Consulting Assignment for Advanced Marketing

Table of Content CONSULTING ASSIGNMENT 1 ………………………………………………………………………………………………….. 2 1 KEY ENVIRONMENTAL FACTORS & TRENDS ………………………………………………………………………… 2 1. 1 Macro-Environmental Analysis ……………………………………………………………………………………. 2 1. 2 FIVE FORCES IMPACTING ON OSIM’S INDUSTRY ……………………………………………………………. 4 1. 3 Key issues that are likely to impact on the marketing strategy for OSIM ………………………….. Consulting Assignment 2…………………………………………………………………………………………………………. 7 2 COMPETITOR ANALYSIS ……………………………………………………………………………………………………. 7 2. 1 Market Segmentation ………………………………………………………………………………………………… 7 2. 2 Strategic Group Map ………………………………………………………………………………………………….. 2. 3 Competitive Strategy Theory ………………………………………………………………………………………. 9 2. 4 OSIM’s Competitive Response …………………………………………………………………………………… 11 Consulting Assignment 3……………………………………………………………………………………………………….. 12 3 DEMAND FORECASTING………………………………………………………………………………………………….. 12 3. Forecast Summary Table …………………………………………………………………………………………… 12 3. 2 Analysis of Forecasting Methods ……………………………………………………………………………….. 12 Consulting Assignment 4……………………………………………………………………………………………………….. 13 4 FINANCIAL RATIOS ………………………………………………………………….. …………………………………….. 3 4. 1 Ratio Summary Table ……………………………………………………………………………………………….. 13 4. 2 Ratio Analysis ………………………………………………………………………………………………………….. 13 4. 3 Recommendation to Maximize OSIM’s Profitability ……………………………………………………… 14 Appendices………………………………………………………………………………………………………………………….. 5 References ………………………………………………………………………………………………………………………….. 16 2 CONSULTING ASSIGNMENT 1 1 KEY ENVIRONMENTAL FACTORS & TRENDS 1. 1 Macro-Environmental Analysis Political There are legal requirements to set up retailing shops in Singapore. One can just apply for a retail permit online at the Accounting and Corporate Regulatory Authority of Singapore (ACRA) website. This leads to it being easy to overcome the barriers of entry, which may further cause an increase in the amount of competitors for OSIM.

Since OSIM is in the Health industry, its subsidiary company of GNC/RichLife would have to go through the need of applying an additional permit from Health Sciences Authority (HSA). Another major concern would be the product safety issues and requirements in OSIM’s products. OSIM is registered with SPRING Singapore for Consumer Protection Scheme. This scheme ensures the basic safety requirements in OSIM’s products, and is further verified authentic with the “Safety Mark” label. Economical According to the latest World Health Statistics (2008), Singapore’s total health care expenditure only amounts to 3. % of its gross domestic product, which is substantially lesser than other Asian countries like Malaysia, China and India. However, Singapore spends more dollars per head than Malaysia, China and India, with an average of SGD$1228 per person. Even though Singapore is facing an economy recession since 2009, Singstat has reported an increase of about 4. 5% in sales of medical goods in 2009 as compared to in 2008. This proves that Singaporeans are progressively concerned about healthcare and are more willing to spend on healthcare even in times of economic downturn.

With this display of trend in Singapore, more competition and new entrants have penetrated Singapore. This will affect OSIM in terms of sales and many other factors, as new players will be fighting for the same market share. Increasing sales of healthcare products in Singapore shows that the lifestyle healthcare industry will continue to flourish or if not, do better in future. 3 More and more competitors are seeking to reduce production costs by locating their manufacturing plants in countries with low production costs and labor.

This will affect OSIM in terms of pricecompetitiveness, as all of their massage chairs are designed and built in Japan. Social As Singapore is expected to continue developing into an increasingly affluent society, this will have substantial impact on trends in consumer behavior. Consumers will progressively become more brand and status conscious, more discerning and health conscious. As the population ages and material comfort grows, consumers are expected to pay more attention to their health, thus an increasing demand for fitness and health clubs, as well as choosing more expensive yet healthier food choices.

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This is particularly true for “Baby-Boomers” in their fifties now with larger spending power. More emphasis is placed on leisure activities, such as travelling, water sports, golfing and cultural activities. However, being workaholics, Singaporeans are constantly moving forward, hence little time is allocated to work out. Therefore, there is a potential market for OSIM that is in accordance with its philosophy of bringing healthy lifestyle to its consumers without the need of spending hours in the gym. In addition, especially after the recent pandemics such as Bird Flu, H1N1 and SARs, there is a greater need to lead a healthy lifestyle.

