Product- GranolaBar

1. China
Urooj Ansari, Margi Foster, Courtney Glenn, Allison Pawley

2. Agenda
● About China
● Product Strategy
● Distribution Strategy
● Promotion Strategy

3. About China

4. ● Also known as People’s Republic of China.
● 3rd largest country in the world (after Russia
and Canada)
● 3,705,407 sq mi (9,596,960 sq km)
● Official spoken language- Mandarin
GEOGRAPHY
China borders 14 Countries

5. However, China has just ONE Timezone
Population- 1.3 bn as of April 21, 2017
After one child Policy in 1979, Population under control
Ethnic Groups- 56
92% population belongs to Han ethnic group
5 Key Cities
Shanghai (34mn), Guangzhou (25mn), Beijing (24.9mn)
Shenzhen (23.3mn), Wuhan (19mn)

6. Culture
● Guanxi - “relationships” or “connections”
● Confucianism- Emphasis placed on relationships, elements of responsibility & obligation
● Family Values- Always taken into account when decisions are made
● High Context Culture - Meaning communicated is highly dependent on context
● P-Time - Like to do multiple things at the same time

7. Hofstede Cultural Dimensions
WORLD
AVG
CHINA ANALYSIS
55
PDI
80
(high)
Authority plays imp role. Consumers will follow adaptation
bhvr of leaders & adopt prod by superiors
43
Individualism vs.
Collectivism
20
(low)
Collectivist society.emphasis on qualities such as loyalty,
interdependence. Group consensus & conformity to family
preference
50
Masculinity vs.
Femininity
66
(high)
Status, success, money, achievement prevails.
Demonstrate achievement by having latest & new prod,
hoping it brings higher status
64
Uncertainty
Avoidance Index
30
(low)
People are innovative, responsive., risk taking in coping
with future changes and new product
45
Long vs. Short-
Term Orientation
87
(high)
Values like perseverance & relationship by status.Easily
accept change and have thrift for investment

8. Political Environment
● Government Type: Single Party state governed by
Communist Party of China (CCP)
● Reforms have introduced a slightly more open,
responsive, transparent style for government
● Maintaining order & stability is of highest
importance
● Leaders believe democracy will lead to chaos and
political instability

9. Legal Environment
● Supreme People’s Court - Highest judicial authority
● High incidence of corruption in judicial system
● Legal system founded on civil law
● Ease of doing business- Rank 83/181 countries
● Legally enforceable contracts- Rank 18/181

10. Natural Environment
● Leader in mining natural resources
● Major producer of coal, gold, antimony, natural graphite, zinc, aluminium, rare earths,
tungsten and barite
● 30% of world’s supply of phosphates come from China
* Countries- leaders in their domestic mine production. Results expressed in mining points

11. Economy

12. ● Second largest economy in world by both
GDP(current prices), GDP(PPP)
● Its citizens are 75th richest people acc to GDP(PPP)
● Wealth distribution= Gini coefficient 49/100
● Labor costs are low
Reduction of Trade Tariffs
With the belief that globalization greatly benefits
Chinese investments, found a way to stimulate
international market.
Economy

13. Risk Analysis: Factors Affecting Stability
FACTORS STABILITY
SCORE
COMMENTS
Government 30 ● Ranks 139 in political stability index
● Rising tension between middle class & govt
● Turbulent relations between US, China. Problem for MNCs
Society 30 ● One child policy, increasing ageing population
● Housing shortage
● Pollution, Health concerns
● Gender inequality
● Lack of freedom of press and internet
Security 30 ● Medical standards not equivalent to US
● Ongoing tension with India, Japan, and neighbors in the South
China Sea
● Threats from North Korea if China aligns itself with Trump
Economy 65 ● Rapid economic growth
● FDIs encouraged other that State owned enterprises (SOE)
● Business freedom score 55/100 in 2016
● Globalization score 50/100
CUMULATIVE
SCORE
42

14. Product Introduction

15. Introducing the Nestle ‘Breakfast Moment’ bar
Basic ingredients:
- Rice cereal
- Rice syrup
- Oats
- Vanilla extract
- Sugar/Salt
Variations:
- Red bean
- Peanut
- Mixed berry

16. Target Market
Explanation

17. Pressured Professionals
Demographic:
- Men and women
- Working age (~22-54)
- Married and single; parents and non-parents
- Upper-middle class
Geographic:
- Populous, urban areas (Shanghai and Beijing)
Behavioral:
- Work overtime
- Take public transportation or walk to work
- Often skip breakfast during the week
- Try to go to the gym when possible
Psychographic:
- Status-conscious
- Ambitious
- Health/appearance-conscious
- Stressed

