Case Study: Shiseido: Channeling Cosmetics in China
Shiseido, the largest Japan’s cosmetic manufacturer, was founded by Arinobu Fukuhara in 1872 when he opened Japan’s first Western-style pharmacy called Shiseido Pharmacy in Tokyo. The company manufactured its own pharmaceutical products in 1878 before later moving to cosmetics in which it combined Western technology with Asian ingredients. In 1923, Shiseido started a voluntary chain store system where the stores were operated by independent owners. The store provided exclusive retail space for Shiseido while the products were sold through consultative selling by trained staff provided by Shiseido. Shiseido established thousands of stores in Japan and remained the market leader despite high competition from Western cosmetic companies. The company expended to Taiwan, Singapore, Hong Kong, Hawaii and Italy in 1957. In 1980 it entered Germany by setting up a wholly owned subsidiary. That was followed by Great Britain in 1986 and France in 1990. In 1988 Shiseido entered the United States by acquiring Zotos International and other foreign brands. For Shiseido oversea business was the key driver for growth as shown in 2005 when foreign sales was 27 percent of the company’s total sales. Question 1
What are the functions performed by the distribution channels in cosmetic products? Distribution channels are a set of interdependent organizations involved in the process of making a product or service available for use or consumption (Kotler, P.,Keller, K. L., Ang, S. H., Leong, S. M. & Tan, C. T. (2009)). In the cosmetic industry, the functions of distribution channels can be summarized as follows; Provide exclusive retail space for the products.
Sell the products through consultative selling by trained staff. Act as information media which transmit the latest beauty information including knowledge about skincare, fashion, and hair style trends. Provide equipment to diagnose the customer’s skin condition scientifically. Gather information about potential and current customers, competitors, and other actors and forcers in the marketing environment. Develop and disseminate persuasive communications to stimulate purchase. Reach agreement on price and other terms so that transfer of ownership or possession can be effected. Place orders with manufacturers.
Acquire the funds to finance inventories at different levels in the marketing channel. Assume risk connected with carrying out channel work.
Provide for the successive storage and movement of physical products. Provide for buyers’ payment of their bills through banks and other financial institutions. Oversee actual transfer of ownership from one organization or person to another. Question 1
b. How are some of these functions performed in Shiseido’s operation in China? The functions performed in Shiseido’s operation in China through the following channels; Introduction of products at tax-free department stores and hotels in Beijing in 1981. A technology cooperation agreement that manufactured shampoo and conditioners in China under the brand name HuaZi in 1983. 3. A joint venture company, Shiseido Liyuan Cosmetic Company (SLC) in 1991. ●Joint venture between Shiseido and local company Liyuan Corporation, a state- owned enterprise.
●SLC developed a cosmetic brand only for Chinese consumers named Aupres.Shiseido name was put in front, below the Aupes name. ●The brand was advertised in magazines and television featured local models. 4. A joint venture company, Shanghai Zotos CITIC Cosmetic Company (SZC) in 1998.
● Joint venture between Shiseido and China International Trust and Investment Corporation (CITIC).
●SZC produced medium-priced cosmetic brands such as Za, Pure Mild China, UNO, ASPLIR, WHITIA and SELFIT.
● Sold them at special sales corners in department stores and at cosmetic specialty stores through wholesalers....
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