A BRAZILIAN MARKETING STRATEGY FOR SKINCARE PRODUCTS
International Marketing

2010-2011

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Content
1. Introduction........................................................................................................................ 4 1.1 1.2 1.3 2. International Marketing .............................................................................................. 4 Company description ................................................................................................... 5 Goal of the study ......................................................................................................... 5

General cultural concepts .................................................................................................. 7 2.1 2.2 2.3 History.......................................................................................................................... 7 Geography and environment ...................................................................................... 7 Demography ................................................................................................................ 8 Basic facts ............................................................................................................. 8 Population density.............................................................................................. 10 Brazilian ethnicity ............................................................................................... 11

2.3.1 2.3.2 2.3.3 2.4 2.5

Religion and superstition ........................................................................................... 12 Socio-cultural environment ....................................................................................... 13 Language: verbal and non-verbal communication ............................................ 13 Symbols and colors ............................................................................................. 14 Hall dimensions and its implications .................................................................. 16 Hofstede dimensions and its implications ......................................................... 16

2.5.1 2.5.2 2.5.3 2.5.4 2.6

Value systems ............................................................................................................ 19 Role of women in society ................................................................................... 19 Family values ...................................................................................................... 20 Brazil, the country of beauty .............................................................................. 21

2.6.1 2.6.2 2.6.3 3.

Economic Culture ............................................................................................................. 23 3.1 3.2 3.3 Why Brazil? ................................................................................................................ 23 Political environment ................................................................................................ 24 General economic facts ............................................................................................. 25 GDP ..................................................................................................................... 25 Wealth distribution ............................................................................................ 25 Brazilian Real ...................................................................................................... 26 Imports and exports ........................................................................................... 26

3.3.1 3.3.2 3.3.3 3.3.4 3.4 3.5

Business culture ......................................................................................................... 28 Legal environment ..................................................................................................... 28 2

4.

Segmentation of Brazil ..................................................................................................... 30 4.1 4.2 4.3 Upper class................................................................................................................. 31 Middle Class ............................................................................................................... 31 Lower Class ................................................................................................................ 32

5.

Targeting and Positioning ................................................................................................. 33 5.1 Brazilian skin care market .......................................................................................... 33 Submarkets ......................................................................................................... 33 Market analysis .................................................................................................. 33

5.1.1 5.1.2 5.2 5.3

Targeting for PaDu ..................................................................................................... 35 Positioning for PaDu .................................................................................................. 37 The country of origin effect ................................................................................ 37 Product attributes .............................................................................................. 38

5.3.1 5.3.2 6.

Adaptation of the marketing-mix..................................................................................... 39 6.1 6.2 6.3 Product and packaging adaptations .......................................................................... 39 Price level................................................................................................................... 40 Distribution strategy .................................................................................................. 41 Transportation .................................................................................................... 41 Infrastructure ..................................................................................................... 42 Distribution ......................................................................................................... 43

6.3.1 6.3.2 6.3.3 6.4 7. 8.

Promotion .................................................................................................................. 44

Financial Summary ........................................................................................................... 48 Conclusion ........................................................................................................................ 50

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1. Introduction
1.1 International Marketing

The world we know today can be described as a ‘global’ economy. Some factors triggered this phenomenon: technological development, faster communication, transportation and payment methods... These challenges force companies to think more globally, more ‘out-ofthe-box’. As going abroad will be an incentive for rival firms as well, the only surviving method is following them. Getting there before your rivals can thus be vital for a firm. A purely domestic operating firm might collapse under the pressure of the global economy, though small and medium-sized firms can still be profitable if they are able to position themselves in a domestic niche market. Copying your domestic market strategy won’t be very successful and adapting to these given circumstances is not as easy as it seems. The main message is not to fear risk and change, but to embrace it.1 Expansion projects require an international marketing orientation. The table gives the most important differences between national and international marketing.2 Although income is converging globally, a standardized advertising campaign will not work as good as advertising by reflecting local values. Patterns of national culture and not income are crucial for a consumption society.3 If you ignore these differences you tend to standardization, i.e. not adapt to the local taste or habits. DOMESTIC MARKETING Business is transacted in a single currency Employees will possess detailed information of the home market Communication and control are immediate and direct Distribution and credit control are straightforward Business laws and regulations are clearly understood INTERNATIONAL MARKETING Many currencies are involved, with wide exchange rate fluctuations Employees might only possess an outline knowledge of the characteristics of the foreign market International communication and control might be difficult Distribution and credit control might be extremely complex Foreign laws and regulations might not be clear

