Distribution strategy for high class ceiling fan business in vietnam

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TRUONG DAI HOC MO TP HCM UNIVERSITE LIBRE DE BRUXELLES HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BUSINESS SCHOOL

MBMMS5

PHAN THI PHUONG NHUNG

DISTRIBUTION STRATEGY FOR HIGH-CLASS CEILING FAN BUSINESS IN VIETNAM

Í TRƯỜNG BAI HOC MO TP Hen |

THU VIEN|

MASTER PROJECT

MASTER IN BUSINESS & MARKETING MANAGEMENT

Tutor: Dr Nguyen Huu Than

Ho Chi Minh City

(2012)

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UNDERTAKINGS

“The Joint Master Program between Ho Chi Minh City Open University and Solvay Brussels School is not responsible for any arguments, data, or statements contained in this consultancy project There are only binding upon their author.”

For NOT confidential consultancy project, please read

AUTHORIZATION

I hereby declare that I am author of the consultancy project I authorize MBMM to lend this consultancy project to

Other institutions or individuals for the purpose of scholarly research I further authorize MBMM to reproduce

The consultancy project by photocopying or by other means, in total or in part, at the request of other institutions or individuals for the purpose of scholarly research

Ho Chi Minh City, 27" Jan 2012

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ACKNOWLEDGEMENT

This thesis could not have been done without the inputs and contributions of many people First of all, | would like to express my deepest and sincerest gratitude to my advisor, Dr NGUYEN HUU THAN — Open University Lecturer for his unbelievable help, valuable advices and recommendations, encouragement and support throughout the research period Again, I want to say “Thank You Very Much” to Dr NGUYEN HUU THAN for all you have done for me

| would like to express my sincere appreciation to Pro Jean-Pierre Baeyens - Dean Vietnam Programs - Solvay Brussels School of Economics and Management- Université Libre de Bruxelles - for his support me during my study

Thanks to Mr Nguyen Tien Dung — Managing Director of Future Star for his support on this consultancy project who have contributed helpful documents and support me to do survey for research completion

In addition and indeed, | would like to show my special thanks to all of my classmates and group members for their true friendship and cooperation throughout this course and especially the ones who become really close to me and as I truly believe will share success as well as hardship in the future

+ Le Thuy Kim Loan + Nguyen Duc Dung + Nguyen Thị Thanh Ha + Nguyen Thi My Ngoc

My grateful acknowledgement extends to the Université Libre De Bruxelles — Solvay Business School and Open University of Ho Chi Minh City, where provided me a chance to follow this MBMM program

| thank you to all the faculty members and staffs at Open University of Ho Chi Minh City for their support

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THE ADVISOR’S COMMENTS

Advising Phan Thi Phuong Nhung with the topic “Distribution Strategy for High-Class Ceiling Fan Business in Vietnam”, I have some remarks as follows: ABOUT THE STUDYING ATTTITUDE

Phan Thi Phuong Nhung has had a serious working attitude ABOUT THE FORM

e The project cover is designed in accordance with the school sample

e The project layout is arranged clearly, elegantly, and the chosen font is easy to read; the colored paper at the beginning of each chapter helps readers distinguish different chapters easily

e The “table of content”pages are laid out clearly and brightly and the numerical codes are set in line with the school regulations

e The project consists of “footnotes” in accordance with the international standards

e The introduction chapter meets the requirements of a project including the purpose, the scope of the project, research methods, and its contents

ABOUT THE CONTENTS

The project is logically structured It is useful and valuable to anyone who wants to establish the distribution strategies for the VN market

CONCLUSION

Considering the seriousness of the author in her preparation of the project as well as the seriousness in her scientific approach, I appreciate highly the project and recommend that the Board of Examination allow Phan Thi Phuong Nhung to defend and pass this project

Hochiminh City, Febuary 15, 2012

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TABLE OF CONTENTS

nh o1 e0 .ốốỐốỐ an 1 Acknowledgement n.0-19ssssiens ssssneessaessersin isnenascereteneennereeenvenesaenssnanmersmnsensnananennnanennnns shah il TUtOr’sS COMMENL csccvecccssercscsercsessterersccssestsesrsesssssnecsnsenensnensneass tes enaeeeareneateauieasenteasvenesnnes li Tae 0Í coriferil - eo ~~ezs194085 61-25 661153865406543.4883010 208 48 0119 701459171419321023105/-001.40018.100700-00a- c00.g mnm4m IV Figures and TabÌe -.5- <5 x21 0Á1004001000000180400001.0 Vil Executive SUImmrV -s- - s21 030 16018 040158338410615081101884000100140001000020001nn 108 Vill

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I_ Rationale of the study .- - 5 55+ * +99 13 12 ti tt ng v3 te 1 2 Objective of the Study .cccccssssesesesesetensscesesseeteeeeetsensneseesessssnsssessnaseseesenensnens 2 3 Scope atid limitations sucncscssvessersenescececenenenerenrerevecnneenveernuonecrsnernenennanenasrensanasties 2 A Research ImetHol «« ‹-.«-«e- c0 014142400135600059016151013%00100 059903083 49910802080 00E 9 Z 5 Struettlfe 0Ï S(HẨY seseanannadnedaseasreeiriornriesssresiririieeerrsaasemsnliG:)354149088 2

Chapter 1: Literature Review VN EIGNNS50/858146000801600580350.0501iAm03ssges)310ietg4s03i/6300000004208 4

