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B&O Play in China Marketing Strategy, Group Exam Project Copenhagen Business School, IMK, Team XF.

Submitted the 13th of May 2013

Study advisor: Charlotte Forsberg

Group 4:

Oscar Lange Riis-‐Hansen – 110991-‐2731 Rasmus Emil Hansen – 130888-‐2523 Simon Kjær Jørgensen – 210689-‐1969

Number of characters: 67,974 Number of pages: 26 (Excluding Bibliography and Annexes)

Rasmus Emil Hansen Marketing Strategy 13.05.2013 Oscar Lange Riis-‐Hansen B&O Play in China Numbers of characters: 67,974 Simon Kjær Jørgensen Team XF – Group 4 Copenhagen Business School

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Table of Contents INTRODUCTION & PROBLEM STATEMENT 2

OUTLINE OF DATA COLLECTION METHODS 3

THEORETICAL CONSIDERATIONS 3

LIMITATIONS AND DELIMITATION 4

MARKETING AUDIT 4

INTERNAL ANALYSIS 4 THE VALUE CHAIN 4 CORE COMPETENCIES 6 PORTFOLIO -‐ BOSTON CONSULTING GROUP MATRIX 7 CURRENT GENERIC STRATEGY 8 PRODUCT LIFE CYCLE 8 EXTERNAL ANALYSIS 8 PEST ANALYSIS 8 PORTER’S 5 FORCES FRAMEWORK 9 CONSUMER BEHAVIOUR 11 SEGMENTATION 13 SWOT & TOWS 14

MARKETING STRATEGY 15

GROWTH STRATEGY 15 STP 15 THE MARKETING MIX 17 DISTRIBUTION STRATEGY 18 COMMUNICATION STRATEGY & MEDIA MIX 21 FINANCIAL CONSEQUENCES & TIME FRAME 24

DISCUSSION & PERSPECTIVE 25

CONCLUSION 26

BIBLIOGRAPHY 27

ANNEX 1: THE VRIO FRAMEWORK 0 ANNEX 2: ANNUAL DISPOSABLE INCOME IN CHINA 0 ANNEX 3: B&O’S DISTRIBUTION CHANNELS OF B&O PLAY IN CHINA 1 ANNEX 4: BOSTON CONSULTING GROUP MATRIX OF B&O PLAY 2 ANNEX 5: S-‐O-‐R MODEL 3 ANNEX 6: OVERVIEW OF TAOBAO BRANCH OF ALIBABA GROUP IN CHINA 4 ANNEX 7: OVERVIEW OF MEDIA MIX IN OUR COMMUNICATION STRATEGY 5 ANNEX 8: PRODUCT LIFE CYCLE MODEL 6 ANNEX 9: B&O’S DISTRIBUTION PLACES IN CHINA 6 ANNEX 10: ”CLUSTER MAP” DEVELOPED BY MCKINSEY & COMPANY. 7


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B&O Play in China

Introduction & Problem statement Most recently in the wake of the financial crisis and reduced growth in the primary European AV market, CEO of B&O, Tue Mantoni, launched a new corporate strategy in August of 2011 called “Leaner, Faster, Stronger”. It is a 5-‐year plan focused on changing the organization and internal processes to ensure a profitable future for the company (B&O VII, 2012).

The first steps towards realizing this strategy was initiated in 2012, with the first step being the launch of a new sub brand, B&O Play, intended to reach a new and younger segment with a more youthful feel and significantly lower prices compared to the original AV products. (B&O VII, 2012).

Another part of the strategy is to facilitate an accelerated establishment and growth on the Chinese market, as it constitutes the largest and fastest growing luxury market in the world. By 2015, Chinese consumers will account for more than 20% of the global luxury market (Yuval Atsmon, 2011).

Having a luxury brand and high-‐quality Play products, B&O’s product range seem to fit the Chinese market (Hansen I, 2012). Additionally, the accelerated establishment of B&O Play have resulted in several physical distribution channels e.g. through Apple stores. Hence B&O's overall strategy for China seems to be moving in the right direction.

But due to low market share, many competitors and a different consumer taste, doing business in China can also be tough, especially if the company is not attentive to the tendencies on the market (Hansen, 2012). One tendency that B&O hasn’t fully discovered is the potential of distribution and communication channels on the e-‐commerce market. In fact, China already constituted the second biggest global on-‐line market in 2009 and digital products are the second biggest product category purchased on-‐line in China (Atsmon, Dixit, & Magni et al., 2010).

Therefore, in order to better adapt their strategy to the Chinese market for consumer audio and cinema, we put forward the following problem statement, which we aim to give a solution to:

How should Bang & Olufsen adapt their communication and distribution strategy in China in order to increase awareness with 45% and sales with 30% of the B&O Play product line?

The estimated numbers (45% and 30%) are to be understood as the annual increase added to the existing awareness and sales of B&O Play products in China.


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Outline of data collection methods Most data used in this report is external secondary data found on the Internet and in literature (business articles, news articles, books and market analysis). We have also included internal secondary data as annual reports and interim reports. The secondary data are relevant to our problem statement. The data contains the most updated information available for our assignment. Furthermore, they are valid and reliable because the author’s motivations have mostly been to inform and not to motivate. However, we have used websites as B&O.com when gathering facts about the company itself, which can be qualified as motivation-‐minded websites. Our external primary data consist of an online survey with Chinese respondents, which we have conducted primarily in order to gather quantitative data of consumer behaviour in China.

Theoretical considerations In the marketing audit section, we will take on a resource-‐based-‐view, looking at B&Os value chain by using the model of Porters generic value chain (Porter, 1998), B&O’s strategic capabilities (or core competencies) by using the VRIO framework developed by Barney and Hesterly (Marcsimony, 2012), the relative market share of the B&O Play SBU in relation to market growth by using the BCG Matrix (Henry, 2008), B&O’s relative position within the industry by using Porters generic competitive strategies (Henry, 2008) and the product life cycle of the B&O Play series by using the PLC model (Kotler et al. , 2009). Then we will take a marked-‐based-‐view, looking at the macro environment by using the PEST model, the forces impacting the industry by using Porter’s 5 forces framework, consumer behaviour by using the SOR model (Kotler et al. , Marketing Management, 2009). Next, we will analyse B&O’s target segment and current positioning by using the segmentation criteria. Finally, we will identify B&O’s strategic position by summing up the marketing audit in a SWOT model and identify the development potential by using the TOWS model (Kotler et al. , 2009).

In the marketing strategy section, we will look at the strategic initial situation of B&O and the formulation, evaluation and selection of market-‐oriented strategies in order to reach our goals. The section will look at B&O’s strategy for increasing market share by using Ansoff’s growth matrix, and guide B&O to the development of mixes by using the STP model, select B&O’s relevant mixes by using the marketing mix and implement the mixes by using distribution and communication planning (Kotler et al. , 2009).

Finally, we will evaluate the financial consequences & time frame of implementing the chosen strategies. In the discussion we will take a critical view on our strategic choices and look at the perspectives of our chosen strategies and finally sum up our results in a conclusion.


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Limitations and delimitation Due to lack of accessible information, the stated percentages of awareness and sales of B&O Play in our problem statement are estimates, although we have considered a wide range of factors e.g. the increase in online users and shoppers, and B&Os current sales through beoplay.com. Regarding awareness we have taken our survey (SurveyMonkey, 2013) into account. The B&O Play SBU is distributed as one series of products, which makes the definition of an industry somewhat difficult, because of the various products in the SBU1. Hence we created our own and named it “Consumer audio and cinema”. The industries we have combined to enable ourselves to create the industry, and enable us to get and overview of the forces affecting the industry, are the home audio and cinema industry (Euromonitor III, 2012) and the TV industry (Euromonitor IV, 2012) in China. Throughout the report we have applied estimates and made conclusions based on our survey (SurveyMonkey, 2013), which represent only a few Chinese consumers, which evidently is not sufficient to be categorized as proof in a representative manner. The financial consequences of implementing our proposed marketing strategy as well as the budget of the communication strategy are based on estimations. However, we have clarified most of the impacting costs and taken into account whether the strategy is economical feasible. Our data collection is delimited to a timeframe up till the 10th of May 2013.