Speaking of social status, being able to purchase an OSIM uDream would reflect the status symbol of those who can afford it due to its hefty price tag. Technological OSIM stands out from its competitors in terms of technological advances as well as the innovative design for its products. It is further proven and supported by prestigious Singapore Awards such as “The Brand with Exceptional Performance” and “RedDot Design Award” on more than one occasion. OSIM also makes it a point to constantly come up with new designs and products to further attract existing customers as well as new potential buyers.

The company has come up with 6 new products catering to different needs in the last two years, such as uKimono, uSqueez Warm in 2009, and also uRobic, uSpace, uYoYo and uCrown, the world’s first anti-stress head massager in 2008. Offering an extensive range of products to suit the different needs of customers, as well as a wide range in product pricing, OSIM seeks out a large range of target market. 4 Improvements in technical functionality such as additional health benefits other than removing muscle aches in the massage chairs, lower electrical consumptions would help give OSIM further competitive advantage.

OSIM has also made use of the technological advancements available to almost every household, which is the access of the internet. OSIM’s website allows potential buyers to find out more information, reviews by other users, and even to make online purchases, all at the comfort of their own home as well as at their own time. In order to attract more buyers, OSIM even have exclusive online offers that are not available in the physical shops. 1. 2 FIVE FORCES IMPACTING ON OSIM’S INDUSTRY

Threat of New Entrants It is relatively easy to apply for operating license for new businesses in Singapore and it can be reflected in the daily average of 138 (ACRA Annual Report 2008/2009) of new entities that were registered. However, the initial capital requirement is high for the healthcare industry because of the R&D cost and infrastructure of the manufacturing plant. In addition, the increase in imitations also amplifies the competitiveness of the industry posing great price differentials, thus leading to a high threat of new entrant. Despite being less price-competitive, OSIM’s products possess more superior quality.

Therefore, threat of new entrants is deemed to be moderate. Threat of Substitute OSIM is highly threatened by the many varieties of substitutes available in the market. Since OSIM’s mission statement is to “offer their customers total well-being”, customers can also easily find these needs in many other substitutes. For instance, there has been a recent surge of fitness clubs, which serves as a one-stop centre for many consumers. Customers looking for a total workout can obtain all the equipments they need in these fitness clubs, without having to buy them.

These fitness clubs also cater to consumers’ needs for lifestyle, for example, by providing plasma televisions fitted all around the clubs. Other substitutes includes, the very well-received spas and massage parlors, low cost manual and electrical massaging equipment, participating in active sports like Yoga or kickboxing, adopting healthier eating habits and consumption of health supplement pills. 5 It can be seen that most of the substitutes provide consumers with lower cost benefit s and some may even provide the same health advantages as OSIM products, hence, the threat of substitutes for OSIM is relatively high.

Power of Buyer Consumers are presented with a wide array of competitive brands and alternatives such as fitness clubs and traditional massages. As Singaporeans are becoming more affluent, an average household income amounts to SGD$7440 which illustrates a high spending power. Hence, power of buyer is moderate. Power of Supplier Supplier Power for OSIM is moderate. They do not own their personal manufacturing plant or factory. Most of their manufacturing is outsourced to external companies in China and Japan. Recently, they have also entered a Joint Venture Agreement with Daito Electric Machine Industry Company.

Daito will help OSIM in the molding and manufacturing of healthcare appliances. However, given that OSIM has numerous supplies of manufacturers, they can fall back on other manufacturers if one fails to commit for whatever reasons, thus the power of supplier is low. Intensity of Rivalry in Industry The main rivals in the healthcare industry include OTO and Ogawa. Being the market leader, OSIM is renowned for its quality and constant innovations. This clearly differentiates OSIM from its competitors. Conversely, its price positioning might put off some consumers and encourage consumers to patronage its competitors.

