Essay contributors: Tanya Cheng and Joyce Li of 4L
Recently, MTR stations have been filled with Tao Heung’s ‘One Dollar Chicken’ advertisement which is intriguing us to think deeply about this campaign from the economic point of view.
Hong Kong has been considered as the ‘Culinary Paradise” for years and its catering business is undeniably competitive. Lots of firms in this field have been trying to come up with better advertising campaigns with the aim to increase profits. For this, Tao Heung greatly reduced its signature dish, roasted chicken’s price from $98 to $1, suggesting that it is deliberately attracting more customers to increase sales. According to a basic economic theory, customers are assumed to maximise utility and they choose their goods based on the factors including but not confining to their budget, product quality and price. According to the supply and demand theory, the demand curve is downward sloping. If the rice is lowered, the quantity demanded will rise. When demand is elastic due to the availability of close substitutes, a price cut will increase sale revenue.
Moreover, firms are assumed to maximize profit. This assumption seems to be intuitively true. But is it always the case? “One Dollar Chicken” has demonstrated that Tao Heung may have other objectives. In fact, it is difficult to maximise profit through the aforesaid campaign as the cost of 1 chicken must be well above $1. It is postulated that the campaign is to attract more customers and develop brand loyalty. Once brand loyalty is built, customers may visit Tao Heung more frequently. Thus, this pricing is consistent with the notion of profit maximization in long run. In addition, this campaign can also be used to build the company’s reputation. Selling “One Dollar Chicken” can be used to create a favourable corporate image which shows kindness and generosity to the underprivileged consumers who can access to the delicious chicken at an affordable price. A positive corporate impression and popularity are also aligning with profit maximization.
Furthermore, it is suggested this “One Dollar Chicken” is a business trick which actually increases profit. Basically, it is rare for customers to confine their orders to chicken only. Customers often order other dishes apart from chicken. It is observed that the charge for tea is significant. Therefore, “One Dollar Chicken” can be considered as tie-ins which boost sales and profit.
In some markets, firms are interdependent. Decisions and actions of one firm will affect competitors. As a main player, Tao Heung’s “One Dollar Chicken” pricing will cause competitors to lose sales. The impact on Chinese tea houses is especially big as they target the same market segment. Some rivals may be forced to lower their price or to engage non-price competition such as advertising in order to stay competitive. Some small tea houses are likely forced out of business if “One Dollar Chicken” is lasting for a long time, making these marginal firms unable to earn normal profit and survive. It is known that Tao Heung is financially strong to cut the chicken price sharply and finance the related marketing activities. In contrast, small caterers and restaurants may not be able to compete because of their relatively limited resources. So, they will be the losers of this predatory pricing. In Economics, it is said such pricing would do more harm than good. It is worth of a further economic analysis.
Conclusively, the one dollar chicken campaign is good for learning supply and demand, assumptions about firms’ objectives, market structures and business behaviour. It also reminds us that our daily life, as simple as we eat, is closely attached to Economics which help us understand the society.
1. EXECUTIVE SUMMARY
‘A Week a Pill, Whitened for Real.’
Our product, “Pop-Star Whitening Supplement”, has 3 very special features: extended time-release mechanism, fast/measurable results and weatherproof. It can be taken weekly due to its extended time-release design as the contents of the supplement release at 5 different time intervals throughout the week. Consumers will be able to observe a half degree whitening effect every 3 months as they compare their skin tones to our company-issued colour chart. As a pill, our product will not be affected by the extreme humidity and heat in Indonesia. Unlike most existing whitening products which are in the form of creams, our product does not cause embarrassing streaks of product leftover on the skin as consumers are sweating. In fact, most high-end Western brands fail to cater to extreme weather in Indonesia. It is reported that Western beauty products cannot adapt to the Indonesian climate and easily melt off the skin. Being a product targeting a population that also consists of Muslims, our supplement is halal certified. It conforms to the rules set by the Islamic Council, ensuring that Muslim consumers can consume the product. In the market, halal certified high-end products are not common.
We aim to target both male and female high spending ability consumers of ages 25-50, as both sexes perceive fair skin tones as beauty. Our product undergoes strict quality control and is manufactured in the UK under full automation. Unlike other externally applied whitening creams, the supplement market is a new and growing market. As a first mover, our company can occupy a great market share due to the three advantageous features mentioned above.
We aim to penetrate the market first by using intensive promotion such as offering discounts, providing free trials of skin testing facials, etc. We also plan to develop a healthy, professional and embracing brand image. Once we have developed brand loyalty, we will expand to a new market segment by product diversification, i.e., modifying our supplement ingredients to target consumers that are above 50 as we launch hydration and anti-ageing supplements.
