Shiseido in China: a Case Study Analysis

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Shiseido in China:
A case study analysis

1. What are the functions performed by the distribution channels in cosmetic products? How are some of these functions performed in Shiseido’s operation in China?

There are a variety of distribution channels used in the marketing of cosmetic products which include examples such as product counters set up in department stores and product distribution through shelf display in supermarkets. These intermediaries make selling more efficient by minimizing the number of contacts a company has to make by handling all the individual contacts with customers and providing a range of goods to customers at one location. All of the distribution channels perform a core set of functions that are required in order for the cosmetic products to be available to the customer. These functions can be grouped by their nature under transactional, logistical or facilitating functions.

Distribution channels can perform the transactional function of buying by purchasing the product for resale in the case of wholesalers or by acting as an agent for the supply of a product as in the case of goods sold on a consignment basis. Wholesalers, unlike agents, take title of the goods before reselling and thus also perform the function of risk taking by assuming any business risk in the ownership arising from the cosmetic products becoming obsolete and out of fashion or from the products deteriorating over time. This is an important aspect of cosmetic product purchasing as cosmetic products have an average shelf life of about one year and are more prone to spoilage if they are made of natural ingredients. Agents serve the function of selling by serving as a contact to customers and by promoting the products while wholesalers serve as a contact to retailers who in turn are in contact with the customers.

Logistical functions performed by distribution channels involve the gathering, storing and dispersing of products. Distribution channels like retailers and distributors deal with the transportation of goods from the manufacturer to customers and they can purchase different products and create assortments from several sources to bring convenience to customers. Retailers also store and display the products at their retail stores which are easily accessible by customers to perform the distribution function.

Intermediaries perform facilitating functions by assisting the producer make their goods more attractive to buyers. Agents do this by providing service in the form of advice and recommendations to customers regarding the products that would most suit them. Feedback from customers is also collected by these intermediaries to be passed to the manufacturers in order to improve their products to fulfill customers’ needs.

Shiseido runs its operations in China mainly through the use of sales counters and sales corners in department stores. These are agents managed by Shiseido and only serve the transactional function of selling and promoting the products to customers while the department stores perform the logistical function of providing the retail space to Shiseido. The department stores thus do not have to purchase any of the cosmetic products for resale nor take any business risks from ownership of the products. The risks of the cosmetic products deteriorating or becoming obsolete are borne by Shiseido.

The voluntary specialty chain store system has recently been brought into China by Shiseido. This distribution channel and also the original sales counters perform the facilitating functions of providing service to the customers. The service personnel at these stores are trained to be genuine, friendly, sincere and knowledgeable skincare specialists who are able to give advice and recommendations to customers regarding Shiseido’s beauty products. Customers are also provided with information regarding the latest trends...
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