Chapter 1

Introduction
1.1. Background
Transition from a centrally-planed economy to market-economic structure, the Vietnamese market becomes more dynamic. All business and production activities are encouraged investment to contribute into economic growth and stabilization of the nation. Like other light industries, investment in soft drink production locally is welcomed and facilitated. The Vietnamese soft drink industry has rapidly developed. Together with rising the living standard, demand for soft drinks quickly increases and high quality brands are much preferred. More and more foreign soft drink producers enter into the Vietnamese market. At present, all players are facing the fierce competition between local and foreign brands. There are 25 local producers who produce more than 30 soft drink brands including cola, orange, soda, sarsi, lemonade lime and other flavors, and plus presence of the giants in soft drinks market such as Pepsi, Coke and Schweppes. Most of the producers try to exploit their distinctive competencies to gain competitive advantages and select the appropriate competitive strategies. They face the need of designing marketing strategies in order to attract the consumers to buy their products. In this situation, International Beverage Company (IBC) recognizes that development of effective marketing strategies have to be considered as a priority in order to protect its leading position in HoChiMinh city (HCMC) soft drinks market. Through developing marketing strategies help the company to identify its target markets, position its products in the consumers mind and develop marketing mix strategies in order to achieve its marketing objectives and meet consumer needs and wants in a better way than its competitors. Thus, the company needs to identify its strengths and weaknesses as well as find out opportunities and threats in the marketplace in which it operates. In such a context, this research study deals with the development of marketing strategies for International Beverage Company in HCMC. IBC, a joint venture between Saigon Processing Company (S.P.Co), Macondray and Company Inc., Hong Kong, and Pepsi Company Inc, Holland produces and distributes well-known soft drink brands such as Pepsi Cola, 7-Up, Schweppes and Crush.

1.2. Problem Statement

As competition rises, developing effective marketing strategies for a company is the key to success in its target market. But how can the company develop such a marketing strategy, identify the target market or proper niches for its products, and consolidate its position in the target market? Regarding the case of IBC, last year, IBC obtained the highest market share of 28 percent in total national market and 42 percent of HCMC market. At present, IBC is facing the intensified competition from Coke, the question is how can IBC protect its position in Vietnam in general, and HCMC in particular? To answer this question,

IBC needs to develop the marketing mix program for each local market to defend its current market share. This research study examines how to develop the effective marketing strategies for International Beverage Company in HoChiMinh city in order to increase the market share, and protect its leading position in this soft drink market.

1.3. Objectives of the Research Study

The objectives of this research cover the following issues: 1. To analyze the business environment of the Vietnamese soft drinks market including production and consumption of soft drinks, consumer preference, governmental policies on the soft drink industry and competitors of IBC. 2. To analyze and assess the current situation of IBC in term of strengths and weaknesses of its production capacity, market share, and marketing activities including products, price, distribution and promotion. 3. To develop the marketing strategies for IBC in HCMC which consist of market segmentation, market targeting, positioning strategy and marketing mix strategies. The specific marketing mix strategies for products, price, distribution, and promotion will be developed to implement the selected positioning strategy.

1.4. Scope and Limitation of the Research Study

This research study is conducted at International Beverage Company in HoChiMinh city, Vietnam. The study has been undertaken purely from a viewpoint of marketing relating to develop the marketing strategies for IBC in HoChiMinh city. This research relates to the development of the marketing strategies including market targeting, positioning strategy and marketing mix for products, price, distribution, and promotion. Regarding product strategy, the research does not discuss the development of new products because IBC has not planned yet for developing new products. In the area of distribution, the physical distribution channels such as inventory, logistic, warehouse, and transportation are not included Data are collected just in HoChiMinh city which is the key soft drink area in the Vietnamese market.

1.5. Organization of the Research Study

This research is organized in six chapters, as follows: Chapter 1 provides an introduction including background, problem statement, objectives, scope and limitation of the research study. Chapter 2 presents the literature review of the study and summarizes the work of previous studies, it relates to the fundamental ideas on designing marketing strategies including marketing situation analysis, marketing strategy design, marketing program development for products, price, distribution and promotion and implementing and managing marketing strategy. Chapter 3 discusses research methodology including the framework of research, information needed, methodology of data collection, sampling size and data analysis. Chapter 4 analyzes external factors covering the soft drinks market situation and competitors in order to find out opportunities and threats in the environment in which the company operates. Chapter 5 analyzes and assesses the current position of the company regarding strengths and weaknesses of IBC about production capacity, market share and marketing activities. Chapter 6 presents conclusion and recommendations for developing the marketing strategies for IBC in HCMC including market targeting, positioning strategy and develops marketing mix strategies.

Chapter 2

Literature Review
This chapter discusses the general concepts which relate to the fundamental ideas on designing marketing strategies including marketing situation analysis, marketing strategy design, marketing program development for products, price, distribution and promotion, and implementing and managing marketing strategy.

2.1. Concept of Marketing Strategy

Nowadays, most of companies are increasingly embracing targeting marketing. Target marketing helps sellers or suppliers identify marketing opportunities better. The sellers can develop the right offer for each target market. They can adjust their prices, distribution channels, and advertising to reach the target market effectively. Therefore, designing the marketing strategy is very important for success. The marketing strategy is always a determinant constituent of effective competitive strategy. Cravens (1994) defined that marketing strategy is the analysis, strategy development, and implementation activities in selecting market target strategies for the product-markets in each business unit, setting market objectives, and developing, implementing, and managing the marketing program positioning strategies designed to meet the needs of the customers in each market target. Strategic marketing is a market-driven process of strategy development, taking account a constantly changing business environment and the need to achieve high levels of customer satisfaction. Thus, marketing strategy builds competitive advantage by combining the customer influencing strategies of the business into integrated array of market-focused actions. Strategic marketing links the organization with the environment and views marketing as a responsibility of the entire business rather than a specialized function. Because of marketings boundary orientation between the organization and its customers, channels members, and competition, it is central to the business strategy planning process (Day, 1984). Strategic marketing provides the expertise for environmental monitoring, for deciding what customer groups to serve, for setting product specifications and for selecting which competitors to position against.

2.2. Link Between Marketing Strategy and Corporate Strategy

Corporate strategic planning involves the activities such as developing a clear sense of the companys mission, identifying the companys strategic business units, allocating resources to the various strategic business units, and expanding present business and developing new ones to fill the strategic-planning gap. The corporate strategy is concerned with what types of business the company as a whole should be in and is therefore concerned with the scope. Marketing strategy, on the other hand is part of functional strategy which emerges in each strategic business unit as part of corporate strategy. According to Guiltinan and Paul (1991), corporate strategy is type of plan which outlines how a firm should use its resources to produce and market a specific array of products and services in order to achieve an overall corporate objectives. In essence, the corporate strategy provided a general statement. It defined the products in which the

organization would be involved but left open the details of how each product or product line would be marketed. While the corporate strategy presents a plan developed by top management to guide the total organization, a marketing strategy is usually developed by a middle manager to guide a firms activities for a product or a line of related products. More specially, a marketing strategy is a plan which indicates how a manager deploys marketing resources on an individual product or product line in order to achieve a specified product objective (such as market-share growth or maximizing cash flow).

2.3. Strategic Marketing Planning Process

Various steps in designing strategic marketing planning within an industry can be found in literature and basically there principles are all similar. An approach for strategic marketing process consist of marketing situation analysis, designing marketing strategy, marketing program development, and implementing and managing marketing strategy (Craven, 1994). It is shown in Figure 2.1. So there is a need to discuss this in more detail.

2.3.1. Marketing Situation Analysis

The marketing situation analysis is the first step in the design of new strategy or examining an existing strategy. It comprises the external and internal environment analysis. These analysis guide the choice of marketing strategies. The marketing environment is a place where the company must start its search for opportunities and possible threats. It consist of all the actors and forces that affect the companys ability to transact effectively with its target market. The external environment can be divided into macroenvironment and microenvironment. The macroenvironment includes more general forces which often do influence the long run activities of the company. It consists of economic, socio-cultural, technological, political, legal forces in relation to the firm's total environment. Thus, the achievements, difficulties and challenges of Vietnamese economy and governmental policies will influence the development of the soft drink industry. The microenvironment includes the actors in the companys immediate environment that affect its ability to serve its markets especially, the company itself, suppliers, market intermediaries, consumers, competitors and public. One key aspect of external analysis is evaluation of competitors' strategies, strengths and weaknesses. Competitor analysis includes defining competitive arena, analyzing the strategic group and describing and evaluating each key competitor in terms of strengths and weaknesses. At present, the Vietnamese soft drinks market becomes fiercely competitive. So the analysis of production, consumption and competition are necessary to identify opportunities and threats for the company.

Market Situation Analysis

Analyzing markets Market segmentation Analyzing competition Marketing information systems and research

Implementing and Managing Marketing Strategy

Designing effective organizations Marketing strategy implementation and control

Designing Marketing Strategy

Market targeting Positioning strategy Marketing strategies for selected situations Planning for new products

Marketing Program Development

Product portfolio strategy Pricing strategy Distribution strategy Promotion strategy

Figure 2.1 Strategic marketing process Source: Cravens, 1994

The internal environment analysis is to help the company recognizing itself in terms of strengths and weaknesses. The internal analysis includes the corporation's structure, resources, production and business and marketing activities. Corporation resources are the assets that include people, managerial skills, financial circumstances, facilities, information technology and the skills and abilities within functional areas. In general, the situation analysis identifies opportunities and threats in the business environment and the organizations strengths and weaknesses. This information helps companies deciding how, when and where to compete in a given environment.

2.3.2. Marketing Strategy Design

Designing marketing strategy includes market segmentation positioning strategy and the marketing strategy choice. Market segmentation and targeting Market segmentation is the act of dividing a market into distinct groups of buyers who might merit separate products and/or marketing mixes. The marketer tries different variables to see which reveal the best segmentation opportunities. For each segment, a customer-segment profile is developed. The effectiveness of segmentation analysis depends on arriving at segments that are measurable, substantial, accessible and actionable. After evaluating market segmentation, the companies have to target the best market segment(s). Market targeting selects the people or organizations that company wishes to sever in the product-market. To do this, it must first evaluate profit potential of each segment, which is a function of segment size and growth, segment structural attractiveness, and company objectives and resources. Then, company must decides how many segments to cover. It can ignore segment differences (undifferentiated marketing), develop different market offers for several segments (Differentiated marketing) or go after one or a few market segment (concentrated marketing). Thus, once the companys product-markets are identified and their relative importance to the firm determined, it selects the targeting strategy. This decision is the focal point of marketing strategy, since targeting guides the setting of objectives and developing a positioning strategy. Positioning strategy Regardless of the types of market coverage chosen, the company must develop and communicate for every market selected. A positioning strategy that will clearly differentiate it or its products from competitors. Positioning is the act of designing the companys offer so that it occupies a distinct and valued place in the target customers minds (Kotler, 1991). and targeting,

Positioning strategy should take into account: The criteria or benefits the buyer considers when purchasing a product, including the relative importance of the criteria. How the firm is differentiated from its competition. The limitations of competing products regarding important buyer needs and wants.

The positioning strategy indicates how the firm or its brands would like to be perceived in the eyes and minds of the market target customers. Therefore, decisions about products, distribution channels, price, and promotion should create a cohesive marketing program aimed at meeting the needs and wants of consumers in the firms target market. The marketing program combines the firms marketing capabilities into a package of actions intended to position the firm against its competitors. Marketing strategy selection Selecting a marketing strategy takes into account the factors such as the rate of growth of product-market, the diversity in the needs and wants of buyers, the structure of competition, the organizations competitive advantage in which an organization encounters. Strategy selection may involves the developing a new marketing strategy or changing an existing strategy. As argued by Guiltinan and Paul (1991) to choose the best marketing strategy, a manager must consider several kinds of information, as follows (Figure 2.2). Product objectives to help company determine the necessary basic type of strategy. For example, if market share objectives are important, managers will employ selective demand strategies to retain or expand market share. Alternatively, the greater the importance of cash flow and profitability objectives, the more likely a manager will be to select retention strategies and strategies for increasing repurchase rates. That is, these strategies will, in general, be less cost than acquisition strategies or strategies aimed at increasing the number of users. Nature and size of the market opportunity should be clearly established based on the market analysis and market measurements. Managers must have a sense of the success requirements in terms of the kinds of competitive advantages necessary and the level of marketing expenditures that will be necessary to meet profitability goals.

Craven (1990) proposed the comprehensive possibility of marketing strategy alternatives that can be used to achieve marketing objectives. They consist of (1) new product strategy, (2) market targeting strategy, (3) market program positioning strategy, (4) productivity improvement strategy, (5) organizational design, (6) exploiting special advantage, (7) acquisition/ merger/ strategic alliance and (8) exit from market.

Corporate Marketing Planning

Product Objectives

Market Analysis

Market Measurement

Profitability and Productivity Analysis

Competitive Analysis

Needs of Target Markets

Size of Market Opportunity

Marketing Budgets Required

Competitive Advantages

Market Opportunity

Market Success Requirements

Marketing Strategy

Figure 2.2 Selecting a marketing strategy Source: Guilinan and Paul, 1991

Another selections of marketing strategy include entry strategy into new market, strategies for growth, mature and declining markets and global strategies. Concerning with this research study, IBC needs to develop a marketing strategy to protect its leading position in the soft drinks market in HoChiMinh city. A marketing strategy for market leader faces three challenges: expanding the total market, protecting the market share and expanding market share. The market leader is interested in expanding total market because it is the main beneficiary of any increased sale. To expend the market size, the leader will have to look for new users, new uses or more usage. To protect its existing market share, the market leader has several defense methods: position defense, flanking defense, preemptive defense, counteroffensive defense, mobile defense or contraction defense. The most sophisticated leaders cover themselves by doing everything right, leaving no openings for competitive attack. Leaders can also try to increase their market share. This makes sense if profitability increases at higher market share levels and the companys tactics do not invite antitrust action.

2.3.3. Marketing Program Development

Market targeting and program positioning strategies for new and existing products guide designing strategies for each part of the marketing mix. Developing marketing mix strategies for products, distribution, price and promotion is to implement the positioning strategy selected and in order to achieve a coordinated combination of its components that will accomplish the market target objectives in a cost-effective manner. Product strategy Product is the first and most important element of the marketing mix. The product strategy calls for making coordinated decisions on product mixes, product lines, brands, packaging and labeling. A product mix (also called product assortment) is the set of all product lines and items that a particular seller offers for sale to buyers. (Kotler, 1991). The product mix can be describes as having a certain range (how many different product lines the company carries), length (total number of items in its product mix), depth (how many variants are offered of each product in the line) and consistency (how closely related the various product lines are in end use, production requirements, distribution channels or some other way). A product line is a group of products that are closely related because they perform a similar function are sold to the same customer groups, are marketed through the same channels or make up a particular price range. Each product line is usually managed by a different executive. The product line manager should study the sales and profit contributions of each product item as well as the way the items are positioned against competitorsitems. This provides information needed for making product line decision such as line stretching, line filling, line modernization, line featuring and line pruning. Developing brand policies for individual product items in line. Packing and labeling decisions to protect, economy, convenience and promotion.

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To select a product strategy, the company needs the following information on current and anticipated performance of the products in the business unit: Consumer evaluation of the companys products, particularly their strengths and weaknesses vis--vis competition (that is, positioning by market segment information) Objective information on actual and anticipated product performance on relevant criteria such as sales, profits and market share.

