Question

Case Study I

HAIER’s foray into International Markets :

In the late 1990s, the Haier group (Haier) was the leader in the Chinese consumer appliances market (with a 39.7%, 50% and 37.1% market share in refrigerators, air-conditioners and washing machines respectively in December 1998). But deflation in the Chinese economy slowed sales.

ut deflation in the Chinese economy slowed sales growth from 50% in 1998 to around 30% in 1999. Haier decided to look for new markets. Since the US had a large demand for consumer appliances, Haier entered the US market in 1999. Analysts were doubtful about Haier's acceptability to American consumers, as there was a general perception in the US that Chinese goods were of low quality. Haier, however, was confident that with its product differentiation strategy it would be able to create a positive image for its products among the American public. In the early 2000s, the consumer appliances market in the US started hotting up as Haier entered the market. By 2009, Haier products were sold in 9 of the 10 top retail chains in the US.

With Wal-Mart agreeing to stock Haier products, many analysts believed that Haier would be able to shake up the US consumer appliances market. In 2009, Haier had a 6% market share in the US refrigerator market; it stated that it was aiming for a 15% market share by 2015.

The history of Haier dates back to 1984 when Ruimin Zhang (Zhang), a bureaucrat with the local government was asked to take charge of Qingdao General Refrigerator Factory, a state-owned enterprise that is manufacturing refrigerators for sale in China. When Zhang took over the management, the company was on the brink of bankruptcy, with no funds to pay the salaries of its employees or to invest in new product development. When Zhang took charge of the company, he realized that the company did not look after the quality of its products; nor did it bother about customer satisfaction. In 1985, Zhang started importing technology from a German firm and began manufacturing technically sophisticated refrigerators.

Zhang emphasized the elements of customer satisfaction and quality control in the company. In 1985, when a customer complained about the poor performance of his refrigerator, Zhang conducted a quality check and found that out of 400 refrigerators inspected, 76 were defective.

He had all the defective refrigerators destroyed with a sledge-hammer. According to Zhang, this made the workers realize that quality is of only two types - acceptable and unacceptable. In 1989, the company changed its name to Qindao Refrigerator Co. Ltd., and it was restructured with funds raised from banks and government agencies. In 1991, the company once again changed its name to Qindao Haier Group Co. and in the same year it merged with Qingdao Air-conditioner Plant and Qingdao Freezer General Plant. In 1992, the company set up Qingdao Freezing Equipment Co. In the same year, it merged with another previously state-owned enterprise Qingdao Condenser Factory, which manufactured refrigerator condensers.

In the same year it became the first company in China to get ISO 9001 certification, and the company's name was changed to the Haier Group. In 1993, Haier went in for an IPO of RMB 50 million and got listed on the Shanghai Stock Exchange (SSE).

During the mid-1990s, Haier began to grow through mergers and acquisitions. In 1995, it merged with Red Star Electric Appliance Company (and five of its subsidiaries). This company manufactured washing machines. It also acquired Wuhan Elec-appliance Co., which manufactured freezers and air conditioners. Between 1995 and 1997, Haier acquired seven companies and started exporting its goods to foreign markets.

By 1997, Haier was the number one consumer appliances brand in China and the market leader in all its product segments, which included refrigerators, washing machines, microwave ovens and freezers and its revenues were reported at $1.15 billion (10 billion Yuan)...

Haier's Competitors in the US Market

USA was the world's largest and most competitive market for consumer appliances. The consumer appliances market can be segmented on the basis of products into kitchen appliances and home comfort products. Included in kitchen appliances are products such as dishwashers, disposers, compactors, food preservation appliances, refrigerators, freezers etc.

In the home comfort segment are included products such as room air-conditioners and dehumidifiers. The home appliances market in the US was dominated by American companies, namely GE Appliances (a subsidiary of General Electricals), Whirlpool and Maytag. The only strong foreign player in this market was Sweden's Electrolux. GE Appliances, Whirlpool, Maytag and Electrolux together accounted for around 98% of the 9 million standard refrigerators sales in the US every year. In the 1990s, many Asian players such as LG Electronics and Samsung entered the US market in a big way. The big four companies in the US market concentrated on the high- end market comprising full-size refrigerators and washing machines, since the margins in this segment were high...

Strategies in the US Market

Haier decided to compete with the US brands on the quality plank rather than on price. However, analysts felt that it would be very difficult for the company to win over American consumers who associated Chinese goods with low quality. To strengthen its presence in the US market, Haier adopted a localization strategy.

