Haier

The Problem Analysis There are two alternatives for Haier Ltd, to purchase Maytag Corporation, the third-largest US home appliance manufacturer, or not. The company is interested in expanding its market position in US and worldwide. By acquiring Maytag this strategy would be consistent with the Chinese government’s encouragement of large companies turning into transnational corporations featuring a single corporate global brand name. The purchase would probably increase the power of the Haier Company, particularly in the appliance area for the US. This would come at a significant cost to the overall corporate strategy of building the Haier brand worldwide. Purchasing Maytag would have the following effects on Haier: • The risk of acquiring the struggling Maytag is not fully fleshed out. The marriage of the two companies might ultimately be unsuccessful, if Haier can even make Maytag profitable. • The Maytag brand would directly compete with Haier’s own brand and may cannibalize sales. • The Maytag brand acquisition would do nothing to assist Haier in achieving its stated corporate objective of building successful worldwide brand. Qingdao Haier Ltd. Analysis Qingdao Haier Ltd. was founded in 1984. It started out as a nearly bankrupt refrigeration plant but has since become one of the top 50 transnational companies in developing countries. Haier manufactures a wide range of household appliances which are all sold with the Haier brand name. The company’s sales revenue for 2004 was $12.1 billion. They are China’s dominant household appliance company with a 30% share of the market. Their products are associated with quality, innovation and customer service. Haier has recently been recognised as China’s most valuable brand name. They are currently the world’s fifth largest household appliance company. External analysis of Household Appliance Industry in US Global Markets Haier products are marketed in 160 countries throughout the world. The North American market for refrigerators and cooking equipment is at 100% saturation while washing machines are found in 94% of households. Haier’s market share in North America is roughly 3%. The saturation level for Western and Eastern Europe are roughly half that of North America. Haier have near 2% market share in this market. Haier is the leader in Asia with about 10% of the Asian market for household appliances while they only have about 1% in the Australasia market. Their market share in Latin America is under 2%. Haier America Haier America is the U.S sales and marketing division of Qingdao Haier Ltd. The headquarters are located in New York and they also have an industrial park in South Carolina. Having a U.S. factory allows Haier to put a “Made in the “U.S.A.” label on their refrigeration products. Haier America generally prices its products below Whirlpool, General Electric and Maytag brands. Distributors and Distribution Channels About 70% of appliance manufacturer sales in the U.S. are to chain retailers, Sears being the largest retailer. Their retail share however has declined from 42% in 2002 to 38.6%. Independent appliance retailers account for 25% of home appliance sales. This is down from 30% in 2002. About 85% of independent appliance retailers purchase their products through national buying groups. Distributors and wholesalers account for 5% of home appliance sales. They sell to commercial buyers such as builders and contractors. Marketing Practices Products are positioned along a “price-quality” continuum using sub-branding and multibranding strategies. South Korea electronics manufacturers have entered the U.S. household appliance market in the last three years. Maytag is the largest home appliance advertiser in the U.S. Appliance Buying Behaviour Most purchases of these appliances, through retail chains, involve replacing an existing appliance. 30% are discretionary or first-time purchases. For independent retailers 47% of sales come from appliance failures and 15% for first-time purchases. Research has shown that appliance replacement buyers purchase the same brand more often than not. A recent study by the Boston Consultancy Group shows that consumers are either “trading-up to affordable luxuries” or “trading-down to products that offer low-cost functional benefits”. Maytag Corporation Analysis Maytag Corporation is a Fortune 500 company. In 2004 94% of consolidated Maytag sales were to the home appliance market, 6% were to the commercial market. 88% of sales were in US and 12% in other countries. Home appliances. Maytag brand is one of the most recognizable and respected names in US large household appliance markets. The corporate brand is positioned as premium midpriced based on product quality and innovative product features. Company sells their products through large chain retailers and independent appliance retailers and distributors and own their own retail stores. Manufacturing. 75% of products are manufactured in US. In 2004 company was operating only 60% of productive capacity. Some of the operations were outsourced to South Korean companies. Global presence. 12% of products are sold in other countries. It has less than 1% market share in Western Europe and Latin America and 6% in Australia. It has no market presence in China, Southeast Asia or Eastern Europe. Financial Performance. Consolidated sales dropped by 1.5% in 2004. Home appliance sales were down 0.9% to compare with 2003. Commercial product sales dropped by 10.4%. Consolidated operating income dropped by $187.9 million. The company reported that unit sales of major appliances increased slightly in 2004 compared to the prior year but the market share declined in all categories in a strong industry. Market share of home appliances dropped of competitors offering better trade margins to retailers. In first quarter of 2005 consolidated net sales dropped by 4.2% in comparison with the 2004 results. Net sales declined 2.8% in home appliances and 26.3% in commercial products. Overall operating income was only $24.1 million in comparison with $63.6 million in the previous year. Best Buy refused to sell their appliances in their retail stores. Home Depot added their competitors’ home appliances in their product line. Maytag raised their prices by 5% - 8% due to increases of raw material costs. The company reported about additional layoffs. Recommendation and Conclusion It is recommended that Qingdao Haier focus on building Haier brand recognition in the U.S. market through increased production from U.S. factories and increased distribution through all available channels, rather than through an acquisition of Maytag. 1. Brand Strategy o Haier’s acquisition of Maytag would presumably involve the divergence from Haier’s multi-product, single-brand strategy to a multi-brand strategy. This change in strategy would require sweeping changes to the operations as well as Haeir’s culture and values. The Maytag acquisition also has the potential to cannibalize Haier’s U.S. sales by competing side-by-side with Haier-branded products. 2. Promotion Strategy o Haier America should continue to employ “push” promotion tactics to deliver Haier branded products through as many channels as possible. This strategy will increase recognition and improve total sales while recognizing that home appliance consumers are likely to arrive at the retail store with an open mind in terms of brand. o Haier America should focus their advertising on the quality of the Haier brand and the fact that it is made in the U.S.A. o Although only introduced five years ago in the U.S. market, Haier has managed to build brand recognition among consumers and capture a relatively significant market share, particularly in refrigerators and freezers.