UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ Nguyen Kim Long Chau INAPPROPRIATE PRICING STRATEGY IN GROUPE SEB VIETNAM 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 ------------------------------ Nguyen Kim Long Chau INAPPROPRIATE PRICING STRATEGY IN GROUPE SEB VIETNAM MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: DR. TRAN PHUONG THAO Ho Chi Minh City – Year 2020 TIEU LUAN MOI download : skknchat@gmail.com Table of Contents 1 PROBLEM CONTEXT .1 Groupe SEB overview .2 Low gross profit .1 Poor sales team performance.2 Weak cost management .3 Inappropriate price setting .3 Main problem validation .4 Problem definition and consequences .1 Poor distributor chains .2 High inventories and pressure in slow-moving stock to the pricing.3 Issue with price waterfall structure (Main cause) .4 Low brand image .3 Main cause validation .1 Solution for price waterfall management. 39 1 TIEU LUAN MOI download : skknchat@gmail.1 Control price waterfall and profit management .2 Simplify the Price Waterfall Structure .3 Action plan in Organisations .1 Summary of research method. 43 2 TIEU LUAN MOI download : skknchat@gmail.com List of abbreviation ORFA Operating Result from Activity NS Net sales GM Gross margin SGM Standard Gross margin KSI Key strategic indicator GT General Trade MT Modern Trade ES Electronic Supermarket SM Supermarket OPEX Operating expenses KVND Thousand Vietnam dong SDA Small Domestic Appliances KAMs Key Account Managers PWF Price waterfall MLA Main large account SLOB Slow moving and obsolete RSP Retail selling price DMX Dien May Xanh CP Cao Phong – Dien May Cho Lon NK Nguyen Kim EOL End of life products 3 TIEU LUAN MOI download : skknchat@gmail.com List of tables Table 1 Net revenue report (2016 – 2019 KVND) Table2 Revenues to gross profit 2016 – 2019 (KVND) Table3 Other market brand Gross profit margin 2019 (%) Table 4 Sale by Main category (MVND) Table 5 Actual revenue compared to Budget 2017 – 2019 (KVND) Table 6 Sale by distributor (KVND) Table 7 Profit and Loss Statement (MVND) Table 8 Trading term (price discount on invoice) 2019 Table 9 Sales by Distributors 2016 – 2019 (KVND) Table 10 Action plan in details List of Figures Figure 1 Organizations Chart – Groupe SEB Vietnam Figure 2 Revenues to gross profit 2016 – 2019 (KVND) Figure 3 Gross margin declined from Table 4 Figure 4 Initial Problem mess map Figure 5 Price waterfall structure.
Figure 6 Pocket price Figure 7 Possible Cause effect tree Figure 8 Sample of a Groupe SEB price waterfall – Cao Phong Figure 9 Sample of a Groupe SEB price waterfall – DMX Figure 10 Roadmap for PWF – Supermarket Figure 11 Final cause Effect map Figure 12 Price waterfall paradigm and profitability 4 TIEU LUAN MOI download : skknchat@gmail.com EXECUTIVE SUMMARY Groupe SEB is one of the global leaders in small domestic appliances over the world with notable brand names include All-Clad, Krups, Moulinex, Rowenta, Tefal. In Vietnam, after mergers and acquisitions (M&A) Asia Vina Fan since 2015, Groupe SEB confirmed and expected to build up the strong manufacturing and merchandise system in Home comfort category. However, Groupe SEB’s business result has shown the down trend in recent years in term of revenue and operating profit margin. Few possible problems have been discussed by conducted in-depth interview and validated by theory-formed to see main problem is due to price structure model and specifically is pricing strategy, pricing structure.
Consequences from wrong pricing setting may lead to some effects that impact to revenue and therefore net profit is not as good as expected. The main cause lead to the problem is walked through and confirmed via theory formed as well as some in-depth interview. This is mainly from price setting from Price waterfall structure. From there, some alternatives solutions are researched and offered from the current situation of Groupe SEB.
