Finding the Winning Formula to Unlock the Thai Beauty MarketDefining the right marketing mix to tap into the growing Thai premium beauty and personal care market

ME.A Newsletter2015 July

ME.A Newsletter

July 2015 Page 2 © ME.A

Premium Beauty & Personal Care

Finding the Winning Formula to Unlock the Thai Market

Southeast Asian markets are the current hotspot in Asia offering a once-in-a-lifetime

opportunity to tap into this dynamic growth story. The potential for Western premium

beauty and personal care brands is particularly attractive in Thailand. Despite the recent

political turmoil growth expectations are robust as a growing Thai middle class becomes

more sophisticated demanding more premium quality products. Finding local target

customers and tailoring a marketing mix around their needs is key to a successful

market entry.

With the advent of the ASEAN Economic Community (AEC) scheduled for December

this year the ASEAN region lately gets frequent press coverage and increased attention

from European business and beyond. Although the AEC is just at a starting point far

from a common market – let alone a single currency – export oriented Western

companies seem to realise that there is more beyond the giant Asian markets China and India.

Indeed, the ten ASEAN member states* with a combined population of more than 630m

people generating a total GDP of USD 2.5 trillion offer dynamically growing market

potential. Were AEC a single country today it would be the 7th largest economy growing

to number 6 by 2020, in five years from now only.† By then 670m people 50% of whom

will be living in cities are expected to spend USD 2.3 trillion annually on consumption.

Thus, consumer spending will effectively double by the end of the decade. Until 2020

more than 60m new consumers will emerge in the region able to purchase items

beyond their subsistence for the first time. At the same at the upper echelon, 37m newly

affluent consumers move to higher-income tiers getting access to premium product categories.

* Brunei Darussalam, Cambodia, Indonesia, Lao, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam † For more detailed data on Southeast Asian markets refer to our ME.A Compass 2015, a pocket guide to 19 countries in Asia-Pac. Order your personal, electronic copy today on www.me-a.com/compass

ME.A Newsletter

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Fast growth, a rising middle class combined with a growing appetite for consumer

goods create a compelling opportunity to tap into. Ensuing more sophisticated

consumer needs around beauty, well-being and status create a vibrant market environment for premium personal care brands.

Among the ASEAN markets at least three reasons make Thailand for personal care

manufacturers a particularly attractive option to explore. One, more than ten per cent of

the region’s population live in Thailand. Second, the Thai per-capita-income of ID

14’136‡ is amongst the highest in Southeast Asia and represents the median

purchasing power in Asia§. Third, Bangkok features a highly developed retail landscape

making it one of the leading shopping destinations in Southeast Asia. A city of more

than 6m people its sophisticated upmarket malls serve both a broad and rising middle

class and an increasing number of affluent consumers. Q4.13 and Q1.14 saw Thailand

plunge into political turmoil which was effectively ended by the military coup in May of

that year. The military managed to restore stability, yet economic growth was adversely

affected. Real GDP in 2014 grew by a meagre 0.7 per cent. However, the IMF expects

a marked rebound in 2015 and the economy to grow at 3.7 per cent. For the

subsequent years until 2020 the IMF forecasts an average annual growth rate of around 4 per cent (see chart 1).

Meanwhile in 2014 the Thai market for beauty and personal care products recorded

sales of THB 156bn or roughly CHF 4.4bn (EUR 3.6bn)**. Though the political unrest in

late 2013 and early 2014 dampened consumer sentiment and negatively affected tourist

arrivals growth of the beauty and personal care market still outperformed GDP growth.

The compound annual growth rate (CAGR) 2008-2013 was at 7.4 per cent. Yet, future growth is expected at 3.7 per cent (CAGR), more in line with GDP growth forecasts.

‡ International Dollars, per-capita-income at purchasing power parity (PPP) 2014 § Source: ME.A Compass 2015 ** See chart 2, source: Euromonitor, ME.A analyses; based on average THB/CHF and THB/EUR exchange rates for 2014

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Chart 1: Real GDP growth Thailand, 2010-2020, %

Source: IMF, 2015; Note: Estimates (E) from 2014

Chart 2: Overall Beauty and Personal Care Market, Thailand, 2008-2018, THB million

Source: Euromonitor, 2014; Note: Estimates (E) from 2014

Going forward fastest category growth by far is expected in sun care followed by colour

cosmetics, men’s grooming and sets/kits (see chart 3). The mass-market is expected to

grow at 3.9 per cent (CAGR 2013-8) while the premium segment lags slightly behind at an expected 3.4 per cent growth rate.