18. Urban population is rising
1.37 B
people
total;
665 M
between
25-54 yrs
2015:
764 M
3% CAGR
Source: IndexMundi 2016Source: The World Bank 2017

19. Disposable income is increasing
Source: Trading Economics 2017 Source: Trading Economics 2017

20. Urban professionals are overworked
600,000 Chinese die annually from
working too much
60% of Chinese workers work more than
two hours of overtime each day
Source: Bloomberg 2014

21. Growing urban middle class wants to stay
healthy
Fitness club industry - $5.81 billion in
2016 (11.8% CAGR 2011-2016)
Middle class and Millennials leading
the change
Source: Cheung Kong Graduate School of Business 2017

22. There are growing health concerns
Greatest number of overweight
people in the world:
43 million men
46 million women
Source: The Guardian 2017

23. Product Category

24. Traditional Breakfast
Rice porridge (Congee)
● Very watery rice
● Salty toppings: meat, vegetables, eggs
● Sweet toppings: red beans, peanuts,
coix seeds
Wontons and dumplings
Stuffed steamed buns
Source: China Highlights 2017

25. Chinese consumers are ready for ‘ready meals’
42% of adults 20-49 who buy pre-
packaged meals would be interested in
more breakfast options
81% of the survey respondents agree that
“I am now buying more packaged food
than before.”
Source:Mintel 2017; Hong Kong Trade Development Council 2014

26. An insatiable taste for innovation
Chinese consumers are demanding innovative
flavors and products all the time
Recent flavor trends:
Blueberry
Strawberry
Lemon
Kiwifruit
Source: Daxue Consulting 2015

27. Positioning

28. Competitive Landscape
Indirect competitors:
● Traditional Chinese breakfast
● Western breakfast (yogurt, pancakes, etc)
● Fast-food breakfast
● No breakfast
Direct competitors
● Weetabix/Post Alpen bars
● Quaker oat cookies
● Nature Valley granola bars

29. Breakfast bars do not reflect typical breakfast
flavorsWeetabix sold to Post
“While sales of Weetabix have risen in China, market share has disappointed as
traditional rice and steamed bread remain popular breakfast staples”
Source: The Guardian 2017

30. Positioning Statement
To Pressured Professionals, the
Breakfast Moment bar is the on-
the-go breakfast option that best
combines traditional Chinese
preferences and trendy Western
influence because it takes the form
of a cereal bar and carries a
famous Western brand name but
incorporates flavors that are found
in traditional breakfast congee.

31. Pricing Strategy

32. Convenience store pricing
7-Eleven FamilyMart
Source: 7-Eleven 2017; FamilyMart 2017

33. Pricing strategy
Pricing research:
- Price sensitivity depends on public vs. private consumption
- More price sensitivity for CPGs
Breakfast Moment premium factors
- Western status symbol (consumed in public)
- Highly nutritious (high in protein; organic ingredients)
- Eco-friendly packaging (biodegradable wrapper)
Number symbolism
- 2, 6, 9, 8 - all lucky numbers
Bulk pricing
- 4-pack: ¥20.80 (4 for the price of 3)
¥6.981 USD
早餐时刻
Source: Harvard Business Review 2013; Hong Kong Trade Development Council 2015; China Travel 2016

34. This price will be attainable
Ingredients will not be imported
- Produced in China
- Locally-sourced ingredients
Distribution will be streamlined
- Nestle has existing distribution channels
- Bargaining power
Methods of payment
- For customers: will depend on store policy
- For distributors: local currency will be accepted
since producer with be a JV; credit will be accepted
since Nestle is a large/established company

35. Break-even analysis
Break even point: 13 million units sold
Total Revenue: 90 million CNY
Total cost: 90 million CNY
Fixed cost: 70 million CNY
Variable cost: 20 million CNY

36. Distribution Strategy

37. Channels of Distribution
● Complex, fragmented, dynamic
● Guanxi prevails
● Increasing regulations &
consumer protections
● Lack of flexibility
● Quality assurance is key
Source:EUSME Centre Report 2015; HighJump Supply Chain Tech. Blog 2015

38. Nestle Presence in China
● Increasing operations and facilities
steadily since 2010
● Joint Venture (2011) w. Yinlu Foods
○ Specializes in ready-to-eat foods
● Acquired Wyeth Nutrition (2013)
● Recent drop in China sales due to
“demand for healthy foods” (2016)
Source: Nestle Press Release 2010, 2016; Nestle Fact Sheet 2013; Fortune 2016

