Chapter 1 Introduction
1.1 Research Background
The use of cosmetics was over thousands of years. The earliest archaeological evidence can be traced back to some royalty in Ancient Egypt times, where the Ancient Egyptians mixed perfume, sandalwood incense and aromatherapy products with oil applied to human bodies for pilgrimages or as an antiseptic. The Ancient Greeks and Romans also used cosmetics containing often lead and mercury. In the West, the popularization of cosmetics usage began in the 17th century and was originally intended to cover face scars of female patients healed from smallpox. In the19th Century, Queen Victoria once declared publicly that the use of makeup was “improper, vulgar, and acceptable only for use by actors”. Nevertheless, by the Second World War, cosmetics have been widely used in the West (except Nazi Germany).
Today, the worldwide market size for Beauty and Personal Care Industry (BPC Industry) has increased 36% during 2005-2010 and reached USD 382.3 billion last year.Despite the significant influence of global economic recession in the year of 2009, BPC industry still showed stable and continuous growth in certain regions with emerging markets, particularly in Asia Pacific and Latin America. It is forecasted that these two dynamic regions will drive the BPC future global sales and become equally the joint largest market (with Western Europe) by 2014. Figure 1 and 2 below shows the global and regional market value of BPC industry during 2005 to 2010.
Cosmetics industry, also called Personal Care Products Industry, Cosmetics and Toiletries Industry, Health and Beauty Industry, or Beauty and Personal Care Industry in this paper, in which companies manufacture and/or market personal care products such as creams, lotions, perfumes or makeup, covers a fully 13 key sub-sectors (Fig. 3). Recent reports show that Skin Care is the largest sector in the BPC industry (Fig. 4). It is predicted that in 2014, Skin Care, together with Hair Care, Colour Cosmetics and Fragrances sector will become the principle contributors to global BPC
sales value growth due to the booming market in Asia Pacific.
In Asia Pacific region, China represents today one of the most important and attractive BPC markets in the world due to its huge population, the increasing purchasing power of consumer and a better awareness of fashion among the younger generation. According to National Bureau of Statistics of China, the retail value of Chinese BPC products reached RMB 133.24 billion (proximately USD 20.51 billion) in 2010 with a 11.4% nominal growth compared to 2009. The total Chinese BPC market value is expected to reach as much as RMB 206 billion (proximately USD 31.7 billion) by 2014. However, in spite of this rising trend, industry players talked about that the increasing costs such as rental, labour, logistic and advertisement has given heavy pressure on cosmetics companies particularly those who had poorer brand equity were losing their profit margin.
1.2 Research Motivation
Funded by Dr. Lifschütz in 1900, Eucerin® is now Germany’s largest and world’s 4th leading dermo-cosmetics brand in pharmacy segment in Skin Care industry. Belonging to famous German Group Beiersdorf AG, Eucerin sees itself as a “dermatologist-recommended skin care brand” that provides reliable, high quality and effective dermo-cosmetic products and expertise.
Currently, Eucerin provides skin care products that are catalogued in 4 major lines: Face Care, Sensitive Skin Care, Dry Skin Care (medical products) and Sun Protection. Each line contains quite a few sub-lines that are assorted either by skin types / products functions (pure, dry, very dry, problematic, sensitive skin, etc.) or by products application places of the skin (face, body, deodorant, hair, etc.).
While Eucerin firstly entered into Asian BPC markets in 1991 and quickly built its brand awareness and popularity among the world of pharmacy skin care products in Thailand, Vietnam, Singapore and Malaysia, in China, however, it has being constantly a big “missing piece” to complete its global share of market. As China’s BPC market size is currently rated in the 3rd position after the US and Japan and is still possessing enormous growth potential (12% market growth is expected during 2011 to 2014), and the Skin Care segment is the primary driver for BPC market, it is for Eucerin’s greatest interest and challenge how to exceed existing international and local skin care competitors to complete its global entire territory.
1.3 Research Scope and Objectives
The purpose of this study is therefore attempting to assess and analyse the international operation strategy of Eucerin. Through the SWOT analysis, identify and highlight the key internal and external factors of corporate ongoing strategic planning, gaining an in-depth understanding of the company’s strategic operational issues, critical success factors, emerging market opportunities and future marketing challenges and trends.
The research scope covers issues including the study of BPC and dermo-cosmetics industry: market sales, market share, Chinese cosmetic market regulations, marketing strategy of Eucerin: marketing segmentations, positioning, and Chinese consumer behaviours.
