technology for innovating and updating the product, such as, the generalization of the Li Lei Zhen technology, which is the package material and technology which can sustain the fresh of milk from 30-45 days under the ordinary temperature makes the domestic firm have capital to compete with the foreign company. Besides, “the refrigerated goods distribution system”, was built by the domestic company; this distribution system can make sure the quality of the milk from the factory to the retail dealer, meanwhile, the retail dealer is from the traditional selling role changing to the distribution centre, the pace of retail dealer needs to be consistent with the dairy company, Such as, Yili, the biggest domestic dairy company in China already built the complete distribution system in 2000.
When all comes to all, Chinese dairy industry is underway, and the potential market is very huge, one figure shows the consumption of dairy products in China averages at 9.7 kilograms per person, compared with 200 kilograms in Europe and the global average of 100 kilograms. There is evidently plenty of room for growth in the consumption of dairy products in China. (Milk companies vie for re-entry). So, no matter the dairy firm is domestic or, foreign, they all both want to take up the Chinese dairy market. The huge market and the fierce competition will lead to the Opportunity and Threat for some dairy companies.
Opportunity and Issues analysis
- Opportunity &Threat
Facing the huge and the fierce competitive market, it offers some opportunities for Mengniu, but it also brings some threats.
Since the Chinese dairy industry is just starting, so, the dairy market is still no saturation, Chinese dairy consumption is still low, with liquid milk consumption per capita at only 2.1 kilograms in 2001, far behind Japan's 39 kilograms, Korea's 64 kilograms and US's 113 kilograms.( Mengniu seen to price IPO at discount to peers,2004). The liquid milk is the main product of Mengniu, it contributes the 84.5% of the Group’s turnover in 2004(Appendix), Besides, Chinese government has launched the strategy “developing North-Western region” , Chinese government has supported the development of North-western region, and give some free-tax or low-tax policies to encourage the local firm to develop, Inner Mongolia-based Mengniu has opportunity to get this advantage comparing with other dairy firm located in other religion, besides, now, the interest of customer is more consider on the fresh , nature, as a standard to purchase the dairy product , the “green food” is more and more accepted by the Chinese customer, the main place of Inner Mongolia is the big grassland, the stockbreeding is the main industry in this region, based on the inner Mongolia as headquarters, the dairy product of Mengniu should be fresh, and nature, cause, the raw material (raw milk) is from the big grassland, Mengniu can be outstanding this character of its product to attract the customer, in addition, Mengniu floated on the Hong Kong market in 2004, Mengniu has evaluated that it can collect between HK$1.5-HK$1.6 billion (US $192-205million ) from the flotation (Mengniu Dairy expects Hong Kong flotation,2004) , it can inject huge capital to Mengniu for enhancing the infrastructure and the innovational technology .
However, there are some threats for Mengniu, the “symptom of berserk cow” has been a serious issue in the world, although, now some authoritative institutions can not prove the “symptom of berserk cow” will infect to human beings, but it actually incurred the scare of the society, some customer already chose the subsidiary product instead for the dairy product, such as, soybean milk has some advantages comparing with the yoghurt milk. Chinese customer also more consider on the “symptom of berserk cow” , during the “symptom of berserk cow” period, some customer will choose tea, soybean milk as the menu of diet, the attitude of the customer changes has affected the product sale of Mengniu, no matter what the company made any promise that the raw milk collected by the company is safety, clean, and the company invite the medicinal authority to confirm the “symptom of berserk cow” is not appearing in China, the customer will still insist on their option to choose the subsidiary product.
Since China encouraged the private business to develop in Chinese mainland, the private business has been developing very fast, but, because putting “earning money” as the only one purpose, many private firms are not consider on the healthy of product, in order to get the “low cost” these firms are using dangerous chemical mixture without considering the healthy of customer, such as, in 2004, “the big head baby” issue has shocked the whole China, Chinese prime minister Wen jia bao has indicated some departments to investigate this case, The fact is the baby has drunk the unhealthful milk powder ,and then leading to big head, the serious is many baby died straightly. This case leads Chinese government to enact the more serious law which is strictly controlling the dairy productivity process to calm the angry of the society, The strict law and the disagreeable sense of the society let Mengniu need to deal with this issue more careful, how to built again the confidence of the society for the milk powder is the more difficult issue of the dairy producer.