39. Target Cities : Shanghai, Beijing
○ Large urban population
○ Local sourcing
○ Developed Infrastructure
○ Production Facilities
Selective vs. Intensive
Source: Accenture 2015, Wikipedia (Map)

40. ● Limited distribution (at launch)
○ High penetration in target cities:
Beijing, Shanghai
● Hypermarkets and convenience stores
○ Walmart, Carrefour
○ 7-11, Family Mart
○ Small Retail Stores in transit locations
● Long-term plan to increase distribution
○ Product is “new” to the market
Selective vs. Intensive
Source: Accenture China Consumer Survey 2014

41. Local Production & Operations
Benefits:
- Shortens supply chain
- Leverages existing
capacity & supply chain
relationships
- Improves control
- Cuts costs - fees, tariffs
Risks:
- Intellectual property
- Food safety/quality
- Guanxi disadvantage
(maybe)
Source: Nestle Investor Seminar 2012, CNN 2017

42. Marking and Labeling
● All labels and instructions must be marked in
the Chinese language
● Must use correct spelling and punctuation
Label Requirements (minimum):
○ Name
○ Ingredients
○ Quantitative/Percentage of
Ingredients
○ Net Wt. and Configuration
○ Complete Manufacturer Information
■ (Name, address, contact info,
name of distributor)
○ Name of food additives (generic)
○ Quality gradeSource: HKTDC Research 2017; International Trade Administration 2016

43. Transportation Strategy
● Production near target cities
● Raw materials and distribution
networks
○ Mostly ground transport, water transit
● Leverage existing supply chain
infrastructure

44. Food Safety Regulations
Recently revised by government (2015):
1. More centralization
○ CFDA monitors all food production,
distribution and catering services
2. Record keeping
○ Food inspection records - 6 months after
expiration
3. Heavier Sanctions for Violations
Source: United States Dept. of Agriculture 2015; Food Safety Magazine 2016

45. Required Licenses
● Food Production License
○ Issued by AQSIQ: Administration of Quality
Supervision, Inspection and Quarantine
○ Administered by QTSBs: Quality and
Technical Supervision Bureaus
● Food Distribution License
○ Issued by Administration of Industry and
Commerce
○ Required for any food distributor - including
wholesale & prepackaged food
Source: Dezan Shira & Associates 2014

46. Environmental Concerns
● Increased food production detrimental
to environment
○ Soil deterioration
○ Limited arable land
○ Water scarcity / pollution
● Environmental hazards adversely
impact food production
○ History of food safety issues
Source: American Association for the Advancement of Science 2015

47. Environmental Concerns
`
Source: American Association for the Advancement of Science 2015; BBC News 2015

48. Environmental Implications
● Need for “green” production and transportation
○ May require additional investment
○ Opportunity to enhance brand equity
● Need for strong quality assurance of raw
materials
○ Required by government - food safety
○ May demand importation of raw materials

49. Nestle’s Environmental Initiatives
Source: Nestle 2017

50. Promotion Strategy

51. Brand and Product Name
● Chinese consumers cling to brands that closely
interact with their lives
○ Connecting with the category
○ Chinese translation of the brand and product
● Nestle is a long standing strong player in China
● Common for brands to put cartoon designs on their
packaging
● Visual appeals have stronger impact on Chinese
consumers than verbal environmental claims
● No other similar product name
Source:Journal of International Consumer Marketing, 2015; money.cnn.com, 2015

52. Packaging
Adaptation

53. Packaging Adaptation
● China is about to become one of the world’s biggest
green markets
● Health and wellness spending will reach nearly $70
billion by 2020
○ Rising middle class incomes
○ Wholesome living with rise of affluent diseases
○ Shanghai and Beijing leading the pack
● Consistent with product messaging
● Desperately looking for a solution to environmental
issues
Source:Journal of International Consumer Marketing, 2015; Forbes.com, 2016

54. ● Individual and small pack sales.
● Outer packaging is recycled cardboard, individual
wrappers are biodegradable.
● Colors: yellow, green, tan
● Current food packaging is mainly petroleum-based,
which is not sustainable and does not degrade
● U.S. Department of Agriculture developed film made of
the milk protein casein.
○ These casein-based films are up to 500x better
than plastics at keeping out oxygen
○ Biodegradable, sustainable and edible
Packaging Adaptation
Source:Acs.org, 2016