7.8

0.1

6.5

2.9

0.7

3.7 4.0 4.1 4.0 3.9 3.8

0

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2

3

4

5

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7

8

2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E

0

20'000

40'000

60'000

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100'000

120'000

140'000

160'000

180'000

200'000

2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

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Chart 3: Overall Beauty and Personal Care Market, Thailand, Expected Category Growth, CAGR 2013-8, %

Source: Euromonitor, 2014

The Thai premium market for beauty and personal care products in 2014 generated

sales of estimated THB 27.2bn or CHF 765m (EUR 632m)††. Thus, the premium market

size is almost six times smaller than total beauty and personal care sales. Yet, despite

the limited size the premium segment does offer attractive potential. Future growth is

fastest in the bath and shower category, followed by sun care, colour cosmetics and hair care (see chart 5).

†† See chart 4, source: Euromonitor, ME.A analyses; based on average THB/CHF and THB/EUR exchange rates for 2014

0 1 2 3 4 5 6 7 8

Sun Care Colour Cosmetics

Men's GroomingSets/Kits

Baby and Child-specific ProductsDeodorants

Skin CareFragrances

Bath and ShowerOral Care

Oral Care Excl Power ToothbrushesHair Care

Depilatories

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Chart 4: Premium Beauty and Personal Care Market, Thailand, 2008-2018, THB million

Source: Euromonitor, 2015; Note: Estimates (E) from 2014

Chart 5: Premium Beauty and Personal Care Market, Thailand, Expected Category Growth, CAGR 2013-8, %

Source: Euromonitor, 2014

0

5'000

10'000

15'000

20'000

25'000

30'000

35'000

2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

-4 -2 0 2 4 6 8

Bath and Shower

Sun Care

Colour Cosmetics

Hair Care

Sets/Kits

Fragrances

Skin Care

Deodorants

Baby and Child-specific Products

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Market characteristics and drivers

Beyond these impressive sales figures, what are the underlying characteristics of the Thai beauty and personal care market and what factors drive future growth?

Robust consumer sentiment – The political crisis at the end of 2013 and in early 2014

negatively affected overall demand for beauty and personal care products in Thailand.

Yet, despite the slow down demand remained relatively robust throughout particularly in

colour cosmetics, fragrances and facial treatments. For one, Thai consumers

increasingly driven by beauty consciousness seem to be prepared to spend on personal

care products. Secondly, against the economic downturn leading brands aggressively

marketed their products to stimulate demand.

Growing demand – Expected robust economic growth will improve disposable incomes

and, thus, spur the willingness of consumers to upgrade and spend more on beauty and

personal care products beyond mass-market, every-day items. Plus, the rapidly aging

Thai population – the United Nations expects the share of Thais older than 65 years to

grow from 6.6 per cent in 2000 to 22.9 per cent by 2035 – bolsters demand for both premium skin care and anti-aging products.

More sophisticated consumers – The growing middle class and high-income

consumers become increasingly demanding asking for multi-benefit products or

additional value functionality in beauty and personal care products. Greater

sophistication means further changing consumer needs with the trend of natural and

organic ingredients as a clear sign of that. Moreover, consumers tend to enjoy shopping

for premium products in upmarket malls and department stores. Compared to

hypermarkets – the leading channel for mass-market products – these retail formats offer greater choice, more convenience and specialist advice.

Men as new targets – Greater consumer sophistication also brings with it that men

become increasingly beauty conscious. Men’s grooming products are a fast growing

category both in the mass and premium segment. Thus, men’s bath and shower, hair and skin care products are expected to experience dynamic demand growth.

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Marketing online – Social media are hugely popular in the Thai society. Thus, leading

premium and super-premium brands leverage aggressively online communication to

reach target customers. Yet, despite this growing importance of online media Internet retailing plays a minor albeit growing role in terms of value share.

Strong competition – A generally fragmented market, the arrival of new brands and

incumbents’ forceful marketing strategies lead to an intensifying battle for target

customers’ share of wallet. With expected growth in beauty and personal care to slow when compared to the 2008-13 period competition in the Thai market will be up.

Unlocking the Thai market potential

So, with the opportunity in the Thai market for beauty and personal care products

clearly being there and growing what is the winning formula to successfully tap into its attractive potential?

Do your homework – First and foremost, you need to realise that entering the Thai

market – as with any other market – is not a matter of simply getting your brand and

existing products into the shelves of local retailers. And the assumption that a product

that sells well in (Western) core markets will automatically do so in Asian markets is at

best naïve. Market entries based on this are more than likely to fail. Particularly in the premium beauty and personal care segment such approach will ultimately backfire.

Rather than trying to ship container loads of your products to some foreign land hoping

for a decent top line and profit contribution you need to understand the Thai market and

find your local target customer. Key to the success or else of your venture is to assess

your market potential based on a thorough understanding of the customer needs your product is supposed to serve.

No need to reinvent the wheel, necessarily. – The good news is you do not need to

start from scratch. Your starting point is your brand and existing product (portfolio).