Furthermore, as mode of entry to the retail market in Singapore is relatively easy, cost of exiting would be higher as ACRA has the right to reject any application of termination of a retail permit if they feel that the applicant can still “survive” the business, which simply means that the barriers to exiting the market is high. 6 1. 3 Key issues that are likely to impact on the marketing strategy for OSIM Key Environmental Possible Market Impact / Industry Issues Economical Rising expenditure on health OSIM care in Singapore can offer more attractive Possible Marketing Mix Implications romotions such as a package deal to attract more buyers Social Consumers are more aware of OSIM can educate consumers on the the need to live a healthier products and the health benefits lifestyle Technological Ever-advancing technology OSIM has to constantly update themselves with the latest technology to continuously innovate to retail existing customers Threat Substitutes of Many different forms of It is difficult for OSIM to counter such except to offer more substitutes, some of which substitutes might cost a lot less than the attractive promotions, better products roducts of OSIM or even attempting to reach out to the consumers more readily with well located shops Intensity of Rivalry Mode of entry into a retail The chances of more competitors within Industry business is relatively easy, entering the market and “lingering”, and while barriers of exit are high since OSIM focuses on quality in its products, it has to counter such new businesses in the form of quality products with newer technology, rather than low pricing strategies 7 Consulting Assignment 2 2 COMPETITOR ANALYSIS 2. 1 Market Segmentation OSIM OTO OGAWA

Geographic ? Residential Areas ? Shopping Areas ? CBD Areas ? All age groups ? Residential Areas ? CBD Areas ? Residential Areas ? Shopping Areas ? CBD Areas ? All age groups Demographic ? Middle-aged Psychographic ? Consumers that seek innovation ? Fast-paced lifestyle ? Family-oriented ? Benefit from consuming novelty ? Seek quality ? Traditionally-oriented ? Family-oriented ? Consumers that seek innovation ? Fast-paced lifestyle ? Benefit from consuming novelty ? Seek value for money Behavioural ? High consumer loyalty ? Seek value for money 2. 2 Strategic Group Map The above strategic map illustrates the positioning of the two closest competitors in comparison with OSIM. Judging from the numbers in the map, OSIM has the strongest global presence with more than 1,100 outlets across 31 countries. OSIM also has the most product offerings that can satisfy the varieties of needs of consumers. Furthermore, OSIM makes use of their advancement in technology to constantly introduce innovative products to the market. This would allow OSIM to attract new customers and retain existing ones.

However, OSIM’s products are priced at a much higher level than its competitors. This gives OTO and OGAWA a competitive edge over OSIM. Despite the attractive prices, they have a weaker brand image. This can be clearly seen in an independent survey conducted where OSIM came up as the number 1 brand of healthy lifestyle products in consumers’ minds, ‘most preferred healthy lifestyle brand’ and ‘the most preferred Massage Chair’ across Asia. 9 2. 3 Competitive Strategy Theory Officially launched in 1993, OSIM is the global leader in branded healthy lifestyle products.

The company is constantly developing new products that possess innovation technologies, bringing its consumers healthier lifestyle and overall well-being. The two key direct competitors include OTO Bodycare and OGAWA World. Name of Company OSIM Porter Generic Strategy Differentiation OSIM uses Market Positioning Market Leader advanced PRODUCT INNOVATION: OSIM expand its technology such as Osimotion total demand by constantly introducing Technology that distinguishes new products like uSqueeze and uKimono. tself from conventional devices that rely merely on vibration EFFECTIVE PROMOTION: OSIM recently and innovative Warm Air launched the uKimono that is endorsed by Technology to soothe tired International artiste SHE to reach out to muscles and improve blood the younger crowd so as to increase new circulation. users. INCREASE USERS: OSIM reinforced their global leadership position in the healthy lifestyle industry by their geographical expansion into USA, a large homogenous consumer market with about 100 million household, by entering into a definitive merger agreement with Nasdaq-listed Brookestone Inc.

This transaction will bring OSIM to the next level in its growth and opportunities. OGAWA Cost Leadership Market Challenger Like OSIM, OGAWA does not OGAWA adopts the indirect attack on manufacture its own products. OSIM’s high pricing strategy. OGAWA’s This function is to in China being products are being priced much lower but the with similar functionality as compared to to OSIM thus securing the market share of outsourced manufacturer 10 achieve economies of scale. The more price sensitive customers. savings are then translated to the consumers by retailing the products at a much lower price.

