Reference no: EM133410221

Case Study: (This case study was written by O. C. Ferrell and Linda Ferrell, both of the University of New Mexico. Copyright 2006 O. C. Ferrell and Linda Ferrell. Used with permission.) Better Way (Thailand) Company Limited was founded in 1988 by Thailand's 'king of direct selling,' Dr. Amornthep Deerojanawong and Boonyakiat Chokwatana. Dr. Amornthep had worked as a medical doctor at Avon in Thailand where he got the idea to start his own Thai-based cosmetics company. The company has become highly successful in Thailand using direct sales to launch its Mistine cosmetic brand. Although Thai people were not very familiar with the direct sale of cosmetics, within six years Mistine had become the leader in the consumer cosmetics market in Thailand, a market worth an estimated 25 billion baht (US $635 million) and growing at a rate of 5-10% annually. Better Way began with fewer than ten employees and 100 products. Today, there are approximately 600,000 Mistine salespersons nationwide selling more than 4,000 makeup, skin-care, fragrance, and personal-care products. In addition, the company operates one retail store on the outskirts of Bangkok. Its warehouse is considered the largest cosmetics depot in Southeast Asia with 1,170 regular employee staff. The company primarily targets women who have a high school, occupational certificate level, or high occupational certificate level of education, and have a monthly income of about US $125-200, as well as working women who have a monthly income of about US $200-300. Mistine's core target group, which accounts for 70-80% of its total revenues, are housewives with low to medium incomes. The company is expanding its customer base by targeting working people, men, and vocational school students, especially working people who have high purchasing power. There are now more than 420,000 customers nationwide. Mistine positions itself as an Asian company marketing products developed and formulated specifically for the Asian woman. They are designed to blend well with the Asian skin tone and complexion. They are also made to better suit the warmer, more humid climate of the Asian region, so that the product stays on longer and looks fresher. Chapter 5 Market selection: definition and strategies 319 Mistine's marketing mix Mistine products are manufactured by the best quality cosmetics manufacturers all over the world. Additional support is provided by Kolmar Laboratories, the largest and most experienced cosmetics manufacturer in the United States. An experienced production team develops hundreds of new and unique products each year, with at least two to three new products launched each month. Every Mistine product is thoroughly inspected and tested before being delivered to the warehouse. Customers can be assured that they will receive the highest quality products, and, indeed, Mistine will replace or offer a full refund for any product with which a customers is not completely happy. 'Our customer's satisfaction is what we care about the most' is one of Mistine's slogans, which helps it to maintain its leadership in a competitive market. Direct selling companies normally depend on word of mouth to develop brand awareness, recruit salespersons, and encourage product purchases. Better Way decided to do things differently by being the first direct selling company in Thailand to use mass media advertising. The company's continuous and award-winning advertising campaigns have been executed to build brand image and positioning in the customers' minds. Many products are promoted by popular celebrity actors and musicians. Sales force Mistine's direct sales system is a simple, single-level marketing (SLM) approach. The company recruits district managers who in turn recruit as many salespersons as they can manage. This approach meshes well with Thai culture and lifestyle. The benefit of this approach is that each salesperson earns full commission without having to share his or her earnings with others. Thus, the more sales a salesperson makes, the more income he or she receives. The company welcomes anyone-male or female-who has some free time on their hands and would like to earn money, make new friends, and develop their self-confidence to become a salesperson. Salespersons can plan their own schedules and routes in order to reach sales targets and obtain rewards. If a salesperson achieves no sales within three selling periods, then he or she is automatically terminated. The turnover rate for salespersons is 200% per year because, for most salespersons, selling Mistine products is a second job. Moreover, most of the salespersons do not have any sales experience. Although they receive up to 25-30% commission, if they are not determined and committed, they leave. By rule of thumb, 70 salespersons out of 100 are eventually terminated within six selling periods. Goals and target sales are set according to the sales promotion plans and advertising budget spent for a particular distribution period. The company offers major incentives, such as trips to Europe and gold, to all district managers to achieve target sales. With the belief that the salespersons can live without Mistine, but Mistine cannot live without the salespersons, several programs have been launched ? 