This information helps management formulate strategies for each product in the mix or line. The product strategy includes: Developing plans for new products, this process consists of eight stages: idea generation, idea screening, concept development and testing, marketing strategy development, business analysis, product development, market testing and commercialization. Managing programs for successful products, and Selecting strategies for problem products (e.g., to reduce cost or improve the product).

Price strategy Price is the only element in marketing mix that produces revenue, other elements produce cost. Pricing is a problem when a firm has to set a price for the first time. This happens when the firm develops or acquires a new product, when it introduces its regular product into a new distribution channel or geographical area and when it enters bids on new contract work. Thus, before setting a price, a firm must identify the role that price will play in the products overall marketing strategy. There are three generic pricing strategies that a firm might adopt: skim pricing, penetration pricing and neutral pricing (Nagle and Holden, 1995). Each strategy is defined by the role pricing plays in the products marketing strategy. Skim pricing (or skimming) is designed to capture high margins at the expense of high sales volume. By definition, skim price are high in relation to what most buyers are willing to pay. Consequently, this strategy is viable only when the profit from selling to a price-insensitive segment exceeds that from selling to the large market at a lower price. Penetration pricing involves setting a price far enough below economic value to attract and hold a large base of customers. It is a strategy designed to generate sale volume even at the expense of high margins and, like skim pricing, is favored by a particular environment. Penetration prices are not necessarily cheap, but are low relative to value. Neutral pricing involves a strategic decision not to use price to gain market share, while not allowing price alone to restrict. Neutral pricing minimizes the role of price as a marketing tool in favor of other tools that management believes are more powerful or costeffective for a products market. A firm generally adopts a neutral pricing strategy by default, because the conditions are not sufficient to support either a skim or penetration strategy. For example, a marketer may be unable to adopt skim pricing because the products in a particular market are so generally viewed as substitutable that no significant segment will pay a premium. That same firm may be unable to adopt a penetration pricing strategy because, as it is a newcomer to the market, customers would be unable to judge its quality

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before purchase and would infer low quality from low price, or because competitors would respond vigorously to any price that undercut the established price structure. Neutral pricing is especially common in industries where customers are quite value-sensitive, precluding skimming, but competitors are quite volume-sensitive, precluding penetration. According to Kotler (1991), when a firm sets price strategy, it has to consider the following factors in setting its pricing policy: Selecting the price objectives such as survival, maximum current profit, maximum current revenue, maximum sales growth, maximum market skimming and product-quality leadership. Determining demand schedule, which shows the probable quantity purchased per period at alternative price level. Because each price that company might charge will lead to a different level of demand and will therefore have a different impact on its marketing objectives. The more inelastic the demand, the higher the company can set its price. Estimating cost: demand largely set a ceiling to the price that the company can charge for its product, and company costs set the floor. The company wants to charge a price that covers its cost of producing, distributing, and selling the product, including a fair return for its effort and risk. The firm therefore, estimates how its costs vary at different output levels and with different levels of accumulated production experience. Analyzing competitors prices: the firm needs to learn the price and quality of each competitors offer and use them as a basis for positioning its own price. Selecting one of the following price methods: markup price, target-return price, perceived-value pricing, going-rate pricing and sealed-bid pricing. Selecting the final price: the firm select its final price, expressing it in the most effective psychological way, coordinating it with the other marketing mix elements, checking that it conforms to company policies and making sure it will find acceptance with distributors and dealers, company sales force, competitors, suppliers and government.

The point of views of Stanton et al. (1994), the price determination process consists of selecting price objective, selecting method of determining the base price and designing appropriate strategies. Figure 2.3 illustrates this process. Distribution strategy A distribution channel is a set of organizational units (such as manufacturers, wholesalers, and retailers) that performs all the functions required from a seller to the final buyer. The structure of the channel is determined by three elements: the tasks and activities to be performed by intermediaries, the types of distributors to be used and the number of each type of distributor. Channel design objectives derive from strategic market and financial goals. Such objectives as sales volume, market share, profitability and return on investment must be supported by the distribution channel. To operate, market coverage and market control objectives must be developed to guide channel design. Market coverage objectives concern customers expectations and degree of product-availability intensity. Market control
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objectives are to ensure product quality, selling effort by channel partners, demand stimulation by promotional activities and the quality of after-sales-support offered to consumers. Decisions regarding market control and intensity objectives may be interrelated. Channel strategy consists of decisions regarding channel organization, definition of channel structures, development of criteria for evaluating channel structures and the selection of an appropriate structure Regarding the level of dependence and commitment among channel members, there are tree categories of channel organization for managerial purposes: Vertical Marketing Systems, Free Flow Channels and Single Transaction Channels (Bowersox, 1987). This classification is accepted by the most of the authors (Boone and Kurtz, 1993) Channel structures differ based on the number and types of intermediaries involved and their specified roles. The basic choice is between direct and indirect structures. Kotler (1991) proposed an approach for using consumer marketing channels. It consists of four levels of channel of different lengths: zero-level, one-level, two level and three-level channel. Selecting Channel of Distribution , most of the authors agree that there are basically five factors for consideration in choosing distribution channels: market products, producers, competition, availability of intermediaries and consumers characteristics, as follows (Boone and Kurtz 1993): Market factors emphasize the need and geographic location of the firms market, for example, whether the product is intended for the consumer or industrial market. Product factors also play a role in determining optimal distribution channels. In general, the more standardized the product, the longer channel. Another generalization about distribution channels is that the lower the products unit values, the longer the channel.

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SELECT PRICING OBJECTIVE

SELECT METHOD OF DETERMINING THE BASE PRICE

Cost-plus pricing

Price base on balance between supply and demand

Price set in relation only to market price

DESIGN APPROPRIATE STRATEGIES

Discounts and allowances Freight payments Skimming vs. penetration competition

One price vs. flexible price Leader pricing Unit pricing Psychological pricing Resale price maintenance Price vs. nonprice

Figure 2.3 Price determination process Source: Stanton et al., 1994

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Producer factors concern adequate financial, managerial and marketing resources. The producers need of control over product also influences channel section. For example, if aggressive promotion is desired at the retail level, the producer often chooses the shortest available channel. Competitive factors are important when some firm is forced to develop unique distribution channels because of inadequate promotion of its products by independent marketing intermediaries. Intermediaries may not always be available, regardless of how desirable they are from the manufacturers point of view. Wholesalers and retailers independently owned businesses and both have their own objectives to satisfy. They availability of intermediaries is therefore important to consider. Consumer characteristic, i.e. where, when and how consumers choose to buy the goods, is also the indispensable factor to be studied carefully.

Some authors have emphasized the consumer-oriented approach in selection of the distribution channel (Stern and Strodivant, 1987), (Bowersox, 1987). Another approach using the key-factor scoring method may be realistic and appropriated. This method requires that all of those factors deemed critical by the channel selectors be considered. Then the channel selector will either use weighted averaging or preference ordering method to rate the channel alternatives. Promotion strategy Promotion mix strategy consists of four major tools: advertising, sales promotion, personal selling and public relation in which all help the organization to communicate with its consumers, cooperating organizations, public and the other target audiences. Promotion strategies perform essential roles in positioning products in the eyes and minds of consumers. Promotion informs, reminds and persuades buyers and others who influence the purchasing process. Concerning with consumer goods, especially soft drinks, the company needs to emphasize on designing the promotion strategy to convince the consumers to buy its products. According to Kotler (1991), to develop the promotion program, the companies have to consider the following steps: Identifying the target audience and its characteristics, including the image that audience has of product. The audience could be potential buyers of the companys products, current users, deciders, or influencers. They could be individuals, groups, particular publics or general public. The target audience will critically influence the communicator s decisions on what, how, when, where and whom to say it. Defining the communication objectives, whether it is to create awareness, knowledge, linking, preference, conviction or purchase. Designing the message, ideally, the message should gain attention , hold interest, arouse desire, and elicit attention (AIDA model). Formulating the message will require solving four problems: what to say (message content ), how to say it logically (message structure), how to say it symbolically (message format ) and who should say it (message source).

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Selecting message.

the communication channels: personal

and nonpersonal to carry

the

Establishing the total promotion budget. Deciding on the promotion mix, most of companies face the task of distributing the total promotion budget over the four promotion tools of advertising, sales promotion, personal selling, and public relations. Companies are always searching for ways to gain efficiency by substituting one promotional tool for another as its economics become more favorable. When deciding on the promotion mix, companies should consider factors involved such as type of product market, push versus pull strategy and product-lifecycle stage. Monitoring to see how much of the market becomes aware of the product, tries it and is satisfied in the process. Managing and coordinating the marketing communication process.

2.3.4. Implementing and Managing Marketing Strategy

Implementing and managing marketing strategy focus on evaluating and improving organizational effectiveness and marketing strategy implementation and control. Designing the Marketing Organization An effective organization design selects people and assigns them work responsibilities in a way that is best for accomplishing the firms marketing strategy. Deciding how to assemble people into organizational units and assigning responsibility to the various elements that make up marketing strategy impact strategy performance. Organizational structures and process must be matched to the different types of business and marketing strategies that are developed and implemented. The marketing organization has to be flexible to respond to changing conditions and strategy needs. Organizational design needs to be evaluated on a regular basis to assess its adequacy and to identify necessary changes. Implementation and Control Marketing strategy implementation and control are vital links in a series of strategic marketing activities. These actions emphasize the continuing process of planning, implementing, evaluating and adjusting marketing strategies. They include three important management activities, as follows:

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1. Marketing plan and budget The marketing plan typically includes a situation analysis summary; a market target description and strategic evaluation; overall objectives and specific objectives for each market target; a marketing program positioning strategy; specific strategies for product, price, distribution, and promotion; marketing research; coordination with other business functions; forecasts and budgets and contingency plans. 2. Implementation strategy The marketing plan should specifically include action guidelines concerning the activities to be implemented, who does what the dates and location of implementation, and how implementation will be accomplished. Several factors contribute to implementation effectiveness, including the implementation skills of people involved, organizational design, incentives and the effectiveness of communication within the organization and externally. 3. Evaluation of marketing performance Marketing strategy is a continuing process of making decisions, implementing them and monitoring their effectiveness over time. Evaluation and control are concerned with tracking performance and , when necessary, altering plans to keep performance on track. Strategic evaluation also includes looking for new opportunities and potential threats in the future. It is the connecting link in the strategic marketing planning process, therefore, strategic evaluation assures that strategy is an ongoing activities. In general, marketing strategy is the analysis, planning, implementation and control process designed to satisfy customer needs and wants. It stars with an understanding of the corporate mission and objectives and the strategy of each strategic business unit. The strategic marketing planning process consists of market analysis, deciding marketing strategies, developing marketing mix strategies and implementing and managing marketing strategy. Regarding with the case of IBC, to formulate marketing strategy, it is necessary to analyze the Vietnamese soft drinks market and assess strengths and weaknesses of the company.

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Chapter 3

Research Methodology
3.1 Analytical Framework
This research is presented in the form of a case study exposing the complexities of a real business environment in the Vietnamese soft drinks market. The purpose of this research is to develop marketing strategies for International Beverage Company in HCMC. Thus, it is necessary to the analyze market situation and current marketing strategy of IBC in order to formulate the marketing strategy. A framework may enable to understand the various linkages and interactions between the variables and to develop the marketing mix program in order to achieve the marketing objectives of the company. Figure 3.1 illustrates this analytical framework. The company mission sets out the reason why the company exits and what it should be doing and the companys marketing objectives give a guideline of what it wants to gain and become. This will serve as a guide for the process of diagnosing both external and internal factors affected the business performance of IBC. The objective of external analysis is to identify opportunities and threats in the business environment in which IBC has to face. Two interrelated environments should be examined at this stage: the macro environment of the Vietnamese market and the micro environment referred to the industry in which IBC operates, the Vietnamese soft drink industry. The analysis of the macro environment focuses on examining the key achievements and limitation of the Vietnamese economy and HCMC economy and political factors and government policies on the soft drink industry which strongly affect the soft drink industrial evolution. The analysis of the micro environment involves an assessment of industrial growth, production, consumption pattern and the competition between existing soft drink manufacturers in HCMC in which the analysis the main competitors of IBC is examined in the terms of strengths and weaknesses about their marketing activities. The internal analysis is devoted to pinpoint the strengths and weaknesses of IBC. Therefore, it is necessary to assess the production and business of the company in the terms of production capacity, market share, sales volume, finance and marketing mix activities. After having analyzed the internal and external factors, the marketing strategy alternatives can be developed. To select the best solution, IBC needs to evaluate the alternatives with respect to the possibility to achieve the marketing objectives. Because of time constraint, this research cannot cover the implementing and managing the marketing strategies. Thus, IBC should focus on evaluating and improving organizational effectiveness and marketing strategy implementation and control. Once the marketing strategies are implemented, their outcomes are constantly revealed by the company performance which should be monitored. So feedback is necessary to adjust a part or the whole strategic Designing External Analysis Internal Analysis management process.

Marketing Strategy

Overview of Product Marketcapacity, Targeting Positioning Strategy Vietnamese economy market share, sales Marketing Mix Production volume & Developing Marketing activities Companys Product consumption of soft Opinion of consumers, Marketing Price drinks in last yearsFigure 3.1 Framework distributors toward of the research 18Distribution Objectives Major competitors attributes of IBCs Opportunities Marketing Strategy Strengths Promotion & products Substitutes Gap Analysis & Threats Alternatives Weaknesses FEEDBACK

Existing Marketing study Strategy of IBC

3.2. Information Needed

To examine this research, information needed consists of the following issues: The production of carbonates in last five years, consumption pattern, consumer and brand preference, flavor share of soft drink consumption, package types used, and forecast consumption of carbonates in period 1996-2000 in Vietnam are also collected. Competition in the soft drinks market, which is focused on getting information about main competitors: Coke and Tribeco, in terms of strengths and weaknesses involved marketing activities such as product, price, distribution and promotion. Information about the current situation of IBC that needs to be obtained including the company profile, marketing objectives, production capacity, market share, marketing activities. General information about Vietnamese economic climate, HCMC economic development, and government policies on the soft drink industry are also collected.

3.3. Data Sources

Data and information needed for conducting the research were basically obtained from the following main sources: The descriptive data requirements were extracted from the publication of the government offices such as the Vietnam General Statistic Bureau, HCMC Statistic Bureau and the Ministry of Light Industry. Data and information from books and journals, newspapers, articles related to the research were collected in AIT library and the Vietnamese national library. Data and information were also obtained from IBC annual reports, from in-depth interviews conducted with IBC general director, and functional managers and IBCs distributors (wholesalers and retail outlets). Data and information related to competitors were collected from personal interviews with sales and marketing managers of Saigon Soft Drink Company, Ltd (Tribeco) and Coca Cola Chuong Duong Soft Drink Company, Ltd. In addition, data has to be collected from soft drink consumers based on conducting the survey on attitudes of consumers toward soft drink brands.

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3.4. Data Collection Methodology

Data and information needed for conducting the research were obtained by quantitative research and quantitative research. The qualitative research used here by indepth interviews. The quantitative research with the structure questions were used to conduct the survey on attitude of the consumers toward soft drinks. These questions focused on products, prices, distribution and promotion of soft drink brands. In-depth interview conducted with Mr. Trai, the General Director of IBC, Mr. Vinh, the Marketing Manager, Mr. Gabby and Mr. Tien, the Sales Managers of IBC. To obtain information from soft drink distributors, in-depth interview conducted with 18 wholesalers and 18 retail outlets of IBC. These wholesalers and retail outlets were randomly chosen from name list provided by IBCs Sales Department. Name list of IBC has 452 wholesalers in which it is divided into 2 sub-list: 125 wholesalers with big sales volume and 327 wholesalers with medium sales. Each sub-list, 9 wholesalers were randomly chosen. To choose 9 respondents out of the wholesalers population of 115, the following steps were proceeded: Take N/n where N: 125 wholesalers with big sales, n: 9. So N/n is 14. Generate a random number between 1 and 14. Suppose the first respondent came out to be 12. Then the 12th respondent on the list is in the sample, and every 14th respondent after that, including 26, 40, and so on.

