Developing marketing strategy- A case study of the international beverage company, in hochiminh city, vietnam

ts in the market. When asked about competition in soft drink industry, Mr. Trai, the General Director of IBC-Pepsi said “the competition between local and foreign manufactures is very intensifying and interesting. The Vietnamese market, with 72 million people, is an untapped market for beverage producers. Currently, average consumption of soft drink of each person is low. Because the Vietnamese people does not yet have the habit of drinking a lot of soft drink. So IBC needs to persuades consumers to increase their consuming habit. The problem confronting beverage producers is not “survival” in which they have to select the appropriate competitive strategies to develop their business. IBC is eager to participate in this interesting competitive environment” Mentioning the competition on the Vietnamese soft drinks market, Mr. Nguyen Van Thach, the Chairman of the Directors Board of Coca Cola Ngoc Hoi Company Ltd said “The competition between Coca Cola and Pepsi is unavoidable, yet sound competition is an element that encourages development. With its quality, price and experience level, we believe that Coca Cola will take its position in the Vietnamese market”(Minh Duc, 1995). Obviously, both Coke and Pepsi launched fierce marketing campaigns in Vietnam in an effort to win consumers allegiance to their brands. Overall, Vietnamese soft drinks market is to be harder competition for rival participating in this arena. And the fighting for a share of the domestic market between soft drink producers becomes harder and harder as most of large player are very ambitious to expand their market share. 4.6. Analysis of the Main Competitors of IBC in HCMC The analysis of the main competitors of IBC in HCMC focuses on the existing producers who are selling soft drinks in the market and also holding a significant market share, or having the tendency of increasing the market share in the next few years. In addition they should hold a significant brand awareness. At present, the main competitor of IBC is Coca Cola Indochina Pte Ltd which has two joint venture companies: Coca Cola Ngoc Hoi soft drink Co, Ltd, in the north of Vietnam, and Chuong Duong Soft Drink Company, Ltd in HCMC. And one local soft drink company, the Saigon Soft Drink Company Ltd, also called Tribeco, is considered as a competitor of IBC regarding the cola flavor. 4.6.1. Coca Cola Indochina Pte Ltd 4.6.1. 1. Profile of Coca Cola Ngoc Hoi Soft Drink Company Ltd After lifting the US embargo, Coca Cola Indochina Pte Ltd (CCI), a joint venture between Coca Cola F & N of Singapore and Thai Pure Drink of Thailand, entered the Vietnamese market. In April, 1994 Coca Cola Ngoc Hoi Soft Drink Co Ltd (Coca NH) the joint venture between CCI with the Vietnam National Foodstuff Import-Export Corporation (Vinalimex) under Ministry of Light Industry, was granted a license to produce Coca Cola, Sprite and Fanta in Ha Tay province, 16 kilometers the south of Ha Noi, with a total investment capital of USD 20.4 million. After 14 months of construction, Cola NH plant has started its production. The production capacity is planned to be 25 million liters in first year, can increase to 50 million liters in the second year and then will stabilize at 70 million liters per year. All soft drinks produced in the factory are intended for the domestic market. Up to now, two production lines are in operation with the capacity of 700 cans per minute. 4.6.1.2. Profile of Coca Cola Chuong Duong Soft drink Company Ltd When the Ngoc Hoi plant was in operation, CCI continued to expand its market in the South and the Central. In August 1995, the State Committee for Cooperation and Investment (SCCI) approved the formation Coca Cola Chuong Duong Soft drink Company (Coca CD), a USD 48.75 million joint venture Coca Cola Indochina Pte LTD and Chuong Duong Company. Coca Cola Indochina Pte Ltd’s stake in the joint venture is 60 percent, to be contributed in cash and other assets, Chuong Duong Soft Drink Company has a 40 percent stake, to be contributed by the land-use rights to a six-hectare lot for a 30-year period. In September, the SCCI approved CCI’s purchase of Pacific Beverage’s assets, for the purpose of using them in the joint venture. CCI paid USD 15 million for the Pacific Beverage Company (PBC) plant. The joint venture’s production facility is located in the Tan Phu hamlet of Thu Duc District, HCMC, at a plant formerly owned by PBC. Thus, Cola CD is a merge of Chuong Duong Company with Saigon Cola Company. This is an advantage for Cola CD at the first time because everything necessary for production and marketing is already prepared. Coca CD plans to produce 136 million liters per year including Coca Cola and Sprite in returnable glass bottles and cans. 4.6.1.3. Production Capacity and Market Share of CCI in Vietnam Production capacity Up to now, two joint