UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ NGUYEN THUY VAN ENHANCING CONSUMER PERCEIVED QUALITY: A CASE OF VINAMILK INFANT FORMULA MILK POWDER MASTER OF BUSINESS ADMINISTRATION STER OF BUSINESS (HONOURS) Ho Chi Minh City – Year 2019 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ NGUYEN THUY VAN ENHANCING CONSUMER PERCEIVED QUALITY: A CASE OF VINAMILK INFANT FORMULA MILK POWDER MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: Assoc. NGUYEN THI MAI TRANG STER OF BUSINESS (HONOURS) Ho Chi Minh City – Year 2019 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENT First of all, I would like to express my grateful thanks to my supervisor, Dr. Nguyen Thi Mai Trang, for supporting me. During the whole time of doing thesis, her advice helps me to get through all mistakes in my work.
Moreover, she also teachs me much more than just finishing this thesis. Again, I want to say “Thank You Very Much” to my advisor for all he has done for me. Secondly, I would like to use this chance to give deep gratitude to all lecturers of International School of Business (ISB) – UEH for their helping me in during my academic years at ISB. I have been assisted very much in the completing of this thesis by the knowledge and skills that I have learned.
Furthermore, I would like to appreciate the contribution of people who help me complete the in-depth interview to share their valuable time and support me with useful information for completing this thesis. Last but not least, I would like to express my special thanks to my family who always support and encourage me both physically and mentally during the time I do this research. 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com EXECUTIVE SUMMARY When global infant formula milk powder market gets a remarkable growth with CARG at 3.0%, especially targeting key emerging country. With the fastest growth rate since 2011, Vietnam’s economy reach 7.08% of GDP in 2018.
Then, Vietnam would be a competitive market for infant formula milk powder category with strong competition from domestic and foreign manufacturers. Nowadays, behavior of Vietnamese consumers are changing rapidly due to development of technology and globalization. Vietnam’s IFMP industry has experienced an update trends and changes as the rise of premiumizations and shifting from powder milk to drinking powder milk. Then it is crucial for manufacturers to change in order to meet their target consumer’s need and want.
Recent year, sales revenue of powder milk has decreased with CAGR of -2% compare to 2013, while sales revenue of drinking milk powder has gradually increased. Besides, volume share of Vinamilk’s IFMP also has changed among price segmentation. According to the result of in-depth interviews and previous study, this study aims to figure out what the main problem is, validate the main problem, the importance of main problem. This research will explore the cause of the main problem.
The findings of research implements that the low level of consumer’s perceived in quality leading to change in sales revenue and volume share. Then the alternative solutions would be suggested to improving the low level of consumer perceived in quality. 4 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Contents ACKNOWLEDGEMENT. 4 LIST OF ABBREATIONS.
7 LIST OF TABLES. 8 LIST OF FIGURES. Vinamilk’s powdered milk category. Infant formula milk powder (IFMP).
Global infant formula milk powder market. Vietnam FMCG landscape and infant formula milk powder market. Vinamilk’s infant formula milk powder situation in Vietnam. Sales revenue gradually shifts from powder milk to drinking powder milk (UHT).
Change in Volume Share of Vinamilk’s IFMP category. Inadequate product’s recognition. The low level of consumer’s perceived in quality. Eliminating inadequate product’s recognition and market condition as main problem.
Illuminating low level of consumer’s perceived in quality as the main problem. Justify the importance of low level of consumer’s perceived in quality. Less reliable source of information. Less visibility in high-end segmentation.
Cause – and – effect tree. The first alternative solution: building strong positive traditional word of mouth. 40 5 LUAN VAN CHAT LUONG download : add luanvanchat@agmail. The second alternative solution: building the strong positive electronic Word – of – Mouth through social media.
ACTION PLAN IN ORGANIZATION. 70 6 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF ABBREATIONS CAGR Compound annual growth rate eWOM Electronic word of mouth FGD Focus group discussion FMCG Fast moving consumer good HMO Human Milk Oligosaccharide IFMP Infant formula milk powder IHV In home visit KOL Key opinion leader MAT Moving annual total MFGM Milk Fat Globule Membrane SKU Stock keeping unit TY This year UHT Utra high temparature WOM Word – of - Mouth YA Year ago YTD Year to date 7 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLES Table 1 Financial highlights 2014 - 2018 Table 2 Infant formula milk powder’s price segmentation Table 3 Growth in volume share and Value share Table 4 Volume share and growth rate IFMP Table 5 Sales revenue of Vinamilk’s powder milk Table 6 Sales revenue of Vinamilk’s drinking powder milk Table 7 Estimated cost for building strong positive traditional WOM Table 8 Estimated cost for building strong positive e-WOM through social media LIST OF FIGURES Figure 1 Vinamilk’s product portfolio Figure 2 Vinamilk’s powdered milk category Figure 3 Global infant formula milk powder market forecast 2023 Figure 4 Vietnam (MT Urban) 2018 - Volume share IFMP + Specialty Figure 5 Value Share Nation Wide 2017 - 2018 Figure 6 Sales revenue Vinamilk’s infant formula milk powder Figure 7 Volume share – Vietnam modern trade urban Figure 8 Vinamilk IFMP volume share – price segmentation Figure 9 Sources of information to buy the first IFMP product for children in 2018 Figure 10 The most important reasons for switching IFMP brands Figure 11 Birthrate (crude) Figure 12 Percentage of household Figure 13 Volume share % Figure 14 IFMP Volume share – Price segmentation Figure 15 Consumer’s buying decision making process Figure 16 Number of mom & baby stores Figure 17 % share of occasion shopping Figure 18 Infant formula milk powder buying behavior Figure 19 Shopping occasion in 2018 Figure 20 Cause and effect diagram 8 LUAN VAN CHAT LUONG download : add luanvanchat@agmail. Company’s background As one of the biggest companies in Vietnam, Vinamilk established in 1976 under the first name of Southern Coffee-Dairy Company. In 1978, it renamed as United Enterprises of Milk Coffee Cookies and Candies and changed into Vietnam Dairy Company in 1993.