1.4 Research Process and Chapter Structure
The process of this research is approximately composed eight stages summarized as figure 6 underneath.
By the case study of Eucerin – a Beiersdorf owned dermo-cosmetics brand of BPC Industry, through the literature review, SWOT and critical success factors analysis, attempting to analyse, assess and obtain an embedded understanding of the company’s strategic operational issues and its future marketing challenges and trends in Chinese BPC market.
Chapter 2 Literature Review
2.1 Beauty and Personal Care Industry
The global Beauty and Personal Care market (BPC market), also called Cosmetics and Toiletries market has generated total revenues of US$ 382.3 billion in 2010, representing a compound annual growth rate (CAGR) of 36% for the period 2005-2010. By comparison, markets of Asia Pacific, Western Europe and North America brought out 70% of global BPC market in 2010 (Fig. 8). Most interestingly, both Western Europe and North America’s BPC markets has witnessed the economic recession, showed a negative growth in 2009 and decelerated performance afterward, while markets in Asia Pacific and Latin America, sales growth continue and for the first time the BPC market of Asia Pacific region (mainly referable to China) overtook the first position of global BPC market (Fig. 9).
2.1.1 Market Segmentation and Differentiations
BPC products cover all daily personal care cosmetics such as makeup, nail polishes, hair sprays, hair colours, creams, lotions, perfumes, deodorants, shower and bath gel, bath salts, and lots of other product types. The market can be sorted into a completed 13 key sub-sectors scope as we have mentioned earlier (Fig. 10). Skin Care segment is the leading category that generates 22% of worldwide BPC market due to Asia Pacific’s booming sales, the rising demand of anti-age products also conducts the segment as the key contributors to global BPC market over the forecast period.
Global skin care brands can be also sorted by their marketing positioning into six classes: professional brands, luxury/premium, pharmacy/dermo-cosmetics (cosmeceuticals), organic/natural brands, direct-selling and mass market products. Each segment targets different consumers according to their purchasing power, quality requests or specific needs, etc. Key competitors of each class are listed below:
- Professional skin care brands (distributed mainly by beauty salons, spas): Sothys Paris, Lexli, RVB, Sparitual, Lotusdream, etc.
- Premium skin care brands(distributed mainly by department stores, perfumeries), : Shiseido, Estée Lauder, Lancôme (L’Oréal Group), Clinique (Estée Lauder Group), Kanebo (Kao Group), Chanel, Christian Dior (LVMH Group), SK-II (P&G Group), Yves Saint Laurent (L’Oréal Group), etc.
- Pharmacy/dermo-cosmetics brands(distributed mainly by pharmacies, drugstores or via dermatologists’ recommendations): Vichy (L’Oréal Group), La Roche-Posay (L’Oréal Group), Boots, Eucerin (Beiersdorf Group), Johnson’s, Avène (Pierre Fabre SA), Caudalie, Lierac, ROC (Johnson & Johnson), Nuxe, Galenic, etc.
- Organic/natural brands(distributed mainly by speciality stores, natural food stores): Yves Rocher, The Body Shop (L’Oréal Group), L’Occitane
- Direct-selling brands: Avon (USA), Natura (Brazil), Mary Kay (USA), Oriflame (Luxembourg), Artistry (Amway corp. USA), DHC (Japan), Nu Skin (USA)
- Mass market brands(distributed mainly by supermarkets, hypermarkets): L’Oréal Paris, Nivea (Beiersdorf Group), Garnier (L’Oréal Group), Olay (P&G Group), Neutrogena (Johnson & Johnson), Pond’s (Unilever Group), Vaseline (Unilever Group)
Eucerin® is catalogued in the pharmacy/dermo-cosmetics brand of skin care industry as its products can be only purchased in pharmacies or drugstores.
2.1.2 Skin Care Industry in Western Europe
For BPC industry and consumers, it has been tough in the past couple of years. However, the latest data showed that Skin Care was the only category managing to sustain an average of positive 4% growth during the economic downturn.Comprising 23% of global BPC sales in 2010, it remained the most valuable category during 2005-2010. Despite the growth of Skin Care sector slightly slowed down due to the decreased consumptions on non-essential purchases, the global sales of Skin Care sector was still largely focused in mature Western countries. Anti-age cosmeceuticals were considered and predicted as the star performer for Skin Care market for the future couple of years while the premium and luxury products performed the worst and were pushed toward the category of super premium or “masstige”skincare for a better performance and the growth in both anti-age and premium was accelerated by the high demand in Asia Pacific. Comparing to Skin Care, global Hand Care sales showed a slight yet stable growth and the reason was believed to be linked directly with consumers’ threaten perception of swine flu.