The solution is also focused more on how to see the leak in price from waterfall model and design some action plan in this study. 5 TIEU LUAN MOI download : skknchat@gmail.com 1 PROBLEM CONTEXT 1.1 Groupe SEB overview Groupe SEB is global leader in large French consortium that produces small appliances. It owns 27 brands including international name: All-Clad, Krups, Lagostina, Moulinex, Rowenta and Tefal are selling in more than 150 countries. It is the worldwide leader for electric fryers, convivial cooking, toasters, cookware, pressure cookers, bread makers, food preparation, steam irons, steam stations, electrical steamers, electric kettle, etc… Groupe SEB had approached Vietnam in 2004 and since May 2011, Groupe SEB had M&A Asia Vina Fan and become a strategic partner at 65% capital price at that time, and fully owned in 2015.
In Vietnam, Groupe SEB own 4 brands: • ASIAVINA: All kinds of fans • SUPOR: Rice cooker, fried pans, cookware, etc… • TEFAL: Cookware, steam iron, rice cooker, Blender, Fans, etc… • ROWENTA: Fans to export Groupe. Groupe SEB Vietnam organizational structure is presented in Figure 1 below MANAGING DIRECTOR MARKET SALES EXPORT/ HUMAN FINANCE MARKETING INDUSTRY CSS SUPPLY DOMESTIC B2B RESOURCE CHAIN SALES RECRUITMENT DIRECT SERVICE DEMAND IT PRODUCT EXPORT RETAILS TRAINING LABOR NETWORK PLANNING SALES NON MARCOM/ INDIRECT TECHNICAL S.ORDER F&A B2B C&B RETAILS DIGITAL LABOR SUPPORT PROCESSING CALL LEGAL TRADE HR ADMIN CENTER EMPLOYEE SPARE RELATION PARTS &ADMIN Figure 1: Organizations Chart – Groupe SEB Vietnam 6 TIEU LUAN MOI download : skknchat@gmail.com Since May 2011, Groupe SEB has acquis ion Vietnamese company Asia Fan, and become a leader on Fan market. By the M&A Asia Fan. Groupe SEB holds 65% of the capital, 30% holds by originator and 5% by employees.
Asia Fan was established by the Vietnamese name Vu Dinh Phuong which traditional industry is manufacturing and marketing Fans and maintain like 25% of domestic market. Fan is a huge category of household appliance in Asia Pacific and its famous brand name in old times, it has total 40 stores and 2 industrial factory in Vinh Loc and Binh Duong with more than 700 employees. Together with Supor, a cookware and kitchenware brand name (original from China manufacturing) and Tefal (a branch name from France). Groupe SEB will expect to approach to the big potential market in Vietnam.
Thierry de La Tour d’Artaise, Chairman and CEO of Groupe SEB declares: “The takeover of Asia Fan is perfectly in line with our strategy of development in emerging countries. Beyond our presence in Vietnam and Supor’s crucial action in the region, it will open doors to other markets in South-East Asia”. However, until 2019 from 45 retail store in 2015 now left over 9 stores “Home and Cook” and retails partner. In reality Groupe SEB Vietnam hasn’t shown up the rapidly growth as expected as well as the lack of attractive brand name.
It’s not that hard for consumer to choose any other competitor name as Panasonic, Sanyo, Midea, Electrolux, Aqua. especially SENKO in Fan which is a lot cheaper and good quality. The reasons are, firstly these brands are strong reputation amongst consumers and secondly, Panasonic, Midea, etc… aggressively launched promotional and advertising programs to attract customer. Moreover, their strong relationships with retailer put their brands at the top of sales representatives’ recommendation list, and this further boosted their sales.
7 TIEU LUAN MOI download : skknchat@gmail.1 Sales decline The sales in an organization represent for size the business. Any activity that impact to sales and revenue will be considered as a big factor to business and the growth of business over the time. Over the last 4 years (2016 – 2019) have been deeply decreased over the years from 681bil in 2016 to 415bil by end of 2019. Compared to 2018, sale in 2019 has declined 20% and 61% if compared to 2016.
Net sale Month 2016 2017 2018 2019 Jan 42,740,683 20,382,394 54,154,715 25,688,964 Feb 37,013,470 23,487,228 32,188,494 11,368,157 Mar 74,340,429 52,714,396 65,250,731 30,303,369 Apr 72,399,592 54,717,874 63,184,291 48,689,880 May 70,017,491 46,442,941 61,992,206 56,442,760 Jun 57,091,578 39,386,914 47,387,743 44,351,505 Jul 42,112,791 28,754,357 24,827,751 31,045,985 Aug 41,117,023 46,968,831 31,978,819 33,132,737 Sep 40,053,406 54,810,108 37,974,606 29,814,206 Oct 42,977,484 42,203,690 32,843,699 28,660,462 Nov 70,640,036 45,981,629 34,249,257 38,171,491 Dec 90,709,277 73,607,925 34,052,703 37,276,032 Grand Total 6 8 1 ,2 1 3 ,2 6 0 5 2 9 ,4 5 8 ,2 8 4 5 2 0 ,0 8 5 ,0 1 3 4 1 4 ,9 4 5 ,5 4 9 Table 1: Net revenue report (2016 – 2019 KVND) 1.2 Low gross profit After reviewing some of financial figures and interview all member of management team of the company, the symptoms of problem had revealed as following Groupe SEB’s Gross profit margin have decreased steadily over the years (2016-2019) Operating Result from Activity (Gross profit) is Groupe SEB’s main performance indicator. It corresponds to gross sales minus discount to distributors, operating costs (cost of sales) 8 TIEU LUAN MOI download : skknchat@gmail.com Though Groupe SEB is well-known in others continent such as Europe, America, Canada, Africa. In Vietnam, this name is still the newbie which has just been re-invested since 2011 and well equipped in 2015. Facing with the new emerging market and existing local competitors is such a difficult task for Groupe SEB Vietnam management.
In specific, the gross profit from 2016 to 2019 showing at very low over the time 2016 to 2019 (from 22 – 28% at max). Gross Year Gross sales Net sales Gross profit margin 2016 757,521,635 681,213,260 163,122,078 24% 2017 561,874,485 529,458,284 148,916,071 28% 2018 553,023,130 520,085,013 115,735,133 22% 2019 451,134,894 414,945,548 109,364,003 26% Table 2: Revenues to gross profit 2016 – 2019 (KVND) Gross sales, 757,521,635 Gross sales, 561,874,485 Gross sales, 553,023,130 Net sales, 681,213,260 Net sales, 529,458,284 Net sales, 520,085,013 Gross sales, 451,134,894 Net sales, 414,945,548 2016 2017 Gross profit, 163,122,078 Gross profit, 148,916,071 2018 Gross profit, 115,735,133 Gross profit, 109,364,003 2019 GR O SS SAL E S NE T SAL E S GR O SS PR O FIT Figure 2: Revenues to gross profit 2016 – 2019 (KVND) 9 TIEU LUAN MOI download : skknchat@gmail.com Compared to others brand name like Samsung and Panasonic or Philips and on average of industry which gross margin fluctuate around 35-45%, Groupe SEB current gross margin seems to be at very low point. Year/Brand Samsung Philips Panasonic 2019 35.26 profit margin Max: 46.77 Table 3: Other market brand Gross profit margin 2019 (%) 2 PROBLEM IDENTIFICATION 2.1 Problem analysis To further understand on the decline of gross sales as well as gross margin, an analysis of the revenue of 6 main categorigs of Groupe SEB as follow: Net sales Gross margin (%) CATEGORY 2016 2017 2018 2019 2016 2017 2018 2019 FANS 331,912,602 306,919,821 266,755,302 232,252,821 31.4% Table 4: Sale by Main category (MVND) Fans: Key product in Vietnam which was very well-known brand since the old times as Electric Asia Fan. From 331Bil in 2016 to drop down 232bil in 2019 (-43%), that means half of the market share now falling to other brands name such as Midea, Mitsubitshi, Toshiba, etc… Along with the modern trending upward, the product improvement plus more convenient and unique may help to 10 TIEU LUAN MOI download : skknchat@gmail.com bring the brand to be outstanding in the market, without efforts in product research and development, sales and sale target is hardly to be achieved as expected for business.
Cookware: This category combined for all kinds kitchen utensils such as: frying pan, pressure cooker, saucepans, induction hobs, etc…Almost are imported from France (Tefal) or from China (Supor) but at high-end segment, therefore revenue for this also not that great, from 188 Bil down to only 71Bil in 2019 (deep down more than 60%) Rice Cooker/Steam Iron/ SDA: The same as Fans and Cookware, all slip over out of the market.6% FANS COOKWARE RICE OTHER SDA IRONS SPARE PARTS COOKERS 2016 2017 2018 2019 Figure 3: Gross margin declined from Table 4 2.