1. INTERNATIONAL MARKETING
PLAN OF “THE HONEST
COMPANY” TO ENTER THE
CHINESE MARKET
GROUP 2:
Alexis KAGARAKIS
Leelavathy SWAMINATHAN
Luiz Felipe DE MELLO MONTEIRO
Mehmet BÜLBÜLDERE
Thi-Thanh-Thao HUYNH
2.
3. Executive Summary …………………………………………………… 4
Company Profile and Current Market Strategy ………………… 5
Situational Analysis …………………………………………………… 7
The Honest Company Market Entry Strategy: Key Channels … 13
The Honest Company Market Entry Strategy: The 4P’s ………… 16
Conclusion ……………………………………………………………… 24
References ……………………………………………………………… 25
TABLE OF CONTENTS
4. In recent years, there has been an increased demand for natural,
safe, and environmentally friendly baby products, household
supplies, and soaps and detergents. Already a success in the U.S. and
Canada, The Honest Company seeks to expand to a new market.
Because of a growing middle class and a platform that will give the
company an acceptable level of risk and high potential for earnings
and growth, the most reasonable and opportunistic market seems to
be China.
In this case study, we will examine The Honest Company’s current
business and marketing strategy, analyze the potential market for its
products in China – Tmall Global, in particular— and develop a
market entry strategy to ensure the company’s successful entry into
the Chinese market.
EXECUTIVE SUMMARY
4
5. COMPANY PROFILE AND
CURRENT MARKET STRATEGY
Company Profile –
Who We Are
The Honest Company is a business
devoted to providing the safest
products possible to its customers.
Founded in 2011 by actress Jessica
Alba and Christopher Gavigan, the
company has taken the baby,
household, health and personal
care industry by storm. Shocked at
the hazardous chemicals found in
common household cleaners,
soaps, and detergents, Gavigan
and Alba co-founded the
company with the purpose of
creating safe products for families in
order to give children the healthiest
and safest start to life, at an
affordable price. The company’s
debut came at the right time, as
there has been a simultaneous
changing consumer social attitude
as consumers become more
environmentally conscious. This
increase in demand for
environmentally friendly, fair and
sustainable products has helped
The Honest Company become a
beloved brand by many consumers
in the U.S. and Canada.
Mission
The Honest Company strives to
make the world less toxic and help
benefit the next generation to live a
healthy and safe life. The
company’s mission is to work
together as team for better
outcomes with dynamism, integrity,
and honesty, with creativity and in a
fun and motivating environment to
produce better results by offering
healthier and safer products to
customers.
Vision
The Honest Company’s vision is to
protect people and the planet by
creating high-end products and
providing continuous quality of
service. The company always strives
to be better and provide customers
with the safest and healthiest
products possible.
5
6. Company’s Current
Marketing Strategy
The company started as on online
e-commerce store to help mothers
who, like Alba, didn’t have the time
or shopping cart space to purchase
all household, baby, and other
supplies at the grocery store. While
The Honest Company started as an
e-commerce company, it has since
expanded to major retail stores
such Target, Whole Foods,
Nordstrom, and Costco.
The Honest Company also places
significant value on customer
feedback, in order to continuously
improve products and customer
service. By starting the company
online, this gave the company the
ability to respond quicker to
mistakes and customer feedback
from the beginning, which resulted
in product improvement and
customer loyalty.
One of the company’s founders,
Jessica Alba, is an asset for the
business, as she is also the face of
the company. Customers associate
The Honest Company with Jessica
Alba. The company has significantly
leveraged social media through
both The Honest Company and
Alba’s social media channels.
Finally, The Honest Company
always tells the brand’s story in its
marketing. Unlike most companies,
many consumers know why Alba
started the company, and what the
company’s core values are. This
strategy is in line with the
company’s mission and values.
6
7. Political
The People’s Republic of China is a
communist country led by President
XI Jinping. While the country has
seen economic growth and greater
personal freedoms and choices,
there are still strict political controls
and a controlled national media.
