“Splash Corporation (A): Competing with the Big Brands” Problem: Splash Corporation (Splash) is a leading producer of skin care and hair care products in the Philippines. Founded in 1985, Splash was now the country’s leading domestic producer of personal care products and was billed as “the next Unilever” by BizNews Asia magazine (page 5). However, competing with the top corporations in the world was no easy task, especially when these companies were producing low-cost alternative products.
Splash knew that there was no way they could compete in a price war with their much larger competitors, so they had to compete on value if they wanted to remain a top company in the industry. At this point in 2006, the company is considering what brands and products the company should focus on, how to brand and market these products, and generally what strategy they should follow for the rest of the year. Situation Analysis: Economic: The Philippines is a country in Southeast Asia comprised of 7,107 islands in the western Pacific Ocean.
With 88 million people, the Philippines was the world’s 12th most populous country at the time. However, 40% of Filipinos lived below the poverty line of US $1, and more than 55% lived on less than US$2 per day (page 2). Surprisingly though, the cosmetics and toiletries industry in the Philippines generated P83 billion in 2004, and was projected to grow at a rate of 5 percent per year to reach P107 billion by 2009. Hair care, the industry’s largest category, contributed P19 billion in sales in 2004, and was projected to grow at a rate of 4% per year to reach P24 billion in 2009.
With P17 billion in sales in 2004, and a projected growth rate of 9% per year, skin care was a quickly growing category despite the economic hardships that the people of the country were facing. Social: In spite of its relatively low per capita GDP, the Philippines was ranked number five on the “vanity index”, which was determined by measuring the consumption of beauty products. While money is a constant concern, outward appearance and the need to feel beautiful is also extremely important to Filipinos. Thus, the Splash Corporation, along with their Splash Research Institute (SRI) was excited about the future of their natural, hair care, nd skin care products. Additionally, there is a high degree of brand loyalty in the Filipino beauty products industry. Strong brand loyalty in this market removes some of the pressure resulting from rivals trying to steal market share through price competition. However, it also indicates that gaining market share in the Filipino beauty products market will be extremely difficult, and the only way to do so is to develop products that are not only lower priced, but are also superior in effectiveness and quality.
Before creating a marketing strategy for Splash, it is important to understand the six different types of Filipino consumers. The first two groups (classified as A and B) meet the criteria of the “upper class”. C1 and C2 constituted the “middle class”, D defined the “lower class” and E, was considered the “extremely low class”. Splash’s target market consists of the C1, C2 and D market segments. To attend to “the masses” as they were known, Splash products were sold in sari-saris which is a convenience store found in the Philippines.
Often times, the products were sold in single-use packages so that they could be affordable to their target market that may not be able to afford large packages of their products. This was beneficial to Splash because the multinational companies under-served these markets (which constituted roughly 90% of the market), and Splash was able to declare its corporate mission to “uplift the pride and economic well-being of the Filipino”. Political: It is also important to recall that the large multinational corporations control the high-income A and B markets.
In addition, companies from China and Taiwan are coming in to provide cheaper products to the low-income D and E markets. With the staggering economy and competition from both sides, Splash Corporation has to decide what consumers they want to focus on so that companies from other countries don’t take over in their domestic market. Technological: Although the Splash Research Institute has done extremely well over the last twenty years in meeting consumer needs, the company needs to always have a first mover’s advantage so that customers can become loyal to their brand.
It is also important to recognize Splash’s current shortcomings. Splash’s small advertising budget makes it difficult to compete on promotions with the large multinational corporations, regardless of the fact that their constant innovation is a major strength of their company. Alternatives: The Splash Corporation should currently follow a market penetration strategy. It is not a good idea for Splash to enter foreign markets just yet, because one of its strengths is that it is a domestic company providing products for their people.
Thus, the Splash Corporation needs to find other ways to attracting non-users of your product or convincing current clients to use more of their products. Accordingly, the alternatives that Splash Corporation has revolve around different target market strategies. The first alternative that Splash has is to follow a Full Market Coverage strategy, where the firm attempts to serve the entire market. This however is probably not a good idea for Splash because the company will dive into everything without doing the proper research.
Their competitors will realize this and compete not only on value, but price as well, and eventually drive them out of the market. A better solution would be a Selective Specialization strategy, where different marketing mixes are offered to different segments. In this case, we would consider increasing our customers by moving into hair care products for the upper class. Since hair care is the largest category in the cosmetics and toiletries industry, it makes sense to move forward in this category even if we will face competition from the larger corporations. A strength that Splash Corp. as is that it understands the needs of Asian hair, which doesn’t exactly occur with multinational corporations. Another segment that would be targeted in this category would be to focus on the lower class in skin care products. This is projected to be a growing market and even the consumers with the least amount of money are willing to pay for the best brands in skin care products. Thus, they can move into the D & E markets with skin care products. Splash would remain in all categories in their initial target market, the middle class, since this market is underserved by all of their competitors.
Another alternative is to seek out a Product specialization strategy, and specialize in a particular product and tailor it to different market segments. Therefore, since Splash is a market leader in skincare products, they would attempt to serve all classes in this market. However, Splash would only serve the upper class in all three categories. This would probably not be the strongest option however, because it will cause price wars with the multinational corporations who are actively pursuing the upper class segments, and cause consumer confusion when trying to understand the brand.
The final alternative is a Market Specialization strategy. The firm would specialize in serving a particular market segment and offer that segment an array of different products. The segments that Splash should serve if it were to follow this strategy should be the middle and lower class segments in all categories. The problem with this strategy is that the lower class market is soon going to be dominated by countries like Taiwan and China, who can produce the products at a lower cost. Thus, this strategy isn’t the best either.
Recommendation: It makes the most sense to follow a Selective Specialization strategy. Given that the large corporations are uninterested in the lower class markets, and their competitors in other parts of Asia are uninterested in the upper class market, Splash is better off with this strategy that focuses on the Masa and only specializing in one category each for the upper and lower classes, so that they will gain consumer loyalty long before any of their competitors realize that they should target that segment of consumers.
In order to gain lower class customers, Splash should follow a penetration pricing strategy. A penetration pricing strategy may also promote complimentary products, which will further their brand loyalty in this target market. They should also further their consumer safaris by giving out free samples to their participants, all while continuing to sell their products in sari-saris. Making the same products that are given to the upper class in very small quantities would perhaps help to make the lower class feel special, and it would encourage them to purchase these items with their disposable income.
In turn, to keep their middle class customers, Splash needs to use a penetration pricing strategy here as well. By continuing to change their products and finding cheaper ways to package them, the consumers will perceive the quality of the product to be higher while not destroying their perception of its price. These products should be sold through retailers to further this perception of value without appearing cheap. Since the company oesn’t have much money to spend on advertising, they should encourage buzz marketing and free samples. They should also target men who are a growing market in this segment. In order to appeal to the upper-class customers, Splash should implement a premium pricing strategy so that they are comparative to their competitor’s prices. These products should also be differentiated so that the upper class will see the difference between these products and the products sold to the lower and middle class.
They should place these products in boutiques, hair salons, department stores, and beauty supply stores so that there is a perceived perception of quality based on the location alone. Most of Splash’s advertising budget should be spent on this segment. These advertisements should once again consist of beautiful women that are admired, but it should be clear from the advertisements that they are of the upper class.