Marketing Audit

Internal analysis

The Value Chain Because of the increased focus on internal process changes in the corporate strategy, the following will be based on a value chain analysis (Kotler et al. , 2009). Inbound logistics & Procurement B&O products are primarily composed of components bought from independent suppliers. (B&O X, 2009). Standard components and modules in many of B&O Play products are procured from AV-‐producers, like Phillips. B&O develops and improves the procured standard components. Hence they are relatively independent from their suppliers, who only provide standard components (B&O X, 2009).

Production and R&D B&O focuses on the production of components where they have special expertise, primarily in anodizing, mechanical processing and surface treatment of aluminium. In addition to the physical components, B&O also produces proprietary software and technology products (B&O X, 2009). 1 Full list of products, see section about BCG Matrix.


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The materials in B&O products are very expensive compared to what other brands typically spend (Ingeniøren, 2011). But the B&O Play series will expectedly utilize various new materials in the production as the B&O Play products are lower priced and subsequently cannot demand the same kind of production costs, but also because the B&O Play line has to establish its own identity and stand out from B&O’s more expensive AV products (B&O VII, 2012). Collection, assembling, testing and quality controlling of the various products take place in B&O’s own production facilities in Struer (Denmark) and Koprivnice (Czech Republic) (B&O X, 2009). B&O has R&D departments in Struer and in Koprivnice, and a small development and innovation unit in Aarhus, which focuses on software and cooperation with Aarhus University (B&O X, 2009). Due to high design requirements for products and development of individual components, the R&D is considered a key component of the value chain and underlines the B&O brand known for its world famous design. Outbound logistics B&O is primarily manufacturing on a customer order basis in order to hold stocks of finished goods at a minimum (B&O X, 2009). Retailers must as a result expect a certain delivery time, which leads to a smaller binding in inventories for B&O. The delivery time to B&O’s stores or warehouses in distant countries e.g. China would assumingly be somewhat long, because of having the two manufacturing centres situated in Europe (See Annex 3 and 9 for an overview of the B&O Play distribution channels in China).

B&O is using multichannel distribution systems in China. B&O Play products are distributed through B1 shops, shop-‐in-‐shops and through 3rd parties. The B1 stores mainly focuses on the AV products. The shop-‐in-‐shops in China only distribute B&O Play and are placed in high-‐traffic-‐areas like shopping malls. Moreover, B&O Play products can be bought on-‐line in the US and Europe through beoplay.com.

B&O also has a strategic alliance with the Chinese luxury retailer Sparkle Roll, who has 77 stores in China, where some of B&O’s products are sold (B&O VII, 2012). As per January 2013 Sparkle Roll is to operate more than 50 shops, which sell B&O Play exclusively. The B&O Play shops will be in a smaller scale than the B1 shops, and will be placed in exclusive shopping malls. (Ritzau, 2013).

Finally, B&O distribute B&O Play through Apple stores in China. This cooperation is based on conventional marketing and will help the B&O Play brand to reach the target segments of young professionals and additionally also reach parts of Apples costumer base. Moreover it also ensures a clear distinction between the original B&O brand and the new B&O Play sub brand, which subsequently reduces the risks of deluding the AV segment with the cheaper Play products (Langer, 2012).

Marketing and Sales In order to get closer to their Chinese business partners and their costumers, B&O has moved their Asian headquarter from Singapore to Shanghai in 2011 (B&O IV, 2013). As of March 2013 total B2C sales (both AV and B&O Play) in China only amounted to 3% of the company’s global sales, but B&O expects the sales in China to increase to 15-‐20% of the company’s global sales within a few years. An increased sale of B&O Play products is fundamental for achieving the company’s goal (Osbæck I, 2013). Mr Qi Jianhong expects at least 50% of the B&O sales in China will consist of B&O Play products within 3 years (Ritzau/Finans, EuroInvestor, 2012).


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B&O is considering using direct marketing via online social media as Weibo and Youku and celebrity endorsement (Osbæck I, 2013) (Eilers, 2013). BBH Shanghai, a British advertising agency, was appointed on May 5th 2013 to manage B&O’s global promotion (Beophile, 2013).

Service The exclusiveness of particularly the AV products demands somehow a high level of service, which B&O provides when assisting in installation in customer homes. (B&O VIII, 2013). Since B&O Play products are not integrated with other B&O electronics to the same extent as the AV products, hence we assume that no installation is required for the B&O Play products.

B&O also offers post-‐purchase standard 36 months guarantee and assistance, which is available through the retailers to ensure that every B&O product is perfectly functioning (B&O VIII, 2013).

Firm infrastructure In September 2012 B&O formed a strategic alliance with Sparkle Roll, and the private equity fund A CAPITAL. Mr Qi and Sparkle & Roll have 15-‐20 years of experience with selling luxury products as Burberry and Rolls Royce on the Chinese market. Sparkle Roll and A Capital holds approx. 8% of the shares in B&O, which they cannot sell within the next two years (Jørgensen, 2012). In this way, B&O has ensured their partners global interest in the company and not only in China. Through strategic alliance B&O can benefit from Mr. Qi’s knowledge of establishing distribution of luxury goods in China (Jørgensen, 2012). A Capital has invested $US 30 million in B&O’s activities in China (Yuen, 2012). HRM The sales personnel are specialty trained in order to enhance the customer experience and service in B&O stores. The sales personnel’s know-‐how ensures proper guidance regarding all the differences and nuances of B&O’s products (B&O VIII, 2013).

Core competencies B&O's core areas of expertise include picture, sound, operation, mechanics and design (B&O VI, 2011)(For overview within a VRIO Framework see Annex 1). “Picture “ is considered a competitive parity, because the quality of the LCD-‐ and plasma panels is valuable, but not rare. B&O has a patent on their sound technology, and “Sound” is one of B&O’s core competencies. ”Operation” is considered a temporary competitive advantage, because the product is valuable and rare. B&O’s strategic capability within “Mechanics”2 is another of their core competencies. “Design” is closely related to the brand and also amounts to a core competence. The last core competency is the brand “B&O”, because B&O has utilized the brand’s opportunities, and even decided to name their sub-‐brand “B&O-‐Play”, which indicates that B&O is aware of its quality brand.

2 Surface treatment with aluminium.


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Portfolio -‐ Boston Consulting Group Matrix We characterize the products in the B&O Play SBU as speciality products because of their unique characteristics such as design and quality. By using of the BCG Matrix (Henry, 2008, s. 239), we have analysed the products within the B&O Play SBU, looking at their relative market share (Compared to one of their largest competitors, e.g. Phillips) in relation to market growth (see annex 4).

Because of lacking available information concerning sales volume of each product, we stress that the size of the product circles is not to be taken into consideration. However, we do know that B&O Play is a very small player in the different industries and therefore we position all the products at the utmost right end of the matrix.

Each product is in the Question mark category because every product (except for EarSet 3i, Form2 and BeoPlay V1) can be categorized as digital media player system docks, which is a rather new and rapidly growing market (Euromonitor III, 2012). BeoPlay V1 has a LCD screen, which fits in the industry for LCD TVs, which is a growing market. Thus it is not a 3D-‐enabled LCD TV, which is a less rapidly growing industry, which is why we have positioned it at the bottom of the Question mark grid. The EarSet 3i and the Form 2 are both in growth markets (Euromonitor III, 2012) (Euromonitor IV, 2012).


