole (Proctor, 2000). A marketing plan is a strategic plan of action that an organization develops and employs to achieve its strategic goals as well as deliver customer satisfaction. Strategic marketing is therefore a challenge upon organizations to manage marketing complexities, satisfy customer and stakeholder’s expectations and reconcile market changes with the organization’s resource capabilities (Bradley, 2003). Hence, the creation of a strategic marketing plan will provide definite and measurable steps that an organization can take to achieve its objectives, gain competitive advantage and deliver customer satisfaction and meet stakeholders’ expectations.
Various forms of marketing methods can be applied in the development of a marketing plan. One form of marketing technique is the marketing mix. The 4Ps (product, price, place and promotion) of marketing mix is designed to develop a mix or package of products that meet the customer’s needs and wants.
As stated earlier, consumers are now changing their perceptions on snacks. The consumers, particularly the mothers of young children, are more conscious about the health benefits they or their children could get from the products they buy. A very important question here is, “Does the company produce the products that the consumers want?” It is not the company who will dictate what products it would sell but the consumers should dictate what products they should buy. Hence, it is necessary for LHCL to manufacture snack food products that satisfy the desires of their consumers. The firm should start using health-enhancing ingredients while minimizing the changes it could make to the products. It is also necessary to create product differentiation. The Oishi brand should be differentiated with other brands by the adding more characteristics to the products, such as lowering its costs or providing incentives to consumers and customers.
The prices of Oishi products should be competitive in order to attract more customers and consumers. At present, the prices of the Oishi snack food are competitive. However, the firm can add more value to the products by giving freebies or additional benefits to loyal customers. This will ensure that loyal customers will not shift to other brands. It will also entice new customers, particularly those in the areas not yet covered by the company.
LHCL should expand its presence all over the country to include more inner townships and communities. The current distribution network of the company, which comprises large distribution enterprises and small family businesses, can be enlarged to include community-owned enterprises as well as direct sellers. In places where there are no available distributors, the company can put up its own distributing centers. The Internet is also another place for distribution or can be used to enhance the current distribution system of the company. Orders can be placed online and a tracking system can track the progress of the orders. Retailers can and wholesale distributors can use this facility with regard to their purchase orders.
Promotional or advertising programs are necessary to increase consumer awareness on the Oishi brand and its products. In increasing consumer-awareness, the company should increase its advertising and promotional activities. The company should put significant investment in advertising so that revenue-generation can be increased even more. It can enhance increase sales by 20-50% and entice more customers thereby increasing market share. All forms of media must be utilized such as the traditional advertising facilities in the print and broadcast media. The Internet is another major tool for promoting the product. Presently, the company’s website provides basic information on the products. The website can be enhanced by adding more information such as the health benefits that the products can offer to the consumers. The US FAS said that young adults or the 80ers (those belonging to the 18-34 year-old range) are increasingly using the Internet in buying snack food. Thus, LHCL can use the Internet to increase its sales and attract these “high-tech” consumers.
In order to implement the marketing mix program, a creative marketing department or team must be established. The creative team will be responsible for the development of creative advertising materials and promotional tools. They will do further market research to identify which segment of the market is most receptive of the products and to identify more specifically the consumers’ needs, desires and buying behaviors.
8 Market Segmentation
Market segmentation is necessary to identify the specific consumer base of the company. As stated by Proctor (2000: 189), segmentation is a powerful component of marketing strategy. The Chinese snack food market is composed mostly of young adults and children as the main consumer groups. Traditional consumers of the snack food belong to these generations. With the inclusion of parents as guiding their children in selecting snack foods, the Chinese snack food market is a $3-billion industry.
Previously, Oishi is targeted towards children. Children below 15 years old were the previous main consumer group for the Oishi products. However, numerous studies (Mrshall et al.; Curtis & McCluskey; French et al.) show that children are becoming obese due to eating “junk foods” such as salty snacks, potato chips, and other similar products. Parents are already concerned about this rising obesity trend on their children. Further, the US FAS also reports that young adults, particularly in Shanghai, are changing their perception on food consumption. The report states that the Shanghai youth are more likely to purchase high-quality food products such as fresh milk and organic produce (GAIN Report 3).
LHCL should therefore target these consumers to be its main consumer base in the near future. The marketing mix design provided earlier specifically addresses this issue. The marketing mix is focused on attracting the young adults and health-conscious consumers. They will be the primary consumer base of the Oishi brand.
Part 2 Report
Marketing concerns satisfying customer needs and wants and in doing so paves the way for achieving the organization’s objectives (Proctor, 2000). This is a general principle applicable to all organizations in the business community. Since the opening up of China in the global market, numerous companies have put their investments in the country in the hope of establishing a leading position or at least take a substantial portion of the large Chinese market. Due to the unprecedented increase of foreign firms, domestic competition in every industry has intensified. However, local or domestic brands are still preferred by Chinese consumers at the expense of foreign multinational brands (Ewing et al, 2003: 84). Nevertheless, the presence of global corporations in China provides competition against domestic companies.