With the U.S. election of Donald
Trump as president, there is concern
about the future relationship
between the U.S. and China. If
president-elect Trump keeps his
promises to end or renegotiate
international trade deals and
impose higher tariffs on Chinese
imports, there is a possibility of
sparking a trade war. It is unclear
what kind of effect this may have on
companies such as The Honest
Company entering the Chinese
market.
Legal
The 2008 Chinese milk scandal was
a crisis in the country that spurred
new regulations and the creation of
regulating bodies in the
government. Because of several
food materials and adulteration of
melamine, which is a toxic
chemical, in 2008, six infants died
from kidney stones, 54,000 babies
were hospitalized as a result of
kidney damage and 300,000 victims
were affected in China. In response,
China created a Food Safety Law
forbidding any unauthorized food
additives, and the China Food and
Drug Administration (CFDA) was
created to centralize food and drug
safety. Today, enforcement of food
safety regulations remains
unsatisfactory, and confidence in
Chinese dairy products is weak, thus
much of the baby formula market is
led by foreign brands.
While the government (and
Transcosmos) has made it easier for
foreign companies to enter the
Chinese market, many large foreign
MNCs have faced legal issues in
China. Generally, China is
considered to be lax on enforcing
regulations, but two examples of
foreign companies facing legal
issues include Google and
GlaxoSmithKline, who have both
faced legal issues with the
government. It is important for
foreign companies to bear in mind
both the benefits and the legal risks
of operating in China.
SITUATIONAL ANALYSIS
7
8. Economic
The Chinese economy has become
much more open over the past 40
years, has opened up to foreign
companies and become more
involved in the global economy.
Though the Chinese government still
plays a large role in regulating the
economy, there has been growth in
the private sector, fiscal
decentralization, and increased
autonomy for companies and state
enterprises.
China is considered a Big Emerging
Market (BEM), has a growing GDP
and China’s middle class is also
growing rapidly. In 2015, China’s
GDP was $19 trillion and the GDP
per capita was $14,100. China’s
poverty rate fell from 85% to 15.9%,
or by over 600 million people. This
rise in the middle class means there
is a growing portion of the
population with an increased
disposable income.
International trade and foreign
investment inflows have been major
factors in China's remarkable
economic growth during the past
quarter century. China is the world’s
largest economy; though, China’s
per capital income is still below the
world average.
China’s One-child policy was
applied in China between 1979 and
2015. It was changed to a two-child
policy in 2016. Based on this
information, it can be understood
that most of the families in China
have only one child or two children.
Therefore, it can be assumed that it
is more likely for Chinese to spend
more of their income on their
“unique” children compared to the
other countries as a result of paying
more attention to one child.
Cultural
Culture is extremely important in
international marketing, and buyer
behavior and consumer needs are
partly influenced by cultural norms.
The Chinese culture is very different
from American culture, therefore it is
important for American MNCs to
learn about and understand the
culture before entering the Chinese
market. Some of the main values of
the Chinese include harmony,
righteousness, wisdom, honesty,
and loyalty. There is also a strong
importance of family, but also
extends to include friendships.
8
9. Generally, there are multiple
decision makers in the Chinese
culture. Living with parents after
marriage or pregnancy is common
in China. As a result, not only
parents of the baby but also
grandparents make decisions
related to the upraising of a baby.
Therefore, marketers in the baby
care industry should enforce the
idea of honesty, and should not just
limit their target audience to
mothers, if they hope to gain a loyal
following.
C-section preference is also a
factor that impacts the baby care
product industry. According to a
study conducted in 2007 and 2008,
China had the highest
documented rate of C-section,
which was 46% of total births.
As a result, a high need for breast
pumps and infant milk formulas can
be expected because of delayed
lactation. There is also a large baby
population in China, which
indicates that China is a huge
market for baby care products.
Social
Living standards have improved for
many Chinese citizens in the past
several years. With increased living
standards and income, consumers
are able to spend more money on
products.
Social media plays a large role in
China and in consumers’ buying
habits. WeChat is China’s largest
social media platform. The app is
used by consumers to make
purchases and send money or gifts
to friends. In 2015, 688 million
Chinese had internet access. This
indicates that social media and
other online platforms play a key
role in the growth of companies in
the Chinese market. Chinese
consumers are also largely
influenced by celebrities.