1.1 Concept of Marketing .ccccccceccseseseeseeeeeecnecerseeeesesessesssssssarsesseeesesnesseneenes + 1.2 Marketing Mix -snssssvvisnnssnsantsnnsatsnssnenseseoneroncine tepeveroneersersenssnessneneenes 5 Ï 2.1 PFOTHGIE secoeeneeesseeeeiesessrsseseeiersassennsldaiG00500/0-G59581©619 0005594600008 7 {2.2 TrfGe .es cõi By 00001 6843105810001181106800001881075218/0100.E1-91007100420.0 880 04.0 00.484 0.10 mA 7 12.5 PIOHOHON eeceeeenesesreseseeeesassxsesuikiAS8500141/6383106G0000 3085 2066800809946 § 12.4 Place (Distributioni): vnssassvsens cnssnnanernmaenemnenersenueneeerererweenenenticnrsnenne 8

Chapter 2: Profile of Future Star . «-<<<5<<<ssessseseestesresresrrrerrrrse 13

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Chapter 3: Market Opportunifies - sang net taeso44663844700024600036 15

3.1 Market Environment Analysis sccccscacsscocrnesvserresmense cceseserewesenrenenanennnenneneneemnnenennnes 15 3.11 Rnero EHVIRGHHGH ccciscconsccvannacenieneearncanenaermrersseeneerneereenncntinaniensn 15 3.1.2 Mlicro EIivÌToHinreriE «««« <eee ca sẽ địa g8 i00010100510098000004/0083198/654 16 3.1.3 SWOT Analysis on High-Class Decorative Ceiling Fan 17 3.2 Current Challenges to the Development of Future S†ar - 18 3.3 Analyze the Current Distribution Strateglies .e eeieeeeeriee 19

Chapter 4: Survey AnySÏS «- <5 5Ă Ăn 110 101101881181108809106 22

Ä,1 Define the currentprobl6rfS roossaonesaasnnimenndindeiisinniideisileeerreneeeie 22 4.1.1Define the problems . + 555 5< 1913 nhi 000 te 22 4.2.1 Recommend new hypothesis Statement 0:s0cccnsnsennnerneserenreenncennee 22 I5 [uestioriiidife DENÏBEHiasaeeeennnreeeinreneneeseseesirrrsmsesemansemasduik-SộhiB0SE408483 23 4.3 Result AnalySÏS cac HH 9101 g6 1 11kg 0010001814410 010 25 4.3.1 Service output demands for market segmentation - - 25 4.33 Future Star chanel Thaw .nssssssssesavnenncanssenacacaorsesaamevenanns meanes 26 4.5 3Efflelentev TeiillEseeseseseeannnrnorrrsnirseieeeseseiasamssddlil080008 27 4.4 Findings: Gap AnalySis .cccscsscsessseereeeeeneesenenecsenersesensessssesesssnaescneneeseneags 28

Chapter 5: Recommendations to Distribution Strategies . 31

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5.2 Develop ShOwWr0OM SYSICM 1 c cmcrsevenrencenesensesnsneneensansnsennsonssnsssantaasnvenntanates ge 5.3 Build up strong relationship with stakeholders . . -c+csceereerereeree 32 5.4 Develop Sales fOTCGS cccasicinsecsnsserusnnsnians caxsnsartercenreeentinentiiionteannannesnsnnannannen 33

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FIGURES AND TABLE

Figure 1.1 Marketing Mix .ccsssesesseseseeseeeeeesenesensnetssssssssssssesssesenanesenenesessescasasecasaeasacaeaea ass 4 Figure 1.2 The four Pˆs of the marketing mix . -+-cscstererererertrtrrrrrrrrrrrrre 6 Figure 1.3 Marketing Mix Straf€gI€S - -c-cctethhhhthhhhhhthhrrrrrrrrrtrrrrrrrrrrrrerrie 7 Figure 1.4 Channel of distributions .ccccceceeseseeseeeetereseseseeeeseesssessnaneeseseseesenenensnsenenennneatecs 8 Figure 1.5 Marketing flows in channels -ccsessteeerereretrrrtrtrrrrrrrrrrrrrrrre 10 Figure 1.6 Framework for channel design and implementation -. : :-:+-+c+s>trrseere 1] Figure 3.1 Current distribution channels of Future Star -:+c+cscetetererererertrtrrrrtre 20

Table 1.1 The service output demands (SOD) templafe -5-++*seteeeeretrererrerrree 12 Table 3.1 Current distribution channel of Future Star (number of quantity of

Decorative ceiling fan and % Of saÌ€S) - cành 21 Table 4.1 Market Segment of Future Star .ccccecceceseseeeseesersetsessensseesseseneeecsesseneeneenenaeneens 23 Table 4.2 Summary of Service Outputs demanded by two market segmens 26

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EXCUTIVE SUMMARY

This review conducts an analysis of the existing channel structure of Future Star In an environment where the real estate projects of tourist, deluxe and high-class apartment, villas, resort have been quickly developing during recent years in Danang, Hanoi and Ho Chi Minh city, Future Star faces some interesting challenges as how to adapt the channel structure in order to get products to the end-user in the way they want to purchase and consume the product

A series of frameworks have been used in the report to assess this, including a review of end users service outputs demanded and efficiency templates for each end user segment reviewing the types and amounts of work done by each channel member in the performance of the marketing flows, the importance of each channel flow to the provision of demanded service outputs and the resulting share of profits each channel member should reap A Gap Analysis is also done which examines the environmental and managerial bounds and the types of demand and supply slide gaps in the existing channel structure and finishes with an assessment of power and conflict amongst channel members