Despite the low price, quality is being compromised as the country of origin plays an important role. OTO Cost Leadership Market Challenger OTO focuses on providing lower Most products have similar functions and prices to win a larger share of benefits to OSIM, except that they are the market. Integration therapies of and traditional modern-day priced more competitively. With this, OTO is able to try to fight for a larger market share. technology allows them to offer OTO tries to indirectly attack OSIM’s high quality at low prices. With most of their outlets in weaknesses, its uncompetitive pricing strategy. eartland malls, they ensure Many of OTO outlets are also situated in maximum exposure in their the same locations as OSIM, strongly targeted market and also challenging them for market share. minimize operational expenses due to low rental costs. This ensures that they remain price competitive. 11 2. 4 OSIM’s Competitive Response Competitors OTO Strategies by Competitors Price Low pricing strategy to gain market share Product Combines traditional therapies with modern-day technology OGAWA Price OSIM should employ Attack. the They OSIM Competitive Response Encirclement hould constantly develop firstin-the-market technologies and innovative products, to avoid Adopted penetration pricing price competition. strategy to gain market share. It is interesting to note that in They can also employ more Malaysia, an OSIM massage celebrity endorsements to chair is priced at RM 14K where increase their credibility, brand a massage chair from OGAWA awareness and gain market with a similar feature only share. retails at RM 6. 7K Product Product fulfils basic function of providing the total well-being and healthy lifestyle. 12 Consulting Assignment 3 DEMAND FORECASTING 3. 1 Forecast Summary Table FORECASTING METHOD SINGLE MOVING AVERAGES CRITERIA P= 2 P= 3 P= 4 P= 5 P= 2 P= 3 P= 4 P= 5 ? = 0. 8 ? = 0. 2 ? = 0. 9 Y= a + bX FORECAST FOR N=9 8,110 7,550 6,963 6,450 8,868 9,970 8,629 9,346 5,292 8,204 8,311 9499 COMPUTED MAD 1,466 1,973 2,490 3,073 507 514 814 413 2,887 1,242 1,121 200 SINGLE MOVING AVERAGES USING ABOSLUTE CHANGE EXPONENTIAL SMOOTHING REGRESSION TABLE 3. 1 3. 2 Analysis of Forecasting Methods Judging from the sales figures, a positive linear trend is identified based on the increasing sales of OSIM in the past 8 periods.

There are various reasons that contributed to the growth. Singaporeans are earning a higher income, thus a greater disposable income which translates into a larger purchasing power. This escalation in spending power allows the consumer to purchase OSIM products as a status symbol. Also, due to the nature of Singaporeans being workaholics, there is little time to be engaged in outdoor activities, hence, resulting in a gradual boost of such healthy lifestyle products. Therefore, due to the stable demand, the time series model best suited to this pattern is the least square method.

All in all, this method is deemed to be the most effective as it has the lowest computed MAD which reflects its accuracy in the forecasted sale for period 9. Though said so, OSIM should not rely exclusively on the regression method as the model has problems identifying seasonal impacts, and integrating those fluctuations into the forecast. The alternative would be to use the single moving average using absolute change as the demand of the products are stable and by adopting this method, small random fluctuations are levelled out.

It also has the next lowest MAD which implies the accuracy of forecasted sales in comparison with the other models. 13 Consulting Assignment 4 4 FINANCIAL RATIOS 4. 1 Ratio Summary Table OSIM FLAGSHIP STORE GROSS MARGIN PERCENTAGE NET PROFIT PERCENTAGE STOCKTURN RATE TABLE 4. 1 67. 72% 17. 41 2. 75 INDUSTRY AVERAGE 52% 5% 6 4. 2 Ratio Analysis Gross Margin Percentage The gross margin percentage is a measurement of a company’s manufacturing and distribution efficiency during the production process. In comparison with the industry average of 52 percent, OSIM generates a much higher gross margin of 67. 2 percent. This indicates that OSIM is more efficient than most of its competitors from the industry. This disparity could be due to the low manufacturing cost that OSIM obtained from its contract manufacturers, thus the high gross margin. Despite the constant introduction of new products, OSIM still managed to attain a high gross margin percentage, thus reflecting the low inventory level which signifies high sales volume. Net Profit Percentage OSIM has a high net profit percentage of 17. 41 percent as compared to the industry average of 5 percent which is at least 3 times more.

The figure implies that OSIM has better control over its costs compared to its competitors. This substantial difference is largely attributed to the high sales volume and low operating costs incurred through economies of scale. Stockturn Rate Stockturn rate basically determines the firm’s efficiency in managing inventories. The stockturn rate of 2. 75 times by OSIM is relatively low as compared to the industry average of 6 times. The figure is still reasonably acceptable despite being a far cry from the rivals within the industry as it indicates that the inventories of OSIM were used and then again replaced almost thrice in one year.

The reason for the gap could be attributed to OSIM’s experience in managing the inventory. It reflects OSIM’s ability to forecast its sales accurately for the next period and thus, do not need to worry about stock out situations. The risk of OSIM having a low stockturn rate could contribute to higher 14 holding costs which would eventually result in a low gross margin. However, with reference to the gross margin percentage of OSIM, the company is doing rather well in managing its resources. Also, a lower stockturn rate

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