ventures of CCI are producing canned and bottled soft drinks including Coca Cola, Sprite and have plans for bottling Fanta mid 1996. Its current production capacity is 76 million liters per year .Table 4.4 shows the production capacity of Coca CD and Coca NH in detail. To capture the market share in canned soft drinks in HCMC, Coca CD has the plan for assembling one canned production line at Cola CD plant. Table 4.4 The current production capacity of CCI Production capacity (million liters) Ha Noi: Coca Cola Ngoc Hoi Company Bottle line Can line HCMC: Coca Cola Chuong Duong Co Bottle line of Chuong Duong Co Bottle line of Saigon Cola 25 20 11 20 Total production capacity 76 Source: Report of Coca Cola Indochina Pte Ltd Market share Last year, CCI’s sales volume was 28 million liters, and its market share in the whole country was 12 percent. In HCMC, its sales volume was 16,5 million liters, and CCI gained market share of 17 percent in total HCMC soft drinks market. CCI’s production plan in 1996 will be 75 million liters and project to obtain the market share at 25 percent in the total Vietnamese market (CCI’s report). To implement this plan, CCI has prepared to produce Sprite and Fanta at the Coca Chuong Duong plant and the Saigon Cola plant in 1996. With strongly financial resources, CCI will continue to expand its production capacity in Central provinces through establishing a joint venture with Da Nang March 29 Garment Company and waiting for approval of SCCI. 4.6.1.4. Marketing Activities of Coca CD Product CCI’s product line consists of Coca Cola, Sprite and Fanta, but at present, Fanta has been not yet produced anything in Vietnam. The product line of Coca CD consists of Coca Cola and Sprite. Before 1975, Coke has created its awareness in the Vietnamese consumer’s mind and Coca Cola was considered as number one in soft drinks market at that time. Nowadays, to capture its position in Vietnam market, CCI has applied the same formula as in other countries: availability, affordability and acceptability. At present, CCI’s products consists of two packaging types: can of 330 ml and returnable glass bottles including volume of 296 ml and 200 ml. At the first time, Coca Cola was bottled in bottle 296 ml, but because the volume of this bottle is not suitable to Vietnamese drinking size. Then, CCI has continued to launch the bottle 200 ml. Price By focusing mainly on high and upper middle income class, the prices of Coca CD products were set higher than the prices of local brands. Table 4.5 shows the prices list of Cola CD products. The difference between wholesale price and pick-up factory price is profit margin for its wholesalers. Table 4.5 Price List of Coca CD products Items Wholesale price (VND) Pick-up factory price (VND) Coca Cola- Bottle 200 ml 1,250 1,200 Coca Cola- Bottle 296 ml 1,650 1,550 Coca Cola- Can 330 ml 4,200 4,000 Sprite-Bottle 200 ml 1,250 1,200 Sprite-Can 330 ml 4,200 4,000 Source: Coca CD’s report Distribution To increase the sales volume and obtain a higher market share, Coca CD has established its distribution networks in HCMC and South provinces. At present, Cola CD uses wholesalers and retail outlets of Saigon Cola and Chuong Duong company to distribute its products. Its distribution channels consist of direct and indirect channels. Majority of its products were distributed through indirect channel: the Coca CD plant to wholesalers to retail outlets and finally to end users. In addition, its direct channel is used to distribute products from its plant to retail outlets. The Coca CD has been concentrating on opening up both direct and indirect channels through developing retail outlets and wholesalers. The Coca CD distributes its products through 136 wholesalers and 460 retail outlets in HCMC. The Coca CD has applied the incentive policies in delivery, payment, discount and other incentives for its wholesalers and retail outlets to stimulate them to purchase at big volume. the quantity discount from 1 percent to 4 percent of the purchased value is often given to its wholesalers and retail outlets who meet the sales quota pre-set. Advertising At the beginning of the production, Cola CD has been launching the aggressive advertising campaign with its slogan “Coca Cola, The Real Thing” to recall awareness of its brands. According to a survey of the author, there were over a half of respondents who know the slogan of Coke. The Coca CD has often used media such as television and newspapers and supported the point of purchase materials for advertising name and logo of its products. Coca CD also sponsors the sport activities, especially football to create the awareness of its products. In general, Cola CD has large investment capital and strongly financial resource. It has used modern equipment and advanced technology in soft drink production. Its production capacity is high. The company has experiences in the marketing activities due to CCI has in-depth experience and expertise in marketing such as advertising, distribution and sales promotion. Coca Cola is much preferred by majority of consumers whereas Sprite is less preferred. Coca CD has created the awareness of Coca Cola in the Vietnamese market and good reputation brand. At present, the Coca CD has constantly focused on expanding its production, distribution channels and emphasizing on advertising in order to convince consumers to buy its products in order to increase its market share. 