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INTRODUCTION af »w PY

Đ= RATIONALE OF THE STUDY OBJECTIVE OF THE STUDY SCOPE AND LIMITATIONS RESEARCH METHOD STRUCTURE OF STUDY

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Introduction

TO TT TTI

1

INTRODUCTION

1 Rationale of the study

Vietnam is the second largest population in Southeast Asia as well as one of the most developing countries in the world (www.cpv.org.vn) According to a forecast in December 2005 by Goldman-Sachs, Vietnamese economy will become the 17th largest economy in the world in 2025, with nominal GDP of $ 436 billion and GDP per capital of 4,357 USD’ According to the forecast by the PricewaterhouseCoopers in 2008, Vietnam may be fastest growing of emerging economies by 2025 with a potential growth rate of almost 10% per annum in real dollar terms that could push it up to around 70% of the size of the the UK economy’ by 2050 According to statistics statement from Ho Chi Minh City Department of Architecture Planning, Hanoi and Ho Chi Minh city are the two biggest one to build up more than 20 high-class buildings of over 20 floors per year According to Savills Vietnam ' Danang is the third leading market with 55 licensed projects from domestic and foreign investors such as: Deawon, Cantavil, Vien Dong, Meridian, True Friends Park, Vegas Hotel & Villas Among these mentioned projects, there are more than 30 projects for tourist/hospitality that are located in the beach For Q3/2009, Danang did launch 6 projects covering 387 villas Estimated to 2015, Danang will develop about 15 apartment projects whose 7,600 apartments will be provided

This market is very potential for Future Star and high-class decorative ceiling fan but also high direct competition with many competitors like Panasonics, KDK Fans (Malaysia) To get success in this market, Future Star with its high-class decorative ceiling fan needs to understand Vietnam real estate market as well as decoration trend for these high-class construction projects, especially the network with construction consultancy’s decision making to structure their marketing mix, especially distribution channels

' Savills is a global real estate service provider listed on the London Stock Exchange Savills Vietnam is the longest running property consultancy in Vietnam, with a continuous presence since 1995 Savills Vietnam is the largest property consultancy in Vietnam with over 750 employees nationwide - http://www.savills.com.vn/

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Introduction

MALMO TT TT

2 2 Objective of the study

To study Vietnam real estate market as well as decoration/architecture trend of construction consultancy perception on decorative ceiling fan which Future Star is a new business to explore all factors of distribution channels influence on customer decision making; analyze factors of distribution channels to influence on customer decision making; recommendation for Future Star to structure distribution channels to win customer decision making

3 Scope and limitations

In this research, Future Star will be studied and analyzed Database was based on their current business reports and distribution channels performance

To research and evaluate of this issue, we will define their current problem in distribution channels for high-class decorative ceiling fan from then offer recommendations to help Future Star well operate their specific distribution channels for this specific ceiling fan

In this paper, the author just wants to research and analyze Future Star case for the author’s interest only, it is not support for any competition or inimical purposes

4 Research method

Research methodology: desk research and field study

This thesis is first used by exploratory study with In-depth interview to understand clearly the problem and then descriptive study with survey by face to face interview to discover the associations among different variables

5 Structure of study Chapter #: Introduction

This chapter introduces the rationale of the research study, statement of the problem and objective of the research with detail questions, scope and limitation of the research The research methodology gives readers the method of approach research, collection data and information Chapter 1: Literature Review

This chapter reviews the basis Marketing concepts and focused Distribution Strategies which will be exploited in detail next chapters

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Introduction a

3 Chapter 2: Company Introduction

This chapter gives a quick brief about overall business environment of Future Star and high-class decorative ceiling fan category

Chapter 3: Market opportunities

This chapter analyses market environment including Marco and Micro as well as the current challenges to development of Future Star in terms of this ceiling fan category

Chapter 4: Distribution problem identification

This chapter analyses the situation, the source of data and information are used to identify the current obstacles of distribution channels of high-class decorative ceiling fan business It will be a background for solutions/recommendations in next chapter

Chapter 5: Recommendation to distribution strategies

This chapter proposes solutions/recommendations that address the current challenges of distribution channels mentioned by chapter 4 and how to implement and measure the solutions

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CHAPTER 1: LITERATURE REVIEW

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Chapter 1: Literature Review

_3559/081304409fag94808091000808380°9/112 eens EBA oper SN i RR RB aS FAO UR ERITH UAE 4 CHAPTER 1: LITERATURE REVIEW OF DISTRIBUTION STRATEGIES 1.1 CONCEPT OF MARKETING There are many definition of Marketing However, generally, Marketing is all about to satisfy the needs:

Formal definition offered by the American Marketing Association: ‘Marketing is an organizational functions and a set of processes for creating, communicating, and delivering values to customers and for managing customer relationship in ways that benefit the

_— vl

organization and its stake holders

Social definition of Marketing: “Marketing is a societal process by which individuals and group obtain what they need and want through creating, offering and freely exchanging products or services of value with other”

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5

Segmenting a market help company on selecting target segment or/and to drive marketing focus on each of group customer

Market segmentation could be base on below variables: e Geography: region, country, area, climate

Demography: age, gender, education, income, occupation, religion Psychograph: personality, life style, value, attitude

Behavior: product used rate, brand loyalty, decision making unit, income status e Techno graphic variables: motivation, fundamental values, living standards