The main threat is coming from the competitor , Mengniu is not only to deal with the domestic competitor, but it also faces the foreign competitor, the main domestic competitor of the Mengniu are the Yili, bright dairy , they are found in 1980s , they have the advance the equipment, long-period market experience, huge capital , and the complete distribution channel. Such as, in China mainland, Yili has more than 20 factories covering the North, South, East region. Mengniu has less than 10 factories throughout the country. Besides, although many foreign dairy companies have retired from Chinese dairy industry, there is still the foreign company exploiting the Chinese dairy market through joint venture with the domestic firm, such as Danone has bought a 3.58 per cent share in Bright Dairy from Shanghai's municipal government for 121.03 million RMB (US$14.59 million). (Milk companies vie for re-entry, 2004).Besides, since China jointed in WTO. The import tax is decrease; it will enhance the pace of the foreign dairy product entering into Chinese dairy market.
China dairy import & export in 2003
Source: Chinese dairy sector
The above diagram is the situation of China dairy import & export in 2003, so, for the foreign company, domestic firm needs to find the correct strategy for facing.
- Strengths and Weaknesses,
As one of the leading dairy producer, Mengniu has own advantage (strengths) and disadvantage (Weaknesses).
In the dairy industry, the competition is very high, from the beginning, Mengniu has put the quality of product on the fist position and to show the different character with other product, the taste and the smell of Mengniu’s product is very special and good, “when the customer drinks the milk, from the taste and smell, they can distinguish the product is our product” the CEO of Mengniu, Niu Gensheng said. In addition, thanks to Mengniu dairy develops very fast, it incur the interest of some foreign venture investor, investment bank Morgan Stanley, CGU-CDC China Capital Partners Ltd and Dinghui Investment invested a combined US$26 million in Inner Mongolia-based Mengniu Dairy in late 2002.( Milk companies vie for re-entry,2004) . Mengniu can use this capital to research and produce the new product. The important reason that Mengniu develops so fast is Mengniu has a strong human resource group. It is including all kinds of talents in this team; these talents have rich experience in dairy industry, besides, the company has always invited the talents to join Mengniu to enhance the strength of the group.
Meanwhile, the weakness of Mengniu is the distribution channel is not completed, cause, Mengniu is just found 1999, even though the pace of development is very fast , it still can not compare with those old companies. Such as Yili, Sanlu have complete distribution channel throughout China. The poor distribution channel will affect the quality of the product, because of dairy products have to be consumed fresh. Long-distance transportation is not possible for the business. Mengniu has less ten factories in China mainland, and many of these factories are OEM (original equipment manufacturing) providers. Generally speaking, in China, the company has ten subsidiary companies; it is not easy to cover the whole Chinese market. Besides, the method of OEM is more difficult to guarantee a consistent quality of products.
The issue Analysis,
Same with other company, Mengniu has also faced some issues, now it is fact that Mengniu is developing fast, in five year (1999-2003), from founding company to take up the 17% market share in the Chinese liquid milk market, the speed is very fast, but does the rapid progress in sale volume match the company ‘s strength? When the company found in 1999, the demand of market in that year is very huge, Mengniu has decided to design and research the product, and then let other company produce product caused Mengniu does not have any factory to produce the product. (Like Nike), until now, Mengniu has not built the complete distribution system throughout China. The different developing speed will bring the bad effect for Mengniu.
In Chinese dairy industry, the competition is very hot, every company wants to take up the market share, the fast and more effective way is reducing price, When Mengniu fist entered into the dairy market, the strategy used is reducing the price , based on the low price, high-quality, letting Mengniu take up much market share rapidly , This action leads Bright dairy, the second biggest dairy company in China to follow to reduce price, the other companies joined in the “price war”, the market situation is more disordered, such as, in supermarket, this brand is “ buying 5 free 1” that brand will be “buying 6 free 1”. Is the price war suitable for Mengniu forever? is the confused market situation suitable for the future development of Mengniu?