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Current Generic Strategy B&O’s current generic competitive strategy (Henry, 2008, s. 185-187) in China is a hybrid that combines a Differentiation strategy and a Focus strategy. The Differentiation strategy entails that the company has produced products that are seen as fairly unique by consumers. This means that the company can demand higher prices than competitors. The customers would in exchange demand more service and higher quality. One risk with this strategy is partly that consumers’ need for unique and more expensive products varies. The Focus strategy entails that the company targets specific segments in the market. By focusing on specific segments, B&O Play is enabled to better meet this segment’s needs instead of trying to capture the entire market. The segment in question is the young professionals who have a degree from a university (Gullev, 2012). One risk with applying the Focus strategy is e.g. that the gap between the submarket, which contains the targeted segment, becomes more similar to the entire industry.

Product Life Cycle The current stage of the PLC (see annex 8) (Kotler et al. , 2009) is at the introduction and early growth stage, because the B&O Play product series are fairly new to the market (B&O Play was launched in January 2012 (B&O VII, 2012)), B&O’s sale of the Play products is increasing (B&O III, 2013) and the awareness of the B&O products are rather low (SurveyMonkey, 2013).

External analysis

PEST analysis Political The Communist Party of China has been in office for around sixty years in China. On the one hand China has been leaning towards a liberal market form in recent years and entered WTO in 2001. The country embraces foreign investment and gains from trade agreements with foreign companies. China has agreed to the terms of UN’s CISG convention, which outlines terms of trading goods between countries (Schmidt, 2012) (Business Monitor Intl. I, 2012). China has by 2012 lowered the taxation on profits made by foreign companies in China by up to 50%, as long as the home country of the company has a so-‐called double taxation agreement with China (Davies, 2012). Denmark has such a taxation agreement with China (Skatteministeriet, 2012). On the other hand the one-‐party political system has been unable to respond effectively to the growing corruption and inequality (Business Monitor Intl. I, 2012). Also, the government has provoked political difficulties in relation to separatism in Chinese regions (e.g. Tibet). Economical China is the fastest growing major economy in the world, and the country has large exchange reserves, which helps the country to secure the future of its economy. The economic growth has increased living standards for most Chinese people, and lifted millions out of poverty (Danish Foreign Ministry, 2013). The main part of the economy still comes from exportation, which makes it more vulnerable when its export markets are in recession. Thus the growing middleclass is set to increase consumption over the forthcoming years, which will strengthen the Chinese economy (Business Monitor Intl. I, 2012). The increase in consumption is linear with increase in disposable income of Chinese citizens. The savings ratio has been falling steadily and is predicted to fall even more in coming years (see annex 2)


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(Euromonitor VIII, 2013). China is still a preferred country for foreign companies, when it comes to cheap labour. However the cost of labour is increasing in China (Business Monitor Intl. I, 2012). Socio-‐cultural The urbanisation in China is nothing but remarkable, the UN predicts China’s urban population to rise from 40% in 2005 to 73% in 2050, which is the equivalent to a gain of 500 million people. This urbanisation will demand emergence of new cities in more undeveloped areas in inland China. While the economic growth has helped many, the inequality has become more evident (Business Monitor Intl. I, 2012). Time has become more valuable to Chinese consumers, which is partly seen in how and how often they shop. Chinese consumers are normally known for shopping their daily goods about five times a week, though this seems to be changing as time becomes more valuable joint with the Chinese attraction towards hypermarkets such as the French Carrefour (Atsmon, Dixit, & Magni et al., 2010). A major factor in the Chinese market is that many Chinese consumers fear buying counterfeit products (Silverstein, Singhi, Liao, & Michael, 2012). Technological The government is reluctant to let go of its control of the digitalisation of both TV and 3G mobile services, which hinders investor in these sectors (Business Monitor Intl. I, 2012). The booming numbers of Internet users in China have triggered a variety of social media platforms, of which more than 300 million people use. Chinese legislation prevents western social media platforms such as Facebook and Twitter to engage in China. The possibility to reach that many people through social media such as Weibo and RenRen should encourage foreign companies to make an effort of understanding the Chinese social media landscape (Chiu, Ip, & Silverman, Understanding social media in China, 2012).

Porter’s 5 Forces Framework As indicated in Limitation and delimitation we defined the industry of B&O Play as “Consumer audio and cinema,” where we combine the industry of TVs and Home audio and cinema. Rivalry in the industry The top five companies in volume and sales in the Home audio and cinema industry are Philips, CAV, Samsung, Panasonic and LG. CAV is the only domestic company out of the five. Philips, the biggest player in the industry has been able to maintain its position especially because of the growth of digital media player docks for e.g. iPods (Euromonitor I, 2012). As of 2011 Philips had 19,2% of the market share, CAV had 15,5% and the rest all had fewer than 10% (Euromonitor II, 2013). The industry saw 1% volume growth in 2011. Yet the industry has declined by 15,6% in volume, and decreased 31% in value from 2006 to 2011 (Euromonitor III, 2012). The industry is forecasted to increase in both volume and sales over a five-‐year period (2011-‐2016), which mainly is caused by the growth of digital media player docks along with the home cinemas with built-‐in speaker systems and the category of “other home audio and cinema” (Euromonitor III, 2012). The majority of B&O Play products are digital media player docks. The TV industry has grown in recent years because of the mature demand in the larger cities, while prices in general declined by 3% in 2012 (Emerging Markets Insight, 2013). High definition


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broadcasting is increasing in China as well as cable TV networks, telecommunication networks and the Internet usage, which have contributed to the growth in Internet-‐enabled TVs in 2011. The unit price is declining for the TVs in general (Euromonitor IV, 2012). TVs in general increased by 10,5% from 2010 to 2011 in volume and 13,4% in value. The TV segment is forecasted to increase by 50,7% within a five-‐year period (2011-‐2016) in volume, but the forecasted value increase is estimated at only 36,5% in the same five-‐year period, which can be explained by the decreasing unit price for TVs (Euromonitor IV, 2012). The biggest players are Skyworth Digital Holdings Co, Hisense Group, Sichuan Changhong and TCL. All of the top companies in the industry are domestic, though there are several foreign companies such as Samsung and Sony in the industry (Euromonitor IV, 2012). The rivalry among competitors in both industries is high, because of the relatively high exit costs including the high number of international as well as domestic players in both industries. The buyers have a huge variety of different brands to choose from, and competitors have to develop new products fairly often to comply with the rapidly growing development in technology. The intensity of the industry is also shown in the fact that there is a growth in sales, while prices has declined in the industry for TVs combined with the predictions of decreasing prices per unit, which is an indication of price wars among competitors. Threats of new entrants We find the threat of new entrants as moderate, because the industry is intense and there are clear signs of the existence of price wars among competitors, which would complicate an entry for a new company in the industry, combined with the high starting costs for a company to produce home audio and cinema electronics and TVs. However it would be possible for already existing foreign companies to enter the industry, because a single or few companies do not control the industry. The Home audio and cinema industry is characterised by two relatively big players (Philips and CAV) and a lot of other companies with very different market share (Euromonitor V, 2013). The TV industry is somewhat similar regarding the number of players and the spread of market share among them (Euromonitor IV, 2012). Bargaining power of suppliers The bargaining power of suppliers is fairly low, because of the high number of manufacturers of components that go into the electronic devices such as TVs and speakers. For instance there are around 400 integrated circuit design companies3 in China, though 70% of semiconductor products consumed in China are imported (Business Monitor Intl. II, 2011), and the top ten suppliers in the electronics industry are foreign (Business Monitor Intl. I, 2012). The notion here is that the companies involved in the industries also tend to buy foreign produced electronic components, which makes the bargaining power of suppliers even lower. Bargaining power of buyers The buyers have somewhat a high degree of bargaining power, because the Chinese consumers are some of the most research-‐before-‐you-‐buy kind of people in the world. The Chinese consumer usually scouts the Internet or window shop to compare prices to find the best deal available (Atsmon, Dixit, & Magni et al., China's new pragmatic consumers, 2010). The urge to save money and get great deals