9
10. Technological
Chinese e-commerce is developing
very fast and companies are
investing heavily in the sector to
offer more sophisticated and
complete online services.
McKinsey released a report called
“China’s iConsumer 2015” conta-
ining the internet intensity and the
e-commerce behavior of 630 million
Internet users in China. It is possible
to observe that 39% of the internet
users spend more than 21 hours on
the internet per week.
Furthermore, the way that Chinese
customers are shopping is also
changing due to technology
advances. While shopping in a
physical store, the Chinese
customer is using the mobile phone
to find the best price.
The Honest Company will certainly
benefit from the technological
advances because of the
significant increase of e-commerce
transactions in China. According to
the McKinsey report, “Mom & Baby”
products are in top 20 of goods
purchased online in the Chinese
market and the average number of
online purchases is 23 times per
year.
10
11. SWOT Analysis
Strength is considered an internal
factor and can be controlled by the
organization. The strengths of The
Honest Company are identified
below:
Product Quality:
The products produced by The
Honest Company are organic and
are made with high quality raw
materials. The company uses non-
toxic household products. The
business is growing fast and the
quality of the products are one of
the key factors for the brand
success. Customers in USA and
Canada are willing to pay higher
prices for products that are certified
as organic. The Honest Company
and their suppliers are certified by
the most important regulating
agencies for cosmetics and food.
Brand reputation:
Brand Image:
The founder of the company is the
movie star Jessica Alba who
decided to create the brand due to
the difficult to find organic and non-
toxic products in the market. The
organization image is very
attached to the actress who has
positive reputation in USA.
Weakness is considered an internal
factor and can be controlled by the
organization. The weaknesses of
The Honest Company are identified
below:
Difficulties to produce organic: the
priority of the company is to
produce all the products in USA,
however some products (i.e.
Diapers, Wipes and Dish Towels)
have had to be produced in China.
The company explained that the
project presented by The Honest
Company was rejected by all US,
Canadian, and EU manufacturers,
because it was too high cost, highly
labor intensive,
11
12. and would need re-tooling and
upgrades in equipment and
services.
Opportunities is considered an
external factor and cannot be
controlled by the organization. The
main opportunities of The Honest
Company are identified below:
Strong baby population: In 2010,
there were 56 million babies in
China. In 2014, the population of
ages 0-4 was over 80 million.
According to 2015 statistics, 20
million new babies are born in China
each year. These numbers show
that China is a huge market for
baby care products.
2008 Chinese milk scandal: The milk
and infant formula containing the
toxic materials in the food safety
incident was produced by a local
brand. As a result, baby food safety
probably started to be taken more
seriously by Chinese parents. There
is an opportunity for foreign brands
to lead this market.
Threats are considered to be an
external factor and cannot be
controlled by the organization. The
main threats of The Honest
Company are identified below:
Multiple decision makers: Living
with parents after marriage or
pregnancy is common in China. As
a result, not only parents of the
baby but also grandparents make
decisions about the upraising of a
baby. If older people are assumed
to be more traditional and into local
brands, a potential barrier can be
faced by the company in breaking
into the Chinese market.
Discount for empty tins and boxes:
Some of the international brands
selling their products in China
experienced a serious problem in
the past. Some local retailers
collected the empty original tins of
international formula brands, put
the locally produced formula into
them and sold them as the
international brands. Foreign brands
must be vigilant in their efforts to
prevent this.
12
13. The Chinese market offers The Ho-
nest Company a unique
opportunity to enter the market with
an acceptable level of risk and high
potential for earnings and growth.
In this market, there is a conver-
gence between successful plat-
forms such as Tmall Global, a
perfect local condition with the
Shanghai Free Trade Zone, and an
ideal partnership that allows for a
turnkey solution through the com-
pany Transcosmos. The Honest
Company will make its entry into this
market through Transcosmos onto
Tmall Global.
Brand reputation:
Transcosmos and its
Platform Tmall Glo-
bal
The supply chain partner for The Ho-
nest Company will be Transcosmos.