Product portfolio: is a set of brands, brand lines and packaging sizes that company offers for sales to buy ina particular category Different brands may be designed and marketed to appeal to different market segments

Customer perceived value: is the different between the prospective customer’s evaluation of all

the benefits and all the cost of an offering and the perceived alternatives Market intelligence (MI): according to Cornish, it is

“Process of acquiring and analyzing information in order to understand the market (both existing and potential customers); to determine the current and future needs and preferences, attitudes and behaviors of the market; and to assess changes in the business environment that may affect the size and nature of the market in future a

1.2 MARKETING MIX

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_ eget RR Rr Se SO NCTC OS ES TNR ASAE EE EC CONN ET ES, 6 reach the trade channels and the targets markets PRODUCT PRICE Variety List price Quality Discount Design Allowances

Features Payment period Brand name Credit terms Packaging Services Target Customers PROMOTION PLACE Advertising Chanuels Personal Selling Coverage Sales promotion ÂnBÐEEIBINHB Public relations Ï„aiiiisgs Inventory Transportation Logistics

Figure 1.2 The four P’s of the marketing mix Source: Philip Kotler, 2008, p.48

° Philip Kotler, 2006, Marketing Management, p.19

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Chapter 1: Literature Review Advertising Vv Sales Promotion Company Product Service Prices Ỳ Events and Experiences Distribution Channels Target Customers Public Relations Direct Marketing Personal Selling Ỳ Figure 1.3 Marketing Mix Strategies — Source: Philip Kotler, 2006 1.2.1 Product:

The product itself is the primary influence on what consumers experience with a brand, what they hear about a brand from others, and what the firm can tell customers about the brand In other words, at the heart of a great brand is invariably a great product In this topic, we consider: how consumers form their opinions of the quality and value of a product, how marketers can use the relationship marketing perspective in formulating product strategy and offering (Kevin,

2007)

1.2.2 Price:

Several factors influence management’s decisions about how price will be used in marketing strategy An important concern is estimating how buyers will respond to alternative prices for a good or service Costs affect an organization’s ability to compete The existing and potential

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Chapter 1: Literature Review | 8

competition in the market segments targeted by a company affects management’s flexibility in selecting prices Finally, legal and ethical constraints create pressures on decision makers A strategic pricing strategy also mandates understanding how price is viewed and understood by customers (David, 2006, p.317)

1.2.3 Promotion:

Promotion strategy integrates the organization’s communications initiatives, combining advertising, personal selling, sales promotion, interactive/internet marketing, direct marketing, and public relations to communicate with buyers and others who influence purchasing decisions (David, 2006, p.338)

The communications activities that make up promotion strategy inform people about products and persuade the company’s buyers, channel organizations, and the public at large to purchase brands (David, 2006) 1.2.4 Place: CONSUMER PRODUCTS Producer »| Consumer

Producer »| Retailer »| Consumer

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-985660350E54G91A00S408808/883980080G8322100000/0010000000/0006898THỢ-BSSGNĐ03N.G900/0:3022300998/612407/20060/U,.ANOE M2/SBIGGG)TQ0H/0/GI2Đ00580100/1E0/0088E03GI.0H09800050080539907H88138.)200090330082ã09400940.0053801508528890050156850110404018010033080B8E023NGS2NNEG.G1880386064008481208009480010087B449586H1.H0101 0166060100

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networks, cooperating in their efforts to produce and distribute a product to end users When first selecting a channel of distribution for a new product, the pricing strategy and desired positioning of the product may influence the choice of channel Once the channel of distribution is complete and responsibilities for performing the various marketing functions are assigned, these decisions establish guidelines for pricing, advertising, and personal selling strategies The promotion efforts must be matched to the various channel participants requirements and capabilities Consumer-products manufacturers often direct advertising to consumers to help pull products through distribution channels Alternatively, promotion may be concentrated on middlemen to help push the product through the channel Intermediaries may also need help in planning their marketing efforts and others supporting activities (David, 2006, p.293)

DISTRIBUTION STRATEGIES

Distribution is considered as marketing channel According to Anne T.Coughlan, “Marketing channels are the routes to market used to sell every product and service that consumers and business buyers purchase everywhere in the world ”® Tn the order hand, the marketing channel is a set of interdependent organization involved in the process of making a product or service available for use or consumption Both demand-side and supply-side factors affect the development of channels and provide reasons to change channels through time

° Anne Coughlan, 2006, Marketing Channels, Chapter |, p.1

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Chapter 1: Literature Review CPE TTT 10

Physical ——-* Physical Physical >

Possesion fae Possesion Possesion =

Promotion Promotion Promotion

—————> >

-_— g Negotiat ta Negotiation

Negotiation egotiation Customers

ae ———— + = Industrial - Producer : : Wholesaler : Retailer Financin 2 E and

_ Financing Einancing iS 5| households

Risking Risking Risking mr " HÍ————— T R + ? Ordering Ordering Ordering a «&———— Ă Payment Payment Payrhent + SS < Commercial channel subsystem

Source: Coughlan ef al

Figure 1.5: Marketing flows in channels

Source: Marketing Channels, Seventh Edition, 2006, p.12

According to Coughlan, the marketing channel challenge involves two major processes: (1) designing the right channel, and (2) implementing that design The design process involves segmenting the market, choosing which segment (s) to target, and producing channel service outputs for the target end-users in the most efficient way possible The implementation process requires an understanding of each channel member’s sources of power and dependence, an understanding of the potential for channel conflict, and a resulting plan for creating an environment where the optimal channel design can be effectively executed on an ongoing basis

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Chapter 1: Literature Review el 11 Channel Design Process Channel implementation process: SEGMENTATION:

Recognize and respond to target customers’ CHANNEL POWER CHANNEL CONFLICT service output demand Identify sources for all Identify actual and

channel members potential sources | # Vv is i | Decision About Efficient Channel \ ⁄ Response: \ we N ¥ CHANNEL STRUCTURE: 8

What kinds of intermediaries are in my MANAGE/DEFUSE CONFLICT:

channel? - Use power source strategically,

Who are they? subject to legal constraints

How many of them?