3 Companies who design microchips and alike for electronic devices.


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have resulted in decreasing prices of each unit in the industry of TVs, which suggests the rather high level of the buyers’ bargaining power. Threat of substitute products We categorize the threat of substitute products as high, because alternatively to having stereo systems or an iPod dock, you could buy e.g. built-‐in speakers in your TV. The biggest threat to the industry is apparently computers. Apple for one has realized the importance of improving sound quality in their laptops, not to say their improvement of image quality by implementing the Retina display in their latest MacBook Pro (Pogue, 2012). Consumer Behaviour Stimuli, the Organism and how it Responds Due to the research-‐before-‐you-‐buy criteria among consumer electronic buyers in China, we view consumers as rational and information-‐processing buyers and we therefore apply a cognitive perspective. In this connection we will apply the SOR model to identify consumers’ characteristics and psychology (see annex 5 for results). Additionally, we will look at some consumers’ emotional consumption by taking an experiential perspective (Kotler et al. , 2009). Brand loyalty and pragmatism Chinese consumers are some of the most brand conscious consumers in the world (Silverstein, Singhi, Liao, & Michael, 2012). This desire to own well-‐known brands and because of increasing income, Chinese consumers “trade up” products in terms of quality and price. They are also pragmatic because they “trade down” when trading up, which is different from other development countries. Basically they only spend what they have, which also depends on their family’s economical situation (Atsmon, Dixit, & Magni et al., 2010) (Reddy, 2012). Time is becoming more valuable Chinese consumers generally want to reduce time waste and they have higher disposable income than ever before. This is due to an increase in the average shopping basket size and a decline in the frequency of shopping trips (Atsmon, Dixit, & Magni et al., 2010). TV ads vs. Internet ads TV ads are more apparent than Internet ads, however, this is tending to shift. McKinsey believes that it will take some years before the Internet ads will be a real alternative to TV ads (Atsmon, Dixit, & Magni et al., 2010). However, Chinese Internet users perceive the web as a reliable source of information. In 2010 some 56 % rated online advertising as credible, whereas only 46% found TV advertisement credible (Atsmon, Dixit, & Magni et al., 2010). In Search for Information McKinsey underlines the importance of companies market themselves on social media platforms in China, because of the vast increase of social media users. Also, a study showed that most Chinese consumers trust the websites of retailers and manufacturers, where 66% of Chinese consumers browse company websites for product information. (Atsmon, Dixit, & Magni et al., 2010). The rather


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comprehensive information search describes Chinese consumers’ learning of the product and is an important part of the buying process in both the information search stage as well as the evaluation of alternatives stages. The Chinese consumers are also believers of the equivalence between high price and high quality. In fact 45 % of the Chinese consumers believe that this is the case, whereas the percentage is only 16 in the US and 8 in Japan. (Atsmon, Dixit, & Magni et al., 2010) The most credible way of getting information and learning about a product is increasingly being through ‘word of mouth’ (WOM). In 2010 64 % of respondents claimed that advice from friends and family members influenced their buying decisions (two years earlier it was 56 %). The need for WOM is also due to a rapidly growing assortment of products. BCG claims that WOM is the most significant factor in getting credible information, followed by online blogs, product reviews, social network platforms, company websites and finally TV ads (Silverstein, Singhi, Liao, & Michael, 2012). Quality, aesthetics or price Our survey (SurveyMonkey, 2013) shows that Chinese consumers priorities a quality product before aesthetic and brand (Although, there is an increased focus on consumer aesthetics). This indicates that the best way to store brand awareness in consumer’s memory is to communicate a products quality. Value for money (or quality relative to the price) is the primary buying criteria for Chinese consumers, e.g. a McKinsey survey shows that 23% of Chinese shoppers would go out of their way to find the best price available compared to 18 % in the US. The close relation to the price inflicts heavily on the loyalty towards brands (Atsmon, Dixit, & Magni et al., 2010). Experiential perspective on youngsters A younger segment of Chinese consumers mainly inhabited in major cities like Shanghai, who looks more receptive of mass marketing, tend to be more interested in ‘what-‐fits-‐me-‐best’ buying motives. They consume towards the pursuit of feelings, fun and towards expressing their individuality (Atsmon, Dixit, & Magni et al., 2010). The Internet and the Chinese Consumers Our survey (SurveyMonkey, 2013) underpins the willingness to buy online, where approx. 92% of the interviewees would buy electronics online. When getting the opportunity to choose whether they would prefer to buy electronics in a physical shop or online, the interviewees were more or less divided into two equally sized groups. The associated benefit with buying electronics in a physical shop is primarily the opportunity of trying the product before buying it. The benefit associated with buying on-‐line is the convenience and timesaving. The survey also underpins that quality and after-‐purchase service are the main buying criteria and that language on the online shopping websites isn’t important (approx. 62% said it was ‘not so important’ or ‘not important at all’). Domestic vs. foreign products In a field experiment4 with 447 Chinese consumers from different backgrounds, it was revealed that individual taste preference was more crucial than where the product was from. The experiment

4 Performed by the International Centre for Behavioural Business Research at Nottingham University


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involved among other products electronic devices (Xiaogang, Sailesh, & Hoffmann et al., 2012). However, Michael A. Witt, Professor of Asian Business & Management at INSEAD, believes that whether the Chinese chooses foreign or domestic products depends on the segment. Witt states that in terms of understanding the Chinese market and its consumers the domestic producers have the advantage, because they have been there from the beginning. But in terms of luxury goods the domestic producers have been struggling, because they have not as good control with their entire value chain as many western companies have. This goes especially for the electronic market (Reddy, 2012).

Segmentation B&O targets both B2C and B2B segments in China. The B2B segments consist of the IcePower SBU and the Automotive SBU. The B2C segment consists of the B&O Play SBU and the AV SBU, which is defined as being part of a “consumer audio and cinema” industry (B&O I, 2013). B&O’s target marketing in the B2C segment is based on selective specialisation: B&O’s AV products target the luxury segment and B&O Play products target the premium segment. B&O Play’s target approach is based on differentiated marketing, because they target a broader segment, due to having lower prices compared to the AV SBU. The premium segment in China demands e.g. high-‐quality products and is generally segmented by the following criteria (Euromonitor VIII, 2013) (PressWire, 2012) (Silverstein, Singhi, Liao, & Michael, 2012): Demographics of premium segment:

• They are primarily within the age of 25-‐35. • They often possess a high level of education, which results in higher-‐paid jobs. • Most live in urban areas e.g. Shanghai and Shenzhen. • They are part of the fast growing middle-‐class. • They are a digital and online generation.

Psychographics of premium segment: • They enjoy portability of electronic devices. • They will not cut back on quality in products, because of e.g. reduced price. • They appreciate convenience, e.g. for the sake of saving time.

The segment is attractive because the highest income earners in China are in their thirties (average gross income of RMB 32,665), and by 2020 the 30-‐34 age group will continue to be the age group with the highest average gross income in China at averagely RMB 61,3915 (Euromonitor VIII, 2013). The segment is accessible to B&O, because it relates to the areas of their core competencies.

5 In 2011 prices.


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SWOT & TOWS


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Marketing Strategy

Growth strategy By taking the TOWS into account, the hybrid generic strategy consisting of a Differentiation strategy and a Focus strategy is still suitable because the segment identified in the STP (see the STP section below) corresponds with the existing premium segment (Gullev, 2012).

