Shiseido Expands into Mass Cosmetics with Diverse Product Strategy

According to Nihon Keizai Shimbun, a Japanese financial website, Shiseido is partnering with supermarkets, drugstores and to target middle-income consumers in Thailand, with a plan to release a new line of cheaper products later this year.

This move by Shiseido, whose overall strategy in the global beauty and personal care industry is centered on marketing high-end products through premium distribution channels such as department stores, confirms the company’s shift in focus in full force. It underlines the importance of multi-branding and a tiered pricing strategy in rapidly developing emerging markets.

Diverse income disparity in emerging markets

According to Shiseido’s new 3-year plan for fiscal 2011-2013, the company’s expansion in emerging markets is focused on China and Thailand within Asia Pacific, with additional emphasis on the more developed markets of Taiwan and South Korea. While both China and Thailand are typified by growing disposable income, which suggests demand for high-end, Western-style beauty and personal care products from multinational players is significant and growing, there remains enormous untapped demand for more affordable quality products. This is because consumer wealth in both markets is concentrated in big cities, with income disparity diverse in smaller cities and towns, as well as remote rural areas.

According to Euromonitor International’s Countries & Consumers database, more than half of the Chinese population resided in rural areas in 2010, living on much lower annual disposable incomes. According to China’s National Bureau of Statistics (NBS), per capita disposable income in rural China was 3,073 yuan (US$473.79) in the first half of 2010, which was only one third of the average income in urban areas where per capita income reached 9,757 yuan (US$1,428.55). In China’s cities, a large number of consumers have temporarily migrated there from their rural home for work purposes. Despite receiving higher rates of pay than at home, this group of consumers has to spend a large proportion of its salary on higher rent and more expensive transport fees than permanent residents who would instead share their home of their parents, meaning much reduced spending power for consumer products by migrated people. In Thailand, two thirds of its population resided in rural areas in 2010, living at subsistence levels.

Consumer demand in emerging markets is growing increasingly fragmented, across incomes, regions and cultures. As companies look to expand beyond the very largest cities into second- and third-tier localities, it is increasingly important to offer brands and products suited to consumers on various income levels.

Reaching every consumer

A strategy of multi-branding and tiered pricing helps companies to establish full consumer base coverage in one market and maximise market shares by meeting the varied needs of consumers. L’Oréal’s success in China is a typical example of this. The company has long adopted a multi-brand strategy in the country, particularly in skin care, marketing Lancôme and BIOTHERM at the premium end, with L’Oréal Paris targeting middle-income consumers. L’Oréal has also acquired the local brands Yue Sai and Mini Nurse, catering to low-end consumers in inland China. Mini Nurse was subsequently subsumed into the Garnier umbrella brand, before being discontinued. While most of its brands are marketed through key distribution channels including department stores and supermarkets, the company’s Vichy brand is sold exclusively in drugstores/parapharmacies, aiming at consumers looking for medical skin care solutions. Covering a wide spectrum of price ranges and different distribution channels, L’Oréal’s value increase in China has been the highest amongst all players since 2008, strengthening its leading position through incremental share gains year on year.

Realising the growing importance of expanding middle-class consumers, mostly residing outside the very largest cities in China, Shiseido launched the DQ brand, sold exclusively through drugstores, in 2010, in a bid to expand its business in this much desired market across different channels. DQ also carries a lower price point than Shiseido’s key premium brands, allowing the company to tap into the lower-income consumer segment.

This multi-branding and tiered-pricing strategy also has room for development in mature markets, where consumer confidence is still low following the economic downturn and uncertain recovery. To counter shrinking sales in its domestic market, Shiseido has launched Senka in Japan at a lower price point to target consumers trading down but reluctant to give up on product quality. Shiseido will bring Senka to China in 2011, implementing its multi-branding and tiered-pricing strategy to push for further value gains in Asia Pacific.

That said, diversifying into a masstige product range allows the company to expand its consumer base and meet demand from lower-end consumers. On the other hand, Shiseido’s repositioned Clé de Peau Beauté brand will be designated as the company’s second flagship brand in its premium range. It was launched in its domestic Japanese market earlier in 2011, clearly aimed at ultra-affluent consumers in the country. Shiseido plans to roll out the newly innovated Clé de Peau Beauté product line in 11 countries across Asia Pacific and North America, including China and the US, throughout 2011.

While Shiseido’s present strategy of marketing established global brands primarily targeting an affluent consumer base will undoubtedly continue, a strategy of reaching out to lower-income consumers is vital to maintaining healthy growth over the next five years. Shiseido is on its way to a steady performance with its diverse product strategy.