The same way were used to choose 9 respondents out of the wholesalers population of 327, and 18 respondents out of the retail outlets of 4238. Moreover, because most of soft drink wholesalers and retail outlets in HCMC sell multi soft drinks brands. So conducting personal interviews with IBCs wholesalers and outlets, it means that conducted the interview with Cokes wholesalers and outlets and Tribecos wholesalers and retail outlets. In-depth interview also conducted with Mr. Rich, the Marketing Manager of Coca Cola Indochina Company in HCMC, Mr. Chinh, the Sales Manager of Coca Cola Chuong Duong, Mr. Chuong, the Director of Tribeco and Mr. Bong, the Sales and Marketing Manager of Tribeco. Personal interview conducted with soft drink drinkers who were randomly selected in districts of HCMC. All respondents were soft drink drinker at age range from 10 to 50 years old. They were asked to fill in questionnaire according to their opinion. A geographical cluster sampling was employed for the drawing the sample. Sampling procedure Sampling size of 100 respondents was drawn from total population of HCMC by visiting big-size coffee shops and restaurants which have logo of Pepsi or Coke or Tribeco in the front of the shops. To choose randomly 100 respondents, the following steps were preceded to draw sample: The map of HCMC was divided into 672 blocks, numbered each block, and 50 blocks were randomly chosen. Suppose the first selected block is 26, then the second block is

20

39 (26+672/50 = 39), and so on. If the selected block is located at areas such as rivers, airport, farm land, it is replaced by the next upward block and so on. To conduct personal interview, the author went the south-west corner of each block, walked north and interviewed the respondents in the fist coffee shop or restaurant of the selected block. For each coffee shop or restaurant in the selected block, two respondents who sit at first table from entrant were interviewed.

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Chapter 4

External Analysis
This chapter discusses general the Vietnamese economy, economic condition of HCMC, production and consumption of soft drinks and competition on the Vietnamese soft drinks market.

4.1. An Overview of the Vietnamese Economy

Ten years of the implementation of the open door policy (Doi Moi) has resulted in considerable changes of the Vietnamese economy, the basic elements of a market economy and liberalization of the production forces. These factors, together with the peoples creativity and initiative, have helped the country to overcome some difficulties and challenges as well as create the momentum for future development. As a result, the Vietnamese economy has gained remarkable growth during the period of 1990-1995. Gross Domestic Product (GDP) growth rate in 1995 reached 9.5 percent, the highest rise among recent years. The GDP of five year plan 1991-1995 averaged 8.2 percent per year (Figure 4.1). This is a significant fact that contributed to the improvement of the livelihood of the Vietnamese people and economic development. The Vietnamese government is trying to slowdown the sky-rocketing inflation rate in period of 1990- 1992. The inflation rate was harnessed at 12.3 percent in 1995 (Figure 4.2). This figure had a positive impact on encouraging foreign and domestic investment, as well as consumer price. With the rapid growth rate of the economy and a population of approximate 74 million people, Vietnam actually is an attractive and potential market for consumer products, especially in food and drinks. Economic growth at relatively high rates enables to push up disposable income per capita. Increase in income should lead to increase in purchasing power. Thus, these factors bring the opportunities to boost the soft drink industry. In fact, soft drink manufactures have been expanding their production and business and reaping more profit. According to an official source from the State Planning Committee, economic growth rate in 1996 would be targeted at 9.5-10 percent. In 1996, Vietnam continues to enter into the phase of industrialization and modernization. Together with economic factors, political and legal factors also have a strong impact on the level of opportunities and threats in the business environment. Vietnam has expanded and consolidated its diplomatic relations with many countries in the word. It was remarked by two big events in 1995. The United States normalized diplomatic relation with Vietnam. Vietnam officially became a member of Association of Southeast Asian Nations (ASEAN). These events has positive impacts on Vietnam economic development, especially in encouraging foreign investment and foreign trade.

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20 18 16 8.8 8.6 8.1

9.5

10 9

14 12 10 8 6 4 2 0 1990 1991 1992 1993 1994 1995 6.0

7 6 5 4 3 2 1 0

Year

GDP(Billions USD) GDP rate(%)

Figure 4.1 GDP and GDP growth rate in Vietnam during 1990-1995 Source: General Statistics Bureau

70 60

67

Inflation rate (%)

50 40 30 20 10

17.5 5.2

14.4 12.3
1994 1995

14(est)

0 1991

1992

1993

1996

Year

Figure 4.2 Inflation rate in Vietnam during 1991-1995 Source: General Statistics Bureau

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GDP growth rate (%)

GDP (USD billion)

Besides, to support the economic liberalization process, the government has enacted a series of economic laws such as the Law on Foreign Investment, the Cooperative Law, the Business Law, etc. In 1996, Bidding Statute will be submitted to the Nation Assembly for approval. Other economic policies aimed to encourage private sectors have been passed. All of them have formed a favorable environment for economic development. Like other light industries, the soft drink industry is always encouraged to invest production locally. The government has imposed on import tax on soft drink and beer at high rate of 80 percent to protect domestic production This is an advantage for the local soft drink producers and joint ventures in general, and IBC in particular in expanding their production and distribution. In general, apart from these achievements, however, there are still many difficulties and challenges that Vietnam has to face in coming years. Economic efficiency is still low, and the financial and monetary systems are weak. Vietnam faces strong competition in context of global economic development, while its level of economic and technological development is still low because of limited financial capability, poor socio-economic infrastructure, poor legal system and inadequate skilled labor. Particularly, transportation system is serious degraded. It cannot meet future demands. This will influence the region pattern of soft drink distribution and increase costs. There is also a significantly gap in economic development between regions.

4.2. Some Economic Achievements of HCMC

Since the research study focuses on the development of marketing strategies for IBC in HCMC, it is relevant to highlight some aspect of the economic factors here. HCMC is the biggest and the most exciting market in Vietnam. In 1995, HCMC economy gained the significant economic achievements, especially with the GDP over VND 38,000 billion (equivalent to USD 3.5 billion). The GDP growth rate was 15.3 percent higher than in 1994. The GDP per capita in the city was USD 912, up from USD 830 per capita in 1994 and much higher than the current national figure of USD 220. In the period 1991-1995, GDP per capita increased by an average of 12.6 percent. Overall the citys economy showed robust growth in all areas. The population of HCMC in 1995 is about 7 million, with 84.7 percent has stable jobs. The living standard raised by 10 percent over 1994. According to HCMC Statistics Bureau, the living stands of HCMC residents has significantly improved in period 1991-1995, the numbers of destitute and poor households are decreases, while the number of stable households are rapidly increased (Table 4.1). This proves that the purchasing power of HCMC inhabitants will increase in coming years. According to HCMC Statistic Bureau, the spending on food and drinks of HCMC residents has slightly decreased against other needs (Table 4.2). However, the spending for eating and drinking outside the family increased, from 25 percent in 1992 to 37 percent in 1994 and estimated 46 percent in 1995. This is an advantage for consumer goods market, especially in food and drinks.

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Table 4.1 The improvement in living standards of HCMC residents 1991 Destitute Poor Average Stable Well-off Total 10.00 36.00 38.00 13.00 3.00 100.00 1992 7.00 25.00 36.00 27.00 5.00 100.00 1993 4.40 19.50 34.00 33.90 8.20 100.00 1994 2.80 12.50 32.10 44.40 8.20 100.00

Source: HCMC Statistics Bureau

Table 4.2 Spending trend of HCMC residents Items Food and Drinks Clothing Travel Education Health care Recreation Others Total 1992 69.90 6.40 4.60 1.81 6.27 2.11 8.91 100.00 1993 68.90 6.81 6.80 2.07 7.50 2.70 5.22 100.00 1994 67.37 6.24 7.20 3.62 8.40 3.20 3.97 100.00

Source: HCMC Statistics Bureau

4.3. Vietnamese Soft Drinks Market 4.3.1. Production

Vietnamese soft drink industry has begun to develop since 1990. The most important factors encouraging the growth of demand for soft drinks are liberalization of the economy, improved living standard, changes in distribution pattern, improved quality of products, and an increase in advertising expenditures on television and on billboards for creating product awareness. There are many local brands such as Tribeco, SP.Co, Rung Huong, Chuong Duong, Hoa Binh, Festi, Youki, Thien Nga, etc., in the market. In that time, Tribeco has continuously obtained the highest market share in the Vietnamese soft drinks market. Besides, the foreign brands such as Coca Cola, Pepsi and 7-Up are available in Vietnam which imported from companies based in Singapore, Malaysia and Thailand or smuggled through the border of Cambodia and China. In more recent years, especially from 1992 up to now, the growth rate of the soft drinks production and consumption has developed faster than before in both quantity and
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quality. There are now 25 soft drink producers in Vietnam. Most of the large producers are located in HCMC, Ha Noi and Da Nang. Besides some local brands, well-known brands such as Pepsi, Coca Cola, 7-Up, Sprite are available in big cities as well as in remote towns in the whole country. The production volume of soft drinks quickly increased from 110 million litters in 1991 to 250 million litters in 1995. However, it is difficult to measure exactly the actual production volume of soft drinks due to the following reasons: The State is unable to control the actual production and sale volume of soft drink producers and distributors. Because local officials and corporate executives sometime twist data to meet bureaucratic objectives. In addition the wholesalers and retailers distort data in order to avoid paying full tax. It has not been possible to calculate carbonated drinks imported officially under quotas. Even Ministry of Commerce elicited the response that there were no recorded imports of soft drinks. It is also difficult to calculate soft drinks unrecorded imported due to unreliable sources of data on soft drinks smuggled.

According to General Statistic Bureau and combined with some forecast from the International Marketing and Economic Services (IMES), the consumption in more recent years is shown in Table 4.3. At present, soft drinks consumption per capita is about 3.3 litters per year. It is lower than of other countries in the region such as consumption of soft drinks per capita of Thailand at 17.4 litters per year, 28.2 litters in Philippines and 60 litters in Singapore. Table 4.3 Soft drinks production in Vietnam in period 1991-1995 Year 1991 1992 1993 1994 1995 Production volume (million liters) 110 125 177 200 250 Population (million) 67.7 69.2 70.8 72.6 74.5 Consumption per capita (litters) 1.62 1.81 2.50 2.75 3.35

Source: General Statistical Bureau

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4.3.2. Flavor Split

A few year ago, Vietnamese producers frequently specialized in particular flavors (some even made to demand) and there is little evidence of pronounced flavor consciousness. To this date, soft drink producers face a fight to maintain or increase their market share throughout concentrating on brand share, flavor share and packaging types. The Vietnamese soft drink consumption is influenced by the soft drink industry throughout the world. The consumption of cola flavor is more popular than other flavor. In 1995, the cola flavor has been consumed at a level of 42 percent. The second was lemonade at 20 percent, followed by orange at 15 percent. The flavors of soft drinks in Vietnam are shown in Figure 4.3

4.3.3. Packaging Types

According to statistical data, the structure and design of the beverage packaging in Vietnam consist of many kinds of containers that are more attractive, comfortable, and diversified. The returnable glass bottles are popular in Vietnam. The plastic bottles accounted for 86 percent, followed by cans at 13 percent and PET bottles at 1 percent of the total beverage packaging (Figure 4.4). The plastic bottles and cans are assumed to increase dramatically in the next years. The returnable glass bottles currently dominates the local production. There is to be adequate capacity to meet the current requirements, and tendency to increase because of the rapid growth rate of soft drink production. Local Vietnamese producers of glass bottles are Hai Phong Glassware Factory (supplying mainly the northern market) and Khan Hoi Glassware Factory (supplying mainly the south, but also ship product to north Vietnam). Before 1994, all the empty cans were imported from other countries. In mid-1994, a joint venture was established between the Saigon Brewery and the Singapore Asian Metal Box Ltd to produce aluminum cans with an annual capacity of 460 million cans in Thu Duc district, HCMC. In addition, the canned production enterprise, Crown-Vinalimex Packaging Company, a joint venture between Packing Company of Ha Noi, Vinalimex with Us-based Crown Cork & Seal Co and Swire Pacific Co Ltd in Hong Kong will produce hundreds of millions of cans and bottles for the domestic market in 1996. Thus, the local supplying source will replace imported cans.

4.3.4. Forecast Production and Consumption of Soft Drinks to 2000

According to forecast of the population growth rate, the rapid growth rate of economy and the increase in carbonates consumption the last few years, the soft drink consumption will continue to increase dramatically, due to: The introduction of new capacity and better equipment by existing bottlers and new entry. The commissioning of major new capacity by joint ventures with international companies, either currently being implemented, or in the planning stages. Stepping up of promotion and advertising by all producers.

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CREAM SODA 5% SODA 10%

SARSI 5%

OTHERS 3%

COLA 42%

ORANGE 15% LEMONADE 20%

Figure 4.3 Consumption of soft drinks in Vietnam-divided by flavors Source: General Statistics Bureau

o7PET

h h

Figure 4.4: Structure of Soft Drinks Packaging in Vietnam Source: General Statistics Bureau

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Improvements in both quality of products and packaging standards, as well as presence of new brands and containers. A improvement in living standards and disposable incomes with accelerated economic growth. The anticipated sharp increase in leisure tourism and business arrivals. The positive impacts of increase in soft drink consumption of the countries in the region

Official predictions provided by General Statistical Bureau combining estimates of producers, the consumption of soft drink in the period of 1996-2000 will increase at annual growth rate of 15 percent. This gives a very optimistic prospect for producers and leaving room for expansion.

4.4. Consumption Pattern and Consumer Preference 4.4.1. Consumption Pattern

Regional consumption There is a gap in consumption of soft drinks between rural and urban areas in Vietnam. Most of soft drinks are consumed in urban areas. Only 20 percent are sold in rural regions where 80 percent of the population is living. Consequently, the rural markets are huge potential for soft drinks in the forthcoming years once the living standard in those regions will be upgraded significantly. The consumption will undoubtedly become more diffuse as the market develops, but it is significant that the official government estimate suggests that more than 50 percent of the production of carbonates is accounted for by HCMC. It is probable that HCMC accounts for between 30 and 40 percent of total consumption, while the South general may count for as much as 59 percent of the total national market. The markets in the north of Vietnam and in the Central provinces are said to have only developed significantly from 1993 up to now. In addition, the consumers in the different region usually have various perceptions of different brands and disparity in income, thus, there is the difference in brand preference between region. According to the Survey Research Group (SRG) in Vietnam, research is shown that the Northern people prefer Coke rather than Pepsi and HCMC people prefer both Pepsi and Coke. In the South, especially in Mekong Delta provinces, people like to drink Tribeco, whereas the in Central provinces such as Da Nang, Quang Ngai, Binh Dinh people seem to prefer Festi. Seasonal patterns There are distinct climatic differences between North and South Vietnam, and this also has direct bearing on regional market patterns. The North is typified by four seasons and consumption plummets in the winter months peaking strongly in summer. There are less dramatic variations in the South, where it is relatively warm most of the year, although consumption here a tendency to fall off in the rainy season, from mid-May to September. Generally, however, there is much less seasonal variations in the South than in the North, this certainly helps to maintain the overall preponderance of the South in the Vietnam soft drinks market.
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Besides, soft drinks are recorded to be consumed increasingly at home. According to the survey of SGR in Vietnam, soft drinks consumed at home accounted for more than 40 percent, followed by coffee shops 26 percent, The rest were consumed at restaurants, hotels, canteens, schools, transportation centers and street stalls. This proved that there is the fast growth of the take-home market. Moreover, the soft drink consumption is also strongly affected by age. Most of the soft drink consumers are young, at range from 10 to 35 years old. This creates opportunities for the producers to increase production capacity and business because Vietnams population is very young. In the south, 57 percent of population is lees than 25 years old while in the north, the percentage is 53 percent.

