Haier's Case

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Executive Summary
The strategic problem of Haier is inconsistency between its target - to become a leading U.S. appliance brand with not typical “made in China” reputation, and its actions that have developed perception of Haier as a brand of comparable or acceptable quality at low price: the U.S. market entry through a niche in a price-driven category by offering products with specific features, pricing its differentiated product in high-end segment lower than competitors do, communicating its products mostly to retailers, not consumers, which has led to low brand awareness among end-users in large standard refrigerator segment. Haier may resolve this problem by (1) improving and strengthening its current competitive position in a niche market (for current situation see Exhibit 3), (2) challenging share leaders in large standard refrigerator market, or (3) entering a niche of deluxe refrigerators. We recommend that Haier pursues offensive strategy - improves & strengthens its competitive position in a niche market of compact refrigerators - that will result in gross profit of $19 million and marketing ROI of 40% by reaching market share of 35% by 2010, and in gross profit of $35 million and marketing ROI of 53% at market share level of 40% by 2015 (see Exhibit 4).

Analytical Summary of the Haier’s Strategic Situation
Category
As of 2007 Haier, China’s strongest domestic brand in home appliance business, enjoys 1.31 relative market share in a niche segment of compact refrigerators within the U.S. refrigerator market (see Exhibit 1). It also holds second position in the free-standing freezer segment with the market share of 12%, which is again a niche market. Haier has won its position due to two major advantages: low cost production (which in return offers higher margins than local manufacturers can have - see Exhibit 2), product differentiation & innovation. Its offer to the U.S. compact refrigerator market is superior; it is really good value for money. At the same time Haier pursues the U.S. standard refrigerator market, however its sales are rather small so far due to two market constraints. First, standard refrigerator market is mainly a price-driven business and therefore it puts a lot of pressure on manufacturer’s prices and margins - here Haier cannot enjoy higher margins than its competitors do even if it produces refrigerators in the U.S. and does not pay huge shipping cost of $85 per unit when producing in China (see Exhibit 2). Second, category sales depend a lot on retailers who purchase, place and then sell refrigerators, and they want inventory support, promotional support and lower prices. Furthermore, large national retail chains such as Wal-Mart and Target are not service-oriented and thus cannot educate and assist consumers in buying refrigerators. However this point is very critical for successful sales of many products in this category.

Competition
The U.S. refrigerator market is strongly competitive in low-end and high-end refrigerator segments. The main advantages of competitive brands are established reputation, brand image and awareness (GE, Whirlpool), strong relations with distributors (Sears, leading retailer of home appliances, accounted for 20% of Whirlpool white goods production), focused operations (Sub-Zero pioneered and further expanded deluxe category of refrigerators). The only way for Haier to compete in low-end segment is to offer product of comparable quality at lower price and in high-end segment - to offer highly differentiated and unique product at the price comparable to competitors’ one.

Company
Haier has established positive reputation among retailers as a company that is highly responsive to customers’ demands and offers a broad variety of product. To be regarded by retailers as a reliable & responsive brand is a very important point in this industry: if retailers do not want to work with a company, there is no big business, no high profitability. We...
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