Since 2003, as followed the IPO to market of Ho Chi Minh Stock Exchange, it has changed into Vietnam Dairy Products Joint Stock Company (hereafter called as Vinamilk)1. Vinamilk’s products portfolio are conducted in business industry including in producing and distributing more than 250 SKUs with main products categories as fresh milk, yogurts, powdered milk & nutrition powder, sweet condensed milk, ice-cream & cheese and soya milk, fruit juice & beverage. Figure 1: Vinamilk’s product portfolio (Source: Vinamilk’s internal report 2018) In 2018, Vinamilk achieved the total revenue at 52,135 billion VND with a CARG of 10.6% compare to year 2014 and increases in revenue 2. Profit after tax is 10,206 billion VND at a CARG of 13.9% compare to year 2014.
9 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Table 1: Financial highlights 2014 - 2018 (VND billion) 2014 2015 2016 2017 2018 CAGR vs.9% Profit befor tax 7,613 9,367 11,238 12,229 12,052 12.4% Profit after tax 6,068 7,770 9,364 10,278 10,206 13.7% (Source: Vinamilk’s financial report 2018) Vinamilk1 would like to become one of the most favorite brands in Vietnam. 1According to CEO of Vinamilk - Mrs. Mai Kieu Lien that the leading manufacturers in Vietnam dairy market, Vinamilk should be always innovative and innovation is a key success factor that makes Vinamilk to achieve its mission how to deliver the valuable nutrition to community with its respect, love and responsibility. Vinamilk’s powdered milk category Vinamilk’s powdered milk category consists of three types of product for: adult, pregnancy and infant formula milk powder.
Figure 2: Vinamilk’s powdered milk category (Source: Vinamilk’s internal report 2018) 10 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com As one of key product category of Vinamilk, powder milk category contribute 26% revenue and 28% gross margin profit for Vinamilk in 20171. With 27% share in 2017, Vinamilk’s powdered milk category is leading in the market and has strong impact on the growth of this category. Infant formula milk powder (IFMP) The international Codex Alimentarius Commissions2 states that infant formula is a breast-milk substitute specially manufactured to satisfy, by itself, the nutritional requirements of infants during the first months of life up to the introduction of appropriate complementary feeding. Infant formula milk powder is also defined as a a manufactured food designed and marketed for feeding to babies and infants, usually prepared for bottle- feeding or cup-feeding from milk powder (mixed with water)2.
According to Nielsen3 - a global performance management company that provides a comprehensive understanding of what consumers Watch and Buy, infant formula milk powder can be segment by price as table below: Table 2: Infant formula milk powder’s price segmentation Lower Upper Premium Super Premium Mainstream Mainstream Price's segmentation < 200 200 <= 300 300 <= 400 > 400 (VND/gram) (Source: Nielsen’s report 2018) Due to price segmentation of Nielsen3, Vinamilk’s infant formula milk powder category is divided into three segments: premium, mainstream and specialty; particularly as mentioned in figure 2. Based on formulation, Vinamilk’s IFMP can be divided into powdered milk (mixed with water) and drinking milk (not mixed water). Furthermore, according to the basic of product type the market is segmented into starting milk formula, follow-on milk formula, toddlers milk formula, and special milk formula. 11 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.
Global infant formula milk powder market The global IFMP market is value at 27.7 billion USD in 2018 and will reach 35 billion USD by the end of 2025 at a CARG of 3.0% during period from 2019 to 20254. Due to high purchasing power, the middle class become the engine of development in many countries. It is not only one of the largest categories within health and wellness (HW) packaged food but was also a very fast growing one during the review period, despite the decline in birth rates and an increasing number of breastfeeding campaigns4. Changing lifestyles, female participation in the workforce along with the lack of time and inconvenience is expected to boost the global infant nutrition market.
The slowdown in sales in developed regions has caused leading players to target key emerging markets, which are driving the global market.4 Figure 3: Global infant formula milk powder market forecast 2023 (Source: Market Research’s Report 2018) Asia Pacific is the key region, led by China, which saw the largest absolute growth over 2010-2015, followed by Hong Kong, Indonesia and Vietnam. China is seeing a movement 12 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com towards premiumisation – a trend which is apparent in both emerging and developed markets5. According to Euromonitor International, China alone accounted for 46% of milk formula market in 2015. Europe is the second-largest region-wise market with 21.46% global consumption share3.
Based on report of Euromonitor Interbational5, premiumisation strategies are likely to remain driven by free-from special baby milk formula including hypo-allergenic milk formula, naturally healthy products such as organic, as well as goat milk formula. The emergence of HMOs and MFGM in milk formula are also likely to fuel new product launches. Vietnam FMCG landscape and infant formula milk powder market According to General Statistic Officer (GSO)6 Vietnam, in 2018 Vietnam’s economy represent the fastest growth rate since 2011 to achieve GDP at 7. CPI has been under control to remain index below 4% since 2015.