4.4.2. Consumer Preference

By looking at the buying decisions of the consumers, there are notable changes in the consumer preference. Foreign soft drinks brands are preferred than local ones because of high quality at the reasonable price. According to survey of SGR, the findings disclosed that there are the tendency of increase in foreign soft drinks consumption and decrease in local brands consumption.

4.5. Competition on the Vietnamese Soft Drinks Market

The Vietnamese soft drinks market has become fiercely competitive since the entering of Pepsi, Coke. There is really the sign of cola war in Vietnamese soft drinks market. By looking at advertising, promotion, merchandising activities of producers and distributors, we see the noisy war of the beverage industry taking place at every street corner in Vietnam. Especially from the announcement lifting the US embargo, IBC launched bottles and cans of Pepsi cola made in Vietnam on the streets. Then, April 1994, Coke launched a marketing blitz to recapture the market where it once reigned as a king. With billboards and advertisements announced that Coke is glad to come back to Vietnam and Coke was looking forward to supporting major cultural and sports events and community activities in Vietnam in order to create the awareness of its products in the market. When asked about competition in soft drink industry, Mr. Trai, the General Director of IBC-Pepsi said the competition between local and foreign manufactures is very intensifying and interesting. The Vietnamese market, with 72 million people, is an untapped market for beverage producers. Currently, average consumption of soft drink of each person is low. Because the Vietnamese people does not yet have the habit of drinking a lot of soft drink. So IBC needs to persuades consumers to increase their consuming habit. The problem confronting beverage producers is not survival in which they have to select the appropriate competitive strategies to develop their business. IBC is eager to participate in this interesting competitive environment Mentioning the competition on the Vietnamese soft drinks market, Mr. Nguyen Van Thach, the Chairman of the Directors Board of Coca Cola Ngoc Hoi Company Ltd said The competition between Coca Cola and Pepsi is unavoidable, yet sound competition is an element that encourages development. With its quality, price and experience level, we believe that Coca Cola will take its position in the Vietnamese market(Minh Duc, 1995).

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Obviously, both Coke and Pepsi launched fierce marketing campaigns in Vietnam in an effort to win consumers allegiance to their brands. Overall, Vietnamese soft drinks market is to be harder competition for rival participating in this arena. And the fighting for a share of the domestic market between soft drink producers becomes harder and harder as most of large player are very ambitious to expand their market share.

4.6. Analysis of the Main Competitors of IBC in HCMC

The analysis of the main competitors of IBC in HCMC focuses on the existing producers who are selling soft drinks in the market and also holding a significant market share, or having the tendency of increasing the market share in the next few years. In addition they should hold a significant brand awareness. At present, the main competitor of IBC is Coca Cola Indochina Pte Ltd which has two joint venture companies: Coca Cola Ngoc Hoi soft drink Co, Ltd, in the north of Vietnam, and Chuong Duong Soft Drink Company, Ltd in HCMC. And one local soft drink company, the Saigon Soft Drink Company Ltd, also called Tribeco, is considered as a competitor of IBC regarding the cola flavor.

4.6.1. Coca Cola Indochina Pte Ltd

4.6.1. 1. Profile of Coca Cola Ngoc Hoi Soft Drink Company Ltd After lifting the US embargo, Coca Cola Indochina Pte Ltd (CCI), a joint venture between Coca Cola F & N of Singapore and Thai Pure Drink of Thailand, entered the Vietnamese market. In April, 1994 Coca Cola Ngoc Hoi Soft Drink Co Ltd (Coca NH) the joint venture between CCI with the Vietnam National Foodstuff Import-Export Corporation (Vinalimex) under Ministry of Light Industry, was granted a license to produce Coca Cola, Sprite and Fanta in Ha Tay province, 16 kilometers the south of Ha Noi, with a total investment capital of USD 20.4 million. After 14 months of construction, Cola NH plant has started its production. The production capacity is planned to be 25 million liters in first year, can increase to 50 million liters in the second year and then will stabilize at 70 million liters per year. All soft drinks produced in the factory are intended for the domestic market. Up to now, two production lines are in operation with the capacity of 700 cans per minute. 4.6.1.2. Profile of Coca Cola Chuong Duong Soft drink Company Ltd When the Ngoc Hoi plant was in operation, CCI continued to expand its market in the South and the Central. In August 1995, the State Committee for Cooperation and Investment (SCCI) approved the formation Coca Cola Chuong Duong Soft drink Company (Coca CD), a USD 48.75 million joint venture Coca Cola Indochina Pte LTD and Chuong Duong Company. Coca Cola Indochina Pte Ltds stake in the joint venture is 60 percent, to be contributed in cash and other assets, Chuong Duong Soft Drink Company has a 40 percent stake, to be contributed by the land-use rights to a six-hectare lot for a 30-year period. In September, the SCCI approved CCIs purchase of Pacific Beverages assets, for the purpose of using them in the joint venture. CCI paid USD 15 million for the Pacific Beverage Company (PBC) plant. The joint ventures production facility is located in the Tan Phu hamlet of Thu Duc District, HCMC, at a plant formerly owned by PBC. Thus, Cola CD is a merge of Chuong Duong Company with Saigon Cola Company. This is an advantage for Cola CD at the first time because everything necessary for production and marketing is

31

already prepared. Coca CD plans to produce 136 million liters per year including Coca Cola and Sprite in returnable glass bottles and cans. 4.6.1.3. Production Capacity and Market Share of CCI in Vietnam Production capacity Up to now, two joint ventures of CCI are producing canned and bottled soft drinks including Coca Cola, Sprite and have plans for bottling Fanta mid 1996. Its current production capacity is 76 million liters per year .Table 4.4 shows the production capacity of Coca CD and Coca NH in detail. To capture the market share in canned soft drinks in HCMC, Coca CD has the plan for assembling one canned production line at Cola CD plant. Table 4.4 The current production capacity of CCI Production capacity (million liters) Ha Noi: Coca Cola Ngoc Hoi Company Bottle line Can line HCMC: Coca Cola Chuong Duong Co Bottle line of Chuong Duong Co Bottle line of Saigon Cola Total production capacity 25 20 11 20 76

Source: Report of Coca Cola Indochina Pte Ltd Market share Last year, CCIs sales volume was 28 million liters, and its market share in the whole country was 12 percent. In HCMC, its sales volume was 16,5 million liters, and CCI gained market share of 17 percent in total HCMC soft drinks market. CCIs production plan in 1996 will be 75 million liters and project to obtain the market share at 25 percent in the total Vietnamese market (CCIs report). To implement this plan, CCI has prepared to produce Sprite and Fanta at the Coca Chuong Duong plant and the Saigon Cola plant in 1996. With strongly financial resources, CCI will continue to expand its production capacity in Central provinces through establishing a joint venture with Da Nang March 29 Garment Company and waiting for approval of SCCI. 4.6.1.4. Marketing Activities of Coca CD Product CCIs product line consists of Coca Cola, Sprite and Fanta, but at present, Fanta has been not yet produced anything in Vietnam. The product line of Coca CD consists of Coca Cola and Sprite. Before 1975, Coke has created its awareness in the Vietnamese consumers mind and Coca Cola was considered as number one in soft drinks market at that
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time. Nowadays, to capture its position in Vietnam market, CCI has applied the same formula as in other countries: availability, affordability and acceptability. At present, CCIs products consists of two packaging types: can of 330 ml and returnable glass bottles including volume of 296 ml and 200 ml. At the first time, Coca Cola was bottled in bottle 296 ml, but because the volume of this bottle is not suitable to Vietnamese drinking size. Then, CCI has continued to launch the bottle 200 ml. Price By focusing mainly on high and upper middle income class, the prices of Coca CD products were set higher than the prices of local brands. Table 4.5 shows the prices list of Cola CD products. The difference between wholesale price and pick-up factory price is profit margin for its wholesalers.

Table 4.5 Price List of Coca CD products Items Coca Cola- Bottle 200 ml Coca Cola- Bottle 296 ml Coca Cola- Can 330 ml Sprite-Bottle 200 ml Sprite-Can 330 ml Wholesale price (VND) 1,250 1,650 4,200 1,250 4,200 Pick-up factory price (VND) 1,200 1,550 4,000 1,200 4,000

Source: Coca CDs report

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Distribution To increase the sales volume and obtain a higher market share, Coca CD has established its distribution networks in HCMC and South provinces. At present, Cola CD uses wholesalers and retail outlets of Saigon Cola and Chuong Duong company to distribute its products. Its distribution channels consist of direct and indirect channels. Majority of its products were distributed through indirect channel: the Coca CD plant to wholesalers to retail outlets and finally to end users. In addition, its direct channel is used to distribute products from its plant to retail outlets. The Coca CD has been concentrating on opening up both direct and indirect channels through developing retail outlets and wholesalers. The Coca CD distributes its products through 136 wholesalers and 460 retail outlets in HCMC. The Coca CD has applied the incentive policies in delivery, payment, discount and other incentives for its wholesalers and retail outlets to stimulate them to purchase at big volume. the quantity discount from 1 percent to 4 percent of the purchased value is often given to its wholesalers and retail outlets who meet the sales quota pre-set. Advertising At the beginning of the production, Cola CD has been launching the aggressive advertising campaign with its slogan Coca Cola, The Real Thing to recall awareness of its brands. According to a survey of the author, there were over a half of respondents who know the slogan of Coke. The Coca CD has often used media such as television and newspapers and supported the point of purchase materials for advertising name and logo of its products. Coca CD also sponsors the sport activities, especially football to create the awareness of its products. In general, Cola CD has large investment capital and strongly financial resource. It has used modern equipment and advanced technology in soft drink production. Its production capacity is high. The company has experiences in the marketing activities due to CCI has in-depth experience and expertise in marketing such as advertising, distribution and sales promotion. Coca Cola is much preferred by majority of consumers whereas Sprite is less preferred. Coca CD has created the awareness of Coca Cola in the Vietnamese market and good reputation brand. At present, the Coca CD has constantly focused on expanding its production, distribution channels and emphasizing on advertising in order to convince consumers to buy its products in order to increase its market share.

4.6.2. Tribeco-Saigon Soft Drink Company Ltd

The Saigon Soft Drink company under the name Tribeco, is a state owned company under the control of People Committee of District 3, HCMC. Tribeco plant which is located in Hoc Mon District, near HCMC, with one canned production line and one bottled production line has production capacity 40 million liters of canned and bottled soft drink a year. Products of Tribeco were bottled in 200 ml returnable bottles and canned in 330 ml cans. Its brand is available in 10 flavors in which cola (70 percent), orange (10 percent) and Strawberry (10 percent) account for the bulk of sales. Before Pepsi and Coke were produced in the Vietnamese market, Tribeco cola was preferred by most of the Vietnamese consumers, especially in HCMC. Tribeco has planned to hold onto its market share through flexibility and an innovative marketing strategy. Tribeco

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obtained 50 percent of HCMC soft drinks market, and 20 percent of total national market at period of 1992-1993. Its target market consists of low and middle income. During the past years, Tribeco has secured a good reputation with its target consumer. Last year, the sales volume of Tribeco was 39 million liters, and Tribeco gained market share of 17 percent in Vietnamese soft drinks market and 23 percent of HCMC market. These figures proved that its market share has decreased. However, its sales volume in 1995 was higher than in 1994 because of increase in demand for soft drinks in low income consumers. Thus, the Vietnamese soft drinks market is still open for local companies like Tribeco, who have good marketing, understanding of the local consumer taste and a wide distribution networks. By targeting low and middle income consumers, Tribeco offers its products at low price. Ex factory prices are equivalent to VND 800 per unit of 200 ml bottle, and VND 3,200 per unit of 330 ml can. Wholesale prices are VND 850 per unit of 200 ml bottle, and VND 3,400 per unit of 330 ml can. Tribeco distributes its products through 300 wholesalers in HCMC, 125 wholesalers in provinces, and 2300 retail outlets in HCMC. Regard to advertising and sales promotion, it can be said that Tribeco lacks attention to this activities. Last year, Tribeco made an exclusive bottling agreement with Pepsi to produce Mirinda orange and Mountain Dew soda in order to diversify its products and maintain existing market share.

4.7. Substitutes
It is very important to analyze substitutes impacted the development of Vietnamese soft drinks market. Substitutes consist of mineral water, fruit juices, milk, tea and coffee. Mineral water: in resent years, demand for mineral water has slightly increased. There are some brands such as La Vie, 333 mineral water, Vinh Hao, Aquapure, Mountoya which were produced by local producers and joint ventures. Currently consumption per capita is very low by compared with other countries in the region. The scope for expansion is clearly enormous. Because Vietnam is abundant in mineral and spring water sources, there is no doubt that the potential for development is very promising. However, most of the Vietnamese people less prefer to drink mineral water. Fruit juice: the fruit juice in Vietnam is underdeveloped. Due to almost Vietnamese consumers appear to favor either juice freshly squeezed from fruit, or carbonated beverages. Flavored milk: demand for milk consumption has increased but low level. For refreshment, most of Vietnamese people prefer carbonated soft drinks rather than milk. Moreover, the price of milk is high compared carbonates. Tea: tea is the national drink of Vietnam, the market is mature and relatively stable and is unlikely to growth dramatically. Most of people like to drink tea at age over 35 years old.

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Coffee: coffee is much less widely drunk in Vietnam than tea. Coffee is a relatively minority taste and consumption is concentrated mostly in the south. For refreshment, coffee is less preferred rather than soft drinks. From analysis of above substitutes, it can be said that threats of substitutes are low, therefore, soft drink industry is assumed to develop in the next years.

4.8. Summary of Opportunities and Threats for IBC

Throughout analyzing external environment, the opportunities and threats in business environment in which IBC operates are drawn out, as follows: The Vietnamese economic growth rate in the next year will be 9.5%-10% and rapid growth rate of HCMC economy and rising the living standard, thus purchasing power of consumers will increase in the forthcoming years. In addition, the government has applied the preferential policies on the soft drink industry. Thus, soft drink industry will further develop in the next years. According to General Statistic Bureau, annually average growth rate of the soft drink industry will be 15 percent in period of 1996-2000 There is the tendency of increasing in demand for foreign soft drinks brands consumption and decrease in consumption of local brands. This will create opportunities for IBC to expand its production. Moreover, the Vietnamese young generation proportion claims big share and increases years, thus Vietnam actually becomes potential market for developing soft drinks. The soft drink consumption will be always big in South and fast increase in North and Central provinces. Soft drinks are consumed increasingly at home. All these factors have positive impact in the development of soft drink industry. However, beside the opportunities, IBC are facing intensified competition with Coke in the Vietnamese soft drinks market.