Normally, some international famous companies has more concerned on the brand of the company, they invest huge cash for building brand of company, some famous brand’s value is very high, such as Coca cola, Adidas McDonald’s etc, it needs to admit Mengniu has taken up the huge market share, but does Mengniu build the own brand? Now, Mengniu has become the third biggest dairy company according to the low –cost material, low-cost labor and the huge demand of Chinese market, these advantage are not pure advantage, after 50 years maybe these advantages will be disadvantage, from long-period strategy, should Mengniu need to build the own brand?
Mengniu is more regard on the talent, for this reason, Mengniu has invest huge capital to recruit the external talent for building the company, In dairy industry, every company envies Mengniu has a strong group. However, the issue is the more external talent is difficult to correspond with the culture of the company, how to deal this situation is the challenge for Mengniu.
Objectives:
As a successful and mature company, Mengniu should set the marketing objectives, which is increasing sale volume from annual1.26 millions tons to annual 2.75millions tons by the end of 2005. The sale income will be from approximately 7billion RMB in2003 to 10billions in2005.The real aim is satisfying the demand of market and then take up more market share, another is getting huge profit for the development of company. Besides, Mengniu should expand the number of distribution channel, it can use franchising strategy to search partner, from now, and it will be open 15 thousands of franchising shops throughout China in 5 years. The purpose is further completing the distribution channel.
Marketing strategy:
In order to get the market objective, Mengniu needs to make some marketing strategies. At present, Mengniu the target area is the Firs-tier market, the big city of China, such as Beijing, Shanghai, etc. Mengniu should consolidate the position in the first –tier markets and expand into the second and third-tier markets, the middle city and rural region which is the huge market in China. (More than 8billion population is in rural region).The target customer will be the middle-income level customer. This categories customer will be more consider on the dietary nutrition, healthy and safety, so, the product of Mengniu needs to be outstanding “ fresh”; “good-taste”; “ nature”; and “high-quality” to let the customer like the product of Mengniu and drink Mengniu dairy product without any scare. For the different age stage customer, the Mengniu dairy product can launched different categories product. Such as, for the old customer, the character of product will be more low-glycolipid; for the young customer, the character of product is rich on the calcium and vitamin to complement the nutrition of the children.
Since, Mengniu floated on the Hong Kong market in 2004, So, it can collect the money from the public and then invest for the research and development of company, R&D is important for Mengniu, it should increase the expenditure by 20%; “symptom of berserk cow” is the big threat for the dairy company, Mengniu can invest cash on building the modern dairy farm with the foreign advance technologies in grass planting, cattle breeding and milking to ensure the quality of raw milk; the case of “the big head baby” is the eternal pain in Chinese mother’s mind, Mengniu can introduce into the Milking Robot in production process to reduce the man-made pollution, meanwhile ,it can improve the level of productivity.
Advertising is more important market strategy Mengniu should use. The reason is Chinese market is still immature, where customer have no brand loyalty and are easily influenced by advertisement and promotions. (Milk companies vie for re-entry, 2004).Mengniu can use the advertisement to incur the notice of Customer and then enhance the value of brand-“Mengniu” Such as, Mengniu can do the advertisement on CCTV, the monopoly in Chinese inter-medium which can cover the whole Chinese mainland, even some foreign region, Cause Mengniu dairy product is the official Chinese space milk, So, Mengniu can put advertisement slogan “Mengniu, let Chinese be stronger” , this slogan has two meaning, one is the attribute of product, the dairy product of Mengniu can make body become more healthy , another meaning is as the official Chinese space milk, Mengniu hope the Chinese space program can let Chinese be stronger in the world, this can show Mengniu is the national brand meanwhile can catch the national proud sense of customer, giving them deep impression, in the fierce competition with foreign company and the effort for building brand, Mengniu already got the advantage.