In terms of a growth strategy (formulated by Igor Ansoff ) we find the Market Penetration strategy (Kotler et al. , 2009) suitable. This is due to the growing industries B&O Play engages in (Euromonitor III, 2012) (Euromonitor IV, 2012), the increase in the Chinese’ annual disposable income (Euromonitor VIII, 2013) and the fact that the B&O Play has a low market share (see e.g. BCG Matrix; annex 4). Our survey (SurveyMonkey, 2013) also supports the strategy decision, because approx. 62% of the interviewees, do not know the B&O Play brand or its products. In order to realize the Market Penetration strategy we will initially identify what segment we need to penetrate, how to position our Play Series in the eyes of that segment and finally what mixes need to be adapted in order to carry out the strategy.

STP Grouping of consumer needs -‐ The cluster segments A way to group Chinese consumer needs is via a “Cluster Map” (see annex 10). The segmentation performed by McKinsey is primarily based on geographical and demographical criteria. The reason why McKinsey finds this mapping exercise necessary can be found in the vast variety of cultural backgrounds, taste preferences and income. This is why the McKinsey authors proposes managers to adapt their marketing mixes to meet local tastes and manage by geographic clusters that cater more effectively to the country’s evolving consumer environments. (Atsmon, Dixit, & Magni et al., 2010)

Targeting the e-‐commerce segment On the basis of the consumer behaviour analysis we identify a segment we wish to target by using the demographic, psychographic, behavioural and psychological criteria (Atsmon, Dixit, & Magni et al., 2010) (SurveyMonkey, 2013) (Reddy, 2012):

Demographic: • Most of the Chinese online shoppers are within an age of 34 or younger. • They generally have a higher income than the average online user. • 53% of them are educated with a college degree. • They belong to the upper and lower middle-‐class.

Psychographic:

• The segment is based on psychographic values as feelings, fun and self-‐development/individuality associated with the young generation.

Behavioural:

• They want to reduce time waste of e.g. frequency of shopping trips. • They focus more on convenience. • Their preferable way of getting product information is by word of mouth.


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• They perceive the web as an increasingly reliable source of information. • They have increased focus on product aesthetics. • Quality and value for money is still the most significant criteria. • They believe that high price equals high quality. • They also prefer foreign luxury brands, which is emphasized by the fact that by 2015, China is

expected to account for more than 20% of the global luxury market or RMB 180 billion (US$27 billion) of global luxury sales, and growth projections in luxury goods are set to rise by 25 % each year.

Psychological:

• They spend a lot of time searching for product information e.g. on a company’s website, retailer websites or blogs before making a buying decision.

• They think pragmatic, do not take loans, but only spend what they have. • They trade-‐down in some product categories, when they trade-‐up in others, especially when

trading up because of luxury or a better-‐known brand.

As we can see, there are convergence between the online quality-‐minded segment and the premium segment that B&O Play currently targets. Both are segmented in the same way, when it comes to demographics and both segments value convenience and high-‐quality products. The main difference is that the targeted e-‐commerce segment is characterised by the need for product information and surfing online in general, which is not the primary focus in the premium segment. The online element will be the primary focus-‐point in the following.

Evaluation of the e-‐commerce segment In terms of market attractiveness only 2% of the total retail sale in China is conducted online. But the market is still attractive due to the online retail market having increased from $19 billion in 2008 to $39 billion in 2009, which in 2009 makes China the second biggest online retail market. McKinsey underlines this potential, by stating that only a third of China’s Internet users purchase products online. The staggering increase in online sales tells us that the Chinese are not reluctant to buy online and using the Internet as a payment method. This is also reinforced by their need to reduce time waste spent on physical shopping. Moreover personal digital products is the second biggest category of online purchases made by the Chinese, which accounts for 29% of the total e-‐commerce sale. 70% of the overall online sale is accounted by the top 20% of online shoppers who are young, richer and well educated. (Atsmon, Dixit, & Magni et al., 2010).

B&O is already distributing B&O Play products on-‐line in Europe and US, which affirms that B&O is familiar with online distribution, and that the segment is accessible. B&O do not distribute their AV products online, and by targeting the segment only with the Play products, the online segment is differentiable from the AV segment. Finally, the segment is actionable, because effective online distribution programmes already exists in China.

B&O has strengthen their business in China by forming the strategic alliance with Sparkle Roll and A Capital for financing and implementation of strategies in China (Yuen, 2012). Another business strength is that they provide high-‐quality goods, which is very attractive to the market. On the other hand B&O Play has a very low market share in China, and many Chinese do not know the B&O Play brand to the same extent as on other markets. Summing up, B&O has average business strength on an attractive market. Therefore the e-‐commerce segment is a secondary target for the company (Graham Hooley, 2012).


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On behalf of the above, we propose that B&O not only focuses on targeting the e-‐commerce segment, but also continue to target their existing segment – the premium segment. The on-‐line segment is therefore a supplementary target segment. This target approach with B&O Play products in China can be characterised as differentiated marketing (Kotler et al. , 2009).

Positioning By using the brand name “B&O Play”, the company has communicated a category membership with the mother brand “B&O”, and they have hence positioned the B&O Play product series as a high-‐quality/luxury product. But the lower product prices and the different distribution channels also define the competitive frame of reference: The Play products compete in an industry with many competitors like Phillip and Panasonic etc. where product prices are lower (See industry analysis).

The POD or benefits the consumer associates with the B&O Play brand is “convenient high-‐quality electronics”. It is convenient because many of the Play products are portable, wire-‐less and connectable to Apple products. High quality is mainly due to its brand. Influencing on this is also the price for the B&O Play products, which are much lower than the AV product series. In this way the Chinese gets value relative to the price, which is a part of the segmented behavioural criteria. Ultimately, the value proposition created for the consumer is characterized as “high-‐quality and convenient consumer audio and cinema” (Kotler et al. , 2009).

A competitive POP is e.g. “technology” – competitors e.g. Samsung are famous for always introducing new technological advanced products on the market, and B&O does not have the same capability to do this at the same speed as competitors.

On behalf of the above, we propose B&O to communicate the following positioning statement:

“To the on-‐line shopping generation of young quality-‐minded consumers, our B&O Play series are the electronic gadgets that provide you with convenience, great feel and puts your success on display”6.

We suggest that B&O use a differentiation strategy, more specifically a channel differentiation strategy. It resonates somehow with the current strategy for B&O Play, but adds another important distribution channel – the Chinese e-‐commerce channel. This kind of a distribution strategy followed by a communication strategy will be the major points of strategy in the following (Kotler et al. , 2009).

The marketing mix As we saw in the marketing audit, the B&O Play product series is in an introductory/early growth stage of the PLC, which suggests that B&O increased awareness of the Play series (Willumsen I, 2013). B&O needs to reposition some of their 4Ps in order to increase awareness. B&O already offers high-‐quality products at a premium price, which are mixes (price and products) that seem to be appropriate for targeting the selected e-‐commerce segment. B&O already executes promotion and many distribution activities. But in order to better reach the target segment of online Chinese shoppers, we propose that B&O repositions 2 of their mixes: place and promotion. In the following we will thus look at how to change the place mix (distribution strategy) and the promotion mix (communication strategy).