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Chapter 5

Internal Analysis
This chapter analyzes IBCs production and business, marketing activities including products, price, distribution and promotion. In addition the attitude of soft drink consumers toward attributes of IBC products compared the competitive brands is also discussed.

5.1. Profile of International Beverage Company

International Beverage Company is the largest soft drink company in Vietnam. IBC was established in December 1991 based on the investment license numbered 291/GP of the State Commission for Cooperation and Investment (SCCI) with initially legal capital USD 2,600,000 in which Vietnamese partner, Saigon General Service & Producing Company (SP.Co) (itself the joint venture between Tribeco Soft Drink Company and Saigon Jewelry Company) contributed USD 1,300,000 and Macondray Co Inc of Hong Kong contributed USD 1,300,000. After that, both sides agreed to increase the legal capital to USD 5.1 million. The IBC plant is located in Tan Thoi Hiep village, HocMon district, HCMC. The physical plant represents the most advantaged soft drink factory in Vietnam, with four production lines capable of manufacturing 600 bottles and 300 cans per minute. The factory can produce 60 million liters of canned and bottled soft drink a year. The transfer of Schweppes production rights allows IBC to use Schweppes trademarks on IBC products, including Crush orange, Schweppes soda and Schweppes sarsi. The Cadbury Schweppes Group is considered as giant in soft drinks market in the world following Coke and Pepsi. In March 1993, IBC signed an exclusive bottling agreement for Pepsi and 7-Up in Vietnam once the US embargo was lifted and then SCCI approved for Pepsi Co, Holland as a third partner of IBC. The agreement called for IBC to bottle and can 250 million liters initially and increasing to 700 million liters at a later stage. Immediately lifting the US embargo in February 1994, IBC began to produce Pepsi and 7-Up. Up to now, the total capital of IBC is USD 25.5 million in which SP.Co hold 40 percent stake, Macondray Co Inc of Hong Kong hold 30 per cent and Pepsi Co hold 30 percent. In 1993, IBC produced and sold about 5 million liters. In 1994, demand for soft drinks increased quickly, one-day sales volume of IBC was equal to aggregated 8-10 day sales in 1993 and sales volume soared about 40 million liters. Through the past years, IBC has constantly expanded its production, distribution and business, and now IBC continues to further expand its production and distribution in South, Central provinces and Ha Noi.

5.2. Mission of IBC

The mission of IBC states that IBC wants to be the best soft drink company in Vietnam by recognizing consumer needs, trying to satisfy them and persuading consumers choose high quality products as well as offering good services. Its marketing, management,

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production and other strategies have to synchronized with the overall corporate strategy (IBCs document).

5.3. Marketing Objective of IBC

IBCs marketing objective is to protect its leading position in Vietnamese soft drinks market and HCMC markets. Its products, price, distribution and promotion strategies have to coordinate to increase sales volume. Pepsi and 7-Up with high quality at the reasonable price will be top of mind brands (IBCs document)

5.4. Production and Business Results 5.4.1. Production Capacity

Last year, IBC produced over targeted production volume. Its four production lines were run at manufacturing capacity of 32,000 cases of 24 bottles per day and 8,000 cases of 24 cans per day. Total current production capacity of IBC is 86 million liters per years and will double in next year (Table 5.1). Table 5.1 IBCs total current production capacity Production capacity (million liters) HCMC: IBC plant Bottle line No 1 Bottle line No 2 Bottle lime No 3 Can line Ha Noi: Co-pack in Stim and Lotabo Bottle line Total (Source: IBCs report) IBCs production plan in 1996 is 100 million liters. To achieve this target, the expansion of the production capacity is a realistic possibility. IBC has plans for upgrading the capacity of canned production lines from 300 to 500 cans per minute and assembling two new bottled production lines at IBC plant. Besides, IBC has also the plan for building processing networks in Ha Noi, Da Nang and Can Tho as well as opening up distribution networks in the whole country and upgrading its service styles. Its investment budget is USD 15 million in 1996. An increase in IBC plants production volume is to reap benefits from economics of scale as well as from learning effects to produce soft drinks at cost efficiency. 26 20 15 15 10 86

5.4.2. Market Share and Sales Volume

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In 1994, IBCs the production volume was 33 million liters, and its turnover was over VND 171 billion. Its market share in the whole country was more than 20 percent. In 1995, due to the fact that the demand for foreign brands continued to increase, IBC doubled its sales volume and gained a market share of 28 percent of the total Vietnamese soft drinks market (Figure 5.1) and 42 percent of HCMC market (Figure 5.2). Last year, IBCs sales volume was over 71 million liters in which its soft drinks were sold in HCMC accounted for 58 percent, in Ha Noi 18 percent, the South provinces 14 percent and Central provinces 10 percent (Figure 5.3). Obviously, its key target market is HCMC market. By looking at the monthly sales volume of IBC, we can see that its sales was slightly influenced by seasonal consumption. Figure 5.4 shows the increase and decrease in sales volume between the different seasons in the year. In July and August are in rainy season, thus, sales volume felt down.

5.4.3. Financial Results

Strong financial resource is considered as one of the key success factors for rivals in the soft drinks arena, provided by the success of IBC in 1994. Thanks to healthy financial position of stockholders and profitability reaping from production and business, IBC invested for expanding its operation in 1995 and will continue to further invest in the next years. In 1995, IBC reaped high net profit and was one of Vietnamese companies who succeeded in their business. Some financial results is shown in Table 5.2 Table 5.2 Profit and Loss Statement of IBC in 1995 Items Net revenue Production cost Gross profit Operating expenses Operating profit before tax Operating profit after tax VND 522,147,173,494 365,880,245,112 165,266,928,382 130,576,421,683 34,690,506,699 28,035,633,378 USD 47,467,924 32,443,658 15,024,266 11,870,584 3,153,682 2,548,694

(Source: IBCs report)

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Figure 5.1 Market Share of Soft Drink Manufacturers in Total Vietnam Market

IBC 28% OTHER LOCAL BRANDS 43%

TRIBECO 17% COKE 12%

(Source: General Statistics Bureau)

OTHER BRANDS 18%

IBC 42%

COKE 17%

TRIBECO 23%

Figure 5.2 Market Share of Soft Drink Manufacturers in HCMC Market (Source: HCMC Statistics Bureau)

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HANOI 18%

SOUTH PROVINCES 14% CENTRAL PROVINCES 10%

HCMC 58%

Figure 5.3 IBCs sales volume, divided by geography. Source: IBCs reports

10000 9000 8000

THOUSAND LITERS

9,482 8,732 6,129 5,452 6,943 6,122 5,566 6,432 4,641 4,370 6,538 7,549

7000 6000 5000 4000 3000 2000 1000 0 1

10

11

12

MONTH

Figure 5.4 IBCs monthly sales volume in 1995 Source: IBCs reports

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5.5. Analysis of IBCs Marketing Activities

The analysis of the marketing activities of IBC focuses on four Ps: product, price, distribution and promotion based on in-depth interviews the IBCs Marketing and Sales managers.

5.5.1. Product
5.5.1.1. Product Line IBCs product line consists of two soft drink brand groups of Pepsi Co Inc and Cadbury Schweppes Group (CSG). The former consists of Pepsi Cola and 7-Up which have been produced after lifting the US embargo. The later includes Schweppes soda, Schweppes sarsi and Crush orange which have been produced since April 1993. Pepsi Before 1975, the Vietnamese consumer was familiar to consume Coca Cola. At that time, Pepsi was not present in Vietnam. But only two years ago, Pepsi was recognized by most of consumer in big cities, especially in HCMC. According to Survey Research Group (SRG) in Vietnam, up to now, Pepsi has made some head starts in creating awareness compared to Coke. The consumers are more spontaneously aware of Pepsi than Coke, especially in Da Nang where Festi is the dominant brand. Pepsi is getting more popular there. Pepsi is consumed more than Coke in the last year both at home and outside. Both Pepsi and Coke have equal share for both last occasions and most often consumption. While consumption of local brands such as Tribeco, Festi, etc., has declined dramatically. Mentioning the brand awareness, SRG found out when asked for unaided brand awareness (i.e. a list of brands was not shown) in HCMC that Pepsi was mentioned as first brand, followed by Coke. When asked for aid brand awareness (i.e. a list of brand was shown), Pepsi and Coca Cola achieved almost the same level (nearly 100 percent of respondents in sample size). From this result, it can be said that IBC has created the awareness of Pepsi in the Vietnamese soft drinks market, especially in HCMC. 7-Up 7-Up was not produced in Vietnam before 1975. It was, however, available in the Southern markets earlier than Pepsi by imported products. 7-Up has been produced at IBC plant since February 1994. Up to now, it can be said that in the lemon lime flavor market, 7-Up is mostly preferred by most of the Vietnamese consumers. 7-Up has also a high awareness in the market by advertising itself as Uncola. According to the survey of SRG, of soft drink consumers, their preference of lemon lime flavor was rated 75 percent voted for 7-Up and 25 percent for Sprite. Schweppes

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IBC has produced Schweppes with flavors such as cola, lemonade, soda and sarsi since April 1993. Until January 1995, Schweppes cola and lemonade was not produced at the IBC plant. At the first time, when Schweppes was launched, it provided a range of high quality fruit flavored carbonated drinks and focused on target consumers at 18-45 years old with middle and high income. Its sales volume increased rapidly in 1993 and the first five months of 1994, then decreased gradually, especially from the presence of Pepsi, Coke, 7Up and Sprite. Facing the problem of the decline in sales volume, IBC has launched advertising campaigns to convince its target consumer to drink Schweppes. Crush Crush is a unique formula and blend of ingredients which include real orange juice. Crush was the first international brand available in Vietnam in 1993. Crush is positioned as a young, international orange brand. At present, Crush is much preferred by majority of soft drink consumers but Crush is facing the competition from Mirinda and Fanta in which Mirinda is produced at Tribeco plant under the exclusive bottling agreement of Pepsi and Fanta will be produced at Cola Ngoc Hoi Soft Drink Co Ltd and Cola Chuong Duong Soft Drink Co Ltd in mid 1996. 5.5.1.2. IBCs Product Line Sales To analyze the product strategy of IBC, it needs to assess the percentage of the total sales contributed by each item. In total sales volume, Pepsi accounted for 60 percent, followed 7-Up (29 percent), Schweppes soda (6 percent), Schweppes sarsi (2 percent) and Crush (3 percent). Obviously, Pepsi and 7-Up are very successful in achieving high brand recognition in the Vietnamese market, especially in HCMC. Schweppes soda is dominant in soda flavor market in Vietnam. While sales volume of Schweppes sarsi and Crush have rapidly declined. 5.5.1.3. Pack Types IBCs products are packed in three types: returnable glass bottles (RGB), cans, and PET bottles (polyethylene terephthalate). Pepsi and 7-Up are bottled in returnable glass bottles with volume of 207 ml. Bottles with volume of 285 ml consist of Schweppes and Crush. For soft drinks cans, Pepsi, 7-Up, Crush and Schweppes Soda are canned with volume of 330 ml. Besides, Pepsi, 7-Up, and Crush are bottled PET bottles with volume of 1.5 liters. In IBCs sales pattern, RGB accounted for 68 percent of total sales, followed cans (28 percent), PET bottles (4 percent). The PET bottles has consumed increasingly, especially in consumption at home. According to the survey of IBC, last year, bottle 207 ml is suitable to Vietnamese drinking size, while bottle 285 ml is a little big for drinking. This is a reason that Schweppes and Crush are the slow-selling items from IBC product line.

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5.5.2. Price
5.5.2.1. Pricing Objectives IBC pricing objectives should be set up to accomplish the companys objectives: profit goal, return on investment, market share, stabilization, and market penetration. At present, the first objective of the pricing activities is to increase the market share and maximum sales growth by providing the products with high quality and at reasonable price. So price is considered as the crucial device for penetrating and expanding market. 5.5.2.2. Pricing List To implement the pricing objectives, the IBCs Board of Directors decided to purse the pricing stabilization policy for its products during period 1993-1994. Its pricing policies have been considered as a primary device to encourage on soft drink consumption and persuade soft drink consumers to switch to its products. After April 1995, due to an increase in price of imported materials and import tax, IBCs pricing list was adjusted to ensure profit for each item (Table 5.3). By looking at IBC pricing list the wholesale prices of Pepsi bottles and cans are lower than Coke, the wholesale prices of 7-Up bottles and cans are lower than Sprite. So the prices of IBC products can meet the purchasing power of the middle and high income consumers. IBC gives its wholesalers at margin (difference between price paid: ex-factory and price sold: wholesale price) of 4.67 percent for bottled carbonates and 5.55 percent for canned carbonates. Obviously, IBC gives margin for wholesalers is higher than margin of Coke offering for its wholesalers (margin of 4 percent for Coca Cola and Sprite bottles and 4.76 percent for Coke and Sprite cans). In addition IBC has applied the quantity discounts at a range from 1 to 5 percent of purchased value for its wholesalers and retail outlets who meet the sales quota pre-set.

Table 5.3 Price list of IBC products Items Pepsi 7-Up Schweppes Soda Schweppes Sarsi Crush Orange wholesale price (VND) Bottle Can 1.050 3,600 1.050 3,600 1.050 3,600 1.050 3,600 1.050 3,600 (Source: IBCs report) Ex-factory price (VND) Bottle Can 1,000 3,400 1,000 3,400 1,000 3,400 1,000 3,400 1,000 3,400

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5.5.2.3. Pricing Structure The prices of IBCs products are set up basically relying on cost-based method and considering the prices of its competitors. IBC has not set a single price for all its products, it set a pricing structure that covers different products reflecting variations in product costs and other costs. The pricing structure of IBCs bottled and canned soft drinks is shown Table 5.4 and Table 5.5. By looking at the pricing structure, for bottled soft drinks, Schweppes soda has the highest net profit (106.56 VND per unit), following Schweppes sarsi (70.4 VND per unit). But sales volume of these products was very small, so their profit contributed to the total profit of product line was very small proportion. Pepsi and 7-Up bottles make the lower profit per unit (48.50 VND and 43.30 VND respectively per unit), these items hold the highest percentage in total profit over 87 percent (IBCs report). In canned soft drinks, Pepsi and 7Up constituted higher profit margin per unit (256 VND and 247.65 VND respectively per unit). Schweppes soda both bottles and cans, this item is on the leading position in Vietnamese soda flavor market and made the highest profit margin per unit, however, because limited consumption of soda, it accounted for 6 percent of total sales. Table 5.4 Pricing Structure of IBCs products-bottles Brands Selling price Discount Sales Tax Net Price Variable product Cost Manufacturing Cost Marginal Contribution General & Administration Selling & Delivery Advertising & Marketing Operating Expenses Profit Before Tax Tax Provision Profit After Tax Pepsi 1,050.0 0 50.00 63.00 937.00 447.00 152.90 337.10 54.10 141.80 80.57 276.47 60.63 12.13 48.50 7-Up 1,050.00 50.00 63.00 937.00 453.51 152.90 330.59 54.10 141.80 80.57 276.47 54.12 10.82 43.30 Schweppes Soda 1,050.00 50.00 63.00 937.00 392.4 122.60 422.36 109.68 129.84 49.64 289.16 133.20 26.64 106.56 Crush 1,050.0 0 50.00 63.00 937.00 531.60 102.60 302.8 105.80 129.84 49.64 285.28 17.52 3.50 14.02 Schweppe s Sarsi 1,050.00 50.00 63.00 937.00 441.12 122.60 373.28 105.80 129.84 49.64 285.28 88.00 17.60 70.4

(Source: IBCs report)

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Table 5.5 Pricing Structure of IBCs products-cans Brands Selling price Discount Sales Tax Net Price Variable product Cost Manufacturing Cost Marginal Contribution General & Administration Selling & Delivery Advertising & Marketing Operating Expenses Profit Before Tax Tax Provision Profit After Tax Pepsi 3,600.0 0 200.00 216.00 3,184.0 0 2,252.9 8 169.60 761.42 87.00 226.00 128.42 441.42 320.00 64 256 7-Up 3,600.00 200.00 216.00 3,184.00 2,263.34 169.60 751.06 87.00 226.00 128.42 441.42 309.64 61.99 247.65 Schweppe sSoda 3,600.00 200.00 216.00 3,184.00 1,699.44 288.56 11.96 282.12 489.44 132.16 903.72 292.28 58.46 233.82 Crush 3,600.00 200.00 216.00 3,184.00 1,879.48 288.56 1,015.96 282.12 529.68 132.16 943.96 72.00 14.4 57.6 Schweppe sSarsi 3,600.00 200.00 216.00 3,184.00 1,821.72 288.56 1073.72 282.12 529.68 132.16 943.96 129.76 25.95 103.81

(Source: IBCs report)

5.5.3. IBCs Distribution Channels System

5.5.3.1. Distribution Objective IBCs distribution objective is to coordinate all elements of the marketing-mix and implement its marketing objectives. To achieve this objective, IBC has improved the existing distribution networks to distribute its products to its target markets in the best effective way. 5.5.3.2. Distribution Channels Currently, IBC has been consolidating and upgrading the existing distribution networks in HCMC and developing channel systems in Ha Noi, Central provinces and Mekong Delta. IBCs products are sold throughout the main distribution channels as indicated in the Figure 5.5. Its distribution channels divide two types, as follows: Direct channel: Channel 1 and Channel 2 Indirect channel: Channel 3

In IBCs sale pattern, last year, the indirect channels contributed the remarkable sales volume at 78 percent, followed direct channels 19 percent and a small proportion of 3 percent in total sales was exported to Cambodia.

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Channel 1

RETAILER

I B C

Channel 2

POSTMIX

Channel 3
WHOLESALER RETAILER

C O N S U M E R S

Figure 5.5 Distribution channels of IBC

Among its distribution networks, the channels in HCMC accounted for 58 percent of the total sales. IBC has constantly developed and expanded its channels in HCMC including direct channels (retail outlets, postmix), indirect channels. Among the total sales in HCMC, indirect channels accounted for 67 percent, followed by direct routes 25 percent, Horeka 7 percent and postmix 1 percent. IBCs distribution channels in HCMC consist of the following channels. IBC to retail outlets to end users Based on the features of each local market and the capability of the company, IBC has selected the suitable distribution channels alternatives for each territory. Channel: IBC to retail outlets to end users also called direct channels which have established since 1993 in HCMC in order to help the company and the final consumer deal with each other. In fact, up to now, IBC has offered good services for consumers in this channel and developed 4,238 retail outlets. IBC made the agreements with the retail outlets to sell directly its products to them. These outlets are divided into 42 direct routes and one salesman is responsible for managing each route. IBC has the plan for further developing the sales force. This direct channel can be divided into two sub-channels: direct routes and Horeka. Direct routes The direct routes are responsible for distributing IBCs products to the end users through retail outlets such as side-street food stores, coffee shops and canteen at schools, universities, hospitals. IBCs products sold through the direct routes accounted for 25 percent of total sales in HCMC. IBC has constantly concentrated on expanding the direct routes to increase sales and collect information about its products against competitors from the end users. The direct routes are divide into two territories: inside and outside districts of HCMC.
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Horeka Horeka is a word combined by hotel, restaurant and karaoke clubs. Stemming from this name, this channel is used to distribute products to target consumers including hotels, restaurants, cafeteria, dancing clubs, entertainment places, karaoke clubs and supermarkets. Thus, IBC has used this channel to penetrate the market segments of high income and entertainment places To capture and develop this channel, IBC has used the incentive policies for outlets of Horeka. These policies consist of offering the quantity discounts at a range from 2 to 6 percent of purchased value for its Horeka who meet the sales quota pre-set. IBCs products sold through Horeka achieved at 7 percent of the total sales. It can be seen that the success of IBC in developing Horeka depended on activities of trade promotion. Postmix machines: IBC to postmix to end users Postmix machines is a system of selling soft drinks by machine. Soft drinks sold through Postmix machines are not popular in Vietnam. Most of the Vietnamese people like to drink soft drinks with their friends at coffee shops or street vendors, or with their family at home. However, to convince the consumers, mainly young people to be familiar to drink soft drinks from vending machines, IBC has installed Postmix machines as a direct channel to distribute its products. Up to now, IBC has 62 Postmix machines (vending machines) located at primary and high schools, universities, stadiums, swimming pool clubs, train stations and theaters. To manage the Postmix machines, IBC allows the retail outlets to rent Postmix machines with rental price at 85,000 VND (equal to 8 USD) per month for each Postmix machines and the company sells materials including carbonates and flavors at lower price. In addition, to promote sales throughout this channel, IBC has offered free charge for Postmix machines achieved 200 liters per month. In fact, however, most of outlets said that this figure is high and hard to achieve. Concerning conditions of installing Postmix machines are still the problem in which IBC is facing such as location, maintenance and security as well as problem of technique. In addition the power cut-off often occurs in Vietnam and water supplying source is not suitable to standard stipulated by Pepsi Co for producing soft drinks. Indirect channel: IBC to wholesaler to retailer to end users At the beginning of operation, IBC has constantly concentrated on building, consolidating and upgrading the indirect channels in HCMC and provinces. By looking at the value of products sold through the indirect channels at each years, it can be said that this channel is strategic one. Last year, the its products sold through wholesalers accounted for 67 percent of the total sale in HCMC. The use of wholesalers as intermediaries can help the company to facilitate the distribution process and offer more attractive services to the buyers. It can be either exclusive wholesaler of IBC meaning under the contract to sell IBC products solely or nonexclusive wholesaler is allowed to sell IBC products and other soft drinks brands simultaneously. However, it is difficult for IBC to control sales of its exclusive wholesalers, because most of wholesalers are multi-brands distributors.
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Up to now, IBC has developed 658 wholesalers in which 452 wholesalers are located in inside and outside districts of HCMC and 145 wholesalers in South and Central provinces, 61 wholesalers in Ha Noi. Although IBC requests all wholesalers to sell at price stipulated, most of wholesalers sell products at flexible price. They can sell IBC products at high price any whenever exceeds demand and dumping price to increase sales volume. To develop the wholesalers network, IBC has applied the following policies: 1. Discount (margin) IBC adapts the discount price which differs between nonexclusive and exclusive wholesalers as indicated in the Table 5.6

Table 5.6 Discount list of IBCs wholesaler Discount For Nonexclusive Wholesaler (VND) 50 200 600 Discount For Exclusive Wholesaler (VND) 60 215 620

Bottle 207 ml and 285 ml Can 330 ml PET bottle 1.5 liters

Source: IBCs report (Note: discount i.e. margin between wholesale price and ex-factory) 2. Delivery IBC delivers its products to all wholesalers in HCMC and is charge of transportation expenses. For wholesalers in provinces, IBC subsidies 50 percent of transportation expenses to encourage them to purchase at large quality.

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3. Payment Payment term applied for IBCs wholesalers is cash on delivery. However, to expand distribution networks at new markets, IBC will apply the flexible payment term such as credit or 50 percent cash payment and 50 percent credit term from 1 to 3 months.

5.5.4. Promotion Activities

5.5.4.1. Objectives of Promotion Last years, IBC has constantly launched advertising campaigns to inform, persuade the target consumers to buy its products. IBCs promotion actives has mainly focused on advertising, sales promotion and public relation. The objectives of IBCs promotion, as follows: Create the image about Pepsi as soft drink for young people and maximize awareness of IBC products. Remind the target consumers about the presence of its products. Persuade the soft drinks consumers to switch to IBC products.

5.5.4.2. Advertising To convince the soft drink consumers to switch to IBC products, the company has launched a dynamic advertising campaign with slogan Pepsi, The Choice of New Generation and 7-Up, From Transparent To Wonderful and Crush is your Life and Color on the commercial programs on television. Obviously, its target consumer is all soft drink consumers, mainly young people. So the producer, distributors try on diffuse attributes of Pepsi to its target consumers by words such as freedom is yourself, freshness and intelligence, attraction and reality and modern and following the trend. It can be said that IBC is very interested in advertising activities. In 1995, its advertising budget accounted for over 65 percent of total promotional budget and accounted for 8.6 percent of total sales (IBCs report). The company has used the media such as television, radio, newspapers, magazines, billboards and public transportation for advertising Pepsi and 7-Up, Crush and Schweppes. Television Television is one of the effective advertising media compared to others, it can diffuse the information, picture and shape of product to all the consumers. Based on the advantages of this media, the company often uses television as the tool to introduce its products. Every night, Pepsi, 7-Up, and Crush are advertised on Vietnam Television, and local Television such as HCMC, Can Tho and Da Nang.

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Radio To maximize awareness of IBCs products in the whole country, the company sometime introduces its products on radio at beginning and last minutes of the programs for children, traditional music because most of audience like to listen to these programs. Newspapers and Magazines Simultaneously, the commercial program on television and radio, IBC also used trade publication for advertising its products and logo of Pepsi in newspapers, magazines such as Youth newspaper, Saigon Time weekly and daily, Saigon Liberation, Vietnam Investment Review, Marketing magazine, Labor newspaper, etc., Billboard and public transportation IBC is also interested in introduction its products throughout using bill board and public transportation. To attract the consumers interest, all most bill boards are located at the central of HCMC such as Ben Thanh market, Tan Son Nhat airport, and cross roads. The logo of Pepsi, pictures of 7-Up, Crush bottles and cans are advertised in trucks, buses in HCMC, especial airport-buses. 5.5.4.3. Sales Promotion Sales promotion is one of the marketing tools in which IBC is very interested in promoting its sales. Its sales promotion consists of trade promotion and consumer promotion. Trade promotion The company uses trade promotion to stimulate quicker and greater purchase of its products by its wholesalers and outlets in order to increase the sales volume. IBCs trade promotion tools consist of offering free goods, supporting facilities for outlets development and point of purchase materials. Free goods are sometime held in special occasion, new year by offering extra products of purchase to wholesalers and retail outlets who buy a certain fixing quantity, for example, if IBCs wholesalers and outlets buy 6 canned soft drink pack get free 1 can or buy 12 PET bottles soft drinks pack get free 1 PET bottle Developing new retail outlets and wholesalers, especially the exclusive outlets and wholesalers, IBC has supported facilities for retail outlets and wholesalers to decorate and advertise the logo of Pepsi. The plan for developing outlets is mainly concentrated on hotels, restaurants, big coffee shops and entertainment places such Dam Sen, Ky Hoa, Van Hoa parks. Point of Purchase materials are supported by IBC for its wholesalers and retail outlets aimed at creating and maximizing the awareness of Pepsi and 7-Up in the consumers mind. Supporting the point of purchase materials consists of shop-sign, lightbox, freezes-sign, visi-coolers, ice-chest, canopy, parasol, poster, bunting, sticker, banner. Up to now, IBC develops shop-signs at almost its wholesalers and outlets in HCMC. The shop-signs have the high effectiveness of advertising the logo of Pepsi. Through the shopsign, the consumers know Pepsi more and more, because majority of consumer, especially
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outside districts of HCMC, they confused Pepsi was beer. Beside shop-sign, IBC has designed more than 620 light-boxes with picture of Pepsi bottle which are located at front of the outlets. Consumer promotion The purpose of consumer promotion is to create demand and persuade soft drink consumers to switch to IBC products. The company used consumer promotion tools such as lucky draws based on numbers under crow, gifts, wet sampling and product challenges. All activities of consumer promotion are sometime held at entertainment places and schools. 5.5.4.4. Special Events Sponsorship IBCs sponsorship activities aim not only to create awareness of its products but also improve public goodwill. Throughout sponsorship activities, the company created the good relation ship with government. Last years, IBC sponsored for cultural and music activities and sport events and other social activities such as scholarship fund for student at schools and universities in HCMC, sponsoring for homeless children. Clearly, IBCs sponsorship activities can make more memorable impact on public awareness and credibility than advertising.

5.6. Results and Discussion of Consumer Survey

This part discusses the results based on conducting survey on attitude of consumers toward attributes and prices of IBCs products compared to the competitive brands and advertising and sales promotion of IBC. In addition the discussion is also based on in-depth interviews soft drink wholesalers, retail outlets of IBC in HCMC. Most of these wholesalers and outlets sell all soft drink brands including products of IBC, Coke and Tribeco. The sample consists of 100 respondents who were randomly selected in HCMC. The profile of sampling size is shown in Table 5.7 Table 5.7 Profile of sampling size Age Count (n=100) 31 36 23 10 100 Percent (%) 31.0 36.0 23.0 10.0 100.0 Monthly Income (VND) Less than 1 million From 1 to 2 million Over 2 million Total Count (n=100 ) 32 37 31 100 Percent (%) 32.0 37.0 31.0 100.0

From 10 to 20 From 21 to 30 From 31 to 40 From 41 to 50 Total

5.6.1. Brand Preference

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The majority of consumers would prefer cola flavor to lemon lime flavor. Orange and other flavors would be less preferred. In addition most of respondents prefer foreign brands to local ones. Pepsi and Coke are considered as the favorite products. They are much preferred by most of consumers. There is not significant difference in brand preference between Coke and Pepsi (Appendix 4, Exhibit 1). Whereas, Tribeco is less preferred. As a result, that demand for foreign brands increases and demand for local ones decreases. There is the significantly difference in age groups who very much like to drink Pepsi. The younger people (from 10 to 20 years old) very much prefer Pepsi rather than the old group (from 31 to 50 years old) (Appendix 6, Exhibit 1). While there is no significant difference in preference of Coke between age groups (Appendix 6, Exhibit 2). The survey shows that lemonade lime flavor is less preferred to cola flavor. 7-Up is rated at fair average level of brand preference, Sprite is much less preferred by most of respondents. Regarding orange and sarsi flavor, the findings show that Schweppes and Crush are the soft drinks with low brand preference. This is a reason why Schweppes and Crush are the slow-selling items. Table 5.8 Mean score of brand preference Brands Pepsi 7-Up Coke Sprite Schweppes Tribeco Crush Mean 6.010 4.290 6.250 2.760 2.480 3.520 2.840 Std dev 1.010 1.493 .821 1.280 1.210 1.845 1.692

(Note: 1: dislike very much, 7: like very much)

5.6.2. Words of Mouth

The considerable number of the respondents who reveal that their friends say Coke and Pepsi are very good quality. And there is the difference in attitude of consumers toward assessment between Pepsi and Coke. Coke is slightly better than Pepsi (Appendix 4, Exhibit 2). Tribeco is rated at fair average by majority of respondents. Additionally, there also is the difference in groups who say Pepsi is very good. The 10-30 age group say that Pepsi is very good. Both the 21-30 age group and 31-50 age group rate good for Pepsi. Group of 10-20 years old say that Pepsi is very good (Appendix 6, Exhibit 3).

