China Consumer

Market makeover

Shiseido’s ambitious five-year plan for China

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From afar it was said that Zhang Lihua looked like an “immortal floating in the air.” The favourite concubine of the last Southern Dynasty emperor understood the importance of branding. Her beauty routine also provides the first recorded glimpse of the lengths Chinese courtesans went to in order to maintain their stunning looks.

To achieve the perfect sixth century face, a cream was made by first extracting some yolk from an egg and then replacing it with vermillion powder; the egg was then sealed with wax and reinserted into a (presumably unimpressed) chicken to await incubation. Once it was hatched the lady would smear herself with the creamy mixture.

Cosmetic fashions constantly shift, but the need to understand your market does not. It is a lesson the Japanese cosmetic giant Shiseido has been forced to learn the hard way. The company first entered China in 1981 and in 2009 had a 6.4% market share. But by 2014, this had dropped to 5.7%, while market leader L’Oreal saw its share expand from 9.9% to 12.6%.

The established brands have also had to grapple with South Korean contenders such as AmorePacific, which have built up a reputation for swiftly updating product lines. Ralph Ahrbeck, Shiseido’s new chief representative in China, tells CBN the Koreans have been providing Shiseido with “a daily wake-up call”.

In a lengthy interview he explains how Shiseido is trying to turn itself around. The process began in early 2014 with the appointment of Uotani Masahiko, the company’s first externally selected CEO since it was founded in 1872.

Like so many Japanese traditions, Shiseido’s name derives from China (Shiseido is a phrase from the country’s oldest book, the I Ching, or “book of changes”). And change is what Uotani hopes to foster, not least hiring the non-Japanese Ahrbeck who has decades of consumer branding experience across eight countries in three continents.

Under a new gameplan unveiled last year, Shiseido wants to grow its global sales to $8 billion by 2020 and one fifth of the revenue would be coming from China. The latter objective masks a second important source of demand from China – its tourists buying cosmetics within Japan itself. Analysts say this purchasing power (thanks to a weaker yen) drove 60% of the company’s first quarter revenue growth, enabling it to swing back to profit.

Ahrbeck, a German, says Shiseido has identified three main failings in China so far. Firstly, it did not localise. This has been fixed by increasing Chinese headcount and by paying more attention to cultural differences between the two nations. For example, Shiseido previously imported its sales counters from Japan where women typically sit down and try cosmetics before deciding which to buy. However, in China women typically do their research online. Counters have been reconfigured to account for this.

Secondly it produced too many products based on its own R&D without conducting external market research and listening to customers. Ahrbeck immediately changed this by surveying 5,300 skincare customers, classifying them by their emotional needs rather than their ages or addresses.

He has since come up with 12 ‘emotional’ classifications, which Shiseido can tailor its R&D and marketing towards. One of his most important findings concerned Aupres, the first skin care brand that Shiseido developed in China and its biggest seller, accounting for 35% of all sales.

Shiseido had always marketed Aupres as an edgy brand that pushed fashion boundaries. However, Ahrbeck discovered that the main buyers are multi-tasking career women, wives and mothers. They said they buy the brand as a treat, something just for them.

Thirdly, Ahrbeck acknowledges that Shiseido did not move into e-commerce quickly enough. Over the past six years, the percentage of cosmetics sold in department stores has fallen from 31% to 21%, while online sales have jumped from 1% to 16%.

Ahrbeck also told CBN the firm’s marketing budget would rise 30-50% this year, as it sought to shake-off its low-key image in China.

Until a few weeks ago Shiseido’s share price was responding extremely positively to the new strategy, almost doubling in the space of eight months. Since then it has dropped almost 25%, in line with the recent sell-off in the global equity markets.


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