6 Authors’ statement


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Distribution strategy In China one website especially dominates e-‐commerce and that is Taobao. Taobao is owned by the Alibaba Group. It has since 2011 been divided into three separate companies: Taobao Marketplace, Tmall and eTao (for overview please see annex 6). Tmall is a virtual mall where companies can set up shop. In other words an online B2C mall where the products sold are new (Silverstein, Singhi, Liao, & Michael, 2012). We propose Tmall as a new distribution channel for B&O Play. In the following we will describe how to establish a distribution plan for Tmall. Distribution planning (Willumsen II, 2013) Distribution objectives T-‐mall does not own any product inventory or have operational control over the shops on the website (Erickson, 2011) and is therefore not a common retailer, but a platform/host for retailing (The Economist I, 2013). The distribution objective for Tmall is to attract high-‐quality brand name products that are committed to their costumers (Times, 2012). When contracting with T-‐Mall, the company has to pay a service fee of RMB 60,000 per year, and a compulsory fixed sum of RMB150,0007 (Google, 2011). Tmall also keeps 5% of the sales value as commission for every transaction made on Tmall.com (RedAnt, 2013). According to Tmall, the price is intended to help weed out merchants that are too often a source of fakes, shoddy products and poor customer service. Stores that earn top ratings for service and quality from customers and high sales volume are entitled to partial or full refunds (Erickson, 2011). Since B&Os objective is to attract consumers looking for high-‐qualitative brands and products, their objective seems to fit with Tmall. Also the financial requirements are not considered to be major financial obstacles to B&O, because of the entitled refunds associated with high-‐qualitative brands. Another requirement for admission to Tmall, is that all vendors need to conform to the website's 7-‐day-‐no-‐questions-‐asked-‐return-‐policy, and a "100% no fakes" guarantee, backed by a promise to consumers that if they receive a fake, they will be recompensed at three times the cost of the item. The re-‐compensation will rise five times next year (Erickson, 2011). Finally, B&O only needs to create a seller account and certify them with a Chinese ID. Together, B&O and Tmall contribute to an increased Chinese consumer satisfaction: Value for money and convenience. Internal/external factors Internal factors influencing on this distribution strategy are especially logistic and warehousing. As proposed in the value chain analysis, B&O needs to establish a stock of B&O play products in China in order to respond quickly to the sales through an online website. Hence, instead of only producing on orders, B&O has to change their strategy for outbound logistics regarding B&O Play in order to react

7 2011 prices.


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faster to consumer demand. No matter what, B&O has to expect some transportation, packaging and order handling costs in connection with a change in their outbound logistics. External factors influencing this strategy are among others the increased research-‐before-‐you-‐buy criteria (Atsmon, Dixit, & Magni et al., 2010). Via Tmall, consumers will have a platform for comparing prices to find the best offer available. Considering the B&O Play high-‐quality products, they add a high value on design, picture and sound. The differing factor is then whether the price matches the offered quality in the eyes of the Tmall consumer. Another factor is the two languages in China: B&O should therefore have two versions of their store on Tmall (Atsmon, Ding, & Dixit et al., 2009 Annual Chinese Consumer Study, 2009). Competition on Tmall is already tough, since 70,000 brands from more than 50,000 merchants are present – among them are competitors e.g. Samsung and Phillips. Distribution strategy We propose a continuation of a selective distribution strategy for B&O Play, because the products are fairly new, relatively high-‐priced and distinctive, which results in both intensive distribution and e.g. exclusive distribution. In terms of distribution length, we propose a direct sales channel (0-‐level). Tmall works independently of B&O and the channel system is therefore based on a conventional marketing system. Using the Internet as a distribution channel, contributes to very low transaction costs compared to alternative channels, as e.g. retail stores or (Kotler et al., 2012). On the other hand, there is usually very little value provided through this sort of channel. Though in the case of Tmall special features seeks to improve the added value. Features on Tmall are e.g. Alipay, which is an escrow8-‐based online payment platform. It is the most powerful online payment gateway in China (The Economist II, 2013). Tmall also carries an instant chat program, named AliWangWang, where online shoppers can chat with the sellers or their customer service team to inquire about products, engage in bargaining, etc. prior to purchase (Taobaobuying.com). Considering the above B&O would be in contact with their customers, meanwhile Tmall would take care of order placement and payment, which manifests in a backward activity flow from customer to B&O. Alternatively B&O could expand their B&O Play online store to China, however this is not the most appropriate solution in China, due to the fact that only 19% of Chinese online shoppers buy product on official company websites, compared to 60% in Europe and the US (Silverstein, Singhi, Liao, & Michael, 2012). Certainly it would be possible to build a more sophisticated website without using Tmall, but then you looses the benefit of saving time and effort trying to implement your own Chinese payment gateway and maintenance of a server in an often challenging Chinese internet environment (Illuminent, 2013).

8 “Escrow” means that it is releasing money to sellers only once their buyers are happy with the goods received (e.g. if the product is broken or malfunctioning).


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Distribution tactics Although Tmall is relatively young9, it serves more than 180 million buyers. It is ranked number one among all Chinese B2C online retailers in 2010 in terms of transaction volume, with a gross merchandise volume of RMB 30 billion – about three times the amount facilitated by 360buy, its closest competitor. The site accounts for a 47.6% share of the B2C online retail market in China, and it the 8th most visited site in China (IResearch, 2011). Thus Tmall already has a great financial backbone and a good reputation among consumers. The formal conditions of all vendors on Tmall are mainly the same, so the differentiation factor is the customer ratings of the companies (Erickson, 2011). Consequently, the best way to motivate Tmall is to get higher consumers ratings by offering superior value relative to the price and service to the consumers on the short run. This will generate higher sales e.g. B&O, but also more revenue to Tmall due to the 5% commission. The long-‐term motivating factor will be to maintain high ratings, because it will attract even more consumers, which eventually will attract more companies to establish a flagship store on Tmall. Offering superior value relative to the price is exactly what characterises the B&O Play brand, and service is also one of B&O’s strengths. Therefore, motivating Tmall does not constitute any apparent problem to B&O. Evaluation of Tmall Considering Tmall’s own objectives, which fit with B&O’s objectives, and the reputation and opportunities within online retailing on Tmall, we argue that B&O cannot avoid having a store on Tmall, because, as we saw earlier, B&O’s business strength is only considered “average”. Hence we argue that B&O has to agree to Tmall’s terms, because Tmall’s business strength is much more powerful in China than B&O’s. There is no room for negotiation with Tmall, however this applies to all companies. Although it does not provide the best promotion and advertising platform, Tmall has good networking connections with Sina Weibo (further in the report: SW)10 (Illuminent, 2013). An external factor influencing on Tmall is the political risk of the antitrust regulators and the Government trying to shut down Alibaba and Tmall, due to being “jealous” of Alibaba’s valuable information on Chines citizens spending patterns. (The Economist II, 2013). At the moment this is only speculation and nothing suggest that this is going to happen. Considering the above, we conclude that Tmall is an attractive sales channel to B&O. Thus B&O should be aware of the internal factor of how they will handle logistics and possible warehousing. We predict that a B&O Play store on Tmall will increase sales, yet if the customers have to wait for a long time before receiving a product, it might inflict negatively on the perception of the B&O brand and have a negative impact on consumer ratings on Tmall. Hence we suggests that B&O should have a stock of B&O Play products in China ready for being delivered to customers, as soon as the payment on Tmall

