Yunnan Baiyao Group Co., Ltd. is part of the pharmaceutical industry known for its unique traditional herbal medicines specializing in the treatment of open wounds, fractures, contusions and strains. The business has undergone changes in the recent years to modernize not only the structure of the company but also with the aim to diversify its market and products in order to remain competitive at a global level.
The long history of Yunnan Baiyao’s brand is facing the inevitable maturity of the product lifecycle. As the majority of the company’s revenue is generated through the domestic market the urgency for product diversification is needed to source out new growth opportunities amidst the competitive market. As pharmaceutical companies appeared and integrated in larger conglomerates, surviving in the industry landscape has become a strategic challenge. The brand is essentially viewed as a medicinal treatment for minor injuries and will become a niche player if Yunnan Baiyao does not further diversity its product portfolio.
As Yunnan Baiyao is a locally grown brand lacking product variety there are difficulties in breaking into the international scene. The company’s marketing capabilities were confined to China and the scope of the business of the international department is limited. With little overseas experience and marketing expertise the company is at a disadvantage to position or build its global brand.
The company realized drastic steps needed to be taken to strengthen the brand reputation of Yunnan Baiyao. As a result efforts product standardizations were made to unify the brand including unified production planning, unified permit number, unified trademarking, unified quality standards and unified sales management. Structurally overlapping functions were eliminated or merged to make the company lean. Adoption of an ERP system for compensation was implemented to motivate employees. Yunnan Baiyao also established the strategy of “one core and four growth areas”. The core being Yunnan Baiyao’s headquarters and the growth areas being the three acquired production-oriented companies and the sales network. In the drastically changing competitive environment, the need to diversify and integrate is present to avoid becoming a minor niche player and the brand from becoming a victim of elimination by the fierce competition.
Product/Market Ansoff Matrix
The diversification strategy stands out from the other three strategies in that it requires a company to acquire new skills, new techniques and new facilities.
For any company to stay in business it is absolutely essential to be flexible and innovative adapt to the market and the consumers. The key is to find new opportunities to expand market share. One method would be to broaden market focus or to move into foreign markets to increase the consumer base. Going global allows Yunnan Baiyao to compete with the ever-changing industry and to establish and widen the name of the brand.
Introducing more products in line with the core competency of the brand also aids growth in revenue sources. Product diversification is also cost efficient as the company will be able to leverage off existing R&D to other products, minimizing investment capital and optimizing production facilities through sharing value chain activities with its original products. The benefit of economies of scale and scope further increases the profitability of adding to the company’s product portfolio. Marketing benefits also exist as brand extension also lowers the promotion costs of launching a new line into the market.
Market diversification is always attractive because entry into a different market brings an entirely new population of consumers into the picture. This can increase profitability through greater sales volume obtained from new markets....