In Western Europe, while recent data showed a gradual result of an average 4% Skin Care sales growth in UK, Netherlands and Germany during 2009 – 2010, key markets such as France, Italy and Spain reflected an average of -2% in term of sales growth, resulting an overall 2% growth drop in Skin Care segment in Western Europe (Fig. 11 and Table 1). While the Skin Care sales growth in western European slowed down in recent years, anti-age sub-category maintained an outstanding growth reflecting the desire for a younger looking appearance from the consumers.
Table 1 – Skin Care in Key Western European Countries (2005-2010)
Crossing the overall BPC Western European market, in 2010, the top 10 Skin Care brands which share 26.2% of the market are belonging to 7 companies: Beiersdorf AG, L’Oréal Group, Procter & Gamble Co., Clarins SA, Yves Rocher SA, Estée Lauder Cos Inc, and Henkel AG & Co., in which 4 brands are categorised into mass market class (Nivea, L’Oréal Paris, Oolay and Garnier), 3 in premium/luxary (Clarins, Clinique and Lancôme), 2 in pharmacy/dermo-cosmetics (Vichy and Diadermine), and Yves Rocher is classified into natural/organic brands. On the other hand, in terms of company shares in Western European Skin Care market where up to nearly 58.6% market shares are held by the top 10 BPC companies, their products are crossing over all cosmetics classifications and sales distribution channels except the direct-selling category (Appendix 1 & 2).
In relation to consumer’s behaviour toward BPC market in Western Europe, four fundamental trends characterized by Lee (2010)that impact global BPC market across all categories may sum up this market trend: the ageing population, agelessness pursuance, advances of technology and intensive awareness of health and wellness.
- The Ageing Population
The global population is becoming older. Comparing to Japan who has the oldest population in the world with nearly 23% over the age of 65 in 2010, the median age in Western Europe today is just over 40. Japan has the differentiation of being the largest Skin Care consumer on a per capita basis. In 2010, it accounted for 22% of global skin care sales with USD 19.3 billion and this may referable to its huge older consumers, high disposable incomes and the great interest in combination of health and beauty.
- Agelessness Pursuance
The pursuance of younger looking is highly associated with increased life-pan and the development of technologies. People take greater care of their appearances in order to reflect their interior youthfulness. In result, for example, the high demands for cosmetic minimally-invasive treatment (including Botox, laser skin resurfacing, soft tissue fillers, etc.) that intending for skin firming and elasticity made up 11.6 million procedures in 2010 with 110% growth during 2000 – 2010 in the US and was expecting to reach totally USD 17.6 billion in 2015.
- Advances of Technology
Skin Care companies and manufactures today are able to sell their products with higher prices thanks to the aggressive introductions of technologically advanced formulations. Consumers in Western Europe may willing to pay up to EUR 20, EUR 40 or even EUR 300 on a product that claims benefits such as firming or wrinkle reduction and contains innovative whatsoever ingredients, while a product that only provides a single basic function may not be able to sold even it only charges EUR 10.
- High Awareness of Health and Wellness
The concerns about health and product safety among consumers in Western Europe have massively increased during the past couple of years due to the aging population and the age-related illnesses. Consumers are becoming more and more careful about what they put on their skins and the detrimental effects of chemicals. In result, this will lead to a strong interest in finding cosmeceuticals with a balance of natural, organic ingredients and effective functions.
2.1.3 Skin Care Industry in China
Table 2 – BPC Market by categories in China (2009-2010)
BPC market in emerging countries such the BRICs (Brazil, Russia, India and China) has shown enormous growth in the past couple of years. In China, BPC market showed strong resilience of 10% sales growth, reaching RMB 145.5 billion (proximately USD 22.4 billion) under the global recession impact in 2009 and continuously increased in 2010. While the growth rate in sectors such as deodorants, fragrances and men’s grooming products were less well performed comparing to 2009, skin care, hair care and premium cosmetics were the most dynamic sectors in 2010 (Table 2 and Fig. 12). Comprising 6% of global BPC market value in 2010, China’s BPC sales is expected to have a relative resilience to the global recession and reach as much as RMB 206 billion (proximately USD 31.7 billion) by 2014.