9 Introduced in April 2008. 10 Elaboration on Sina Weibo in communication strategy section.


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has been made. Having control of their warehousing and logistics in China, B&O only needs to contract with Tmall, which is possible on Tmall.com on clear and indisputable terms. Communication strategy & Media mix Task of strategy The task of our communication strategy is to inform and thereby increase awareness by 45%. The stage in B&O Play’s PLC (Kotler et al. , 2009)(see annex 8), suggest that it is important to inform about B&O Play. (Willumsen III, 2013). Also to create awareness which is rather low regarding B&O Play (SurveyMonkey, 2013). Target audience The target audience of our communication strategy is the e-‐commerce segment characterized earlier. Communication process model & buyer readiness If we look at a micro model of consumer response we find the Hierarchy-‐of effects model (Kotler et al. , 2009) useful, because the consumer is highly involved with the B&O Play products. The model indicates that when the target audience is unaware of a brand, then the brand owner should build awareness. The stage of buyer readiness (Kotler et al. , 2009) entails whether the buyers are in a stage where they are either getting aware of the brand/product or e.g. in the stage of wanting to order the product. We stated earlier that there are a lot of Chinese consumers within our target audience who are unaware of the B&O Play brand (SurveyMonkey, 2013), so we propose that a way of making the target audience aware is by using advertising and publicity. Objective of the strategy The objective of the communication strategy is to increase awareness by 45% and as a result of this increase sale, plus additionally increasing sales by implementing a new distribution channel (Tmall) by 30%. Design of communication Message strategy: What we want to communicate is the unique B&O Play product features. We want to inform the target audience about the quality sound experience a customer will have when the consumer becomes a customer. Additionally communicate the aesthetics of the products that would fit perfectly into a young professional’s home. Basically, we want to share the story of B&O Play and why it matters to have great sound by owning an electronic device that looks incredible. We also want to push the idea of becoming part of a club. We want to implement a membership club on a B&O Play website, in which only customers can be a part of. The membership club and what effects it has over time will be elaborated in the section about media mix. Creative strategy: The way we want to communicate this is by using informational appeals (Kotler et al. , 2009). We want to increase awareness about the products’ features and specifications by informing the target audience in rather simple and aesthetic ads that fits the design and quality of the products series, and what they get out of owning a product.


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Message source: We want to form a strategic alliance with a Chinese musician who will communicate the story of B&O Play as well as the product features and his experience with the products. We also intend B&O Play to deliver the message themselves through different online media platforms, which will be elaborated further in the following. By using online media such as social media platforms, the idea is that the communication would go viral. So to speak an online word of mouth spreading of communication, where every online user is able to express its opinion about the brand and products online. Communication channels The channels that are to deliver the company’s message are mainly personal communication channels (Kotler et al. , 2009). The marketing department of B&O Play will be in direct contact with consumers via social media and the B&O Play Club website, where members can write reviews on their experiences with their products. The main argument for choosing social media as a place to market B&O Play is that more than 300 million people use social media in China (Chiu, Ip, & Silverman, 2012). Moreover, many Chinese online users (62% in survey) find social media platforms reliable as an information source (SurveyMonkey, 2013) (Silverstein, Singhi, Liao, & Michael, 2012). Also, Chinese online users are the online users in the world that are influenced the most in the purchasing decisions through social media (Chiu, Lin, & Silverman, 2012). Additionally, online Chinese consumers find word of mouth a very credible source of information (Silverstein, Singhi, Liao, & Michael, 2012), which the social media platforms are an online extension of. The strategic alliance with a Chinese musician will take form as a non-‐personal communication channel (Kotler et al. , 2009), where the musician promotes the products through his communication channels. Budget of communication strategy Because of lack of accessible information regarding the costs of forming a strategic alliance with a musician and the cost of creating a Chinese version of beoplay.com, we will not be able to realise a finalised budget of our communication strategy. However, we know that B&O Play has formed a similar strategic alliance with the Danish band Mew (Rix, 2013). The strategic alliance between Mew and B&O Play indicates that expenditures similar to the one we predict in China would not be a financial problem to the company. An assumingly more economically subtle strategy is to use musicians via the already existing partnership with Universal Music (Universal Music Group I, 2013). Regarding who should monitor and manage SW11, AliWangWang12, the Chinese version of beoplay.com and the membership club, we find it important that B&O Play hires their own team of domestic Chinese marketers. This is due to their cultural background and because B&O might lose some of the close connection with the consumer if they outsourced this function. An average annual salary13 in e.g. Shanghai was RMB 51,968 (China Daily II, 2012). It is not unlikely that educated marketers have higher salaries, thus we estimate the annual cost of employing three Chinese marketers from the beginning of the implementation of the strategy to approx. RMB 300.000. However, we find the Objective-‐and-‐task method to be most appropriate in this regard. In this way we will define our marketing objective and determine what tasks will meet the objectives. The budget for performing these tasks will be equivalent to the costs (Kotler et al. , 2009).

11 Elaboration in the following media mix section. 12 Info about AliWangWang see section concerning distribution strategy. 13 i.e. income before tax and does not include any form of e.g. bonuses (in 2011 prices).


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Media mix As explained in the section, we want to explain which social media platforms we want to use, and what other communication tools to use in China (for overview see annex 7). Choice of Social Media: As part of a direct marketing form (Kotler et al. , 2009), we want to use online social media to function as communication channel for our message. We want to push our message through a social media named Sina Weibo (SW), where B&O Play will be a brand page (Thoughtful China, 2011). This is due to SW being one of China’s largest and most used social media platform with 36,5 million active users per day (Sina Hong Kong Limited, 2012). Also, SW has integration functionalities with Tmall.com, where we can link to the B&O Play store on Tmall.com (Gao, 2012) and finally because the users on SW fit perfectly with the e-‐commerce segment (highly educated, high income and aged between 19 and 35) (Sina Hong Kong Limited, 2012) (Chiu, Lin, & Silverman, 2012) (Sina Hong Kong Limited, 2012) (Millward, 2012). On SW, which literally means micro blog, you can type 140 Chinese characters in each comment and it enables users to post videos and photos. SW is sometimes compared to Twitter, however experts tend to prefer SW because of its stability and many functions (Taylor, 2012). Also, through SW it is possible to promote the 50 B&O Play stores Sparkle Roll is set to open (Ritzau, 2013). Choice of other online media: In addition to the social media interaction, we want to create a Chinese version of the already existing B&O Play website (B&O PLAY, 2013), which contains product and company information. The B&O Play Club will be an integrated part of the strategy on the B&O Play website. To be able to login on the online club the consumer needs to be an owner of a B&O Play product. The online club includes a forum, where members can meet and interact with one another, share their experience with products e.g. write reviews and share music and concert experiences. The B&O Play Club also includes monthly concert ticket “give-‐aways”, where members can get free concert tickets. This can be facilitated through B&Os existing partnership with Universal Music Group (Universal Music Group I, 2013). The objective with this membership club is to increase loyalty from members towards the brand, and in time increase the chance of having them become potential buyers of B&O’s AV products. Choice of Strategic alliance: The catalyst of the communication going viral on SW will be celebrity endorsement (Kotler et al. , 2009) with a Chinese musician. The most “followed” and popular person on SW is Yao Chen, a Chinese actress who has approx. 21 million “followers” (Taylor, 2012). We are convinced that there is at least one musician in China that has somewhat the same intensity of “followers” on SW. In order to find that person, B&O should consult Universal Music (Universal Music Group III, 2013) (referred to in annex 7 as “Option A”). Another more expensive alternative is to pay for an independent Chinese musician (referred to in annex 7 as “Option B”), who are popular and corresponds with high quality and the targeted e-‐commerce segment.


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Pull strategy and Scheduling We find it preferable to use a pull strategy (Kotler et al. , 2009), where B&O promotes its Play products and brand to create awareness directly to the consumer. In this way the consumer will buy the product from either a physical B&O Play retailer or Tmall. In the case of Tmall, the retailer will demand the product from B&O, before sending the product to the end-‐consumer. Because of SW being a social media platform, we want to advertise continuous (Kotler et al. , 2009) throughout the time frame. In this way as many possible Weibo users will notice it, and the message will go viral. In addition, we will strongly recommend that the communication will be intensified around anniversaries, like Bachelor’s day, where Tmall had orders worth RMB 3.36 billion in a single day (China Daily I, 2011). Possibility of measurement at end of time frame The clearest way to measure (Kotler et al. , 2009) whether the communication strategy has worked or not, is by looking at sales, in order to find out if consumers has become customers within the time frame. Another way to measure the success of the marketing plan is via SW. The awareness of B&O Play can be examined through the number of costumers engaged in the advertisement pushed through the website within the time frame and also by pushing questionnaires via SW.