Public relation is many firm needs to consider, Mengniu also needs to build the visualization of the company through the public activities. Since Chinese government launched the “the developing North-Western region” strategy, Mengniu can sponsor some the social activities which held by the local government to build the good relationship with the government. Such as, Mengniu has sponsored the activity “resisting SARS” in 2004 ,it is the good marketing strategy to promote the company, if the capital of company can, Mengniu should sponsor the Olympic Games held in Beijing in 2008. It is the big opportunity for Mengniu goes for world. In addition, Mengniu is getting in to the “price war”, there is not any company which can offer the resource for the lasting “price war”, Mengniu can retire from the “price war” and call for the domestic dairy firm to develop together, Such as, Mengniu called for building Hohhot as “Chinese dairy capital” (Hohhot, the capital of Inner Mongolian Autonomous Region.) in dairy industry.
Distribution channel is the life-line of the dairy company, thanks to the development of Mengniu is very fast, it does not have complete distribution network, this situation already limited the further development of Mengniu. For getting the aim that open 15000 franchising shops in China. Mengniu can target the middling city, which the strength of other competitor is weak, expect that, it also can pay the renting fee for the franchising shopper; the purpose is rapidly building the distributional channel to catch up the pace of development of Mengniu.
The price of Mengniu needs to be somewhat lower than the competitor, in fact, Mengniu is targeting on the middle-income level customer, and this kind of customer has intention and ability to buy the dairy product. Mengniu can not like Nestle put “high-price” as strategy to target the white-collar. Like the pyramid, the higher price, the few customers, the lower price, the more customers, finally, the lower price will get huge profit. So, in China, “low-price” strategy is more available.
The service of Mengniu needs to be wildly available and quickly, the completed distribution network will let the service of Mengniu be throughout China. Mengniu can set one booking hotline, “the morning booking, the afternoon sending, the afternoon booking, the second morning sending”, one purpose is showing the fast service, and another is ensuring the quality, such as, the fresh of liquid milk. Mengniu needs to make a standard for salespeople of the franchising shop to retain the deep impression for the customer, this need to be training and retaining the salesman, the training program is the working behavior, talking behavior, and the knowledge with the product, the salesman needs to have rich product knowledge to respond the inquiry of customer. Besides, Mengniu should set the 24 hour customer complaining centre and feed back the question of customer quickly, Mengniu also can build the “information of customer system” for maintaining the relationship with the customer.
For Sale promotion, Mengniu needs to be more careful, if the degree of sale promotion is higher, it will damage the value of brand, if the degree of sale promotion is lower, and it will not give enough support for the values of brand. So, the sale promotion needs to be different in different period, different place. Such as, in Chinese National Day, Mengniu can do the promotion for celebrating the National Day, the purpose is showing Mengniu is the national brand .Another period is Mengniu can do sale-promotion in Chinese New Year, the reason is the most of Chinese people will purchase all kinds of food, beverage for using by self, or as a gift for visiting people in this period. Besides, the sale-promotion needs to work together with the advertisement to get the best effect.
Marketing strategy is not fastness; it needs to more flexible to deal with the sudden situation, different developing stage, the firm has different marketing strategies, dealing with the opportunity and threat, it should make some suitable strategies to push the development of firm.
Action programs:
Mengniu is paying attention to the R&D program, in R&D program, Mengniu introduced into the foreign advance technology to update the product, besides, Mengniu has invite the famous domestic software-design company to build the network system in Mengniu , let Mengniu use information technology to optimize the resource ,and improve the productivity.
In order to expand the further market share, Mengniu launched the “revolution of yogurt” In February 2005, Yang Wenjun; deputy president of Inner Mongolia's Mengniu Dairy Industry (Group) Co., Ltd signed a strategic cooperation agreement
with the Chansen Company in Denmark, a research organization on probiotics in a country strong in the diary industry. Mengniu would also cooperate with Chansen and establish probiotics labs for the research and development of LABS probiotics suitable for Chinese. The cost will be RMB 80 million. (Mengniu to cooperate with inte'l research organization, 2005).