SPLITTING THE WORKLOAD: With what responsibilities? DEGREE OF COMMITMENT:

Distribution alliance? GOAL: Vertical integration/ownership? Channel Coordination GAP ANALYSIS: What do I have to change?

INSIGHTS FOR SPECIFIC CHANNEL INSTITUTUTIONS: Retailing, Wholesaling and Logistics, Franchising

Figure 1.6 Framework for channel design and implementation Source: Marketing Channels, Seventh Edition, 2006, p.18

As figure 1.6 above illustrated, one of the fundamental principles of marketing is the segmentation of the market Segments are best defined on the basic of demands for the output of marketing channel Service outputs include (but may not be limited to) bulk-breaking, spatial convenience, waiting and delivery time, assortment and variety, customer service, and product/market/usage information provision.” These 6 service outputs cover the major

categories of end-users’ demands for different channel systems

+ Bulk-breaking: refers the end-users’ ability to buy their desired number of units of a product or a service The more bulk-breaking the channel does, the smaller the /of size end-users can buy that leads to the higher the channel’s service output level

+ Spatial convenience: to reduce transportation requirements and search costs from then to

increase customers’ satisfaction

7 Anne Coughlan, 2006, Marketing Channels, Chapter 1, p.1

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+ Waiting time: the time period that the end-user must wait between ordering and receiving goods The longer the waiting time, the more inconvenient it is for the end-user

+ Breadth of variety: Variety describes different classes of goods (that is the breadth of product lines); Assortment is the depth of product brands or models offered within each generic product

category

+ Customer service: refers to all aspects of easing the shopping and purchase for end-users as they interact with suppliers or retailers (ex: responsiveness, payment options, etc.) The type of customer service offered must be sensitive to the targeted end-user

+ Information provision: refers to the education of end-users about product attributes or usage capabilities, or pre-purchase and post-purchase services Segment Service Output Demand: Name/Descriptor

Instructions: \f quantitative marketing-research data are available to enter numerical ratings in each cell, this should be done If not, an intuitive ranking can be imposed by noting for each segment whether demand for the given service output is high, medium, or low

Table 1.1: The service output demands (SOD) template Source: Marketing Channels, Seventh Edition, 2006, p.69

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CHAPTER 2: PROFILE OF FUTURE STAR

2.1 INTRODUCTION TO FUTURE STAR COMPANY

2.2 INTRODUCTION TO HIGH-CLASS DECORATIVE CEILING FAN

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Chapter 2: Profile of Future Star

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CHAPTER 2: PROFILE OF FUTURE STAR

2.1 INTRODUCTION TO FUTURE STAR COMPANY

Future Star is a young company established in June 2010 with a Professional & Dynamic Management team of three people that have been over 10 years in Sales & Marketing Management at Multinational Corporations such as Nestle, La Vie, Coca-Cola and Colgate- Palmolive And one of them was launching Hunter fan business in Vietnam 06 months ago After over 10 year — experience from MNC, the Future Star Management team has a lot of opportunities to develop their business background, acknowledge on Finance and Human Resources that will be key factors to develop the company

They have owned the passion to become No.1 in decorative ceiling fan and D2D business in

Vietnam

Entnfe Star is one business partnership that is subject to Nam Minh Long Group who was established in 1992, as a distributor of consumer electronics From 2006 up to now, with the continuous innovation growth Nam Minh Long Group co-operated with its members: NAM MINH LONG, NAM HUNG LONG, NAM AN and partnering with GIBC, LLD Co, Ltd., THIEN PHUC Co, Ltd., FUTURE LINK Co, Ltd FUTURE STAR Co, Ltd to create strong brand in many areas in Viet Nam that cover four business units including Property Investment and Management, Distribution of Consumer Electronics and Home Appliance, Distribution of House-ware and Hardware and Distribution of Decorative Fan and Lighting

Nam Minh Long Group has nearly 20 years’ experience in distributing Household Electrical Equipment At present, they are proud to become exclusive distributor for many well-known brands in the world such as: Philips, Black & Decker, Stiebel Eltron, Tescoma, ect

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Chapter 2: Profile of Future Star

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2.2 INTRODUCTION TO HIGH-CLASS DECORATIVE CEILING FAN

High-class decorative ceiling fan is one of Future Star’s ceiling fan products And Future Star Management team would like to understand consumer behavior in this product to structure their marketing mix focusing on Distribution Channels to reach their right target audience

