On the international front, Kao Corporation seeks to build strong partnerships with companies, which would complement the company. In a recent development, Kao Corporation formed a Strategic Alliance with Beiersdorf AG in order to strengthen the sales of Biore in Europe. In the US, Kao Corporation entered into an agreement with S.C. Johnson & Son, Inc., to market Kao’s household cleansing kit in U.S. These are examples of the many mutually beneficial partnerships, which Kao Corporation has undertaken.
In conclusion, Kao Corporation has recognised the need for management to implement cost reducing strategies in order to improve profitability and competitiveness on a global scale. Moreover, Kao Corporation is constantly evolving and restructuring its operation all in a bid t make the company into a successful global company.
Marketing Strategies
Consumer Oriented Approach
The consumers are the heart of the industry. Thus, it makes sense to put emphasis on the consumer’s needs and wants. In order to serve the consumers better, Kao Corporation undertakes many efforts to identify their needs. To accomplish this task, the Kao’s Business Divisions, the Product Development Department and the Research and Development Division will take an insight into the daily lives of the consumer in order to create innovative products. In addition, Kao’s Consumer Information Centre gathers consumer’s inquiries and comments on a daily basis. This is called the Kao Echo System. The Kao Information Centre provides information to all Kao’s divisions. To further increase the effectiveness of the collection of consumer data, Kao established an information oriented sales organisation. In 1994, Kao took part in the Electronic Data Interchange (EDI) program with the retailers. This program became the foundation of the birth of the Efficient Consumer Response (ECR) program. These programs served more than just to provide Kao with sales information on a real time basis. The information gathered by EDI and ECR were used as guidelines for new product developments. Retail outlets are an essential contact with the consumers.
While the gathering of information is crucial, Kao Corporation always keeps in mind the view of the consumers. In order to better understand the consumer’s real needs in their everyday lives product developers and marketers would visit homes of product test users to carry out interview with them and obtain firsthand information about the product usage. Kao does not only concentrate on making discoveries on the product but also the method of usage is given emphasis so that it is not inconvenient for the consumer to use. Products that truly satisfy the consumers are the basis of establishing Kao’s brand.
Kao is an international brand and as such it is imperative that efforts to implement consumer orientation must be on a global scale. By taking into consideration the different cultures of each country, Kao Corporation will adapt its product to suit the local needs and preferences. Kao believes the consumer-oriented approach to develop new products will strongly aid the company in establishing a strong brand in the global market.
Product
Building Kao’s Brand Power
Being in the Fast Moving Consumer Product industry, Kao recognises the importance of brand power. By increasing Kao’s brand power, its corporate strength can be significantly reinforced. Presently, Kao has succeeded in empowering its brand. In 1997, the Nikkei Research Institute of Industry and Markets rated Kao Attack as the best selling brand in Japan. This shows that consumers have a good perception and have high brand loyalty towards Kao.
Building Brand Power is a constant ongoing practice, undertaken by Kao. One of such efforts is to utilise Research & Development to support brand building. Through the synergy of scientific knowledge and technological know how, Kao is able to produce new and improved products which would offer consumers more value. Take for instance, Kao scientific research were the first to discover that wrinkles is due to a biochemical process. Thus Kao came up with Sofina Seraty which was able to slow down this ageing process. With constant product improvements and innovations, Kao is able to offer better products to the consumers. This in turn strengthens Kao’s Brand. As can be seen here Research & Development is an essential part of the company’s strategy in building a globally recognised brand. Research & Development is able to support the brand product innovations. With constant product improvements and innovations, Kao believe it is able to gain the trust of the consumers through strong brand loyalty. This in turn will contribute to Kao’s overall objective of achieving profitable growth.
Product Quality
In addition to building a strong brand, Kao aim to satisfy its consumers all around the world. As we know, Kao is dependent on repeat purchase and by satisfying its consumer, Kao stands to benefit from repeat purchase. A satisfied consumer would tell 3 people about his/her bad experience. In line with Kao’s globalisation goals, Kao Corporation ensures that the quality of Kao products all around the world is of similar standards. This is so that consumer can rely on Kao’s products anywhere around the world.
Price
The pricing objective of Kao Corporation has to coincide with the company’s business strategy. In general, the Fast Moving Consumer Product industry is very price sensitive. This means that competitors are very fast to respond to any changes in Kao’s pricing and vice versa. Kao Corporation prices its product according to the product’s position in the market. Take for instance in Malaysia, Kao Laurier is the leader in the sanitary market. As such, Kao does lowers it prices even though the competition has decreased its prices. This is because Laurier is a quality leader and lowering of prices could cause its image to be jeopardised. However in the shampoo market, Kao is the market challenger of P&G. In this case, Kao would change its prices according to changes in prices of P&G products.