The Mengniu’s key management challenge is the information gap, which has made cost control, market forecast, and customer management out of support by objective datum. The management can't well promote the corporate strategic management, system management, and authority management, etc. So, Mengniu has cooperated with Kingdee international Software Group to enhance the utilization of information technology. In September 2002, Yao Tongshan, Vice President of Mengniu Group, Signed Strategic Partnership with Kingdee in Hohhot. The cost will be RMB 150 thousand. (Kingdee, corporate news, 2004)
The utilization of the technology can make Mengniu take up more market share and enhance the internal management.
Projected Profit-and-Loss Statement
The marketing plan needs the supporting budget, the sale volume of Mengniu is planning to 2.75 million tons in 2005, and the sale revenue should be 10000 million. The revenue will increase 30%.There will be one budget plan for this marketing plan, the cost of sale will be approximately 5000 million. In order to capture the anticipated growth, Mengniu should develop and expand the production capacity. It is planning to invest RMB 500 million, 150million, 100 million to expand the production facilities of liquid milk, ice cream and other dairy product respectively, The administrative fee will be getting 150 million, the increase rate is 10%. In addition, for the Human resource and remuneration of Employees, In Mengniu, the total number of employee is approximately 21000, the total staff costs Mengniu invest will be 600 million including the fee for continuing education and training programs for its management staff and other employees constantly improve their skills and knowledge. For marketing operation system, Mengniu should invest totally 2200 million, increasing 120%. Cause, Mengniu should have enough capital to support the marketing strategy, these include: Marketing research, 200 million, for doing survey for customer and competitor. Advertisement, 800 million, Mengniu should use TV, Newspaper, Internet, and public board, etc to promote the product and brand. Distribution, 600 million, the purpose is to rapidly build the complete distribution network. Sale-promotion and public relation will be 200 million, 400million respectively. In R&D, Mengniu should invest 700 million for introducing into the new technology and researching new product. The total budget is 4400 million, the profit before tax will be 600 million, the profit after tax will be 573 million, (tax rate is 4.5%).This is just the plan for budget, it can be adjust in actual situation.( China Mengniu Dairy Announces 2004 Annual Result, 2004).
Controls &Implementation:
The section is mainly monitoring the plan’s progress, to make sure the plan outlines can be implemented completely to get the goals the company set. The higher management can review the results each period and spot businesses that are not attaining their goals, (Kotler, 1994, p.109). The meaning is the top management can evaluate the result of plan by comparing the present progress , goals and budget in each month or quarter, then to decide whether inject into the capital or change the strategy , the final purpose is get the goals. Mengniu has formed one audit committee; this audit committee comprises three non-executive Directors, tow of whom are independent. The audit committee has review the company management to make sure the policy can be implemented by the manager and employees. Comparing the actual sale volume with the planning, then, the company will decide whether to enhance the degree of sale-promotion or advertising. For some urgent situation, the company needs to responds it as soon as quickly to control the spread of issue, Such as, In Wuhan, the capital of Hubei province, the liquid milk of Mengniu was poisoned by people, many customer who dunk the milk is poisoning. Firstly, Mengniu called back the entire product immediately for checking, when finding there are some people putting poison purposely; Mengniu has cooperated with police and asked the police to announce the fact by media to resume the reputation of company.
If the company can assort the planning with the implementation, it is not only designing the right things, but it is also doing thing right things, and then the company will be developing very fast, like Mengniu.
Conclusion:
Marketing plan is the development route; the good marketing plan can let company get twice the result with half the effort. Mengniu, as the most potential dairy company in China, how to forecast the marketing situation currently, how to identify the external opportunity and threat and how to use marketing strategy to let self be survival and stronger, the utilization of marketing plan is very important. With the exclusive resource advantage, the huge potential market, the precise internal management, exactly preview the external environment, and by using the correct marketing strategy, One day, Mengniu will be established in China, walk up to world!