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7-Up is considered as a very good item and most of respondents indicates that their friends say 7-Up is very good quality. While Sprite is rated as an average brand. Schweppes and Crush are assessed as average quality items. Table 5.9 Mean score of words of mouth Brands Pepsi 7-Up Coke Sprite Schweppes Tribeco Crush Mean 6.070 6.260 6.450 4.040 3.920 4.330 3.860 Std dev .795 .812 .672 1.082 1.061 1.092 1.025

(Note: 1: very bad, 7: very good)

5.6.3. How Choose to Buy a Soft Drink

When buying a soft drink, most of consumers like to choose the soft drink with the best taste. The survey discloses that there is more than half of consumers who prefer to buy soft drink that tastes best. Over one third said that they buy the same one they usually buy. Thus, it can be said that the best taste is one of important attributes which can be attracted the purchase of soft drink consumers (Appendix 3, Exhibit 1).

5.6.4. Attributes of Soft Drink Brands

Pepsi, Coke and Tribeco When asked for comparing Pepsi and Coke at a few major attributes, most of consumers who rank highly for Coke in sweetness and gas (carbonation). For taste and package, both Pepsi and Coke are the same. When compared Pepsi and Tribeco, Pepsi wins over Tribeco for most of attributes, the almost consumers rank very high for Pepsi in all attributes, except sweetness. The findings disclose that Pepsi has achieved good reputation by creating its awareness in the consumers mind and Pepsi is available at most of retail outlets in HCMC. Taste, it can be said that the most of consumers would like to drink carbonates with good taste. Recognition of this attribute, Pepsi is always improved its taste to be suitable to local taste in each country. There are more than one-third of consumers who rank that Pepsi is much better than Coke and one-fourth respondents who indicate Pepsi is the same as Coke. Thus, there is not significant difference in taste between Coke and Pepsi. As a result, consumer preference about Pepsi and Coke are the same proportion. In contrast, there is the significant difference in taste of Pepsi and Tribeco. So Pepsi is much preferred than Tribeco. Sweetness , the survey indicates that there is half of respondents who rank Pepsi is less sweet than both Coke and Tribeco. In addition, when conducted in-depth interviews
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with consumers, they say that almost soft drink consumers in HCMC would like to drink sweeter carbonates. So Pepsi should mention this attributes to attract more users. Assessing the sweetness of Pepsi, the analysis shows that there is a relation in ranking between sweetness and age groups. Two fifths of respondents in the 10-20 age group indicate that Pepsi is as sweet as Coke and the same proportion of respondents in the 1020 age group rank that Pepsi less sweet than Coke. For the 21-30 age group, there are three fifths of them who rank Pepsi is much worse than Coke. There are two fifths of consumers in the 31-50 age group who rank that Pepsi is less sweet than Coke (Appendix 5, Exhibit 1). Gas (carbonation), Pepsi is evaluated at higher gas than Tribeco. When compared with Coke, there is over two fifths of consumers who say that Pepsi is much less gas than Coke. When conducted in-depth interviews, most of young people disclose that they would like to drink carbonates with stronger gas. Therefore, Pepsi needs to improve this attribute to convince more young people. Package, this element is considered as an important attribute to appeal to the interest of consumer. There are more than three fifths of respondents who mark that Pepsi is same Coke. Nearly one fourth of consumers rank Pepsi is much better than Coke. Almost consumers say that Pepsi is much better than Tribeco. Availability, the findings show that two fifths of respondents indicates Pepsi is more available than Coke in HCMC. This is an advantage of Pepsi because Pepsi has been produced in the South earlier than Coke and IBC has developed the wide distribution network in HCMC. There also were over half of respondents who rank Pepsi is more available than Tribeco. Reputation , Pepsi gains good reputation in HCMC market. There are more than half of consumers who mark Pepsi and Coke are as same as reputation. Over four fifths of consumers indicate that Pepsis reputation is better than Tribeco. Obviously, Pepsi is to become top of mind brands.

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Table 5.10 Comparison the attributes of Pepsi with Coke Attributes Taste Sweetness Gas Package Availability Reputation 7-Up and Sprite For lemon lime flavor, the majority of consumers rank very high for 7-Up in all attributes such as taste, sweetness, gas, package, availability and reputation. The survey shows that there are more than half of consumers who rank 7-Up is much better than Sprite in taste, sweetness, gas, availability and reputation. Regarding the package, half of consumers say that 7-Up is the same as Sprite. Obviously, 7-Up wins over Sprite for all attributes. Concerning with taste, all age groups rank that 7-Up is better than Sprite and there is the relation in ranking between taste and groups. 7-Up is ranked better than Sprite by four fifths of respondents in the 10-20 age group. More than haft of respondents in the group of 21-50 years old say that 7-Up is better than Sprite( Appendix 5, Exhibit 2). Discussing gas, all groups rank higher for 7-Up, there are over half of respondents in group of 21-50 years old who rank higher for 7-Up, whereas one third of respondents in the 10-20 age group rank that 7-Up is better than Sprite( Appendix 5, Exhibit 3). . Table 5.11 Comparison the attributes of 7-Up with Sprite Attributes Taste Sweetness Gas Package Availability Reputation 7-Up is much better than Sprite (%) 62.0 57.0 48.0 29.0 59.0 66.0 7-Up is the same as Sprite (%) 14.0 31.0 36.0 52.0 36.0 31.0 7-Up is much worse than Sprite (%) 24.0 12.0 16.0 19.0 5.0 3.0 Pepsi is much better than Coke (%) 35.0 26.0 22.0 18.0 38.0 16.0 Pepsi is the same as Coke (%) 26.0 26.0 34.0 67.0 58.0 54.0 Pepsi is much worse than Coke (%) 39.0 48.0 44.0 15.0 4.0 30.0

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Schweppes sarsi Schweppes sarsi is considered as a soft drink with low brand preference because its attributes are not completely suitable to the Vietnamese consumerstaste. The survey finds that its taste is rated at average level and its sweetness at below average level. In addition Schweppes is not much available in the market. And it had not gained yet at good reputation. So Schweppes lacks of favorite attributes to attract soft drink consumers. Table 5.12 Mean score of attributes of Schweppes sarsi Attributes a. Taste b. Sweetness c. Gas d. Package e. Availability g. Reputation Mean 4.380 3.750 5..500 5.050 3.070 3.140 Sta dev 1.030 .892 .916 1.123 1.008 1.005

(Note: 1: very poor, 7: excellent)

5.6.5. Prices of Soft Drink Brands

Pepsi, Coke and Tribeco The perception of the consumers about price of Pepsi and Coke is indicated that Pepsi price is fairly high and Coke price is high. There is the difference in price between Pepsi and Coke (Appendix 4, Exhibit 3). The high income consumers say that price of Coke is fairly high in. Whereas, middle and low income consumers indicate that price of Coke is high (appendix 6, Exhibit 4). For Tribeco, the survey discloses that the its price is rated at average level by majority of respondents. 7-Up and Sprite There is the significant difference in rating the price of 7-Up and Sprite, the former is rated at fairly high, the later is rated at high (Appendix 4, Exhibit 4).

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6 5 4 Mean 3 2 1 0

5.61 5.2 5.15

5.76

3.85

Pepsi

Coke

Tribeco

Seven-up

Sprite

Figure 5.6 Mean score of the prices of soft drinks (Note: 1: very low, 7: very high) Schweppes and Crush Schweppes and Crush were considered as having a fairly high price (mean 5.310 and 5.220). The findings also shows that high income consumers rate Crush is fairly average price, whereas low income consumers say that its price is fairly high (Appendix 6, Exhibit 5).

5.6.6. Places of Consumption

The majority of the consumers most often buy soft drinks at coffee shops, followed retail shops, mainly on street vendors. For consumption at home, most of consumers buy soft drinks at wholesalers or retail outlets. Only a small proportion of consumers (9 percent of respondents) often drink carbonates at restaurants. The survey finds that four fifths of the consumers most often drink soft drinks at coffee shops and three fifths of consumers often buy soft drinks at retail shops. There are half of respondents who sometime buy at wholesalers. The respondents who often drink soft drinks at restaurants counts only for one tenth. When conducted in-depth interviews with soft drink wholesalers, they say that a large proportion of soft drinks are sold for retail outlets and most of the consumers buy soft drinks at wholesalers for occasion consumption at home. About incentives including profit margin and quantity discounts offered by soft drink companies for wholesalers and retail outlets, most of the respondents disclose that incentives which are given by IBC are better than Coke and Tribeco. IBC has supported point of purchase materials and facilities for decorating stores and advertising its logo. They also say that profit margin is important elements for keeping a particular brand in their stores.

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Mentioning prices of soft drinks, most of wholesalers and retail outlets say that the Pepsi, Coke, 7-Up and Crush have the reasonable prices and suitable to purchasing power of consumers, while Sprite and Schweppes price is fairly high. In addition they indicate that almost consumers when buying soft drinks they are interested firstly in choosing soft drink brands with high quality, then price.

5.6.7. Promotion Activities

Advertising At the beginning of production Pepsi in Vietnam, IBC launched the heavy advertising campaign with slogan Pepsi, The Choice of New Generation. The survey shows that majority of respondents know this slogan. Look like Pepsi, Coke launched advertising campaign with slogan Coke, The Real Thing. The survey finds that there are half of respondents who knows this message. Thus, it can be said that Pepsi creates its awareness in the consumers mind. Assessing the advertising program of IBC on television, most of the consumers strongly agree about information content at aspects such as very easy to understand, very informative and very hard to forget. However, the honesty of the commercial program is disagreed. This may cause the negative impact for its advertising. About the aesthetic content of advertising, the considerable number of consumer agreed at this aspect. Table 5.13 Mean of the contents of advertising program of Pepsi Mean a. Very easy understand b. Very informative c. Very hard to forget d. Very honest e. Please to see f. Artistic g. Intelligent h. Amusing to 5.710 5.500 5.460 3.220 5.170 4.700 4.560 5.340 Sta dev 1.183 .916 1.141 1.315 1.295 1.068 1.149 1.199

(Note: 1: strongly disagree, 7: strongly agree) Sales promotion gifts Most of consumers disclose that sales promotion gifts of soft drink brands are not very attractive. The survey indicates that consumer promotion tools of Pepsi and 7-Up are not very attractive. Thus, IBC needs to pay more attention to sales promotion activities for end users in order to create awareness of its products. Table 5.14 Mean score of sales promotion gifts

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Brands a. Pepsi b. 7-Up c. Coke d. Sprite e. Schweppes f. Tribeco g. Crush

Mean 4.510 4.370 4.410 3.860 3.190 3.150 3.270

Sta dev 1.283 1.143 1.296 1.400 1.285 1.336 1.355

(Note: 1: not attractive at all, 7: very attractive) Suggestion of retailers When asked the suggestion of retailers to consumers in choosing soft drinks consumption, the findings indicate that retailers do not suggest to consumers to buy Schweppes, Crush, Tribeco and Sprite. The retailers sometime suggest to consumers to buy Pepsi, 7-Up and Coke (Appendix 2, Exhibit 6). The suggestions of retailers to end users can influence their buying decision. Because the survey finds that there are one fourth of respondents who switch to brand which is suggested by the retailer. Three fourths of consumers buy regular brands (Appendix 3, Exhibit 8). So, IBC should pay more attention to promotion its retail outlets who in turn will promote to end users to buy IBC products.

5.7. Summary of IBCs Strengths and Weaknesses

By analyzing current position of IBC in terms of production capacity, market share, financial situation and marketing activities, the strengths and weaknesses of IBC that were assessed in comparison with its main competitors are drawn out, as follows: Strengths IBC has strong financial position of stockholders and the remarkable profitability reaping from production and business in last years. It continues to further invest for expanding its production and business in order to increase its production volume. IBC has used the modern equipment and advanced technology for production soft drink production IBC has the highest market share in total Vietnam market, as well as HCMC market. At present, IBC gains the market share of 28 percent in the whole country and 42 percent of HCMC market. IBC has the experiences in marketing activities because its partners Pepsi Co and Cadbury Schweppes Group are giants in soft drinks market in the world. They have the experiences in marketing activities. The company has created the awareness of Pepsi and 7-Up in the market and good reputation brands. Pepsi and 7-Up are much preferred by most of Vietnamese people. 7-Up is considered as a dominant product in lemonade lime flavor in Vietnamese market. IBC has also created the image of Pepsi as soft drink for young people through its advertising with

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slogan Pepsi, The Choice of New Generation known by most of consumers in HCMC market. The prices of Pepsi and 7-Up are lower than prices of Coke and Sprite. So its prices can be met the purchasing power of its target consumers. This is a factor to stimulate more end users to buy IBC products because of high quality products at a reasonable price. IBC has developed its wide distribution channels system covering all districts of HCMC including direct and indirect channels. The company has also developed distribution channels of wholesalers in Ha Noi, Da Nang, the South and Central provinces. In addition, profit margin for wholesaler of IBC is higher than Coke. IBC has continuously launched the advertising campaigns to maximize the awareness of its products in the market and convince soft drink consumers to buy its products. In addition the company has constantly supported sales promotion for its wholesalers and retail outlets in order to build good relationship with its distributors. Weaknesses Among IBCs product line, Schweppes sarsi is less preferred because the attributes of Schweppes are not completely suitable to local taste. The company has not created yet good reputation brand for Schweppes and Crush. Schweppes is not much available in the market. Information contents of IBCs advertising program on television are evaluated lack of the honest. This can cause negative impact for its advertising. IBC lacks attention to sales promotion activities for consumers, there is several sales promotion activities but they are not attractive. IBCs sales force is not strong enough in terms of number of salesman to manage its retail outlets while at present direct routes have continuously developed.

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Chapter 6

Conclusions and Recommendations

This chapter presents the results of the research and recommendations for developing the marketing strategies for International Beverage Company in HCMC.

6.1. Conclusions
This research examines how to develop the marketing strategies for International Beverage Company in HCMC through an analytical process of external and internal factors. On the basis of the result of this research, the following conclusions are drawn out: 1. The Vietnamese economy has gained a remarkable growth during the period of 19911995. The GDP averaged growth rate was 8.2 percent per year. The government has issued a series of economic laws to encourage local and foreign investors to invest production locally and imposed on import tax on soft drinks and beer at high rate. So the soft drink industry has dramatically developed. There are currently 25 soft drink producers with more than 30 brands flooded in the market. Some foreign brands such as Pepsi, 7-Up, Coca Cola, Sprite, Schweppes and Crush are available in cities and small towns in the whole country. 2. During the last five years, production and consumption of soft drinks has increased yearly. The average growth rate of the soft drink industry was 17 percent per year. The consumption per capita is currently lower than other countries in the region. According to General Statistics Bureau, the forecast consumption of soft drinks will be increased significantly in the next five years at annual growth rate of 15 percent. And with population of 74 million people, Vietnam actually becomes an attractive and potential market for food and drinks. This gives opportunities for players to expand their production and business. 3. HCMC is the key soft drink market in Vietnam. Together the rapid growth rate of economy and rising in the living standard, HCMC market becomes an attractive one for beverage producers. 4. There are currently significantly changes in consumer preference. Most of soft drink consumers prefer foreign brands rather the local ones. Demand for foreign soft drink brands increases while demand for local brands decreases. Soft drinks are consumed at home increasingly, this is a signal of fast growth of the take-home trade. 5. The cola war really occurs in the Vietnamese soft drinks market, especially the competition between Pepsi and Coke. The competitive environment becomes fiercer and harder. At present, however, the problem facing the players is not survival because the market is still unsaturated and promising. IBC has been in the growing stage. 6. IBCs strengths and weaknesses are examined through internal analysis process including its production capacity, market share, sales and marketing activities. At present, IBC continues to invest to expand its production and business in HCMC, Ha Noi, the South and Central provinces. IBC has highest market share in Vietnamese

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markets(28 percent) and HCMC market (42 percent). The company is very interested in marketing activities, with particular emphasis on advertising and sponsorship activities in order to convince and remind its target consumers to buy IBC products. IBC pays more attention to trade promotion, however, it lacks the sales promotion for consumers. In general, IBC has achieved the success by understanding and meeting the needs of its customers and consumers. The company has created the awareness of its products, especially Pepsi and 7-Up in the market. However, Schweppes sarsi and Crush are less preferred because their attributes are not suitable to the Vietnamese consumerstaste. With a strong financial position, IBC is able to meet contingencies and to fund its further growth. Currently, facing the intensified competition, IBC has to develop the effective marketing strategies based on analyzing threats and opportunities in environment as well as its strengths and weaknesses in order to protect its leading position.