2.TARGET MARKET
The age group of 25-50 years old with a high purchasing power is going to be targeted. As a matter of fact, Indonesia has a big population and its per capita GDP is rising at 3.9% p.a.. There is a rising number of high-income consumers. In 2018, Indonesia had approximately 43.12 thousand millionaires; it is even predicted that by 2023, there will be more than 55 thousand millionaires in Indonesia. Thus, the market for high-end products is expanding, opportunity increases. Both male and female will be our target market segments, since both sexes aim for fair skin tones.
As a high-end product, our supplement is targeted to consumers with higher purchasing ability. It is observed that Indonesian women keep on buying expensive whitening products even in times of economic slowdown. Whitening products are essential to Indonesians who consider people with lighter skin tones as more beautiful and successful. In addition, skin health and long-term results are more important than the quick short-term outcomes as consumers in this age group start to face skin ageing problems from extended exposure to sunlight, stress, etc.. So, our marketing strategies will be specially formulated to meet the above needs of these consumers. Furthermore, as a big proportion of the population is Muslims (87%), they will be more swooned by our halal certified products as consumers feel cared for and respected.
3. COMPETITION
The WAR with popular high-end brands is severe… Don’t forget local brands too!
In a broad beauty product market, major competitors include popular high-end Western brands such as L’Oreal or Estée Lauder and Asian brands such as Shiseido or SK-II. These brands have sold whitening products like facial masks, foundations and creams for a long time. They have a high market share and many loyal consumers. The main way to compete with these brands is by adopting non-price competition, such as establishing a unique brand image – we aim to become a brand that actually cares about our consumers, contrary to existing brands which only aim to maximise profits. Moreover, supplements will be marketed as a weekly necessity that does not contradict to consumers’ existing beauty products but enhances them. On top of that, these multinational companies focus little on the market of halal cosmetics. Since our supplement is halal certified, we will have a competitive edge as we cater to the needs of the Indonesian market.
There is also price competition with existing local vitamin brands like BIOVEA which manufactures and sells vitamins beneficial to the skin. They sell at lower prices than our supplement and we may be disadvantaged in terms of price competitivity. However, since our supplement is a value-based product and we target high-end consumers, high-pricing is justified. Since our supplements promise to bring effective and measurable results on health and beauty, we enjoy an absolute advantage over local competitors due to increased consumer confidence.
What if other brands copy us? NO WORRIES!
There may be a threat of substitutes. Multinational corporations mentioned above might copy our success and could duplicate and modify supplement ingredients. Nevertheless, as a first mover, we have already established strong brand recognition and customer loyalty which will deter other competitors to enter the arena. Moreover, supplements are products that depend heavily on networking effects. Potential competitors will be discouraged as we have developed a mass of loyal consumers.
4. PRODUCT DESCRIPTION AND STRATEGY
Problem-solving – our product’s unique selling points
Our product provides effective long-term skin whitening results. Consumers will be able to check in with a skin tone scale issued by our company to compare whitening results. They will be able to witness at least a half degree whitening effect every 3 months. Objective results promote competence. The whitening supplement has a high-tech extended time-release mechanism. The product consists of a folded pill held in a capsule that is in a star shape when expanded. Vitamin powder held in the 5 arms is released at 5 different time phrases over 7 days, achieving extended release. Since each pill can last for a week, the frequency of supplement consumption is minimized. Supplements will whiten and improve the condition of the skin of consumers’ whole body as vitamins will be carried through the bloodstream to the rest of our body. As a remark, the time release mechanism has been a breakthrough but is not yet a widely applied technology.
The supplement can overcome extreme weather conditions. Existing whitening products from Western brands do not satisfy the needs of consumers, they don’t adapt to the Indonesian climate and are more suitable for dry and cool weathers. Most Western products fail to work well alongside sweat and humidity. They often leave embarrassing streaks of products on the skin of consumers. According to empirical studies, Indonesians perceive fair skin tones as beautiful but are ashamed to admit that they use whitening creams. Nonetheless, supplements can overcome these problems as they whiten skin without bringing awkward social situations.
Organic and natural ingredients that can satisfy halal cosmetic rules are chosen. The main ingredients include vitamin B3 which gives skin a healthy glow and prevents hyperpigmentation; vitamin K that removes stubborn black spots; vitamin C that helps build collagen, and vitamin H that helps retain moisture in our body. Vitamin H is essential for skin health and beauty which is very difficult to be obtained from food and often ignored and not put into products by other beauty brands. This makes our product more unique, thus more competitive.
Consumer confidence is KEY
Confidence levels of consumers are vital as the supplements are orally consumed. As planned, our supplements will be manufactured by Parkacre Enterprises Limited, a UK based firm that produces vitamins and capsules. Although manufacturing supplements in the UK will greatly increase our cost of production, the arrangement can increase consumers’ confidence in the quality of our product which is mandatorily registered with the Food and Medicine Supervisory Board (Badan Pengawas Obat dan Makanan). Considering the Muslims in our targeted market, the product will also apply for the halal certification. By developing a trustworthy reputation and company image, market shares is enhanced.