Crossing the overall Skin Care market in China, interestingly, while 9 out of top 10 skin Care brands in Japan all belong to Japanese local BPC manufacturers, the top 10 brands who share 51.5% of China’s Skin Care market in 2010 are from 4 foreign countries: Mary Kay (US), Artistry (US), Longligi (China) and Avon (US) are categorized into direct-selling channel; Olay (US), L’Oréal Paris (France) and Nivea (Germany) belongs to mass market class; and Shiseido (Japan), Lancôme (France) and Chcédo (China) are classified into premium/luxary sector. There are no pharmacy/dermo-cosmetics brands in top 10 and the best performer Vichy (France) only shares 2.1% followed by La Roche-Posay’s (France) 0.4% in the market.
2.2 Cosmetics Market Regulation in China
While China represents today one of the most important and attractive BPC markets in the world, however, its complex cosmetic regulatory system with rapid amendments make the BPC business full of difficulties. The Ministry of Health (MOH) of China has promulgated the “Regulations on Cosmetics Hygiene Supervision” on 13 November 1989 and the regulation was effective on 1 January 1990.According to it, a foreign cosmetic company (either a manufacturer or brand owner) with a valid business registration licenseis required to obtain two licenses under the cosmetic regulatory system in China – the Hygiene License and the China Inspection Quarantine (CIQ) Labeling Certificate.
i. Hygiene License
Issued by the State Food and Drugs Administration (SFDA), the Hygiene License is concerning of cosmetic products and ingredients monitoring and supervision. Foreign companies holding Chinese business registration licenses with 3 classified cosmetic products listing below are requested to apply for an Import Hygiene License before their products are allowed to be distributed and placed on the China market (the pre-market approval):
- “Special-use cosmetics”, which 8 different sorts of products are included: hair dyeing, hair perm, hair-growth, deodorant, depilation, body shaping (including slimming and breast enlarging), sun cream and spot removing.
- “Non special-use cosmetics” including ordinary BPC products such as skin care, hair, fragrance and manicure/pedicure products that are not belonged to special-use cosmetic category.
- “New ingredient”, meaning ingredients that are not listed on the “Inventory of Existing Cosmetic Ingredients in China (IECIC)”.
There are several documents including the product ingredients list, product quality standard, product testing report and packaging are needed for Hygiene License application. A full list of application documents is attached in the appendix 4.
ii. The China Inspection Quarantine (CIQ) Labeling Certificate
Issued by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), the CIQ Labeling Certificate is concerning of imported products’ packaging supervision. A full list of application documents is attached in the appendix 4.
Foreign BPC companies are required to a Chinese legal reporting representative throughout the SFDA Hygiene Licenses application process. Moreover, as the official language of China is simplified Chinese, all mandatory information should be in simplified Chinese including the full product ingredients list shown on cosmetic labeling. According to Pisacane (2009), the Managing Partner from Great Way Advisory, after submitting all requested documents to the SFDA, the whole application process will take 4 – 5 months for “non special-use cosmetics” and 8 – 9 months for “special-use cosmetics” to obtain the final certificate as the SFDA review and evaluate imported cosmetics only 6 times a year. In terms of cosmetics import tariffs, the current import tariff bound rate for imported BPC products is about 10% basically but it depends also on the country of origin and the product category which the import tariffs can reach as much as 150%, plus 17% VAT (value added tax) and 5% – 30% CT (consume tax).
2.3 Chinese Consumers Behaviour
Comprising 34% market share in China’s BPC market in 2010, the skin care sector is worth USD 9.9 billion, growing at a rate above the GDPand will continue to dominate the BPC industry sales for future couple of years. While more and more people in China move from the lower class into the middle class, they are able and willing to spend more money on personal beauty care products. However, despite the fast rise in personal wealth, the development in Chinese BPC market sales growth which is greatly linked to better richness can be very fluctuating due to the country’s strong consumer saving level. Moreover, in terms of the growth of China’s BPC sub-categories is rather unequal, for example, sector such as skin care (sales value USD 9.9 billions) is reaching mainstream status in 2010 while others such as fragrances (sales value USD 0.58 billions) and sun care (sales value USD 0.48 billions) remain niche segments. Despite these, there are still obvious areas where Chinese consumers are willing to spend their money generously such as Premium Baby Care (21% sales growth 2009-10), Premium Skin Care (+19%) or Premium Colour Cosmetics (+15%).