6.2. Recommendations on Developing the Marketing Strategies for IBC in HCMC 6.2.1 Market Segmentation
To design and develop the marketing strategies, the starting point is to understand what kind of groups of consumers the company wants to serve. So the market segmentation becomes a meaning concept for the players. Regarding the case of IBC, the company need to decide which and how many segments to serve. According to Kotler (1991), in general, a company can adopt three basic alternative strategies forward market segmentation: undifferentiated marketing, differentiated marketing and concentrated marketing. Undifferentiated marketing, the company may ignore market segment differences and go after the whole market with one market offer. One advantage of this strategy is production efficiency. However, there are dangers involved in the strategy of undifferentiated marketing. The company that attempts to satisfy everyone in the marketplaces faces the threat of competitors who offer specialized products to smaller markets of total market. Thus, if IBC follows this strategy, it should have a single marketing mix to offer to the entire market. However, this strategy rarely succeeds because consumers in different location differ taste and preference. Consumers wants and needs also differ among age groups, obviously, there is the significant difference in soft drink consumption between young and old people. In addition, Vietnamese people are not habit drinking soft drink a lot and soft drink is not the necessity product and soft drink consumption is still influenced by personal income level. Therefore, following this strategy means that the company has to cope with a market risk since it can not minimize the costs and maintain the acceptable price for all the segments at the same time. Differentiated marketing, the company may divide total market into different segments and develop the different marketing mix strategies for each market. Following this strategy, the company captures consumers from many different market segments by providing increased satisfaction for each of numerous target markets. This strategy requires large investment capital because of increase in production costs and promotion costs. So differentiated marketing leads to both higher sales and higher cost than undifferentiated marketing. At present, IBC has the strongly financial resource and produces canned and

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bottled soft drinks with high quality. To appeal to consumers with difference in taste, income and age groups, IBC should pursue the differentiated marketing for market segmentation. Concentrated marketing, the company can choose to focus on its efforts on profitably satisfying a smaller target market or niches. Following this strategy allows the company to compete in just one segment and develop the marketing mix program to serves that segment. Regarding the capability of IBC, it is a large-size soft drink company and facing the intensified competition from Coca Cola Indochina Pte, Ltd. Currently, IBC has plans for expanding its operation in order to increase market share and protect the leading position in HCMC. Therefore, IBC can not purse this strategy. Overall, the differentiated marketing should be strongly recommended for IBC as regard of the market segmentation. Moreover, because consumption pattern of soft drinks in Vietnam is strongly affected by regional taste, personal income level, thus, IBC should base on geographic variable for segmenting Vietnamese soft drinks market such as HCMC, Ha Noi, Central and Mekong Delta provinces. For HCMC market, the company should base on income segmentation. The income level of HCMC residents is classified three groups: high, middle and low income

6.2.2. IBCs Market Targeting

Together with rapid growth rate of economy, rising in the living standard, the proportion of high and middle income people in HCMC will significantly increase in the next years. This points out potential consumption of soft drinks will increase these segments. In addition the soft drinks consumption is also affected by age. Most of soft drink consumers are young population at range from 10 to 35 years old. This age group has big share in population structure and increases yearly. Thus, IBC's target market should be focus on soft drink consumers with high and middle income, with particular emphasis on young age people. At present, IBC should concentrate on selling canned carbonates including Pepsi, 7Up, Crush, Schweppes soda with high quality at a reasonable price in the segment of high income consumers. The consumption of these items is mainly in hotels, restaurants, snack bars, dancing clubs, karaoke clubs and entertainment places. To segment of the middle income people, IBC should focus on selling returnable glass bottle of soft drinks and PET bottles at the reasonable price.

6.2.3. Positioning Strategy

Positioning strategy is the combination of product, channel of distribution, price and promotion strategies, the company uses to position itself against its key competitors in meeting the needs and wants of the market targets. Therefore, IBC needs to link its marketing activities including the analysis of its products attributes, prices compared its competitive products, developing the distribution channels to make its products more available to end users and emphasizing on promotion to persuade and remind them to buy its products.

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Regarding IBC products, it is necessary for the company to position its products in order to gain the competitive advantages. IBC is thought of as the largest soft drink company in Vietnam. At the beginning of operation to now, IBC has continuously created the awareness of its products: Pepsi, 7-Up, Crush and Schweppes soda in HCMC market. Pepsi and 7-Up are much preferred by majority of consumers and gain high reputation brands. 7Up is the number-one Uncola in the Vietnamese lemonade flavor market. Therefore, IBC should position its products as high quality products at the reasonable price to strengthen their own current position in the consumers mind in HCMC market. To implement its positioning strategy, IBC needs to develop marketing mix strategies for products, price, distribution and promotion.

6.2.4. Developing Marketing Mix Strategy for IBC in HCMC

At present, IBCs market share is 28 percent in the whole country and 42 percent of HCMC market. IBC has the highest market share in Vietnamese soft drinks market and HCMC market. The company is facing the intensified competition in which Coca Cola Chuong Duong Soft Drink Company Ltd is main competitor in HCMC. To protect its current leading position, IBC needs to strengthen it strengths and improve weaknesses. This calls for action on three fronts: finding ways to expand total market demand, protecting its current market share through good defensive and offensive actions, trying to increase further its market share. To expand the total market, IBC should look for new users, new uses or more usage of its products. To increase the number of users, the company must either increase consumers willing to buy or their ability to buy products. The willing to buy may be increased by demonstrating the benefits already offered by products, or developing new products with benefits that will be more appealing to certain segments, or promote new benefits from its existing products. The ability to buy can be improved by offering high quality, or lower price, or by providing greater availability (through having more distributors, more frequent delivery). In addition to increase rate of purchase (more usage) the company must design advertising campaigns to convince the target consumers to buy its products more often or in more volume. While trying to expand total market size, IBC must retain its current customers and consumers and continuously defend its current business against rival attacks. Therefore, it must keep its costs down and its prices must be consonant with the value in which the consumers recognize in its brands. The company needs to build good relation with its wholesalers and retail outlets as well as will produce its brands in several sizes and forms to meet varying consumer preference. Besides, IBC must increase its market share by improving its products, opening up distribution networks and launching advertising campaign to persuade the consumers to switch to its products. In general, IBC should develop the feasible marketing mix strategies to protect its leading position.

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6.2.4.1. Product Strategy Developing IBC's product strategy aims at stimulating soft drink consumers to buy its products by offering high quality products. To develop its product strategy, IBC should focus on improving attributes of its products, designing new type of packs. Improving attributes of product Pepsi As analyzed in the previous chapters, most of consumers indicate that Pepsi is less sweet than Coke and Tribeco. While majority of consumers in HCMC have habit of drinking the sweeter carbonates. So IBC should pay more attention to improvement its quality in terms of sweetness in order to attract more consumers. Moreover, the survey indicates that Pepsi has less gas than Coke. While young people prefer to drink strong gas carbonates. Thus, it is necessary to improve its gas level to convince more young people to buy Pepsi. Schweppes and Crush Schweppes sarsi is less preferred by a majority of consumers because its taste, gas and sweetness are not completely suitable to Vietnamese consumer's taste. IBC should research on manufacturing formula of Schweppes to improve it quality in order to attract soft drink consumers. Currently, Schweppes is unavailable at retail outlets in HCMC, thus, IBC should make Schweppes to be more available to consumers in order to create its awareness in the market. With the presence of Pepsi, 7-Up, Coke and Sprite in HCMC, sales of Schweppes has decreased. The purpose of diversifying its products, IBC should do market research, produce and distribute other flavor of Schweppes such as cream soda, tonic, pineapple and Schweppes sport plus to attract the new consumers. Developing new pack types Soft drinks have been increasingly consumed at home. This proves that there is the fast growth of the take-home trade. IBC should bottle it products in PET bottles with volume of 500 ml, 1 liter, 1.25 liters or 1.5 liters to cover this segment. Beside Schweppes bottle with volume 285 ml, Schweppes ought to bottled with volume of 207 ml to meet the different drinking size of Vietnamese consumers. Stemming from strongly financial resource, IBC often supports sport, music as main sponsor for these activities. Thus, it should design label attached to its products in special events such as sport, music, or national celebration, new year and so on, in order to enhance high brand recognition and more attractive. 6.2.4.2. Price Strategy

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The purpose of IBCs price strategy is to support its marketing mix strategies. As analyzed earlier, developing IBCs marketing strategies is to protect its leading position. Its price strategy should be developed to increase either numbers of buyers or the rate of purchase. At present, the prices of IBC products are evaluated at fairly average level and meet the purchasing power. The company should continue to maintain the stabilized pricing policy to stimulate demand for soft drink consumption. IBC ought to apply the market oriented price policy in which the prices of its products are higher than prices of local brands to affirm high quality products and reap profit. Moreover, the prices of Pepsi and 7-Up are lower than Coke and Sprite to meet competition and purchasing power of consumers. Pursuing the lower price policy compared Coke will be an important factor to convince more consumers to buy IBC products because most of soft drink consumers has a little price sensitive. In fact, the selling prices of Schweppes and Crush per unit (bottle) are the same as the prices of Pepsi and 7-Up. If compared Schweppes with volume of 285 ml and Pepsi 207 ml, Schweppes is lower price than Pepsi but most of consumers are not interested in the volume difference. Therefore, Schweppes and Crush should bottled with volume 207 ml at lower prices in order to attract more consumers and can target the segments of middle and upper low income people. In addition IBC should use the price-adaptation strategies to varying conditions in the marketplace such as price discounts and allowances, promotional price and geographical pricing. To develop new wholesalers and retail outlets and maintain good relationship with its existing dealers, IBC should use the flexible price discount policy and higher incentives compared Coke. Moreover, the company should establish the special price as promotional price in special events such as new years, holidays. To capture the new markets such as Central and South provinces, at the first time, IBC should charge the same prices to all consumers regardless of location and apply the subsidized policy for its wholesalers in new markets, especially in rural areas. 6.2.4.3. Distribution Strategy IBCs current distribution channels system in HCMC covers all inside and outside districts. The company has continuously expanded direct and indirect channels to make its products to be more available. In the future, its distribution channels will require periodic modification to meet new conditions in the marketplace. Modification becomes necessary when consumer buying pattern changes, market expands, competition rises. To distribute its products to right consumers in right place at right time with cost efficiency, IBC should continue to follow the intensive and effective distribution strategy to cover in the whole country. Following this strategy, the company should expand its current distribution channels region by region, penetrate and develop distribution networks at rural markets effectively by using more flexible distribution techniques. For HCMC market, IBC should focus on the following aspects: Opening up the selling its product by vending machines : at present postmix of IBC faces several problem as mentioned in previous chapter. In the future, however, when demand for soft drinks increases significantly, competition becomes sharpest, establishing and developing this channel will be very important for the company to compete with its competitors. Thus, IBC should invest to install more vending machines (postmix) at entertainment places, train station, theater, high schools, factories and so on. In addition launching the advertising campaigns and sales promotion for postmix are necessary to

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convince more consumers to drink soft drinks. By developing this channel will create high awareness for the company and its products. Developing new retail outlets through expanding direct route and Horeka : as analyzed in consumer survey, majority of consumers most often buy soft drinks at coffee shops, retail outlets. Stemming from this characteristic, IBC should focus on developing new retail outlets including exclusive retail outlets by offering a higher range of incentives and discount prices. Furthermore, IBC should significantly focus on penetrating and developing more retail outlets in channel of Horeka because Coca Cola Chuong Duong Soft Drink Company is consolidating and enhancing its channel in this segment. To capture more outlets of Horeka, IBC should often use the offers of free carbonates, discount coupons for purchase, or holding lucky draw on weekend of each week. Expanding wholesaler networks: IBC should plan for developing new wholesalers, especially exclusive wholesalers and offering incentive policies for the wholesalers who gain higher sales volumes. Moreover, the company has also plan for dropping wholesalers whose sales are below a certain amount. Creating good relationship between IBC with its distributors , the relationship is very important to win and hold customer loyalty. Thus, the relationship can be built if the company will keep supplying, carry out its promises, provide promotional support, manage and solve conflict in channels, give adequate incentives and profit margins. Besides, IBC should mention in developing distribution networks at provinces. For cities such as Ha Noi, Da Nang and Can Tho, the company may build Horeka to penetrate into segment of high income people and establish sales department at these regions and control the selling price of wholesalers. Once the plant will be built at these locations, direct routes can be developed. 6.2.4.4. Promotion Strategy The promotion strategy that IBC should undertake is aimed at creating the image and maximizing awareness of its products, especially Pepsi and 7-Up in the consumers mind as well as convince them to buy its products. The company should follow the pull promotion strategy to communicate existence and value of its products to target market and create sales. The pull strategy involves marketing activities, mainly advertising and sales promotion directed at end users to induce them ask distributors (wholesalers and retail outlets) for product and thus induce the distributors to order the product from the company. To persuade and remind its target consumers to buy IBC products, the company should emphasize on the use of promotion tools, as follows: Advertising: the survey disclosed that the information contents of IBCs advertising program on television are lack of honesty. This can cause a negative impact about its products. Thus, IBCs advertising program should be adjusted to be suitable local. Sales promotion : IBC ought to enhance in trade promotion by offering free goods or promotional price in special events, supporting promotional materials and point of sale display in order to stimulate their purchase, build brand loyalty of wholesalers and retailers, maintain good relationship and gain entry into new retail outlets. For consumer promotion, this activity is not attractive in last time, so IBC should stress on using consumer promotion tools such as discount coupon for purchase, lucky draw and gift to convince consumer to
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switch to its products. All activities of consumer promotion should be often held at entertainment places, schools, dancing clubs, karaoke clubs, etc., to attract young people. Special events sponsorship : the company should sponsor the local cultural festivals, international music programs, sport activities, scholarship funds and charity activities. Personal selling : the company should emphasize on training and developing its sales force to manage direct routes and build the good relationship with retail outlets, especially outlets of Horeka.

6.3. Recommendations for Further Research

This research of developing marketing strategy for the International Beverage Company in HCMC, the author just concentrates on developing marketing strategies including market segmentation, market targeting, positioning strategy and developing marketing mix strategies. The implementing and managing marketing strategy including designing the marketing organization, evaluating and controlling marketing performance are important issues. The research does not discuss, thus, it needs to study in detail in order to ensure the success of marketing strategies. Regarding the product strategy, new product development is not discussed. It is necessary to study in detail to ensure the success of product before producing and launching new product in the market. The physical distribution channels play a critical role in developing distribution systems. So, the activities such as inventory, logistic, warehouse and transportation need to study carefully in order to complete the work on distribution channel.

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