4.6.2. Tribeco-Saigon Soft Drink Company Ltd The Saigon Soft Drink company under the name Tribeco, is a state owned company under the control of People Committee of District 3, HCMC. Tribeco plant which is located in Hoc Mon District, near HCMC, with one canned production line and one bottled production line has production capacity 40 million liters of canned and bottled soft drink a year. Products of Tribeco were bottled in 200 ml returnable bottles and canned in 330 ml cans. Its brand is available in 10 flavors in which cola (70 percent), orange (10 percent) and Strawberry (10 percent) account for the bulk of sales. Before Pepsi and Coke were produced in the Vietnamese market, Tribeco cola was preferred by most of the Vietnamese consumers, especially in HCMC. Tribeco has planned to hold onto its market share through flexibility and an innovative marketing strategy. Tribeco obtained 50 percent of HCMC soft drinks market, and 20 percent of total national market at period of 1992-1993. Its target market consists of low and middle income. During the past years, Tribeco has secured a good reputation with its target consumer. Last year, the sales volume of Tribeco was 39 million liters, and Tribeco gained market share of 17 percent in Vietnamese soft drinks market and 23 percent of HCMC market. These figures proved that its market share has decreased. However, its sales volume in 1995 was higher than in 1994 because of increase in demand for soft drinks in low income consumers. Thus, the Vietnamese soft drinks market is still “open” for local companies like Tribeco, who have good marketing, understanding of the local consumer taste and a wide distribution networks. By targeting low and middle income consumers, Tribeco offers its products at low price. Ex factory prices are equivalent to VND 800 per unit of 200 ml bottle, and VND 3,200 per unit of 330 ml can. Wholesale prices are VND 850 per unit of 200 ml bottle, and VND 3,400 per unit of 330 ml can. Tribeco distributes its products through 300 wholesalers in HCMC, 125 wholesalers in provinces, and 2300 retail outlets in HCMC. Regard to advertising and sales promotion, it can be said that Tribeco lacks attention to this activities. Last year, Tribeco made an exclusive bottling agreement with Pepsi to produce Mirinda orange and Mountain Dew soda in order to diversify its products and maintain existing market share. 4.7. Substitutes It is very important to analyze substitutes impacted the development of Vietnamese soft drinks market. Substitutes consist of mineral water, fruit juices, milk, tea and coffee. Mineral water: in resent years, demand for mineral water has slightly increased. There are some brands such as La Vie, 333 mineral water, Vinh Hao, Aquapure, Mountoya which were produced by local producers and joint ventures. Currently consumption per capita is very low by compared with other countries in the region. The scope for expansion is clearly enormous. Because Vietnam is abundant in mineral and spring water sources, there is no doubt that the potential for development is very promising. However, most of the Vietnamese people less prefer to drink mineral water. Fruit juice: the fruit juice in Vietnam is underdeveloped. Due to almost Vietnamese consumers appear to favor either juice freshly squeezed from fruit, or carbonated beverages. Flavored milk: demand for milk consumption has increased but low level. For refreshment, most of Vietnamese people prefer carbonated soft drinks rather than milk. Moreover, the price of milk is high compared carbonates. Tea: tea is the “national drink” of Vietnam, the market is mature and relatively stable and is unlikely to growth dramatically. Most of people like to drink tea at age over 35 years old. Coffee: coffee is much less widely drunk in Vietnam than tea. Coffee is a relatively minority taste and consumption is concentrated mostly in the south. For refreshment, coffee is less preferred rather than soft drinks. From analysis of above substitutes, it can be said that threats of substitutes are low, therefore, soft drink industry is assumed to develop in the next years. 