Asian Case Research Journal

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ASIAN CASE RESEARCH JOURNAL, VOL. 12, ISSUE 1, 57–71 (2008)

ACRJ
This case was prepared by Assistant Professor Susan H. C. Tai of The Hong Kong Polytechnic University, as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative or business situation. Please address all correspondence to Dr. Susan Tai, Department of Management and Marketing, The Hong Kong Polytechnic University, Kowloon, Hong Kong. E-mail: mstai@polyu.edu.hk

Beauty and the Beast: The Brand Crisis of SK-II Cosmetics in China INTRODUCTION After decades of enduring poor-quality products made by state-owned companies, consumers in China generally have higher expectations of foreign products. Recently, however, because of growing consumer activism among China’s new middle class, sometimes fused with strong nationalist sentiments, famous international brands have been in the line of fire over quality standards. General Mills was forced to issue a public apology in 2005 for the unsanitary conditions in which its Haagen-Dazs ice-cream cakes were being made, and Dell Computer was sued in August 2006 over laptops that contained the wrong processor (September 23, 2006, Financial Times). Johnson & Johnson, KFC, and the SK-II beauty care line of Procter & Gamble (P&G) have all been featured in the press because of charges that harmful chemicals have been found in the products of these companies. The case of SK-II cosmetics had been a particularly hot topic, with thousands of SK-II-related articles on websites. The main reason for the problems surrounding foreign brands may be that some multinationals have been lax in meeting Chinese quality standards. On September 14, 2006, customers in all major mainland China cities flooded SK-II counters with refund requests after it was reported that health authorities had found banned metals in SK-II products, including foundation, lotion, and cleansing oil (September 15, 2006,

Asian Case Res. J. 2008.12:57-71. Downloaded from www.worldscientific.com by 219.142.122.249 on 03/25/13. For personal use only.

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ACRJ

Asian Case Res. J. 2008.12:57-71. Downloaded from www.worldscientific.com by 219.142.122.249 on 03/25/13. For personal use only.

SCMP). The allegations concerning SK-II products attracted much media attention, and a consumer scare spread through China after the news broke, leading to the flood of refund requests. When P&G pulled all its SK-II products from mainland China shops amid security fears after outbreaks of violence in Shanghai, hundreds of people pushed, shouted, and broke a glass door of the office building at which product returns were being accepted (September 23, 2006a, SCMP). That SK-II products were manufactured in Japan could have aggravated the consumer reaction (September 23, 2006, Financial Times). Quality problems had also been found in more than 30 batches of food products imported from Japan since June 2006 (September 15, 2006, SCMP). As a result, China’s national quality watchdog urged its local branches to increase supervision of cosmetics and food products imported from Japan.

THE COSMETIC SKIN CARE MARKET IN CHINA As the standard of living in China improves, Chinese consumers are paying more attention to their appearance. In the last 20 years, the total output value of China’s beauty industry has risen from RMB2 billion to RMB200 billion, an increase of 100 times. In recent years, China’s beauty industry has maintained a rapid growth rate of more than 15%, and its output value reached RMB240 billion in 2006. The potential of China’s beauty industry is huge, as per capita spending on beauty is still at a lower level than that of developed countries. An estimate shows that the total output value of China’s beauty industry will exceed RMB300 billion by 2010 (September 14, 2007, M2 Presswire). In the skin care market, the growth has been attributed to increased segmentation, with...
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