Chinese consumer behaviour and their knowledge, attitude, use and response to Skin Care products that reflects in their spending patterns are very much linked with Chinese Culture. Grubow(2008)characterises several beauty trends from the view points of Chinese consumers that intensively influence Skin Care market trends in China: desire for status-improving products, medicinal ingredients welcome, respect for skin care regimes, openness to professional advices and demand for luxury packaging.
– Desire for Status-Improving Products
Tracking back to ancient Chinese culture, giving a fair, even, pale and fragile quality skin look is quite associated with beauty as it implicated being in a aristocratic social stature. The standard of beauty does not actually change much. Today, Chinese women want a fair, flawless, radiance and translucent skin tone which is considered as wealthy and healthy, meanwhile, browner or darker skin is linked with rural and toiling for money. In result, Chinese women are interested in whitening-orientated products (but bleaching ones which do not give an appearance of evenness and a glow skin tone).
Interestingly, a recent survey made by Asia Market Intelligence found that around two-thirds Chinese men also prefer fairer skin and are opened to male skin whiteners. This cultural ideal attracts to every class of people, from the mass to ultra luxury channels, and leading brands such as Olay, Shiseido, Nivea and Avon are offering whitening products not only for facial skin but body in Chinese Skin Care market.
Another Chinese beauty trend in terms of status-improving is the skin concentration products which cover for examples facial masks, patches and eyes and chest treatment. Mask treatment is considered luxury as it used to be applied only in a spa treatment which required time and money. This “DIY approach” with masks containing rich textures or high-tech functions appeals to Chinese consumers and makes them feel unique and luxurious. Again, this pattern taps into the sense of status-enhancing.
– Medicinal Ingredients Welcome
Traditional Chinese herbal medicine impact strongly on many parts of Chinese day to day life and skin care products are no exception. Chinese consumers believe that some special ingredients provide a better benefit of healing and this is highly linked with the Chinese medicinal practices history. Taking examples of burdock, ginseng and green tea extract which contain antioxidants for skin nourishment; these natural ingredients are popular and famous among both younger and older generations because they are believed to be more inartificial and safer than other ingredients.
– Respect for Skin Care Regimes
Similar as Japanese skin care rituals that a full Japanese daily ritualistic process contains up to 9 separate steps, Chinese women also respect skin care order. They like to arrange their cosmetics on the dressing table and enjoy the skin care rituals consisting separate steps.While Western Consumers are appealed by products with two-in-one or multiple functions such as Neutrogena’s 2-in-1 Cleansing Gel (cleansing and mask), Vichy’s Pureté Thermale 3-in-1 One Step Cleanser (cleansing, toning and eye makeup remover) or Olay’s Total Effects, in China, women purchase Neutrogena’s Deep Clean Makeup Remover, Cleanser, Blackhead Eliminating Patch and Soothing Mask or Olay’s Renewal Lightening Toner, Moisturizer, Lotion and Eye Cream.
– Openness to professional advices
Though the development of beauty and health care speciality drug stores such as Watsons, Mannings and Sasa in China is far behind the pharmacies in France or Japan or the drug stores in Germany, in principal cities of China, the specialty drug stores has witnessed an enormous sales growth during the past decade. Watsons, for instance, had only 80 outlets back in 2005. But last year, it has opened its 700th outlet in China, making it as the leading beauty and health care speciality drug store in China’s BPC market.This is not just about the locations or its competitive prices policy that attract lots of consumers; the evidence that each Watson’s outlet is equipped with counsellors and pharmacists who provide products advices and recommendations is also one of the key reasons that drive consumers into shops. Consumers in China trust and appreciate the advices of skin care from these shop assistances.
It is therefore not difficult to interpret that with this advices-welcoming concept, direct-selling brands such as Mary Kay, Artistry and Avon who always come with sales counsellors and host frequently cosmetics seminars and makeup workshops appeal intensively Chinese consumers’ attention. (In 2010, 4 out of top 10 Skin care brands are categorized as direct-selling channel.)
- Demand for Luxury Packaging
As consumers from emerging countries tend to search for higher cost-effectiveness products, in China, a cosmeceutical product with a luxury packaging is very much appreciated by Chinese consumers as it gives again the sense of status-enhancing. Packaging like heavy glass container appears more attraction for consumers than a plastic container even if it contains better ingredients or product volume. In addition, Trout (2011)suggests that when developing a new product range at different pricing and customer targeting, the design of packaging helps companies to define a “new” brand image and extend the attraction to wider potential consumers.
2.4 International Operation Strategy
2.4.1 Operation Strategy
Strategy, originally derived from Greek word “strategos”, was firstly used in the military term and then in the management of business. Drucker(1954)proposed that strategy is “to analyse the current situation, including the inquiring of company’s existing or should-be resources, and if necessary, change the situation.” Strategy was was also suggested by Chandler(1962) that “determines the base of corporation’s long-term objectives and taken actions, resources and configuration standards to achieve these targets.” In Andrew(1971)’s The Concept of Corporate Strategy book, proposed that strategy is “the scheme of targets development and major policies and plans for the purpose of achieving specific objectives to describe the company’s current and future business.” Glueck(1976)considered strategy “is a unified, coordinated, broad and integrated plan to reach the basic objectives of the organization”. The definition of strategy was also given by Porter (1985), “strategy is the response to external opportunities and threats, and internal strengths and weaknesses, in order to achieve competitive advantages”. In 1990, Ansoffdefined strategy as “a set of criteria to lead the organizational behaviour for the decision-making.” Kaplan and Norton(1990) described strategy is “a set of assumptions of cause and effect”. Porter(1996) again explained that strategy is “to conduct a selection among activities, enabling the organizational competitiveness while creating the sustainability and differences of the market”.
There are various ways and results in strategic planning according to organizational goals and objectives that classify strategic management into different frameworks. Scholars attempt to conclude strategies in practice that are partly summarized underneath. However, there is so far no better or the most appropriate classifications or concepts. It is though agreed that a model which can be applicable to organizations would be capable to recognise and assess their chosen strategy content.
- Ansoff (1965)’s Product-Market Growth Matrix (Table 3). Based on two basic aspects (product and market), a four-product-market portfolio is created that corresponds with corporation’s marketing strategy:
- Market penetration strategy is based on the present products portfolio, attempting to increase the market share.
- Market development strategy is to find and develop a new potential market basing on present products.
- Product development strategy is to create or bring new products in order to replace company’s existing products
- Diversification strategy is to develop new products for new potential market.
- Porter (1980) characterized three general types of strategies into a category scheme that can be used to achieve and continue business competitive advantages: cost leadership strategy, differentiation strategy and segmentation strategy (Table 4).
- David (1986, 1995, 2010), has formed a modern Strategy-Formulation Analytical Framework that assisted strategies generate and evaluate feasible alternatives for the purpose of choosing a specific course of action. Strategies can be recognized, assessed and chosen by this framework which contains three stages including: the input, matching and decision (Table 5).
2.4.2 SWOT Analysis
Originally developed by Albert Humphrey in his research project based upon the US Fortune 500 companies during 1960s to 1970s, SWOT analysis is a strategic planning method that specifies the corporate objective and identifies the favourable or unfavourable internal and external factors to accomplish this objective. It defines, analyses and evaluates corporate internal Strengths and Weaknesses and its external Opportunities and Threats that helps the organisation to determine the operational problem and the strategic decision making.
A SWOT analysis result matrix was presented by Weihrich(1982) using strategies matching approach to develop relevant future coping strategies (Table 6).
The procedures of SWOT analysis are often associated with corporate strategic planning process that can be combined into following steps:
- Conducting the description of business environment;
- Identifying and validating all affecting external factors;
- Predicting and assessing the future changes of external factors;
- Reviewing the internal strengths and weaknesses;
- Framing a feasible strategic planning by using SWOT analysis; and
- Conducting strategic choices and decision making.
According to Weihrich’s SWOT Analysis Result Matrix (in step five), a result of 2×2 strategies is hereby described as follows:
- SO Strategy: in accordance with the Maxi-Maxi principle, to consolidate strengths and improve opportunities. The direction of business development can be for example, (1) focusing on the growth of one single product, technique or market; (2) discovering new market for alternative selling channels; (3) developing new product using organizational resources; or (4) creating a new product life circle for customers to identify with aiming at winning the competitive market. It is the best operational strategy for business development and profits making with a closed coordination of corporate internal resources and external environment.
- WO Strategy: in accordance with the Mini-Maxi principle, to improve organizational weaknesses and manage opportunities. The result of Mini-Maxi strategic planning can be (1) unrelated diversification; (2) joint venture; (3) strategic alliance; or (4) consortium.
- ST Strategy: in accordance with the Maxi-Mini principle, to reinforce corporate self-strengths and cope with threats. Examples for strategic decision making can be (1) horizontal integration: integrating business of the same level to reduce competitors; (2) vertical integration: integrating upstream/downstream firms to avoid external threats; or (3) using related diversification improve business synergy.