320 International marketing and export management to create employee loyalty to the company. Internal relationship programs such as the 'Mistine Thank You Concert' was organized in nine provinces around Thailand aimed to gather Mistine salespersons together as a family as well as show that the company cares and is responsible for its employees. The company also provides life insurance with coverage of US $50,000 for each salesperson, which is an unusual benefit in Thailand. Nonmonetary rewards and recognition incentives for salespersons include crystal trophies and photos in the hall of fame. Operations In direct sales, the length of a selling period is crucial and shapes business operations. Normally, direct selling companies operate three-week selling periods, totaling 18 periods within a year. Mistine, however, found that most salespersons do not actually start selling products to customers until the last week of a selling period, meaning that the first two weeks are essentially wasted. Consequently, management decided to reduce the selling period to two weeks, resulting in 26 selling periods per year. This dramatic change was implemented despite objections. Ultimately, sales increased by 80% over the previous year and salespersons became more active in selling the products. These impressive sales results were not only the result of reducing the distribution cycle; they were also due to the positive attitude fostered throughout the company that motivated all salespersons and personnel in adapting to the changes and cooperating with the company's direction. One motto that employees of all levels still pledge to this day is 'We will make Mistine No. 1.' Growth and expansion Despite Mistine's great success with direct cosmetic sales, the company continues to strategize to maintain its market share amidst intense competition. To achieve its goals, the firm intends to continue recruiting new salespersons in order to increase sales and expand its marketing coverage area. It has increased its local promotion budget by 50% and developed 400 new product items to maintain its leading position. After observing that the sales of men's personal care products have been increasing in department stores, Better Way launched nine men's products including shampoo, deodorant, day and night cream, and sun protection lotion. The company has formed a strategic alliance with DTAC, a leading telecommunications service provider, under the name 'Mistine Corporate Solution' or MCS, which enables Mistine salespersons to call the 24-hour Mistine Call Center for free when using the DTAC cellular phone network system. This innovative direct selling tactic will facilitate the salespersons in ordering products, requesting product information, and asking about promotions. This strategic alliance will help the company cut costs of about US $25,000 per month on phone call fees. To penetrate the teenage market segment, Mistine partnered with RS Promotions and employed D2B, an RS Promotions 'boy band' popular among Chapter 5 Market selection: definition and strategies 321 Thai teens, to present Mistine's Pink Magic lipstick. The campaign helped boost sales to teens by as much as 10%. Recently Mistine has an aggressive strategy in its products and marketing communication in both domestic and international markets. The company opened a manufacturing site in the Philippines and Vietnam. Mistine has successfully offered products in Cambodia, Laos, and Myanmar. The success is due to its affordable price that matches the income of the people in those countries. Moreover, its advertising campaigns that use popular actresses who are well known to people in those countries support its sales. Mistine will be exporting its cosmetic products to distributors in Taiwan and to China within 2-3 years. Hungary and Russia are potential markets in the future. Sources Better Way (Thailand) Company, www.mistine.co.th; Grammy Entertainment Public Company, www.gmmgrammy.com; RS Promotion Public Company, www.rs-promotion.co.th; Total Access Communication Public Company, www.dtac.co.th; 'Mistine,' Superbrands International, 24 November, 2004, Jaturong Kobkaew, King of Direct Sales (Bangkok: Thai Public Relations and Publishing, 2002); Anuwat Dharamadhaj, 'How Direct Selling Is Regulated and Managed in Different Markets in Thailand,' 2002, Ara Wilson (1999), 'The Empire of Direct Sales and the Making of Thai Entrepreneurs,' Critiques of Anthropology, 19 (4) pp. 402-22; 'U*Star and GMM Grammy Artists,' Krungthep Turakij, 2 October, 2004, Branding for Direct Selling,' Business Thai, 12 December, 2003, 'Direct Selling,' Marketeer, September 2003, p. 62; 'U*Star to the Market,' GoToManager, 13 September, 2003, www.gotomanager.com; 'Direct Selling War,' Krungthep Turakij, 24 March, 2003, www.bangkokbiznews.com; 'Big Five Direct Sellers,' Business Thai, 12 October, 2001,

Questions for discussion

1. What are the major considerations in Mistine's attempt to continue its growth and dominance in the market?

2. Evaluate the growth strategy that Better Way has been using both domestically and internationally.

3. What actions would you recommend over the next five years? How would you apply specific marketing mix decisions to those actions you recommended?