Food and beverage has been one of the fastest growing categories in China, drive
ID: 381743 • Letter: F
Question
Food and beverage has been one of the fastest growing categories in China, driven in part by changing consumer taste preferences in favor of foreign brands. Mars Inc., parent company of sweet treats such as Snickers, M&M's, and Dove, decided to capitalize on this trend in order to expand its business. The company formed a strategic partnership with Alibaba, the world's largest online retailer. Under the agreement, Mars will sell 17 brands on Tmall.com, Alibaba's business-to-consumer (B2C) platform, as well as Ruraltaobao.com, Alibaba's new platform targeting China's 600 million rural citizens. The partnership benefits Mars by helping improve the brand's reach and distribution, particularly to the China's more geographically dispersed, harder-to-serve rural population. It also enables Mars to leverage Alibaba's local marketing expertise, extensive media properties, and big data insights. For example, in a Snickers test campaign earlier in the year, the brand partnered with a Chinese pop group and used Alibaba's targeting and big data analysis capabilities to maximize the campaign's ROI. In only three days, the campaign generated almost a year's worth of sales! For strategic partnerships to endure though, they need to benefit both parties. A major advantage for Alibaba is that the deal includes an “e-commerce food safety initiative” that will be managed by Mars' Global Food Safety Center in China. The Center has built a reputation for world-class scientific research and effective global food safety education. This knowledge and skill will be important for Alibaba as they continue to grow their B2C consumer goods business, as food safety is a top concern for Chinese consumers. Mars' financial gains from the partnership are yet to be determined, but look promising given the size of the market and other foreign brands' performance in China to date. China's e-commerce market is made up of 550 million consumers who made $589 billion in purchases last year alone. Should these buying patterns continue among Chinese consumers, Mars will likely be well positioned to grow its footprint in the region.
Questions:
1. Strategic partners often seek exclusive deals—in this case, Alibaba would only sell Mars products and/or Mars will only sell its product on Alibaba e-commerce sites (other brick and mortar stores would not be included in the deal). Why would these partners strike such a deal? What other alternate agreements could have been put in place? What are the advantages and disadvantages of each alternative?
2. Chocolate consumption decreased in China during the recent recessionary period in a country that is starting to opt for healthier treats and with lower chocolate consumption compared to Western Europe, United States, and Brazil to begin with. Develop one other strategy for improving adoption in the Chinese market? Explain fully.
Explanation / Answer
1. Strategic alliance is struck by partners to benefit from the strengths of each other’s business model and at the same time retain their independence as entities. Mars was looking at penetrating a new large market. Alibaba was looking to attract customers to a big chocolate brand and gain knowledge in food safety. However, the alliance deal requires the two companies to maintain exclusivity. Companies would see the benefit of such alliance despite exclusivity rules, since it provides immediate use of each other’s platforms, thereby reducing the time-to-market. In a strategic alliance, cost can be shared by the partners, brand equity grows faster, local laws and culture can be adapted to easily.
Alternatives to strategic alliance are setting up subsidiary, entering into merger & acquisition. The advantages and disadvantages are:
2.. With the recent recession and growing health consciousness amongst the consumers in China, Mars must develop a localisation strategy to improve adoption in the Chinese market. Localisation is a strategy in which a foreign company or brand adapts its products to meet the specific requirements of the local market. Some actions that can be implemented in the localisation strategy are: