1. Why has Amore Pacific been doing so well in the home market? AmorePacific (AP) performed admirably in its home market due to a multitude of reasons. Most notably is its ability to adapt to external pressures whether it is changes in consumer preferences, fluctuations in economic activity or the threat of new competition. Over time, Korean consumer preferences shifted significantly with Korean women seeking “styles and trends they could call their own. ” AP met this by leveraging off the “Buy Korean” post Asian financial crisis wave whilst tapping into the Korean philosophy that “the body and mind are one. This was achieved through “cosmeceuticals” that promised health and beauty benefits beyond traditional masking. Also, AP was familiar with consumer demand for skin care as skin care dominates the Korean market more than anywhere in the world AP particularly excelled in this area not only due to its deep manufacturing experience and significantly vertically integrated backward business model, but also because they succeeded to meet the needs of Korean women. Korean market was characterized by the popular in Asia skin whitening cosmetics, also the using of greenish base makeup products, which were used nowhere else in the world.
Another difference would be that, while Western women liked using all in one products, Korean women prefer using diversity of cosmetic products. It was found by Loreal that Koreans like using around 20 producs a day. AP particularly excelled in this area due to its deep manufacturing experience and significantly vertically integrated backward business model. When posed with the threat of new entrants to the Korean market, AP rigorously refocused in many areas including labor, R&D, distribution channels, capital efficiency and product proliferation.
AP cut costs by reducing head count by 8,000 and sought new processes to boost capital efficiency leading to annual savings of 2%. Three new and highly successful mega brands were launched under distinct marketing strategies that targeted very specific market segments. Distribution relationships were cut from 200 to 60 specialty stores whilst concurrently establishing its own specialty chain stores. “Amore Ladies” conducting door-to-door sales remained a key strategy with new technologies given to consultants to improve real time capabilities.
R&D was boosted to 3% of sales representing more R&D expenditure than any other local producer. Additionally, Management styles were overhauled to include western philosophies such as promoting corporate transparency and firm infrastructure was upgraded. All of which led to expansion of AP between the years of 1999 and 2003. Conversely, whilst AP continued to succeed in the Korean market, international competitors struggled to establish a real presence. A key issue for these competitors was that they had higher average manufacturing selling prices.
This coupled with tariff rates of 8% and a complex Korean distribution system whereby Multinationals had to hire department store space saw many multinationals being priced out of the market. Multinationals were further unaided when a smear campaign by the Korean Cosmetics Industry Association swayed consumer sentiment towards Korean produced products. 2. Why did AP seek to globalize their business? AP decided to globalise their business because they desire to become a world class brand.
Their 2015 vision identifies their aim as “becoming a top 10 company”. This is to be achieved by attaining $4 billion in sales with 30% derived from overseas sales. 3. It is abundantly clear that AP should not use a uniform strategy when seeking to penetrate the markets of France, China and America. The very nature of the cosmetics industry is consumer preferences and product positioning is fundamental to success. It has been widely cited that consumer preferences vary across these three countries.
China desires made in Korea products due to the popularity of the “Korean Wave” where as France desires products that are made in France. Also, certain marketing strategies may not be viable in a specific country. For example, door-to-door sales are illegal in China hence, an irrelevant strategy. With varying consumer preferences, product positioning must adapt. Therefore, it makes sense that AP penetrated the American market with a top-down approach as American consumers desire ultra premium products.
It makes sense that AP enters the French market by selling products manufactured in France and it makes sense that China is penetrated from the bottom-up as research shows AP products are best positioned in the centre of the market. Furthermore, each country has different demands and thus potential for success. Consequently, AP resources should be allocated accordingly. This will undoubtedly place more stress on company resources than a uniform strategy would however, varied strategies are crucial if AP is to achieve its goal of becoming a world class brand and a top 10 company.