Next, the key to a successful market entry in the Thai beauty and personal care market

ME.A Newsletter

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is to define a winning marketing mix. Use a pragmatic, straightforward framework to guide you. In what follows we will use a 5 P marketing mix

Chart 6: 5P Marketing Mix

Customer | Find your target customer – A good starting point to find the right target

customer for your products is the target customer profile in your home markets. Join

forces with a local market research firm to probe whether or not this consumer profile

can be found in Thailand too. If not or if the target segment turns out too small find out

to which customer (groups) your products allude. You need to get a clear picture of who

your Thai target costumer is. Define a detailed profile along set criteria such as sex, age, income, education, residential area, purchasing behaviour, etc.

Once you have gained sufficient clarity about whom you target you need to understand

respective customer needs, preferences, shopping behaviour, consumption pattern, etc.

when it comes to beauty and personal care products. This will give you valuable first

insights regarding the market potential of your products.

A structured focus group methodology can then be used to see how your Thai target

customers perceive both your brand and your products. The latter should be analysed

Product

Positioning

Promotion Place

Price

Customer

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along all defining dimensions, such as quality, fragrance, haptics, benefits, design,

packaging, size, etc. This process is key to the success or else of your market entry.

Depending on the outcome you might review your existing products and adapt them to local customer preference and needs.

As an illustrating example you might take a body lotion for women. The focus groups

might reveal that the fragrance of the lotion is much too heavy for the liking of your Thai

customer. They prefer lighter senses. In addition it might turn out that the haptics of the

product it too oily and finally the package size might be too large for the aimed for

premium positioning.

Such revelations are invaluable ingredients for your winning formula. They help you to

get your offering right for the Thai market. Make sure that you again test adapted

products until customer feedback is where it should be. This iterative process might take

time and requires resources yet compared to the cost of a failed market entry these

efforts are small.

Positioning | Refine your positioning – The focus groups will also allow you to refine

and adapt the existing positioning of your brand and products. What are the core

promise of your brand and the unique selling proposition (USP) of your products for the

Thai customer? What makes your value proposition to the Thai customer different from

competing premium beauty and personal care brands? It is essential to understand that

a positioning built on "Swissness" alone will not suffice. Though the label does stand for

positive product qualities such as product safety, high quality, advanced features,

reliability and trustworthiness it should not be more than the icing on the cake to wrap your value proposition.

Again it is crucial to test your refined positioning with Thai target customers because it is

their, and only their perception of your brand and products that is all decisive. Finally,

the targeted perception with your Thai customers, the positioning greatly impacts the remaining three Ps, i.e., price, place and promotion.

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Price | Get your prices right – Calibrating the price points for your products is crucial.

If they are too high you might price yourself out of the market. Should they be too low

they do not support your positioning. In addition prices are a key input for the business

plan any serious market entry should be based on. As such prices will also determine whether or not marketing your products in Thailand is a commercially viable option.

To find the right price points a thorough understanding of the relevant market (segment)

is essential. You need to analyse the brands competing for the same target customers,

their respective positioning and their pricing. Comprehensive price comparisons

including discounts, rebates and promotions are helpful to get a clear understanding of the relevant market segment.

Place | Get products to your customers – To effectively market your beauty and

personal care products in Thailand you need to determine how best to reach your

targeted consumers. It is their preferences and shopping habits that determine the most

promising route-to-market. Will your products best sell through shop-in-shop solutions in

department stores or upmarket malls? Are drug stores or rather boutiques the right

channel? Which retail locations are best to both strengthen the positioning and reach

your target consumers? What role – if any – does online retailing play in your product

category?

Promotion | Get your message across – Against the background of limited marketing

budgets and aggressive marketing strategies of incumbent brands you need to carefully

evaluate how best to address your target customers, i.e., in the most effective and

efficient manner. Do you need to promote your products through TV commercials and

bill-boards and what role – given the pervasiveness of social media in the Thai society –

do online campaigns play? What do your target customers' preferences imply for your shop floor staff?

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Approached in this way the marketing mix epitomises the necessary thorough

understanding of the Thai beauty and personal care market. The 5 Ps build the

foundation of the business model for your successful market entry.

In summary, ASEAN is the coming economic powerhouse of Asia. The ten markets

offer a once-in-a-lifetime opportunity for Western premium beauty and personal care

brands to win new consumers. Particularly the Thai market with a growing middle class,

increasing consumer sophistication and a highly developed retail environment shows attractive growth potential for premium brands.

To successfully tap into this growth opportunity you need to define a compelling

marketing mix tailored to your local target customer needs and preferences. Finding the

winning formula for Thai consumers requires some essential homework to be done

upfront plus a long-term commitment to build up your brand in this vibrant Southeast Asian.

We at ME.A can help you to decipher the DNA of local consumers and define a winning

marketing mix as a first and prerequisite step into the any Southeast Asian beauty and personal care market. ME.A. Your bridge to growth in Asia.

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