Competition in the long run… Product diversification!
After a few years, product diversification will be applied for the purpose of retaining consumers. They will be able to continue using our products as they age and their skin conditions alter. Vitamins targeting anti-ageing, antioxidation and hydration will be launched. The targeted age group will then expand and loyal consumers can continue using our products fitting to their ages and needs.
5. PRICING STRATEGY
Value-optimised pricing strategy is adopted. Targeted customers are individuals with a high purchasing power. They value the quality and safety over price.
The selling price of the supplement is 450 HKD per pack. Each pack consists of 6 pills and can last for 6 weeks. After comparing with existing supplements and high-end skin whitening products, it is found that spending 400-500 HKD per month on each cosmetic product is considered acceptable for consumers in our targeted group. A 1-year subscription plan with about 20% off on each pill will be used to retain consumers. It can also help establish brand loyalty. We will also be ready to adjust the price of our supplement after launching for 3 months according to how customers respond and the demand for it.
High Price = High Return? High Risk?
Our product can effectively whiten skin in the long term and it is guaranteed to be safe. High pricing is justified because we need to cover the high costs of product development, advertisement and increase the ability to generate high profits to attract investments. In the beauty product market, ‘beauty’ is valuable. Once the consumers develop confidence and trust in our product, high pricing will be feasible high rewards.
6. PROMOTION STRATEGY
Being a new brand, convincing consumers to add our product into their routine is a challenge.
Promotional strategies include increasing product awareness and establishing anchorage effect. This is done through innovative promotion methods and company image engineering.
The first step is to penetrate the market and gain consumer trust as whitening supplements are innovative products. Obtaining the first batch of consumers is challenging but most important as it will enforce our promotion to create a networking effect. The above is done through working with product ambassadors, opening up pop-up stores and attractive discounts. Product ambassadors like movie celebrity Pevita Pearce and KOL Jessica Iskandar will be invited to work with us as they are both medium-dark skinned Indonesian actresses with a huge fan base. Stock options are given to motivate these product spokesmen. Advertisements will be launched on TV, Facebook and beauty magazines such as Marie French Asia as a big proportion of our targeted consumers visit these sites. Next, pop-up stores will be set up in Soekarno-Hatta International Airport and high-end shopping malls like Grand Indonesian Mall and Central Park Mall to increase our brand’s appearance. In these shops, people will be allowed to get a free test of their skin condition with VISIA skin complexion machine as dermatologists help analyse their skin conditions. This effectively increases consumers’ awareness of the importance of skin maintenance and elevates the chances of consumers trying out our products. Drones will be equipped with the brand slogan ‘A Week a Pill, Whitened for Real.’ and selfie cameras to fly around in promotion areas. Through these unorthodox promotion strategies that are seldom practised in Indonesia, we can successfully gain public attention and promote our brand’s innovative and professional vibe, allowing the public’s acceptance towards fresh ingenious products to increase. Lastly, a buy-one-get-one-free promotion will be used in the first three months’ product launch period so that our first batch of customers will be more willing to commit the first trail. After three months’ trial period, they will be able to compare the changes in their skin tones based on a standardised chart supplied by us. As they see that the product is effective with an objective charting scale, a networking effect will be easily achieved.
Next, anchoring purposes of advertisements can influence the consumers’ willingness to pay and choose our company. To provide a positive and firm perception of the quality and safety of the supplement, brand development and consumer experience is key in allowing our consumers to differentiate us from our competitors. We advertise in relation to consumer feelings – consumers buy from companies they relate to. Since our targeted consumers are individuals with high self-esteem, advertisements aim to boost their self-confidence and empower them to react. This successfully highlights our uniqueness by establishing a creative and divergent image as most existing competitors sell by using the tactic of shaming consumers. Phrases like ‘Dark out, White In. Increase your face value,’ (suggesting that dark skin tones are inferior) are common in advertisements. We differentiate our company through promoting self-embracement, fostering inner glow, boosting confidence, improving health and sustaining beauty. Once consumers feel respected and cared for, our innovative beauty idea and the innovative corporate image begin to have a real impact on the consumers.
7. PLACEMENT AND DISTRIBUTION STRATEGY
Online shops VS Retail shops?
Jakarta will be the first targeted city and products will be mainly distributed through online shops. Jakarta is chosen since it is the city with the highest purchasing ability in Indonesia. However, after the first-year launch, as consumer base grows, targeted region is expected to expand to other regions. Online shops are chosen instead of physical retail shops since Jakarta is a ginormous city with over 660km2. Placing physical retail stores is not cost-effective when our product is newly introduced. According to the findings, online shopping has exploded in recent years and it is predicted that by 2020, the market will have a value of USD130 billion. Furthermore, a small quantity of supplements will be sold in pop-up stores. Certainly, online stores perfectly fit into the time constraints of high-income consumers with hectic working schedules, giving the company a competitive edge over shops that base heavily on physical in-store purchases.