Future Star imports and distributes five titles in Vietnam that fall under the broad categories of Minka Aire (from Minka Group who is a leader in the decorative lighting industry from USA: http://www.minkagroup.net), Hunter Fan (from USA — since 1886, Hunter Fan offers quality

ceiling fan, air purifiers, humidifiers, thermostats and more that will truly transform how you feel in your home: http://www.hunterfan.com/), Fanimation (Today Fanimation sells its ceiling fans to more than 1,500 retail stores and ships its products to more than twenty-three countries Fanimation ceiling fans have been utilized in a wide variety of venues ranging from residential homes to world renowned theme parks: http://www.fanimation.com/about_us/index.html); The Modern Fan Co (coming from USA is the original and premier source for contemporary ceiling fan design, producing the most complete, exclusively modern collection of ceiling fans available Our products celebrate the modern idiom through mechanical simplification, geometric forms and contemporary finishes, and are intended to meet the needs of the professional specifier and the design-minded homeowner alike: http://modernfan.com/) and Crestar (a brand name from Singapore for medium segment)

Minka Aire’s is by far the largest category of ceiling fan accounting for approximately 40% of

all sales

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CHAPTER 3: MARKET OPPORTUNITIES

3.1 MARKET ENVIRONMENT ANALYSIS

3.2 CURRENT CHALLENGES TO THE DEVELOPMENT OF FUTURE STAR

3.3 ANALYZE THE CURRENT DISTRIBUTION STRATEGIES

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Chapter 3: Market Opportunities

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CHAPTER 3: MARKET OPPORTUNITIES

3.1 MARKET ENVIRONMENT ANALYSIS

3.1.1 Marco Environment

Vietnam Political: The Communist Party government, who is generally conducive to long-term political stability, appears committed to market-oriented reforms necessary to double 2000’s GDP per capita by 2010, as targeted In addition, relations with the US are generally improving, and Washington sees Hanoi as a potential geopolitical ally in South East Asia

Vietnam Economics: Vietnam’s GDP (gross domestic product) growth in 2011 was estimated at 6% and CPI (consumer price index) for the full year was reported at 18.13% The country’s overall payment balance in 2011 was estimated to enjoy a surplus of $2.5 billion, significantly improving compared to the deficit of $3.07 billion in 2010 The country’s export turnover reached about $96 billion, rising 33% from 2010 and over threefold increase compared to the National Assembly’s target of 10% The trade deficit ratio would be equal to 10.4% of the total export turnover, much lower than the National Assembly’s target at no higher than 18% as well as the target in the Resolution No II at no higher than 16% The state budget revenue in 2011 exceeded 13.4% of the year’s estimate, rising 20.6% from the actualized figure in 2010, contributing to reducing the state budget deficit to about 4.9%, at the same time public debts were controlled to ensure the national financial safety and security

Vietnam Social: Vietnam’s investment in human and social development has considerably improved the lives of its people There have been significant advancements in the reduction of poverty and the delivery of social services Major disparities continue to exist between different regions, genders and ethnic groups, however, the challenge for the next decade will be to eliminate disparities and ensure equal access to quality social services by eradicating poverty and hunger, achieving better education for people, reaching gender equality and empower women, eradicating poverty and preserve the culture and diversify of ethnic minorities, reducing child mortality and morbidity rates, improving maternal health, ensuring environmental sustainability, providing essential infrastructure services to the specially disadvantaged poor as well as ensuring good governance for poverty reduction

Vietnam Technology Development: One of the two key ingredients of Vietnam Technology

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development: high-tech development and reform of Technology management mechanism that have been based on Science based development, globalization and economic integration, need for shortcut industrialization and modernization as well as favorable development conditions: stable growth (6-7% GDP on average), large potential and existing system of organizations and high-tech focus: R&D, application, industrial production

Vietnam Environment: Vietnam has a large, skilled and low-cost workforce that has made the country attractive to foreign investors Vietnam’s location — its proximity to China and South East Asia and its good sea links — makes it a good base for foreign companies to export to the rest of Asia and beyond Vietnam is increasingly attracting investment from key Asian economies, such as Japan, South Korea and Taiwan This offers the possibility of the transfer of high-tech skills and know-how

Vietnam Legislation: Vietnam has allowed legislators to become more vocal in criticizing government policies This is opening up opportunities for more checks and balances within the one-party system In addition, when Vietnam joined WTO, the government did promulgate many policies, regulations and laws to facilitate and encourage business investment and growth

3.1.2 Micro Environment

Vietnam real estate market: Vietnam's real estate industry has grown at a fast pace over the last few years that is driving by these factors: Increased standard of living and rapid urbanization; Current lack of supply; urban infrastructure development; Increased availability of mortgages, Growing remittances from over 3 million overseas Vietnamese; Large young population looking to buy their own homes; Developing real estate legal framework; Strong growth in tourism The leisure and hotel markets are other areas of interest with Vietnam billed at the next Thailand — its 3,000 km of coastline is very suitable for resort and villa developments and tourist arrivals have increased 25% since 2004 Four and five star hotels are enjoying very high occupancy rates during peak periods and there are many opportunities for foreign operators to improve service and returns According to the Association of Foreign Investors in Real Estate (AFIRE), in their ‘Ranking of Emerging Countries Considered for Real Estate Acquisitions - 2011’, Vietnam is ranked fourth best, behind China, India and Brazil

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buildings of over 20 floors per year According to Savills Vietnam, Danang is the third leading market with 55 licensed projects from domestic and foreign investors such as: Deawon, Catavil, Vien Dong, Meridian, True Friends Park, Vegas Hotel & Viillas Among these mentioned projects, there are more than 30 projects for tourist/hospitality that are located in the beach For Q3/2009, Danang did launch 6 projects covering 387 villas Estimated to 2015, Danang will develop about 15 apartment projects whose 7,600 apartments will be provided

