UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ VO THI MY TRANG IMPROVING PRICE MANAGEMENT IN WASHING MACHINE BUSINESS SEGMENT AT COMPANY A MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City – Year 2020 TIEU LUAN MOI download : skknchat@gmail.com UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ VO THI MY TRANG IMPROVING PRICE MANAGEMENT IN WASHING MACHINE BUSINESS SEGMENT AT COMPANY A MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: Dr. NGUYEN PHONG NGUYEN Ho Chi Minh City – Year 2020 TIEU LUAN MOI download : skknchat@gmail.com TABLE OF CONTENT Executive Summary 1.2 Problem finding process .1 Consolidated operating income (C.2 The immense situation of price dumping of WM products .3 The high rate of dealer’s complaint in WM price in the same distribution channel.1 Initial cause and effect map .1 Lack of Price Management .2 High Growth Requirement .4 Weak Marketing Strategy for WM .3 Updated cause and effect map .4 Updated possible problems.1 Lack of Price Management .2 High Growth Requirement .4 Weak Marketing Strategy for WM .1 Main problem definition. 31 1 TIEU LUAN MOI download : skknchat@gmail.1 Delegating Price Decision .2 Dynamic price promotion .3 Lack of price management process and procedure .1 Alternative solution 1: Redesign the price process .2 Alternative solution 2: Keep the organization to implement process .3 Alternative solution 3: Re-organization structure and establish Price Team to implement process. Change plan design.3 Action plan implementation.
62 2 TIEU LUAN MOI download : skknchat@gmail.com LIST OF TABLES Table 1: Dealer's Complaint Table 2: Cost for alternative solution 2 Table 3: Cost for alternative solution 3 Table 4: Action Plan (Author synthesis) LIST OF FIGURES Figure 1: Company structure of Company A Figure 2: Sales Performance of WM division Figure 3: Detail Sales Performance of WM division and Consolidated Operating Income Figure 4: Initial Cause and effect map Figure 5: Target Requirement of WM Business Segment Figure 6: Updated Cause and effect map Figure 7: The portion of the direct support scheme Figure 8: The pocket price waterfall for example model Figure 9: The contribution and investment ratio for seven typical dealers Figure 10: The margin leakage for one model Figure 11: Correlation between Retail sales and Net Sales Figure 12: Fishbone diagram of main cause in company A (Author synthesis) Figure 13: The net sales ratio of the typical model in company A Figure 14: The net sales ratio range of the typical model in company A Figure 15: The general analysis process for WM division (Author synthesis) Figure 16: Final cause and effect map (Author synthesis) Figure 17: Redesign price management process (Author synthesis) Figure 18: Price control analysis tools List of Abbreviations C.I Consolidated operating income BOD: Board of Directors PM: Product Manager WM: Washing Machine 3 TIEU LUAN MOI download : skknchat@gmail.com Executive Summary Currently, company A has confronted the decline of consolidated operating income when the sales volume still increases. The matter is that the development in sales performance did not accompany by profit growth. In the other words, the company has surfaced the trouble of revenue leakages, especially, the matter in price management. The purpose of finding the issues that company A are challenging, the author conduct meetings as well as in-depth interview with the Operational Head, Product Manager, Sales Managers, and some customers in 2019.
Through the interview of company A’s employees, using the figures and data from the organization, relevant literature, and advice from the Operational Head, the main problem was determined as lack of price management. In the direction of lacking price management, three possible causes have been discovered are delegating pricing decisions, dynamic price promotion, and lack of price management process and procedure. Following investigating and in-depth interviews, the key cause is identified to solve is lack of price management process and procedure. This study focuses on identifying the main problem and finding the key cause, whereby proposing solutions to help company A improve the business results.1 Company Background Company A operates in the electronics industry in Vietnam is part of the Asia manufacturer company with approximately 1,000 employees.
In Vietnam, it comprises four business units: Home Entertainment, Mobile Communications, Home Appliances & Air Solutions, Laptop, Monitor, and Beauty Care Product. Its’ headquarter is located in Hanoi and four nationwide offices in HCMC, Da Nang, Nha Trang, and Quang Ninh. Company A’s headquarter have many subsidiaries in all primary market worldwide, and company A is in charge of Vietnamese customers. The company is structured by the business segment such as Home Entertainment (HE), Home Appliances (HA), Air conditioner (AC), Laptop-Monitor (ITP), ect….
The Home Appliance (HA) is the most critical business in Company A, accounts for the second-largest share of sales, contributed 31.4% sales performance in 2019. In the Home Appliance business, the Washing 4 TIEU LUAN MOI download : skknchat@gmail.com Machine (WM) segment plays an important role, account for 25% sales performance in 2019. Therefore, the WM business will be the focus of this research. Figure 1: Company structure of Company A Five types of dealers: Key Account Management: Dealer G, the principal account dealer with the direction of coverage expansion and penetration.
The vital purpose of this kind of dealer is to obtain the No. North Traditional: Responsibility of selling a product to one wholesaler and then distribute to a small shop in the rural area in North and Middle. North Modern: In charge of the dealer, which has a large number of stores in the market, which can deliver the products efficiently to some provinces. The chain of stores of this kind of dealer helps company A distribute products to regions and thus provide the consumer information, which is useful for identifying customer needs.
