Quality issue and implications in China

1. Quality issue and implications in China Group members: YueWenchao, Tom Qian Fang, Tracy Lam Chi Fai,Benson Mak, Edward Chan Waileung, Jonavon

2. SK-II Introduction • SK-II .a Procter & Gamble Beauty brand .over 25 years ago in Japan .four years ago in the United States • Unique raw- material : Pitera .the 'Secret Key' to beautiful skin . Pitera is a single blend of . Vitamins . Amino acids . Minerals . Organic acids

3. SK-II Introduction • Products .Skin care products : Purifying , Renewing, Brightening, Nourishing, Anti-Ageing , Finishing • Price .Average consumption around 700 RMB - It belongs to luxury skin care products in mainland Chinese • Place -- SK II’s counters are located in each big shopping mall in mainland China • Promotion -- Advertising --image representative --super movie stars http://www.56.com/u12/v_MzU4NDY1Mzc.html

4. Quality product issues • SK II Quality problem • Happened In 2005 in Nanjing • Happened in 2006 in Shanghai • SK-II products with heavy metals of chromium and neodymium in Mainland China • It injured consumer’s facial skin, after used this product, and consumer complainted SK II http://www.youtube.com/watch?v=-n35bCnivM0

5. Quality product issues -- Response from consumer and government • The products with quality problem have to be recalled by company • Chinese customers attempted to refund the money on fake SK-II • Those products are banned from import to China • Consumer very care about the quality of product in mainland, especial the product which close or relate their bodies and healthy

6. Quality products Issues Chinese quality-milk powder --the milk powder contaminated with melamine sickens 1253 babies After use the quality-milk products ,baby was silken—kidney calculi

7. Quality products Issues • Response from consumer and government --the milk companies stop all production, recall and detection all milk products, destroy all quality products -- injury compensation, the babies who used products --Government will impose the product quality control Destroy the quality milk powder---Sanlu Consumer response: http://www.youtube.com/watch?v=-n35bCnivM0

8. Other Foreign Production Quality scandal In China: • Kraft’s GM Incident • Johnson&Johnson Baby Care Probe • Lipton Tea Fluotin incident • Fenbid Bad for Hearts

9. Why Chinese consumers are increasingly more demanding about product quality and services from both domestic and multinational firms?

10. Globalization • Global competitions among MNC more choices provided to consumers • Increase in information flows enable consumers to know more about the standard of products and services • Different kinds of consumer may vary in demand on quality, service or other factors  force companies to improve their products to increase their competitive advantages

11. 2) Rapid income growth • Consumers demand not only a greater quantity of food, but also higher quality performance • Frugal consumption diminishes as income rises, the majority of consumers are not only satisfied on cost-effective, but value added on the product Price Quality • Consumers with higher incomes tend to purchase more expensive products with higher quality

12. 3)Culture and customers’ perception • Mix of western culture • The introduction of western quality standards Increases awareness of product quality • E.g. ISO9000 • Perception of domestic and multinational firms • China made products should not be bad in quality because of “FACE” • Imports should be good in quality because customer paid a higher price on it

13. 4) Discovery of unsafe products • Customer became more and more impatient on quality issue after a series of quality accidents. • These incidents began as early as 2004 • 2004 - Soy sauce made from human hair • 2005 - Sudan I Red Dye(蘇丹紅) • 2006 - Fake drugs & Poisonous mushrooms • 2007 - Potential carcinogen used in frying oil • 2008 - Baby formula & egg products with melamine(三聚氰胺)

15. Q2. Is this a sign of overzealous consumer advocates, a conspiracy theory, double-standards?

16. Is this a sign of overzealous consumer advocates? • Ans: Yes! • The rising fear due to a lot of quality problem e.g.: Mengniu

17. Mengniu • Mengniu daily regional sales volume is decreased 98% after tainted milk was disclosed • The executive director of Mengniu drank the milk themselves to save the customer confidence of Mengniu

18. Is this a sign of overzealous consumer advocates? • The uncertain rumors stimulate customer overreaction • E.g: Mandarin orange in Shantung

