Using Dabao Johnson's tentacles to reach the low-end market

L'Oreal China's president Paul Paul has painted a L'Oreal brand pyramid, he said, the top is already mastered a large number of high-end cosmetics brand L'Oreal can fully control, and the bottom part of L'Oreal is exactly the next plan.

This plan to enter the bottom of the pyramid is also applicable to Johnson & Johnson who wants to acquire Dabao.

When the TV was turned on, a group of young and old gentlemen still recommended each other "big and inexpensive" Dabao. The two charming girls were still delighted by the embarrassing effect of oil removal. Just who can't tell, at some point in the future, the two cosmetic brands that don't seem to have any connection may be going to be a family.

Recently, rumours about the acquisition of Dabao by Johnson and Johnson have become more and more popular among the parties. The “Dabao Tianjian”, which is known to everybody, may be changed to an overseas surname.

Low-end market

The latest news is that Johnson & Johnson will form a joint venture company with Dabao, including 51% of Johnson & Johnson Holdings. The premise of the negotiations between the two parties is that Johnson and Johnson will accept all Dabao disabled employees unconditionally and sign an indefinite labor contract. This news has been confirmed by the China Beauty Salon Cosmetics Association. Currently, it only waits for approval from the relevant authorities at the higher level.

Dabao used to be Beijing Sanlu Factory, in which disabled employees (mainly deaf employees) accounted for 1/3 of all factory employees. In 2002, Beijing Sanlu Factory carried out shareholding reform, from state-owned enterprises to 83% of state holdings. The 17% shareholding company was renamed Beijing Dabao Cosmetics Co., Ltd.

From the "Dabao to see tomorrow, Dabao sees every day," and "If you want to have a good skin, sooner or later use the big treasure," these familiar affair words began as a famous brand of local skin care products Dabao once fame. Not only has the "national exemption products, China's well-known trademarks, China's famous brand," three laurels, but also for seven consecutive years nationwide sales of skin care products, the market share was once as high as 15.76%.

However, Dabao’s main direction is always the low-end cosmetics market, with a profit margin of only about 2%, and the development and promotion of new products has always shown little improvement. Only SOD Honey’s sales accounted for more than 80 products. More than 80% of total sales, and a product is clearly insufficient to support its profit growth.

According to relevant data, since 2003, Dabao’s sales performance has consistently hovered around 7.8 billion yuan, and the pace of development has slowed down significantly. In 2005, Dabao’s sales amounted to 780 million yuan, ranking the top domestic skin care product companies. However, Dabao accounted for only 1% of the total market share of 70 billion yuan for cosmetics in China.

"If Johnson & Johnson acquires Dabao, Dabao can get the funds needed for growth, R&D support, etc. It can also enhance the image of the brand." Professor Liu Guoji, an expert in integrated marketing communications at Peking University, said in an interview with this reporter.

Tai Po has the consideration of sellers, and Johnson & Johnson naturally has a measure of buyers. At present, Johnson & Johnson only has Neutral and negligible value in the domestic cosmetics sector. However, in terms of personal skin care products, in addition to the well-known series, the Neutrogena brand has entered the Chinese market relatively late and is currently expanding in first-tier cities.

Johnson and Johnson have said that Johnson & Johnson’s current market development focuses on the secondary and tertiary cities and the rural market. Obviously, for Johnson & Johnson, Dabao has considerable appeal in the strong consumer channel terminals in the secondary and tertiary markets. After all, most local companies are developing on the low-end and middle-end products. The biggest advantage is the channel. "Johnson is trying to gain access to the Chinese market through Dabao," said Liu Guoji.

Qin Hejun, a corporate strategy expert, also holds the same view. For Johnson & Johnson, there is no lack of financial capability, no lack of research and development capabilities, no lack of management capabilities, and the biggest drawback in the Chinese chemical market is the consumer channel terminal, which is precisely Dabao is best at it, so Johnson & Johnson's acquisition of Dabao can combine the advantages of the two. “You need to know that low-end cosmetics are very easy to develop, but a mature sales terminal is very time-consuming. After purchasing Dabao, there is no intention to save a lot of time,” said Qin Hexin.