Consumer electronic market - Growth stronger than in 2009: In 2010, consumer electronics recorded stronger volume growth compared to 2009 as the economy started to show some recovery from the crisis GDP growth in 2010 was nearly 6.5%, which was much higher than 5.2% in 2009 As consumers’ confidence was regained, more people were willing to purchase items like televisions and cinema or high-class decorative furniture for better entertainment at home or for home decoration Thanks to rising incomes and better living standards, many consumers also traded up to more premium products, such as high-class decorative ceiling fan, to make their lifestyles more deluxe and convenient, comfortable

Specialist retailers dominate channel distribution: Electronics and appliance specialist retailers dominated the distribution of consumer electronics Leading players, such as Nguyen Kim, Cho Lon, Pico, De Nhat Phan Khang, Nha Dep, Nha Xinh, Chi Lai, launched many initiatives to capture consumers’ attention, such as internet retailing and in-store promotions Consumers strongly preferred to purchase from these big one-stop shops compared to smaller specialist retailers or grocery retailers, as they could easier make purchase decision based on the wide range of brands and products available on display, and with the help of the professional

service from the sales assistants

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MAMAN NT NAAT TINT STMT

18

Based on micro economic environment analysis, retail market is very potential for high quality/decorative ceiling fan since the economic development leads the city re-structuring and upgrading living conditions and standards with a booming of deluxe resorts, hotels, villas and Condo-hotels, building apartments that requires some specific, luxury decorative ceiling fan to decorate as well as to make life more stylish In addition, traditional and popular use of decorative ceiling fan is currently quite huge

Strengths:

- Big brands, high quality, decorative and variety products Professional business set-up & development plan Competitive price due to low margin projection

Strong company background, good relationship with projects and key accounts

Weaknesses:

- Too many professional leads to high operation cost Consumer’s perception on Made in China

- Lack of professional sale forces - Retail system is not yet completed Opportunities:

- Ceiling fan is very popular

- Good economic development with high living standard and premium trend - Many construction projects in progress

- Modern trade and e-commercial trend

Threats:

- Asian brands with lower price is expanding fast

- Potential of Fake, Copycat & unofficial imported products

3.2 CURENT CHALLENGES TO THE DEVELOPMENT OF FUTURE FAN

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ATT AAMT

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features that would be not classified as a decoration category And Panasonic and KDK products have been displayed at some household electric department stores such as Nguyen Kim, Phan Khang with other electric consumer goods without their separate distribution channels

There also appears in the market some imported brands from China and Taiwan on decorative ceiling fan segment but they have not made any impression to the market Those products have been also selling at some retail electronic stores that are not absorbed by a specific distribution

channel

There is only Hunter Fan coming from USA is a big brand but this brand has been facing an issue on marketing and operation activities That means Hunter Fan’s agent was appointed in Vietnam two years ago but this agent just started their business movement six months ago that seem is rather weak due to their limited investment from Distribution Agent

Based on this distribution situation of high-class ceiling fan segment as well as to reach the position of a leading in high-class decorative ceiling fan in Vietnam, Future Star has to develop their strategic marketing channels by designing the right channels and implementing that design in terms of segmentation, channel structure decisions, gap analysis, identifying channels conflicts and insights for specific channel institutions'to promote and distribute their products to their target audience/stakeholders as well as to end-users

3.3 ANALYZE THE CURRENT DISTRIBUTION STRATEGIES

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Chapter 3: Market Opportunities 20 Corporate project distribution (Wholesales) Store chains (Retail) Figure 3.1 Current distribution channel of Future Star Source: Author

Corporate Project Distribution: Future Star imports decorative ceiling fan from Distribution Agents of Minka Group, Hunter Fan, Fanimation and The Modern Fan Co or directly from these corporations for some specific products placed order from specific construction projects Currently, Corporate Project Distribution channel plays a key role to the revenue of Future Star since Future Star becomes a main supplier of high-class decorative ceiling fan to such corporates: Vinpearl, MGM, Furama Villas Danang, Best Western and Hyatt Regency (who are considered as local key accounts of Future Star) to distribute their products to their five-star resort systems in Da Nang, Nha Trang, Mui Ne (Phan Thiet) Their decorative ceiling fan has been also equipped at high-class building apartment at key cities such as Dang Nang and Ho Chi Minh City

Since Future Star is business partnership of Nam Minh Long group who has nearly 20 years’ experience in distributing Household Electrical Equipment, Nam Minh Long group has been supporting its business partnership in imported and logistics process as well as store Future Star’s products at its warehouse before distributing to Future Star’s customers

Store Chains: with the strong support from Nam Minh Long group, Future Star is taking

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advantages from the current distribution of Nam Minh Long group that utilizes some from 20 department stores in Ho Chi Minh city, Da Nang and Hanoi to display its product and directly sell to end-users However, because this is the first time that Nam Minh Long group and Future Star directly introduce their premium decorative ceiling fans to end-users, they don’t have any ambition to get high revenue/sales from this channel And we can see the result of Q3, Q4 and the whole 2011 by below table Q3 Q4 Total 2011

Channel Number of |% of | Number of |% of | Number of |% of

quantity Sales quantity Sales quantity Sales Corporate project 1,500 88.2% 0 0% 1,500 | 88.2% Building Apartment 0 0% 150 8.8% 150 8.8% Store chains 0 0% 50 3% 50 3%

Table 3.1 — Current distribution channel of Future Star (number of quantity of decorative ceiling fan and % of sales)