Transcosmos is a full-service com-
pany that helps foreign companies
enter Asian markets. By working with
Transcosmos, entry into the Chinese
market will be simplified for The
Honest Company.
THE HONEST COMPANY MARKET
ENTRY STRATEGY: KEY
CHANNELS
13
14. Transcosmos, which has been
operating in China for 10 years now,
is an ideal choice for The Honest
Company because it provides full
services including: a contact cen-
ter, HR, marketing research
financial, order management,
system development, big data
analysis, internet advertising, and
website construction and
management. With its one stop
global E-commerce, Transcosmos
will make The Honest Company’s
debut on Tmall Global simple and
cost-efficient. These services offered
by Transcosmos are significant
because it will save resources for
The Honest Company. For example,
rather than having to find, hire,
research and train employees on
customer service in China, Trans-
cosmos offers this service for the
company. Using Transcosmos is the
best entry mode because it will take
away a certain level of risk from The
Honest Company in the transition
into this market.
Tmall Global is a business-to-con-
sumer platform that allows Chinese
consumers to purchase a wide
variety of products on one platform.
Tmall Global is the biggest online
shopping platform in China, and it is
a trusted platform for Chinese con-
sumers to purchase foreign pro-
ducts. Additionally, this platform will
allow The Honest Company to
reach consumers throughout the
entire country, rather than having to
select just one or a few cities if it
were to open a few physical stores.
As shopping on Tmall Global is a
cultural phenomenon in China, it is
crucial for The Honest Company to
have a presence and make its
debut on this platform if it hopes to
successfully enter the Chinese
marketplace.
The Honest Company should ex-
pect costs associated with Tmall
Global to include a deposit fee,
annual technology and service fee,
14
15. and sales commission. The deposit
required can range from $8,000 to
$25,000. An annual service fee
varies depending on product
category. A sales commission is
applied for every transaction
made. There is also an annual
technology and services fee. For
milk powder/ supplements/ nutrition
and diapers/bathing/baby food,
there will be a technology
commission fee of 2% and the
yearly technology fee of $5,000.
Shanghai Free Trade
Zone
The Shanghai Free Trade Zone is a
28 square kilometer area that has
allowed China to open its market to
foreign companies. There are four
areas of the free trade zone,
including: Waigaoqiao Free Trade
Zone, Waigaoqiao Free Trade Lo-
gistics Park, Yangshan Free Trade
Port Area and Pudong International
Airport Free Trade Zone. In this free
trade zone, there are tax prefe-
rential policies that are beneficial to
foreign companies. Transcosmos
utilizes the Shanghai Free Trade
Zone, which will allow The Honest
Company to ship products there
and keep them in a warehouse –
tax free – until items are sold. This will
reduce logistics costs and reduce
delivery times to consumers, in a
culture where prompt delivery is
important.
The Honest Company will benefit
from the convergence of these
three platforms in many ways. By
using Transcosmos as the supply
chain management, Transcosmos
will take the “heavy lifting” work
from The Honest Company.
Transcosmos will help reduce the
chances of failure and potential
legal problems for The Honest
Company’s entrance into the
Chinese market. The company will
will have a higher chance of
success by working with
Transcosmos and using Tmall
Global. Through Transcosmos and
Tmall Global, The Honest Company
can operate locally in China.
15
16. THE HONEST COMPANY MARKET
ENTRY STRATEGY: THE 4P’S
As a company that aims to have an international
profile, penetration into the Chinese market can be
a good opportunity, as long as the right market entry
strategy is followed. The proper market entry
strategy should be explained by the four main
factors, which are commonly known as the “4P’s of
marketing”. For each factor, current facts regarding
Chinese culture and politics should be taken into
consideration, in addition to the product portfolio
and vision of The Honest Company.
16
17. Product
In the product portfolio of The
Honest Company, there are several
categories, including:
Diapering
Feeding
Personal Care
Cleaning
Vitamins & More
Gear & More
Feminine Care
Although there is a broad range of
products, each has a common
characteristic: being the safest
among its kind. This makes The
Honest Company products,
especially baby care products,
different.
