Shiseidos 3-year plan

By Kazuo Ichijo

President Shinzo Maeda, who officially took over the helm at Shiseido in June 2005, was on a mission to completely change Shiseido, the No. 1 cosmetic company in Japan, to regain the lost credibility that resulted from previous unsuccessful reforms.

Among his top priorities, Maeda’s most immediate task was resurrecting Shiseido’s domestic business and establishing a strong foundation sustainable for its offensive in the even more competitive global market. In order to accomplish this, Maeda introduced the “Three-Year Plan” in 2005 with the following three pillars.

(1) Reforming domestic marketing activities

(2) Accelerating expansion of China business

(3) Fundamental restructuring

China growth strategy and fundamental restructuring

In the Three-Year Plan, Shiseido concentrated on China as its primary market to grow its international business. Outside of its domestic business, Shiseido has long targeted China as its strategic market in becoming a global company. The reasons for this direction are due to Shiseido’s early entry into the China market as well as the brand awareness it enjoys in the country. This is not to mention that China itself is one of the fast growing economies in the world.

Shiseido introduced AUPRE, a completely new brand exclusive to the China market, as early as 1994. At that time, products by foreign manufacturers were out of reach of most Chinese consumers while national brands’ product quality was primitive.2 By targeting this gap in market offerings, AUPRES successfully took over the Chinese department store channels and became a highly regarded brand.

In 2005, after enjoying success in the department store with AUPRES, Shiseido was pushing forward with the voluntary chain store channel strategy which the company was well-known for in Japan. The voluntary chain store system, which was introduced in Japan in 1923, provided high-quality products with consulting services by beauty consultants who had deep product knowledge. Through this unique interaction with the customers, Shiseido was able to expand its base of loyal customers and became the top cosmetic manufacturer in Japan.

With this unique know-how in its organization, Maeda saw the Chinese market as the perfect place to duplicate Shiseido’s success in the voluntary chain store system it has perfected in Japan.

With approximately 800 shops in August 2005, Shiseido successfully expanded the number of chain stores to over 1,700 in the year ended March 2007 with further expansion to more than 5,000 stores by end of March 2011. The aggressive expansion plan was coupled with a new branding strategy similar to AUPRES.

In October 2006, Shiseido introduced a new brand, URARA, which was made available only through its chain stores. The brand became an immediate success as Shiseido once again identified an underserved need in the Chinese cosmetic market.

With its channel specific brands, AUPRES and URARA, Shiseido was able to have focused marketing strategies, similar to the Mega Brand strategy implemented in Japan, with expanding national sales channels in China. By the end of fiscal year ended March 2008, sales in China had achieved 30 percent growth from the previous fiscal year.

Transformation continues

After completing the original “Three-Year Plan” in March 2008, Maeda and his team had no reason not to be proud of their accomplishment in the past three years. Back in 2005, Maeda set net sales targets for year ending March 2006, 2007, and 2008, and operating profitability at above 8 percent in 2008. Upon the completion of the plan, Shiseido has achieved all targets it set out to achieve four years ago (see Figure 1).

Furthermore, the operating profitability, a key indicator used by Maeda, beat the original target of 8 percent and reached 8.8 percent (Table 1). It illustrated that Maeda’s team was able to meet its targets year in and year out. Not only was Shiseido on the right track to go global, the outstanding results also gave Shiseido a solid boost to its credibility.

In the China market, Shiseido achieved the remarkable year-on-year growth of 30 percent for four years in a row. This high-speed growth contributed significantly to Shiseido’s overseas business. The Asia and Oceanic market segment, which included China, now accounts for 14 percent of total net sales and almost 40 percent of entire overseas business in 2008; this was a giant leap from 8 percent and 29 percent respectively three years ago in year ending March 2005 (see Figure 2a & 2b). As a whole, the overseas sales ratio, which reached record high at 32.4 percent back in 2007 and once again reached new heights in 2008 at 36.5 percent.

With the overseas business now playing a much more significant role in Shiseido’s future growth, Maeda was faced with the challenge of growing and managing Shiseido’s business beyond Japan and Asia. The person who is put in charge of integrating Shiseido’s global business was Carsten Fisher, a former P&G officer.

In October 2006, Maeda snatched Fischer from foreign rival P&G. This sent out a loud message as Japanese companies were not known for head-hunting outside talents, not to mention foreigners. Fischer, with his rich experience in rival companies and overseas markets, quickly became a symbol for Shiseido’s commitment to global operations as he became a Corporate Executive Officer in January 2007 followed by his appointment to the Board of Director in June 2008. Not only was Fischer the only foreigner in the Japanese dominated Board, but he was also the youngest member at the time. He is now taking the lead in transforming Shiseido into a truly global company.

Kazuo Ichijo is the associate dean and professor of Graduate School of International Corporate Strategy, Hitotsubahi University.