South Traditional: Responsibility of selling a product to one wholesaler and then distribute to a small shop in the rural area in the South. South Modern: In charge of the dealer, which has a large number of stores in the market, which can deliver the products quickly to some province. The chain of stores of this kind of dealer helps 5 TIEU LUAN MOI download : skknchat@gmail.com company A distribute products to regions, and this provides the consumer information which is useful for identifying customer needs.2 Problem finding process To find out the main problem at company A with Washing Machine business segment, the author implemented the below steps: - Based on the symptoms of the initial report, “sales profit” and “support rate” from the Sales Department. - Conducted an in-depth interview with Sales Manager, Product Manager, Salesperson, and key customers in company A to clarify the symptoms and explore potential problems.
- Referred to the literature to verify and update the cause-effect relationship between potential problems, variables, and symptoms. Furthermore, I rechecked the actual situation at company A to fully understand what has driven. - Conducted an in-depth interview again to validate the existence of the main problem. - Referred the literature to understand the consequences of the main problem (the essence of solving that problem) and continue using the in-depth interview to validate the practical importance of addressing it.
Symptoms At the meetings with President, Operational Head, Sales Department Team, Cost and Profitability Management Team, the WM business segment was not good profitability from 2018 up to present. Secondary data and primary data will be analyzed and verify the existence of company A’s symptoms and find out negative symptoms. There are many symptoms for the problem that the company is confronting include the consolidated operating income (C.I) decrease, the immense situation of price dumping of WM products, the high rate of dealer’s complaint in WM price. 6 TIEU LUAN MOI download : skknchat@gmail.1 Consolidated operating income (C.I) decrease As the data of primary sales from the Cost and Profitability Management Team and Operational Head, we can see the general overview of the WM’s business from 2017 to 2019 in Figure 2 and Figure 3.
Sales Performance of WM Division 250.000 - - Year 2017 Year 2018 Year 2019 Retail Sales Net Sales Operating Income Figure 2: Sales Performance of WM division Washing Machine The year 2017 The year 2018 The year 2019 Retail Sales 134,845 180,463 196,705 Net Sales 77,467 104,012 104,889 Operating Income 8,562 11,678 5,548 Net Sales/Retail Sales 57.7% COI/Net Sales 11.3% Figure 3: Detail Sales Performance of WM division and Consolidated Operating Income The retail sales volume indicates the total amount of sales with the list price in case of without deduction for sales. Meanwhile, net sales are the actual revenue that the company gains after reduced by incentive support to customers (Net Sales = Retail Sales – Sales Support Promotion). Company A records the actual performance based on the net sales figures. 7 TIEU LUAN MOI download : skknchat@gmail.com The retail sales indicate the total revenue of product earned by sales.
The net sales are the yield that the company earns after support promotion to customers. The support promotion is used by company A to stimulate selling activities that reduce retail sales. Therefore, the support rate indicates the total support in percentage with retail sales. WM's retail sales performance has been a good trend in growth from the year 2017 to 2019, even though the growth rate was lower in 2019 compared to 2018.
In detail, the growth rate of 34% in 2018 compared to 2017, and sales in 2019 increased by 16% compared with the year 2018. While retail sales were growing in 2019, net sales decreased significantly. Furthermore, the consolidated operating income was declined in 2019. That reveals the matter that the development in sales performance did not accompany by profit growth.
The fact is the retail sales were inversely proportioned with the operating income. One of the factors influencing profit decline when the high-level raise in sales is the enlargement in support budget for company A's retail chains year by year, especially the last three years from 2017 to 2019. The growth in support budgets for the WM business segment is considered to be of the most worry in the Vietnam subsidiary. The data is pointed out that the significant increase in the support budget for company A's retail chain.
In 2017, the support level was 42.6%; in 2018, the support level decreased little to 42.4% and in 2019 reached 53. In general, in the WM market situation; currently, no brand has left the market due to the slump and saturation market. In other words, the market still has room for many manufactures could increase the product. However, the growth rate was not as strong as in previous years.
Furthermore, the penetration of the new brand AQUA and the most development is that one more factory established for WM product in Vietnam in Jul 2019. Besides, According to market analysts' estimates, the shift in consumer demand from top-load washing machines to front-load WM due to developed by technology that has shown the high demand from end-users. In summary, the growth rate in sales of WM products each year is a good signal for the growing company. However, the accompanying is a remarkable increase in the support budget for retailers.
Furthermore, the rate of the support budgets is going out of control in 2018 ~ 2019 and reaching the highest level of the headquarter corporation break-even point of 50%. In other words, the more 8 TIEU LUAN MOI download : skknchat@gmail.com business of company A has, the lower the profit obtained. This negative ratio is a symbol that the business of this WM industry was not effective. To conclude the first symptom from the Operational Information and Cost/Profitability Management Team, the primary data showed that the WM segment was not positive in 2019.2 The immense situation of price dumping of WM products Vietnam subsidiary has a market price management policy, control the minimum price that dealers will apply following with company A's requirements.
The minimum price was used to enforce a dealer to buy a product to end-user.