1 2

A. Kanso, R. A. Nelson. Advertising Localization overshadows Standardization. 2002 R. Bennett, J. Blyde. International Marketing, Strategy planning, Market Entry and Implementation. 2002. Kogan Page Limited 3 M. De Mooij. Mapping cultural values for global marketing and advertising. 2000

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1.2

Company description

Our company is called PaDu (which is a contraction of Paul Ducray) and was founded in 1960. Paul Ducray was very famous in France, since he was the most known make-up artist of the nation’s television broadcasting. From the beginning, the company has focused on very professional material and a very high-quality brand image. PaDu sells high quality skincare products such as face masks, moisturisers, lip gloss... aiming at a high-price market segment. The company is active in every submarket of the skin care market: facial care, hand care and body care. The products PaDu distributes are sold in perfumery stores, high-end supermarkets, pharmacies and beauty salons. The company is still owned by the family Ducray. PaDu is market leader in France, having a market share of 22% overall. The company also entered other European markets and has actually an average market share of 7% in Belgium, Luxemburg, Switzerland, Italy and Germany. PaDu has realised a lot of retained earnings in the last few years and is looking for opportunities out of the European market towards LatinAmerica. The boss, Guillaume Ducray, gave the assignment to the Marketing Department to evaluate the best opportunity to enter the market in Latin-America. The first products that are going to be sold by PaDu in the country are a facial nourishing anti-aging cream and an anti-cellulite product. After evaluation of this launch, it is the company’s objective to sell more by broadening the gamma.

1.3

Goal of the study

The aim of the paper is to develop an all-round marketing entry strategy for the company to launch our products in the most effective way. First we will analyse the benefits Brazil can give with regard to their consumption culture. General cultural determinants that influence the way people live and buy in Brazil will be analyzed in chapter 3. The economic environment, the situation on the skincare market and the business culture are analyzed in chapter 4. Chapter 5 tries to give a good segmentation of the skincare market depending on certain characteristics. In chapter 6, the real adaptation of the marketing mix is described. We use the 4 P’s (Price, Promotion, Place, Product). This adaptation must be seen as the application of all the information we gathered in the previous chapters. After that, a

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financial analysis will be given, looking at the profitability of the market entry. A conclusion finishes the paper.

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2. General cultural concepts
2.1 History

Before 1500, Brazil was populated by a lot of Indian tribes. The history of Brazil since then is closely linked to the one of Portugal, because a Portuguese seaman, Pedro Álvares Cabral, invaded the country and established the Portuguese throne. The colonisation of the country began and the original population suffered very much from slavery. Also diseases, military coups and several attempts of other countries to conquer Brazil were at the basis of a very turbulent history. The country was characterised by instability. Despite this all, the Portuguese people were able to sustain their influence. This makes Brazil a largely western country with Latin influences. From 1984 onwards, the government of the country is evolving slowly to a more democratic form of rule.4

2.2

Geography and environment

Brazil occupies almost the half of the South-American continent and has borders with almost every country in this part of the world. With a total surface of 8,514,215 km2, the country is the fifth largest in the world. This can be of strategic importance when an expansion to other Latin-American countries is considered. The biggest river in the world, the Amazon, runs through the country. The Amazon is surrounded by the Amazon forest. This forest is cultivated a lot because the ground contains several raw materials as gold, uranium and iron ore. Also, the tropical hardwood is much desired, generating a lot of cash, and the ground is humid for agriculture. One fifth of the original surface has already been deforestated5. Brazil has a tremendous coastline with the Atlantic Ocean of 7491 km so it can develop large ports. Geographically, the country can be divided into four main regions:     The tropical east-coast The Highland of Brazil in the south, containing the tropical rainforest Sertao in the north-east, containing a dry, dessertlike area The basin of the Amazone river in the western and northern regions, containing the Amazone forest
4 5

http://en.wikipedia.org/wiki/History_of_Brazil http://nl.wikipedia.org/wiki/Amazonebekken