4.8. Summary of Opportunities and Threats for IBC Throughout analyzing external environment, the opportunities and threats in business environment in which IBC operates are drawn out, as follows: The Vietnamese economic growth rate in the next year will be 9.5%-10% and rapid growth rate of HCMC economy and rising the living standard, thus purchasing power of consumers will increase in the forthcoming years. In addition, the government has applied the preferential policies on the soft drink industry. Thus, soft drink industry will further develop in the next years. According to General Statistic Bureau, annually average growth rate of the soft drink industry will be 15 percent in period of 1996-2000 There is the tendency of increasing in demand for foreign soft drinks brands consumption and decrease in consumption of local brands. This will create opportunities for IBC to expand its production. Moreover, the Vietnamese young generation proportion claims big share and increases years, thus Vietnam actually becomes potential market for developing soft drinks. The soft drink consumption will be always big in South and fast increase in North and Central provinces. Soft drinks are consumed increasingly at home. All these factors have positive impact in the development of soft drink industry. However, beside the opportunities, IBC are facing intensified competition with Coke in the Vietnamese soft drinks market. Chapter 5 Internal Analysis This chapter analyzes IBC’s production and business, marketing activities including products, price, distribution and promotion. In addition the attitude of soft drink consumers toward attributes of IBC products compared the competitive brands is also discussed. 5.1. Profile of International Beverage Company International Beverage Company is the largest soft drink company in Vietnam. IBC was established in December 1991 based on the investment license numbered 291/GP of the State Commission for Cooperation and Investment (SCCI) with initially legal capital USD 2,600,000 in which Vietnamese partner, Saigon General Service & Producing Company (SP.Co) (itself the joint venture between Tribeco Soft Drink Company and Saigon Jewelry Company) contributed USD 1,300,000 and Macondray Co Inc of Hong Kong contributed USD 1,300,000. After that, both sides agreed to increase the legal capital to USD 5.1 million. The IBC plant is located in Tan Thoi Hiep village, HocMon district, HCMC. The physical plant represents the most advantaged soft drink factory in Vietnam, with four production lines capable of manufacturing 600 bottles and 300 cans per minute. The factory can produce 60 million liters of canned and bottled soft drink a year. The transfer of Schweppes production rights allows IBC to use Schweppes trademarks on IBC products, including Crush orange, Schweppes soda and Schweppes sarsi. The Cadbury Schweppes Group is considered as giant in soft drinks market in the world following Coke and Pepsi. In March 1993, IBC signed an exclusive bottling agreement for Pepsi and 7-Up in Vietnam once the US embargo was lifted and then SCCI approved for Pepsi Co, Holland as a third partner of IBC. The agreement called for IBC to bottle and can 250 million liters initially and increasing to 700 million liters at a later stage. Immediately lifting the US embargo in February 1994, IBC began to produce Pepsi and 7-Up. Up to now, the total capital of IBC is USD 25.5 million in which SP.Co hold 40 percent stake, Macondray Co Inc of Hong Kong hold 30 per cent and Pepsi Co hold 30 percent. In 1993, IBC produced and sold about 5 million liters. In 1994, demand for soft drinks increased quickly, one-day sales volume of IBC was equal to aggregated 8-10 day sales in 1993 and sales volume soared about 40 million liters. Through the past years, IBC has constantly expanded its production, distribution and business, and now IBC continues to further expand its production and distribution in South, Central provinces and Ha Noi. 5.2. Mission of IBC The mission of IBC states that IBC wants to be the best soft drink company in Vietnam by recognizing consumer needs, trying to satisfy them and persuading consumers choose high quality products as well as offering good services. Its marketing, management, production and other strategies have to synchronized with the overall corporate strategy (IBC’s document). 5.3. Marketing Objective of IBC “IBC’s marketing objective is to protect its leading position in Vietnamese soft drinks market and HCMC markets. Its products, price, distribution and promotion strategies have to coordinate to increase sales volume. Pepsi and 7-Up with high quality at the reasonable price will be top of mind brands” (IBC’s document) 5.4. Production and Business Results 5.4.1. Production Capacity Last year, IBC produced over targeted production volume. Its four production lines were run at manufacturing capacity of 32,000 cases of 24 bottles per day and 8,000 cases of 24 cans per day. Total current production capacity of IBC is 86 million liters per years and will double in next year (Table 5.1). Table 5.1 IBC’s total current production capacity Production capacity (million liters) HCMC: IBC plant Bottle line No 1 Bottle line No 2 Bottle lime No 3 Can line Ha Noi: Co-pack in Stim and Lotabo Bottle line 26 20 15 15 10 Total 86 (Source: IBC’s report) IBC’s production plan in 1996 is 100 million liters. To achieve this target, the expansion of the production capacity is a realistic possibility. IBC has plans for upgrading the capacity of canned production lines from 300 to 500 cans per minute and assembling two new bottled production lines at IBC plant. Besides, IBC has also the plan for building processing networks in Ha Noi, Da Nang and Can Tho as well as opening up distribution networks in the whole country and upgrading its service styles. Its investment budget is USD 15 million in 1996. An increase in IBC plant’s production volume is to reap benefits from economics of scale as well as from learning effects to produce soft drinks at cost efficiency. 