19. Mandarin orange • There are rumors of warms inside the mandarin orange in Shantung • The demand of mandarin orange downturn rapidly - 300 tons a day dropped to 60 tons a day - Price dropped 70% to $0.8 per kg

20. Is this a sign of a conspiracy theory? • Ans: It is possible • The conspiracy theory is unconfirmed but caused some speculation

21. Conspiracy Theory • China took advantage of consumer response to the quality problem of foreign company in an attempt to retaliate some unfriendly country • E.g.: SK-II from Japan

22. SK-II • The relationship between China and Japan is poor at that period • At the same time, P&G halts sale of SK-II in China due to the harmful elements was found in the product • SK-II deny such issue and assure that their product meet the standard of quality and safety • Is there any conspiracy? Customers wait in line to return SK-II skincare products in Shanghai

23. Is this a sign of double-standards? • Ans: Yes! • As mentioned above (the SK-II case) • We are suspicious that… China Government perceived that: Foreign Company, who makes profit by using Chinese resources, is needed to take more responsibility than local company

24. Is this a sign of double-standards? • Some local company is protected by local government. • E.g.: Sanlu

25. Sanlu • Sanlu food scandal is covered by Shijiazhuang Government over several months • It is discovered that there were the collusion between the government and Sanlu to conceal the issue

26. Is this a sign of double-standards? • Chinese customer give more support to local enterprise due to nationalistic ties • E.g: Coca Cola buy HuiYuan juice group Limited

27. Coca Cola buy Huiyuan • Huiyuan is consider as the national brand of China • Coca Cola plan to use 17.92 billion dollar to buy Huiyuan • 79.8% of people disagree and prefer drink water instead of Coca Cola

28. 3) Recommend integrated marketing communication strategies to build up brand image and also shore up company image in China, after a crisis or scandal has occurred.

29. Customers: - lost confidence to our products - are more demanding about product quality Objectives of the IMC strategies: -Ease Consumers’ anxiety -Rebuild the brand image -Rebuild customers’ confidence to our products

30. Where are we now?

31. Where are we now? • After the crisis or scandal  go back to the Prepurchase stage IMC strategies: • Advertising • Sales promotion • Public relations • Personal selling • Direct marketing

32. Advertising Use the strategy: Celebrity Endorsements Celebrity: Chinese celebrity (黃聖依 Huang Shengyi)

33. Advertising • On television - reach large audience - to let Chinese consumers know ‘we will take the responsibility”. • On magazine - reach our target customers

34. Public relation -Invite media to visit our production plant - increase the transparency of the production procedures E.g. Foreign press is invited to visit to Mengniu dairy production line

35. Public Relation -Third party endorsement e.g. government endorsement on new non- melamine product

36. Sales promotion • Sale at discount price • Samples - give free sample to customers - reduce customers’ risk - may also cooperate with magazine

37. Packaging • With a label on the package - safe - only available after passing the safety test - White rabbit change package to clean the image of its tainted food

38. Rebuild customers’ confidence to our products • Enhance product quality and safety - strengthen the quality control on production and quality assurance on sourcing Meet the international standard Get the third party certification ISO

39. Long-term action • Involve more charity - donation to some charities or Sichuan earthquake • Improve the transparency of the company’s responsive action - showing social responsibility to calm annoying customers - more emphasis on problem solving than the problem itself

40. Conclusion China consumers is vulnerable Quality problem could ruin the whole business of MNC Key solutions: Short-term: the use of IMC to calm customer Long-term: Quality control Charitable events

41. Crisis management: Short-term: the Use of IMC Long-term: quality control establish a responsible image

42. The End

43. Mengniu: • Sanlu: http://hk.news.yahoo.com/article/080915/4/889q.html • SK-II: http://www.chinadaily.com.cn/china/2006-09/22/content_694757.htm • Orange: http://news.sohu.com/20081026/n260247361.shtml • Huiyuan: http://www.chinareviewagency.net/doc/1007/4/5/0/100745040.html?coluid=5&kindid=110&docid=100745040&mdate=0914001817