UK is FAR away from Indonesia! How do we tackle?
Large amounts of supplements will be first shipped from the UK to one of the three warehouses in Indonesia, then redistributed to end-users. Supplements are then redistributed through cooperation with Porter Indonesia, a local medium-priced logistic company which provides efficient and fast distribution to consumers. The shipping fee will be free inside Indonesia. Since supplements are not bulky, the above arrangement is cost-effective.
Lastly, we would seek market entry consultation from Cekindo, a market entry consulting firm, who can provide more Indonesian speciality services. We will also seek legal assistance for business licensing, time release mechansism patenting, product regulations and import requirements.
8. FINANCIAL PLAN
9. APPLICATION OF TECHNOLOGY
A technologically advanced corporate image can enhance our competitiveness. Technology is important in product safety and quality control since Indonesia is a rapidly growing economy and our target group has a high preference for technology.
Firstly, the design of the supplement is a high-tech project itself. The whitening supplement has an innovative extended time-release mechanism that minimises the number of consumption and promotes vitamin absorption. During the manufacturing process of our capsule, full automation and purification are applied. At the same time, a comprehensive computer system will be adopted to monitor the condition of the capsules and supplements’ manufacture. This ensures that all supplements are homogenous and of supreme quality, reinforcing the trust of consumers in our company and product.
Technology is also included in promotion – the VISIA skin complexion machine. This machine not only allows consumers to know more about their skin condition but also lures consumers to try out our products and increase their perception of the technological advancement of our company.
10. PROJECT TIMELINE
First year: Supplements will be launched, heavy promotion will be carried out by setting up pop-up stores and working with famous celebrities to raise awareness. Discounts will be offered to attract first batch of customers in first 3 months and supply of supplement will be adjusted according to consumer demand every 3 months.
Second year: As profits increase, we strengthen advertisements and increase the number of pop-up stores. We will establish a unique brand image to differentiate ourselves from other brands. Supply of supplements is expected to rise to meet increasing consumer demand.
Third year: Product diversification to satisfy different needs, for instance, anti-wrinkles, anti-oxidation and hydration.
Medium and long term: Expand our market to other places in Asia, such as Thailand and the Philippines, as these countries also value fair skin tones and are of similar weather conditions to Indonesia. It is also expected that brand loyalty can establish in Indonesia in the medium term.
11. MEASUREMENT OF SUCCESS
Competition is INTENSE
We enjoy a competitive edge in the beauty supplement market and we do not target the mature and saturated market of externally applied cosmetics and beautifying creams and products. Our main challenge would be to penetrate the supplement market. To meet this target, much work will be done in advertisements and in-brand development. It is believed that our international market entry will be a success as we have come up with feasible solutions for all aspects of challenges, further enhanced by our numerous product uniqueness. Moreover, we will be one of the few supplement companies that invest in making halal beauty cosmetics and catering to the Indonesian market. Due to working with local Indonesian companies, import, sales activities and public relations will be smooth.
Investors? Not a problem!
The Indonesian beauty market is under rapid growth, especially with luxurious skin products. Foreseeing the potential for a high return, investors will be willing to support and be a part of the renovating launch. They will choose to invest in our company as we promise a high return. Investors will also invest due to the solid business plan presented above. The company aims to take a dominant player in the supplement market in Indonesia and eventually yield huge amounts of profits. More importantly, investors will be moved by our ambition to create a positive and leading beauty trend.
Long-term strategy!
Long-term competitivity is a concern and will be tackled with product diversification while brand loyalty will be promised by first mover advantages and our 20%-off subscription plan (discount and membership promotion). We can extend our supplements’ life cycle because we base heavily on brand image and consumer beautifying experiences. The above advantages will keep the company competitive. As we maintain these advantages, sustainable growth and profitability is guaranteed.
12. MANAGEMENT TEAM
As a team, we aim to create, explore and innovate. We strive to become a dominant player in the supplement market in Indonesia within three years’ time span and expand to other parts of Asia in the future by creating a significant and powerful beauty trend that embraces natural beauty. This is done through establishing a management team that is visionary, transparent and transformational. We set a clear vision and let employees work on their own terms and always be motivated by allowing them to gain a sense of autonomy. Transparency, communication and trust are the most efficient ways to let workers be influenced and moved. This allows creativity and brain power of employees shine. As a company, we believe that innovation, change management and sustainable growth are the ways to stay ahead of the curve; we embrace new ideas and look up to teamwork. Meeting new challenges and raising bars is key to company development.
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