5.4.2. Market Share and Sales Volume In 1994, IBC’s the production volume was 33 million liters, and its turnover was over VND 171 billion. Its market share in the whole country was more than 20 percent. In 1995, due to the fact that the demand for foreign brands continued to increase, IBC doubled its sales volume and gained a market share of 28 percent of the total Vietnamese soft drinks market (Figure 5.1) and 42 percent of HCMC market (Figure 5.2). Last year, IBC’s sales volume was over 71 million liters in which its soft drinks were sold in HCMC accounted for 58 percent, in Ha Noi 18 percent, the South provinces 14 percent and Central provinces 10 percent (Figure 5.3). Obviously, its key target market is HCMC market. By looking at the monthly sales volume of IBC, we can see that its sales was slightly influenced by seasonal consumption. Figure 5.4 shows the increase and decrease in sales volume between the different seasons in the year. In July and August are in rainy season, thus, sales volume felt down. 5.4.3. Financial Results Strong financial resource is considered as one of the key success factors for rivals in the soft drinks arena, provided by the success of IBC in 1994. Thanks to healthy financial position of stockholders and profitability reaping from production and business, IBC invested for expanding its operation in 1995 and will continue to further invest in the next years. In 1995, IBC reaped high net profit and was one of Vietnamese companies who succeeded in their business. Some financial results is shown in Table 5.2 Table 5.2 Profit and Loss Statement of IBC in 1995 Items VND USD Net revenue 522,147,173,494 47,467,924 Production cost 365,880,245,112 32,443,658 Gross profit 165,266,928,382 15,024,266 Operating expenses 130,576,421,683 11,870,584 Operating profit before tax 34,690,506,699 3,153,682 Operating profit after tax 28,035,633,378 2,548,694 (Source: IBC’s report) Figure 5.1 Market Share of Soft Drink Manufacturers in Total Vietnam Market (Source: General Statistics Bureau) Figure 5.2 Market Share of Soft Drink Manufacturers in HCMC Market (Source: HCMC Statistics Bureau) Figure 5.3 IBC’s sales volume, divided by geography. Source: IBC’s reports Figure 5.4 IBC’s monthly sales volume in 1995 Source: IBC’s reports 5.5. Analysis of IBC’s Marketing Activities The analysis of the marketing activities of IBC focuses on four P’s: product, price, distribution and promotion based on in-depth interviews the IBC’s Marketing and Sales managers. 5.5.1. Product 5.5.1.1. Product Line IBC’s product line consists of two soft drink brand groups of Pepsi Co Inc and Cadbury Schweppes Group (CSG). The former consists of Pepsi Cola and 7-Up which have been produced after lifting the US embargo. The later includes Schweppes soda, Schweppes sarsi and Crush orange which have been produced since April 1993. Pepsi Before 1975, the Vietnamese consumer was familiar to consume Coca Cola. At that time, Pepsi was not present in Vietnam. But only two years ago, Pepsi was recognized by most of consumer in big cities, especially in HCMC. According to Survey Research Group (SRG) in Vietnam, up to now, Pepsi has made some head starts in creating awareness compared to Coke. The consumers are more spontaneously aware of Pepsi than Coke, especially in Da Nang where Festi is the dominant brand. Pepsi is getting more popular there. Pepsi is consumed more than Coke in the last year both at home and outside. Both Pepsi and Coke have equal share for both “last occasions” and “most often” consumption. While consumption of local brands such as Tribeco, Festi, etc., has declined dramatically. Mentioning the brand awareness, SRG found out when asked for unaided brand awareness (i.e. a list of brands was not shown) in HCMC that Pepsi was mentioned as first brand, followed by Coke. When asked for aid brand awareness (i.e. a list of brand was shown), Pepsi and Coca Cola achieved almost the same level (nearly 100 percent of respondents in sample size). From this result, it can be said that IBC has created the awareness of Pepsi in the Vietnamese soft drinks market, especially in HCMC. 7-Up 7-Up was not produced in Vietnam before 1975. It was, however, available in the Southern m