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Chapter 4: Survey Analysis

COTO TL TTT NL TT LET eT TT TE,

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CHAPTER 4: SURVEY ANALYSIS

4.1 DEFINE THE CURRENT PROBLEMS 4.1.1 Define the current problems

The first problem of Future Star’s current distribution channels is that Future Star just focuses on several big Corporates from then working out with their contractors to distribution decorative ceiling fan products That can’t exploit all business advantages as well as maximize revenue for wholesales since currently, there is around hundreds deluxe, five-star resort system nationwide with a large demand on high-class decorative ceiling fan to equip these resorts Relationship with existing corporates and their contractors is just recommended from Nam Minh Long group In addition, Future Star has not set up their own store chains that could cover showroom system or household department stores Future Star just combines to utilize some from department stores from Nam Minh Long group to display and sell its products to end-users That really brings added value to Future Star’s retail channel that Future Star has to do better since Retail channel plays an important role to get more profit to the company

4.1.2 Recommend the new hypothesis statement

Market Segmentation: Market segmentation for channel structure starts with understanding the needs of the end user in terms of how they want to buy high-class decorative ceiling fans These segments are designed to produce groups of consumers who are maximally similar within a group and maximally different between groups, and are different enough in their needs to build a distinct distribution system (Coughlan, 2006)

Future Star can segment their customer into two main groups based on their purchase behavior

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segment accounts for 3% of all high-class decorative ceiling fan sales

projects/Apartment Building and Household Department Store system Customers of Wholesales are defined as Corporate construction

whose architecture and construction consultancies play the most important

2 Wholesale | role in choosing and making decision on final decorative ceiling fans that

meet their layout design These customers like to plan their purchase for their whole project and can pre-purchase one kind of Future Star high-class decorative ceiling fan for other projects They tend to be loyal to one or many niche products Accounts for 97% of all sales Table 4.1 Market Segment of Future Star Source: Author 4.2 QUESTIONNAIRE DESIGN

A questionnaire design covers three parts including: General information on housing, category approach and opinion and purchasing behavior

For category approach and opinion, the key following questions were built up to more understand on consumers’ opinion and their needs on decorative ceiling fan from normal ceiling

fan, as follows:

i If you do have decorative ceiling fan, could you please tell me more: a Where you put your decorative ceiling fan in your house? b What is the Brand of your decorative ceiling fan?

c How much do you spend to buy that decorative ceiling fan? d What is your decorative ceiling fan’s style?

e Is your decorative ceiling fan used by a control system?

2 Which brand or company immediately comes into your mind first when you think of “DECORATIVE FAN”?

3 What kind of information channels do you usually use to get information about branded decorative ceiling fan products?

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Chapter 4: Survey Analysis OAT TT AT TTT 24 Magazine advertisement a

b Recommendation from other (family/friends/co-workers) c Recommendation from salespersons

d See product in store

e Others (please specify : )

For purchasing behavior, the key following questions were built up to more understand on consumers’ behavior when purchasing decorative ceiling fan, as follows: I ^, my 4 5 6 ?

Which DECORATIVE CEILING FAN brands have you ever purchased? Which CEILING GAN have you purchased in the past 3 months?

Which DECORATIVE CEILING FAN brand do you purchase most often? Which DECORATIVE CEILING FAN brand do you purchase most recently? Which DECORATIVE CEILING FAN brand do you most prefer?

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_ sn pet cer RS a Ss hE lr eS EC SEN SESE ERTS 25 Packaged for convenient use Saving power

8 Where do you purchase decorative ceiling fan most often? a Household department stores

b Showroom specialized for fans c Others (please specify: )

9 How many units of Decorative ceiling fan do you usually purchase at once? a | unit

b 2 units c 3-5 units

d More than 5 units

10 How much do you usually spend purchasing your most frequently purchased decorative ceiling fan at a time?

Amount of cost per one time (USD): 4.3 RESULT ANALYSIS

4.3.1 Service Output Demands for Market Segmentation

Coughlan (2006) suggests a framework for six service outputs that cover the major categories end users demand, which can be applied to the different channel systems to determine which channel is best suited to serve the different market segments The service outputs are: Bulk breaking, Spatial Convenience, Waiting Time, Breadth of Variety, Customer Service and

Information Provision

An analysis of Future Star service outputs demanded for each of the two segments is shown in Appendix I, and there is a summary table below Qualitative market research was conducted amongst a random selection of end users from each segment to determine the importance of service outputs Coughlan (2006) recommends using a constant-sum scale approach to force trade off of one attribute for another

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PAA ON TT NTL NTI R NIT

Bulk- breaking Low Medium Spatial Convenient Low Low Waiting time Medium Medium Breath of Variety High High Customer Service Medium to high High Information Provision High High

Size of segment based on sales 3% 97%

Table 4.2 — Summary of Service Outputs demanded by two market segments

All two segments have a high need for breadth of variety, in that at each purchase end users prefers different classes of high-class decorative ceiling fan with the depth of product brands or models offered for their option Similarly, the need for information provision is also high for all segments as this offers end-user or customers a lot of information on ceiling fan attributes or usage capabilities, or pre-purchase and post-purchase services for their reference when making a decision to be loyal to this kind of ceiling fan In addition, consumer service for the these two segments is also high as end users/customer require good services to take care of them after purchasing for example: consultancy service, product guarantee

4.3.2 Future Star Channel Flows

Future Star’s overall strategy is based on using few intermediaries to get decorative ceiling fan to market that are used are the biggest players available Construction consultancy always plays an important role in the construction process that they will propose the architecture/design layout for the project including constructive materials

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