To better manage the market entry
period, The Honest Company
should focus on a smaller number of
products, rather than all of them. If
the following factors are taken into
consideration, categories and
product strategies
can be decided more reasonably:
Strong baby population
Children and baby care
product sales in China
One-child policy
C-section preference
2008 Chinese milk scandal
Multiple decision makers
Difference of approach
between large and small
cities
With all these criteria, it can be
concluded that focusing on baby
care products would be a
reasonable choice. However, the
choice between standardization
and customization should be
decided carefully.
Although product reliability is
important for all products, for
formulas, it is much more important
compared to the others. Therefore,
standardization strategy should be
followed for formulas. To be able to
better monitor the production
17
18. period, the option of producing
them in China can be eliminated.
On the other hand, for packaging
of all products or diaper production,
customization can be applied. The
Honest Company has already been
producing some of its products such
as wipes and diapers in China.
Therefore, continuing production in
China and making some
customizations for Chinese
producers can be easily managed.
For example, The Honest Company
has a product called “soothing
baby bottom wash” with Sweet
Orange Vanilla scent. This scent
works for the American market;
however, the appeal of this scent
might be different for Chinese
consumers. They might prefer these
products without any scent. This
requires a consumer survey.
In conclusion, regarding product
strategy, The Honest Company
should:
Prioritize baby care products
especially for feeding instead
of women’s and men’s care
products to manage its
marketing in China more
easily
Use standardization for for-
mulas not to conflict with its
vision
Use customization for pro-
ducts such as diapers
Use customization for pack-
aging and branding with
China-related items to be
appealing to the consumers
who are in small cities or
grandparents
Benefit from Transcosmos’s
customer services oppor-
tunity instead of starting a
new center for this in China to
reduce its costs and to
respond Chinese customers
faster
Pricing
Pricing policy is another crucial
factor affecting market entry
strategy. To determine the details of
this policy, possible effects of the
following factors should be
discussed:
Citizens’ rapid income gro-
wth
Example from tier-3 cities: Ac-
cording to Forbes, consumers
living in smaller cities have a
higher tendency to spend
more on baby care products
compared to the big city
consumers.
18
19. 2008 Chinese milk scandal:
Due to the scandal related to
the products of a local
producer, reliability of local
brands is still being
questioned by Chinese
consumers. In addition to
purchasing power and the
willingness to purchase,
decreasing reliability of local
producers also indicates that
The Honest Company does
not have to follow “lowering
profit margin” policy. Prices of
The Honest Company pro-
ducts can be higher than the
local producer products.
Support provided by Trans-
cosmos: thanks to
Transcosmos, The Honest
Company will have
advantages related to the
taxation and inventory ma-
nagement cost. Most of the
sales will be performed online
through Tmall Global. Depen-
ding on the effectiveness of
this advantage, The Honest
Company can apply some
discount campaigns or have
the chance to keep its prices
lower than the prices of other
international brands.
Discount for empty tins and
boxes
Depending on this criteria and
price-quality matrix, “premium
strategy” or “penetration strategy”
can be used. However, if the
tendency of Chinese parents to
spend more on baby care products
and the high profile of The Honest
Company are taken into
consideration, “premium strategy”
can be more reasonable and
advantageous. Depending on this
strategy, The Honest Company
does not have to reduce its prices.
However, the company can try to
target the prices of other premium
brands, if possible.
High
Price
Medium
Price
Low
Price
High
Quality
Premium
Strategy
Penet-
ration
Strategy
Superb
Value
Medium
Quality
Over-
charging
Strategy
Average
Strategy
Good
Value
Strategy
Low
Quality
Rips
Off
Strategy
Cheap,
Flashy
Strategy
Bargain
Price
Strategy
19
20. In conclusion, The Honest Com-
pany’s pricing strategy should be as
follows:
Prices can be higher than the
prices of local producers.
The Honest Company should
try to keep its prices slightly
lower than other inter-
national premium brands, if
possible. This depends on the
transportation cost and ad-
vantages provided by Trans-
cosmos. Having lower prices
than the other international
brands will increase the num-
ber of consumers trying The
Honest Company products,
which can lead to brand
loyalty.