Financial consequences & Time frame As stated in the Limitation and delimitation section we are unable to exhibit a sincere depiction of the financial consequences of our marketing strategy plan. However we will try to sum up the major consideration in relation to the financial consequences for B&O Play. The cost estimation of our marketing strategy plan is has a one-‐year time frame, and we would after the first year measure if B&O Play should continue the strategy or not, and consider new goals in terms of awareness and sales. Considering the costs of our marketing strategy we find expenditures in relation to salaries approx. RMB 300.000 to the small team of Chinese marketers. Furthermore we find expenditures regarding the strategic alliance we find fit between B&O Play and a Chinese musician, and some expenditure in designing the SW brand site, the Chinese version of Beoplay.cn including the online membership club and the designing of a Tmall.com store. Additionally there will be expenditures regarding the logistics when shipping products via Tmall, which depends on the choice of either establishing a warehouse or whether to use the existing storage options in B&O stores (B1 and soon to open B&O Play stores). Finally there is a fee for setting up shop on Tmall.com, which is RMB 60,000 per year, and a compulsory fixed sum on RMB 150,00014, and 5% of the sales value as commission for every transaction made on Tmall.com. Looking into B&O’s financial statements we found that B&O had marketing and distribution expenditures of DKK 654.3 million globally, which indicates that having a large budget for marketing and distribution is not unfamiliar to the company. We also found that as of May 2012 B&O had total

14 2011 prices.


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equity deposit of DKK 1.626 million and additionally a cash depot of DKK 159.1 million. The equity fund A Capital has invested $US 30 million in B&O in China. Considering the financial consequences we would argue that in contrast to what effect our proposed strategy could have, the costs are little. We see that B&O has the necessary funds to fund our marketing strategy plan.

Discussion & Perspective On the basis of various literature (see e.g. (Atsmon, Ding, & Dixit et al., 2009)) we find it important that B&O adapt rather than standardize its integrated marketing communication, because of the intercultural differences between China and the countries where B&O Play already is established. In order to provide a more representative depiction of consumer behaviour in China, we recommend B&O to perform a more extensive market research of Chinese consumers, because of our insufficient survey, which clearly lacks participants (13 participants). Moreover, most of the B&O Play products are connectable to Apple’s products, e.g. the BeoLit 12 is connectable to Apple’s iPhone. When reading the specifications of the products, it seems as if Apple is the only manufacturer whose products are connectable to the B&O Play products (except the BeoPlay A8 and A9, which is connectable to any Wi-‐Fi device). But due to international companies like Samsung and Nokia that account for respectively 20,3% and 22,8% of the mobile phone market in China (2011), having a major product relation with Apple’s products might not be feasible in China in the long run (Euromonitor VII, 2013). Why we propose another growth strategy on the long run for B&O Play, which is Product development (Kotler et al. , Marketing Management, 2009). This strategy is stressed by the suitable competitive differentiation strategy, where consumers, in time, demand innovation and new product offerings. Regarding the proposed involvement in social media in China, an additional risk for B&O Play, is the possible chance of public criticism of the B&O Play brand or its products. Due to the close relationship between B&O’s brand and its high-‐quality products, it is important that the company confronts risks that might hurt the brand by dealing with the public criticism by confronting it and preferably as fast as possible, which is exactly why we have advised B&O to hire a team that will manage social media on a daily basis. In perspective we propose that the next step for a B&O Play member in the B&O universe is to become an owner of the more expensive AV products, and join the Gold Membership Club. By joining the club, the consumer will be provided with added consumer value in the shape of added benefits. The function of this club is to maintain customer engagement in the company and ultimately increase sales of the AV product series. For further research, it would be interesting to unfold subjects as “Pricing Strategies” (Kotler et al. , 2009) in relation to e-‐commerce sales of B&O Play. This is due to our survey (SurveyMonkey, 2013) that shows that some Chinese online shoppers expect online products to be considerably cheaper than in physical shops. It would also be interesting to apply Aakers strategic brand analysis model in order to evaluate the B&O Play sub-‐brand and its effects on the original B&O parent brand.


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Conclusion As stated in our problem statement we want B&O to increase awareness by 45% and increase sales by 30% of the B&O Play series in China within a one-‐year time frame.

In order to reach the strategic goals, B&O needs to continue using a hybrid generic strategy and as well establish a market penetration strategy to gain more market shares.

They need to continue targeting their existing premium segment, but also target the very attractive e-‐commerce segment and position B&O Play through a positioning statement. The positioning calls for an adaption of the place and promotion mix by developing distribution and communication strategies.

Specifically, B&Os strategies are to engage B&O Play in social media through SW, create a Chinese version of Beoplay.com, create an online membership club and form a strategic alliance with a Chinese musician, which will increase awareness of the B&O Play brand and products. The increased awareness will play a major part in the increase of sales. Additionally, we will distribute B&O Play products through an online store on Tmall.com, which interacts with SW, in order to reach the desired increase in sales.

The associated financial consequences with implementing these strategies can be financially funded by B&Os large private equity and our proposed strategies are therefore economically feasible.


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Annex 1: The VRIO Framework VRIO TEST: Resources: Value? Rare? Costly/hard to

imitate? Organized properly?

Competitive Implications

Tangible Picture Yes Yes No Competitive

parity (equality) Mechanic Yes Yes Yes Yes sustained

competitive advantage

Intangible Sound (patents) Yes Yes Yes Yes Sustained

competitive advantage

Brand Yes Yes Yes Yes Competitive parity (equality)

Operation (Patent) Yes Yes No Temporary competitive advantage

Design Yes Yes Yes Yes Sustained competitive advantage

Note: The content in the VRIO Framework was made by the Authors of the Report Model source: (Kotler et al. , 2009)

Annex 2: Annual disposable income in China

Source: Euromonitor International from national statistics/trade sources/OECD, (Euromonitor VIII, 2013). Note: Per capita disposable income and consumer spending are expressed in constant 2011 prices, fixed 2011 US$ exchange rate. Data for 2012-‐2020 are forecasts.


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Annex 3: B&O’s Distribution Channels of B&O PLAY in China

Note: Overview of Distribution Channels was made by the Authors of the Report


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Annex 4: Boston Consulting Group Matrix of B&O PLAY

Note: The content in the BCG Matrix above was created by the authors of the report. Model source: (Henry, 2008, s. 239) Product source: (B&O PLAY, 2013)


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Annex 5: S-‐O-‐R model


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Annex 6: Overview of Taobao branch of Alibaba Group in China

Note: The overview of Taobao branch of Alibaba Group was made by the Authors of the Report

Source of information: (Silverstein, Singhi, Liao, & Michael, 2012)


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Annex 7: Overview of Media mix in our Communication strategy

Note: The Overview of Media mix above was made by the Authors of the Report.


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Annex 8: Product life cycle model

Note: The yellow dot in the model was added by the Authors of the Report. Model source: (Kotler et al. , 2009)

Annex 9: B&O’S distribution Places in China

Source: (B&O V, 2013)


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Annex 10: ”Cluster map” developed by McKinsey & Company.

Source: (Atsmon, Ding, & Dixit et al., 2009 Annual Chinese Consumer Study, 2009)

Authors comment:

China is here divided into 22 city clusters, which are groups of cities that are developing around one or two large hub cities (red spots). In order to have relevant hubs to the companies, the clusters are segmented with spoke cities located within 300 km. of one of the hub cities, and the total GDP of any individual cluster exceeds 1% of China’s total urban GDP. The clusters are representing 92% of urban GDP in 2015.