55. Push vs Pull
Strategy

56. Pull vs Push
● Pros
○ Cheaper than large national ad budget
○ Set up relationships in a key market
○ Staff is trained up on how to promote this
brand
○ Chinese one can have up to 35,000 stock
units/store (helps to stand out)
○ Chinese shoppers to make more than 50% of
purchase decisions in-store
● Cons
○ Everybody gets a piece of each sale
○ Every level has problems with corruption and
bribes
● Pros
○ Brands are used to promote social status
○ Chinese bars are almost 100% bottle service
○ Everybody around the table sees the brand
and this will give face
○ Most consumers cannot taste the difference
but they know the brands from the TV
● Cons
○ On the go shoppers will not be stopping by
Walmart on way to work
○ Large format stores not common in city
centers where target market lives
Pus
h
Pull
Source:China Sourcing Information Center, 2012; Ad Age, 2012

57. Pull with Push Strategy
● Both techniques will have to be used
● Pull strategy to promote brand recognition/status
● Push strategy to stand out in a product saturated big box store
Source:MarketingMadeSimple, 2016

58. Advertising Strategy

59. Advertising Strategy
● People use brands not only for their functionality
but also to project social status (Häagen-Dazs)
● “Innovation” the most important reason to choose
a brand in the USA, but “brand credibility” in
China
○ Chinese brands tends to emphasize brand history or
product formula history
● China is about to become the largest Green market
Source:Three Main Differences between the US and China in Consumer Marketing - Linkedin.com, 2015

60. Advertising Strategy
● Advertising industry is one of the largest and fastest
growing
● Negative frames and collectivistic appeal generate more
favorable advertising, brand attitude, green trust and
purchase intent
● China has approximately 710 million internet users June
2016: internet penetration rate of 51.7%
● 520 million smartphone users in 2014
○ Expected to reach 700 million by the end of 2018
● Chinese smartphone users are very open to advertising
○ 78% are more likely to click an ad if it contains
relevant content
Source:Journal of Advertising Research, 2016; Journal of International Consumer Marketing, 2015; Market Me China, 2015

61. Advertising Strategy
● Three dominant internet players in China: Baidu, Alibaba,
and Tencent (owns WeChat)
● The leading search engine in China is Baidu (80% share)
● They made up 60.6% of all digital ad revenues in 2015
○ Expected to increase to 66.8% in 2018
● Weibo is the Chinese Twitter where brand influencers are
most important
● Baidu advertising is similar to Google Adwords
○ Revolves around SEO tools
○ One can purchase keywords, and up to four of the
search results shown will be ads
○ Chinese website is required
○ Hosting the website outside of China will be a
disadvantage
Source:China Briefing News, 2017; China-Marketing Services, 2017

62. Advertising Strategy
● Education is very important as well as “standing out” in
the crowded sea of products
○ Push girls will be used in big box format stores to
help combat this issue
● Pictures and visuals used for depicting the product’s
purpose on packaging and commercials
● Need to emphasize brand history and product
sustainability
● Use of successful professionals and athletes will be used in
commercials and on Weibo
● TV ads to project social status
● TV ads will also be pushed on youku
● Baidu is important for online search and Weibo to help
project credibility and status
What
How

63. TV Commercial Example
Wake up Get exercise Catch the subway
Be a happy and successful professionalEat Breakfast Moment at work

64. Sales Promotion

65. Sales Promotions
● Limited time: ‘buy one, get one free’ to
try new flavors
● Buy one, get one Nestle soy milk
● More than 5,000 annual trade events,
growing 15% annually, particularly in
second tier cities
Source:Export.gov, 2017

66. Public Relations

67. Public Relations
● Government affairs and PR are intertwined in China
● Government control of the media requires companies to treat PR as they would treat
government relations
● A company must engage stakeholders at all levels
● During a time of national crisis, companies must clearly and effectively demonstrate their
contribution to Chinese society
● A company must demonstrate their goals aligned with Chinese government and societal
goals (Healthy China 2030
● Media handouts can become an issue in China
● Personal relationships with the media is more important than “big news”
● Words to avoid: “human rights,” “freedom,” “dissident,” “imprisonment,” “work camp,”
“internment” as the government does not allow them
Source:China Business Review, 2017; PRnewswire, 2014

68. Public Relations
● Partner with internal PR team
● Initial press conference and media interview for new product release
● Posting on local sites to get the most exposure
● Consistent messaging
● Publish our strategy to help combat environmental issues

69. THANK
YOU