Overall, due to the sensitivity in prices, Kao has to adopt a follow the leader pricing strategy in order to avoid a wide price war among competitors that would be very costly to the industry as a whole.
Kao’s Pricing strategy during the Asian Crisis
The Asian Crisis, which caused many repercussions in the region, has a significant impact on Kao Corporations especially several of its foreign subsidiaries. Kao Malaysia was very heavily dependent on imports for its raw material. However when the Asian Crisis struck the Malaysian ringgit depreciated drastically. This in turn caused its cost to rise drastically. This left Kao no choice but to increase prices as well in order to survive. However, should Kao Malaysia had increased it prices in proportion to the rise in cost, the Kao would have faced the risk of losing market share to its competitors. In order to cushion the effects of the price increase, Kao increased its prices gradually. Kao Malaysia increased its prices quarterly and each time the increase would be an increase of 10% – 15%. This would consumers would not feel the price increase is too exorbitant. The psychological effect of this strategy on the consumers proved largely successful. Today, prices have stabilised and Kao managed to pull through the crisis without losing its market position.
Distribution Channel
Kao Corporation established on information oriented sales organisation to carry out regional marketing directly with retailers. In 1994, Kao incorporated the Electronic Data Interchange (EDI) program. The EDI is an online processing of information between Kao and retailers to enable speedy and efficient distribution of products. This co-operation thus successfully minimised transaction and operational cost.
The success of EDI led to the development of Efficient Consumer Response (ECR) program. This made it possible for Kao to constantly innovate its distribution and other marketing activities.
Moreover, Kao Corporation sets up regional production plants in order to reduce cost. Countries chosen would be one that has low production cost due to cheaper rent and labour. Regional plants make distribution within the region to be faster and cheaper. However, Kao Corporation still practices the conventional distribution channel despite its efforts to reduce logistic cost. (Refer to Appendix A).
Promotion
The establishment of Kao products in the market is Kao Corporation promotion objective. This is especially important due to the fact that in the Fast Moving Consumer Product industry, consumer practice the Habitual Buying Behaviour. This is whereby the consumer would choose a brand based on familiarity or convenience. Through the use of Promotion, Kao aims to instil brand loyalty.
The media is also very useful for Kao Corporation to create awareness in market about a new product. Through the use of advertisements Kao can educate the public about the existence and the benefits of particular new product it has launched.
The promotional tools used by Kao are as follow: –
1) Advertisements
- TV, Radio, Newspaper and Magazines.
2) Personal selling
3) Sales promotion
Competitive Strategies
Currently Kao Corporation uses the differentiation strategy to fend off its competitors Kao has adopted a consumer orientated approach in order to better understand the needs and wants of the consumer. Kao is always improving its existing product through Research & Development in order to provide value for the consumers. At the same time, Research & Development enables Kao to introduce new products into the market. Some of these products are first in the market while others are new product lines aimed at winning market share from competitors. Take for instance, in order to fight fierce competitors such as P&G in the hair care market, Kao introduced Lavenus which is a new hair care line. Lavenus has L-AHA formula to make hair softer and shinier. This is Kao’s attempt to differentiate its products from that of its competitors. By providing superior quality and value for the consumers, Kao’s strategy is to instil brand loyalty in its consumers to achieve long term success in the market. Competitors such as Follow Me and Ginvera employs the low cost leadership. These firms use price to gain market share by undercutting Kao Corporation. In defence, Kao uses promotional efforts to emphasis on Kao products superior quality and features. With constant Research & Development activities to ensure consumer satisfaction, Kao has been able to fend off the low cost producers. However there are competitors like P&G and Johnson & Johnson who employ similar differentiation strategy. Both P&G and Johnson & Johnson carry out heavy Research & Development efforts in order to create value for consumers in their product. In addition Johnson & Johnson emphasise on product reliability to gain the trust of the consumers. In order to stay competitive against these strong competitors, Kao has employed lower cost strategy to increase its profitability. However, Kao does not compromise its product quality in its struggle to reduce cost. Instead it reduces cost through increase efficiency in management and operational activities. This enables Kao to stay ahead in the competitive environment of the Fast Moving Consumer Products.