Developing an appropriate marketing strategy that will satisfy customer demands should be the goal of every organization in order to achieve competitive advantage and attain the organization’s objectives. As Proctor (2000) stated, marketing is about the competitive positioning of products and services in the minds of the customers. It is also about the communication of messages and images (reflecting product and service positioning) and the means which are used to convey these messages and images to the customers. Although there is a preference for local brands by the Chinese, the presence of foreign companies are to be considered a major threat as they are capable of creating products and services that meet the needs and wants of the consumers.
It is important that every organization should analyze the market conditions and the relationships that exist within the market in order to identify which segment of the market to target. Market segmentation is therefore another crucial factor in the creation of a marketing strategy. Proctor (2000) points out that market segmentation amounts to partitioning a market into a number of distinct sections, using criteria, which reflect different and distinctive purchasing motives and behavior of customers. Separating the market into various segments or groups helps companies determine their specific market and establish a loyal customer base. This is particularly important for entering new markets as well as maintaining current position in market.
Another significant concept in marketing is the product life-cycle. This concept is a sequence of stages to determine the life-cycle of a product or service. There are four stages, namely introduction, growth, maturity and decline, in the product life-cycle. In the introduction stage, the new products are introduced into the market. An organization will seek to build market awareness on the product and establish a market for it.
Once introduced and a market has been established, the product will be marketed and sold and new features may be added to expand its market – this is the growth stage. The product will then reach its maturity, and at this stage improvements will be needed to maintain its peak such as lowering its price or new distribution channels are created. When the product saturated its maturity stage, a decline in sales will occur. This is the declining stage. At this point, the company may choose to maintain the product and sell it to a loyal segment of the market or stop its production. The product life-cycle concept is necessary so that LCHL can manage its products and plan for future products or services when the current offerings have reached their declining stages.
An important marketing principle as well is the Boston Consultancy Group (BCG) growth-share matrix. This concept is relevant to companies with several portfolios. Under the BCG matrix, a company’s different portfolios’ or divisions’ growth and market share will be analyzed and categorized into four elements; cash cows, stars, question marks and dogs. Cash cows represent portfolios that generate more profit than the expenses it incurs. Stars generate large amounts of cash, but also consume a large amount of money due to its relatively large market share. Question marks, on the other hand, are portfolios that grow rapidly but generate less income due their low market shares. Dogs, meanwhile, are those portfolios that have low market share and low growth rate, and therefore generate low income. (NetMBA.com). This matrix is particularly important for Oishi brand so that the company can identify which of its product variants are cash cows, stars, question marks or dogs and which portfolio needs to be improved.
All of the above concepts can contribute to achieving competitive advantage for a company. It is common that every business organization’s ultimate and strategic goal is to gain competitive advantage over its rivals. Carpenter et al (2001) said, “Competitive advantage can arise from satisfying customers better, faster or more cheaply than competitors”. Porter (1998) said that the competitive strategy takes offensive or defensive actions to create defendable position in an industry, in order to cope successfully with competitive forces and generate superior return on investment. He added that the basis of above-average industry performance is sustainable competitive advantage (qtd in 12Manage.com).
In the Porter model, competitive advantage has two basic types; cost leadership and differentiation. Cost leadership occurs when a company offers the same product or service at a lower price than its rivals. Differentiation advantage occurs when a company delivers higher quality products or services at the same price as its competitors. A third type, focus, appears as an advantage when a company focused its strategy on a particular or narrow segment of the market to create a loyal base of customer and become the company of choice in the same market segment.
In sum, the above marketing concepts help in gaining competitive advantage and profitability for the company. Hence, LCHL should adopt all the concepts stated above and incorporate those in its corporate strategy and strategic marketing plan. It is necessary that LCHL should maintain its current leadership by creating a competitive marketing strategy.
- About Oishi. Liwayway Holdings Company Limited, n.d, from http://www.oishi.com.cn/en/about.htm.
- Bradley, F (2003) Strategic marketing: in the customer driven organization. Chichester: Wiley Print.
- Carpenter, G., Glazer, R and Nakamoto, K. (2001) “Market-driving strategies: toward a new concept of competitive advantage”, Kellogg on Marketing. New York: Wiley Press, pp. 103-130.
- “Competitive Advantage”, 12Manage.com. 12 Manage, n.d. Web.
- Ewing, M., Napoli, J and Pitt, L. (2003) “The development of domestic brands in China”, Chinese Economic Transition and International Marketing Strategy, pp. 84-95.
- French, S., Jeffrey, R., Story, M., Breitlow, K., Baxter, J., Hannan, P and Snyder, P. (2001) “Pricing and promotion effects on low-fat vending snack purchases: the CHIPS study”, American Journal of Public Health, pp. 112-117.
- “Global agriculture information network. Shanghai’s youth market: changing perceptions in food consumption”, USDA Food and Agriculture Service, People’ Republic of China Market Development Reports, Retrieved November, 2008.
- Marshall, D., O’Donohoe, S and Kline, S. (2007) “Families, food and pester power: beyond the blame game?”, Journal of Consumer Behavior, pp. 164-181.
- Porter, M (1998) On competition, Boston: Harvard Business School Publishing.
- Proctor, T (2000) Strategic marketing: an introduction, London: Routledge Press.
- Terhune, C (2005) “To bag China’s snack market, Pepsi takes up potato framing”, The Wall Street Journal Online.
- “The BCG growth-share matrix.” NetMBA.com. NetMBA, n.d.
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