Discounts can be applied for
the consumers bringing emp-
ty tins or boxes. Therefore,
o material cost can be
decreased,
o recycling approach
can be promoted,
which is consistent with
the vision of the com-
pany
o brand image can be
protected against the
risk of counterfeiting.
As indicated before, the amount
and the possibility of discounts
depend on the transportation cost
and Transcosmos advantages.
Promotion
By taking the Chinese culture and
tendencies of Chinese society into
consideration, the following
methods can be used for promotion
of The Honest Company products in
China:
Branding and Motto: To make
Chinese consumer feel closer to
and familiar with the brand, a logo
with Chinese characters should be
used. To avoid language related
controversies and incorrectly
translated messages, the motto
used on the packages and in the
advertisements should be simple
and short. “Honestly” can be used
for this purpose.
20
21. WeChat-Moments: WeChat is the
most commonly used and most
powerful social media tool in China.
It has “Moments” option for
advertising, like Facebook ads
showing up in the timeline/news-
feed. For companies registered in
mainland China, the bulk price paid
at the beginning is around $7,500
while it is around $20,000 for foreign
companies. It is possible to target
the users depending on location,
age, gender, interest and phone
network. The cost per 1,000 views is
around $5.8 for non-specific
location ads, $20.3 for the users in
Beijing and Shanghai and $13 for
the users in 35 first and second tier
cities.
As can be seen from the exemplary
ads, it is possible to include brand
logo and name, ad description, a
URL link and up to 6 pictures.
Babytree.com: One of the first baby-
advice websites in China was
Babytree.com. On this website, it is
possible to make discussions about
pregnancy and raising babies. It
also offers advertisement option for
companies.
Celebrity endorsement: Chinese
consumers are influenced by
celebrity endorsements. The Honest
Company has an advantage since
Jessica Alba is a founder of the
company, and can be used to
promote the products in China. In
addition to Jessica Alba, for
instance, Fan Bingbing can be an
ambassador for the brand. She is
one of the most famous Chinese
actresses and singers in China.
21
22. Her involvement with social res-
ponsibility projects regarding child-
ren is another factor making her a
reasonable choice. However, the
following issues should be consi-
dered: The Honest Company’s bud-
get for advertising and China law
requiring celebrities to actually use
the products that they are adver-
tising.
TV ads (only on local channels of
small cities): TV ads can also be
used to promote products.
However, national TV channel ads
can be very costly. In addition to
national TV channels, regional/local
TV channels should be used
depending on the advertisement
budget of The Honest Company. It
would be more reasonable
because consumers living in smaller
cities are influenced more via TV
ads compared to the big city
consumers, according to Forbes.
Discount for empty tins and boxes:
As indicated in the previous section,
collecting the old tins and boxes
would be consistent with the
company vision and helpful to
protect the brand image. The
discount percentage should be
decided depending on the budget
of the company.
Place
Since the market entry strategy will
include Tmall Global, the only sales
channel will be the online platform
at the beginning to lower the cost
and to manage the process in an
easier manner. This approach can
be expected to work because it is
known that online shopping is very
common in China.
22
23. Depending on the demand coming
from Chinese consumers, using
retailers can be an option in the
following years. However, again, it
should be very carefully monitored;
therefore, the number of retailers
should be kept limited when they
start using retailers. For example,
only big malls in Beijing and
Shanghai can be used.
23
24. CONCLUSION
Due to its success in the U.S. and in Canada, The Honest
Company sees an opportunity to expand internationally. The
company sees entry into the Chinese market as the best option
due to a rapidly growing middle class, a platform and intermediary
that will make entry into the market simplified, and an opening in
the industry, particularly for baby formula.
As a result of the market analysis, The Honest Company is
encouraged by the potential for growth and international
expansion by entering the Chinese market. To increase chances
of success, the company should be especially conscientious of
cultural tendencies, consumer preferences, and the impact of
technology and the use of the internet for shopping.
In conclusion. having the highest population in the world,
being the second largest economy by nominal GDP, offering
advantages for newcomer international companies and being
close to the other potential markets such as India, we find China is
a very good location as a milestone for the future of The Honest
Company.
24