It opened a design center in the Los Angeles and employed US designers for designing its products for the US market. Haier also opened a marketing center in New York. The company focused on enhancing consumer awareness about the company and its products. Commenting on Haier's strategy, Zhang said, "We want consumers to feel that Haier is the one company that comes closest to satisfying their needs." For instance, none of the consumer appliances companies in the US offered a compact refrigerator to satisfy demand from college students who could not afford normal size refrigerators...

Going High-End

Most analysts felt that Haier would feel the real competition only when it entered the high-end market. In the compact refrigerator segment, Haier did not face much competition from established players in the US, who did not focus on the low margin segment.

However, the major US players were keeping track of Haier's activities. Commenting on the competition from Haier, GE Appliances Chief Executive, Jim Campbell said, "I take it very seriously. They may be producing only 200,000 refrigerators per year now, but that's going to get bigger."

On the negative side, some analysts felt that Haier lacked the brand image to make a dent in the high-end segment. They pointed out that in general US consumers were brand-conscious, and this was especially true in the case of high-end products. The lack of a positive brand image in this consumer segment would probably make it difficult for Haier to succeed in the high-end markets. Analysts felt that Haier had an additional weakness in its distribution and service centers...

Future Prospects

Despite a few reservations, analysts too were, by and large, upbeat about the company because of its strong performance in breaking into the American market in a short time.

Said Nicholas Heymann of Prudential Securities, "Over five years, it could become a force." With quality products and lower prices, it was felt that Haier would be able to garner a sizeable market share in the US. Haier's experience in the geographically vast and diversified Chinese market would serve it well in catering to the US market.

However, a major worry for Haier is how to fund its expansion plans. Increasing competition in the domestic markets is bringing Haier's finances under pressure.

Questions 4:

What should be the marketing strategies that Haier should employ in Emerging Markets, Maturing Markets and Declining Markets ? Explain the reasons behind it.

Answer 1

There is no doubt Haier is one of the major market player in the industry of customer appliances and electronics. The company’s past track record in China represents their level of experience, wealthy business, control on market, and their popularity among its customers. For a company existing in business for such long period has accessibility to all the resources, capitals, strategy, think tank and business leaders, the only need is to understand the demographics and choices of their customers. As from the case, we understood that Haier is a major consumer appliances brand in the history of China but this image doesn’t convey the same message in the American markets. The Chinese products are considered of inferior quality and short life products. But from the history itself, the Haier started to grow when they focused on the qualities issues rather than quantities. They always accepted good quality and benchmarking of consumer appliances manufacturing processes. The company values lie in providing what is best for the customers without compromising the qualities and functionality of such appliances. Let us understand the marketing strategy of Haier by following 4P’s and 3 C’s approach to the marketing mix:

4 P’s

Product: The product is considered to be of inferior qualities and therefore the company needs to redesign its features and offers by the product to match the requirements of the customers.

Price: The price which is being targeted by Haier is to match with students budget and offer them value for their money in the form of small refrigerators.

Promotion: The promotion strategy is very crucial. It decides how do you want your products to be promoted and advertised in the market. It should be affordable product for students which comprises great value for money.

Place: The company generally tests the product in a smaller regional scale to research and develop its launching strategy before going full into the countrywide market. The testing and replanning the product launch helps in redeveloping their strategies. The places where the company would like to compete in the given share of market is termed under this category.

3 C’s

Customer: The company should identify for which customers segment of the society they are targeting. The approach will define the marketing strategy, capital expenses, research and development team for product development and modifications to match the needs of potential customers of the product.

Competitors: The company will have to face the completion of the existing players in the market. The situations sometimes gets worse when a new company is trying to get established in the market and other key players of the market have a competitive edge and capital to compete them. It’s wise to decide beforehand to compete with their which strength of the product in the market competition.

Company: The company need to hire local experts, research and development firm, collaborate with local suppliers of raw material to reflect the local image in the products. If the customers are capable to relate themselves with the product and local touch and recognize the importance, it will be a point of success for the firm.

Emerging Markets: In the emerging market, the most important factors are to earn the trust of the customers on the product offered by the companies. If the product cannot offer quality, good brand image, long life, then there is no point of switching from the existing choice of brand. Therefore, the company needs to localize the product as much as possible without leaving their key quality factors. Collaboration with the local team of experts and R&D teams is one of the option for Haier to consider while entering into new markets.

The Maturing Market: The maturing markets can be tapped by the help of investing more into advertising and marketing the well-established products for their upcoming products to resemble the successful qualities and values.

The Declining Market: The declining market represents outdated technologies and their limited set of users. Therefore, to control their declining market shares, Haier needs to invest into the adoption of new technologies, create more technological collaboration with leading firms, the research and development team needs to be expanded, the market survey of product limitations and limiting benefits are needed to be conducted for the development of new products for market launch.