Evaluation and Comment of the Implemented Strategies
Now that we have seen Kao Corporation’s strategies, we can evaluate the degree of effectiveness of these strategies. First of all, it is dear that the company’s current goal is to increase profitability. One of the methods Kao intends to achieve this is through cost efficiency. Since 1986, Kao launched Total Cost Reduction Program to steer the company towards greater cost efficiency. Now in 1999, Kao’s cost reduction efforts are still continuing with the implementation of Economic Value Added Program which aims to increase the value creation capability of the company by training management the importance of cost of capital in making decisions. While this is generally a good strategy, it remains to see how well EVA will perform especially in the area of conflict of interest between management and shareholders see eye to eye in order for the company to sustain profitable growth in the long run.
Looking at Kao’s marketing strategies, the company has managed to layout a well-designed product with emphasis on Research & Development efforts in order to satisfy the consumers better. The consumer is at the heart of Kao Corporation’s marketing strategies. As such, Kao channels considerable efforts into understanding the needs and wants of the consumer. Products are ensured to be of satisfactory quality and value for consumer. While products are of superior quality, Kao does not price its product exorbitantly. In fact, all Kao products are priced competitively in order to win market share. However pricing is not everything. Kao’s uses promotion in order to instil brand loyalty and increase company profitability. However it is very hard to accurately measure the effectiveness of above the line promotion efforts. Moreover, the cost of advertisement and other promotional tools could be significantly high. Once promotional efforts have been carried out, Kao has to distribute its product into the market. While Kao has adopted the EDI and ECR programs effectively to reduce logistic cost while speeding up the process. However, contradictory to Kao’s effort to reduce logistic cost, it still maintains the conventional methods of distribution. Kao’s distribution channel still consists of many levels, which results in higher distribution cost.
Currently Kao Corporation is a multidomestic company. However, the world is moving towards globalisations but Kao Corporation is not showing signs to steer the company towards this end. There are no clear strategies that are aiming at transforming Kao into a global company, which would benefit Kao Corporation in the long run.
Financial Analysis
For the financial year ended 31 March 1999, Kao Corporation’s consolidated net sales saw an increase of 1.9% to ?924.5 billion. (Refer to Appendix B). Despite the sluggish Japanese market, domestic sales of household products continued to increase by 1%. This was largely due to the company’s ability to improve its products while introducing new products into market. These were made possible through the Research & Development efforts of Kao research team. In the Asia and Oceania region, Kao Corporation was able to strengthen its core brands that resulted in the increase in the region sales. Despite the Asian crisis, Kao Corporation managed to expand sales. This proved that the company’s strategy to build brand power was a right move. As for North America and Europe region, the strong sales performance by Biore facial core products, Kao’s sales were substantially boosted. In addition, Kao took several other strategic steps to strengthen its presence in the region. In May 1998, Kao Corporation acquired Bausch & Lomb Inc, which is a skin core company founded in the United States. In the Europe, Kao Corporation formed a strategic alliance with Beiersdorf A.G in Germany to launch Nivea Usage.
Following are some of the key financial ratios, which I believe would be useful to give us a better insight of the company’s financial standings: –
Return on Equity (Refer to Appendix C)
The return on Equity of Kao Corporation has been fluctuating between 5% to 7.68% in the past 5 years. The low was during the year ended 31 March 1998 where the ROE was 5.77%. This was probably due to the sluggish economic situation in the Asian region. However in 1999, the ratio rose to 7.68%. On an overall, Kao Corporation has been able to maintain profitable performance over the past 5 years. This shows that the strategies of Kao Corporation have been successful. However, while Kao has positive returns, if it is insufficient to cover the cost of capital, then it is not sufficiently profitable.
Earnings per Share (Refer to Appendix D)
The earnings per share of the company has shows significant increase over the years. The high was in 1999 with ?55.98 per share while the low was in 1995 with ?39.49 per share. This shows that Kao has been successful in creating value for the company. Kao has been able to protect the shareholder’s interest in the company. This means that management does not just look after their own interest but also take into the consideration of the shareholders.
Inventory Turnover (Refer to Appendix E)
Kao Corporation’s Inventory Turnover has been maintained above 4 times per annum over the past 5 years. This means that Kao Corporations stock are moving relatively fast. The public largely accepts its products and the company does not face the problem of slow moving stocks.
Acid Test Ratio (Refer to Appendix F)
Kao Corporation’s acid test ratio has been on the rise over the past 5 years. In 1995 the ratio stood at 55.41% whereas by 1999, the ratio was at 101.67%. This means that Kao’s liquidity has been improving. An acid ratio of 101% would mean that the company is able to meet any short-term obligation and it has sufficient funds to cover all its current liabilities. This shows that the company is in no danger of liquidation in the near future.