At the same time, other multinational companies have made frequent moves to expand the secondary and tertiary markets. This has also brought invisible pressure to Johnson & Johnson.

The president of L'Oreal China, Gaipaul, once painted a L'Oréal pyramid and drew a circle at the top and bottom of the pyramid. He said that the top circle is fully controlled by L'Oréal, which has mastered a large number of high-end cosmetics brands, and the circle at the bottom of the tower is exactly what L'Oréal plans next. In 2003, L'Oréal’s acquisition of a nurse nurse officially sounded the clarion call to enter the secondary and tertiary markets. L'Oréal tried to use “little nurses” to supplement the low-end product line and use the influence of nurses in the second and third tier cities and in rural markets. It has fully penetrated the high, middle and low-end cosmetics markets in China. In addition, Procter & Gamble is pushing the product line to the secondary and tertiary markets. The most representative action is to significantly reduce the price of some products of Rejoice and Tide; from the end of 2004, Unilever has been strengthening its distribution to secondary and tertiary cities. And Avon and other multinational companies are just around the corner.

Obviously, after completing the intensive cultivation of the first- and second-tier cities in the field of daily chemicals, China’s huge rural consumer groups have become the next goal of multinational companies. According to a data from the National Bureau of Statistics, consumption at county and municipal levels in urban and rural areas accounts for 69% of total consumption in the country, and is twice as strong as consumption in the central city. At present, the overall market capacity of China's daily chemical industry is approximately 800 billion yuan. Among them, the share of foreign brands has exceeded 70%. The rest is mainly the second and third tier cities and rural markets.

Brand positioning and channel stability problems

Once Johnson has acquired Dabao, the most immediate question is: Does Dabao “see you every day” as advertised? How will Johnson & Johnson position "Da Bao"?

“Although J&J is looking at major treasure channels, J&J’s reliance on Dabao will be stronger now. After all, Johnson and Johnson’s existing brands are relatively thin in the field of daily chemistry and need to borrow Dabao to expand their brand strength.” Qin Hexuan predicts that Dabao will It will continue to exist as a sub-brand of Johnson & Johnson, and Johnson & Johnson will continue to inject more funds to expand its production line.

Liu Guoji is also optimistic about the future of Dabao. "Now do not see the purpose of Johnson acquisition of malicious, his share was only 51%, and Dabao has a good profitability in China's low-end market, if you destroy the Dabao brand but not plan." He believes that if Johnson & Johnson The acquisition of Dabao may enhance Dabao's brand image, not confined to the low-end market.

Perhaps the pain of the snow that the United States and Canada had encountered, the fate of the young nurse being “distributed” by L'Oréal in the rural market will not be repeated in Dabao. However, how to reshape the brand will be the most important issue for Johnson & Johnson. Still maintain the image of medium and low products: How to increase profits? Enhance the Dabao brand: how to absorb the R&D, advertising, and talent costs? Any uncertainty can make this merger a quagmire for Johnson & Johnson.

Johnson & Johnson’s acquisition of Dabao is a source of Dabao’s channel resources. In Qin’s view, the biggest problem after the merger between the two companies is whether Johnson’s can use Dabao’s channel resources. After all, the management methods of multinational companies and local companies are different. Even the conflict, "Johnson's channel resources are most valued by Johnson. However, these are not hard resources. If Johnson & Johnson does not handle it well, it may cause channel turmoil and the loss of dealers."

In addition, Dabao’s own welfare corporate nature has forced Johnson and Johnson to be more cautious when it comes to integrating people.

When interviewed by reporters, Wang Wenbing, director of the general manager office of Dabao Company, once stated that “it is impossible to abandon the responsibility of the welfare company due to the company’s merger and acquisition”.

Qin Hexuan believes that Johnson will certainly not cut the number of workers who are qualified for the job. For other workers, they may be removed and placed in other industrial sectors in the future. Liu Guoji said that Dabao’s welfare company can enjoy more national preferential policies. For Johnson & Johnson, “this is a well-planned purchase and sale”.