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Politically seen, the country is divided in 26 states. States have autonomous administrations, collect their own taxes and receive a share of taxes collected by the Federal government. They have a governor and a unicameral legislative body elected directly by their voters. They also have independent Courts of Law for common justice. Brazil knows many environmental issues. The main issue is the deforestation in the Amazon basin that endangers a multitude of plant and animal species that are indigenous to the area. Other main concerns are the lucrative illegal wildlife trade, air and water pollution caused by mining and oil activities. Brazilians have a typical exploitation incentive, wanting to get everything out of the land that makes money. This can be seen as a consequence of the plundering different invaders did in the country throughout its history.6 ‘Research and Markets’ did a study on the awareness of the Brazilian consumer of environmental issues, called ‘Green Consumers in Brazil’.7 A high proportion of the people knows how their daily life behaviour affects the environment and wants to live more ‘green’. It is expected that this ‘green’ consumption patterns will increase across the border as women now tend to be more conscious than men. It’s plausible that great environmental problems throughout the history of the country made people realize the importance of the environment, especially in relation to their health. The fact that Brazilian consumers attach large value to the fact whether a product is environment friendly is very important, because it’s one of PaDu’s highest values.

2.3

Demography

2.3.1 Basic facts The evolution and the importance of certain age categories is vital for a market study, because it gives an estimation about how much market potential there is now and how much there will be in the future. With a population of 201,103,330, Brazil can call itself the fifth biggest country in the world. The population is growing at 1,166%. The table below shows us the importance of age-categories.

6 7

http://www.indexmundi.com/brazil/environment_current_issues.html http://business.ezinemark.com/motivations-and-priorities-of-green-consumers-in-brazil-318743e609b.html

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MALE FEMALE

0 – 14 27,092,880 26,062,244

15 – 64 65,804,108 67,047,725

65 + 5,374,230 7,358,082

An estimation of the evolution of these categories up to 2020 is given in Figure 2 also, because it can be an important indication of future market potential.8 The 15-65 category will be double as big in 2020. For our product, the demographic evolution is favourable, because both the 15-65 and the 65+ category are target groups for an anti-aging and anticellulite cream.

0 - 14 15 - 65 65 +

Figuur 1 - Demographic categories

Figuur 2 - Demographic evolution

Euromonitor gives us some useful implications of the demographic evolution on the consumer market9:    The explosion of the 15-65 will result in a bigger pool of potential workers in the Brazilian economy; The increasing number of young people should stimulate demand in housing, furniture and home improvements and their related markets; For the first time in her history, the biggest part of the population will be 65+. It will be a difficult challenge for the government to handle this demographic trend.

8 9

https://www.cia.gov/library/publications/the-world-factbook/geos/br.html http://www.euromonitor.com/Demographic_transformation_in_Brazil

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Of course, the women the 20-64 segment and the 65+ segment are the most important target segments for our products. We can also assume that people from the 65+ segment often have a standard product which they are using for a long time and don’t want a change to something new. A high uncertainty avoidance score would stress this effect. Advertising to the 0-19 segment can be also relevant because they are the buyers of the future. A good brand image might give them incentives to persuade their parents.10 2.3.2 Population density There is a continuous urbanisation in Brazil that knew his height in the period of 1950-1990. The country has changed from an agrarian to an urban country with an urbanisation degree of 86%, growing annually with 1,8%.11 Of course, the famous favelas (slumbs), account for a big portion of these urbanisation. Numerous efforts have been made on a political level to stimulate settlement in the rare populated regions around the Amazon, in order to slow down the growth of the very big cities and to favour the growth of middle-sized cities. But these efforts hadn’t their effect because they were outraged by industry expansion projects and a stimulation of services to urban people. The urbanisation of south-east and north-east region is a fact. Nowadays, people tend to settle down in medium cities in their native region so there is a significant movement of people towards the interior.12 The spread is still very uneven, on one third of the country’s surface, 90% of the population is living. PaDu should target the urbanised eastern region of the country, in order to get a more renumerating marketing plan.13 The largest metropolitan areas are São Paulo, Rio de Janeiro and Belo Horizonte - all in the south-eastern Region - with 19.5, 11.5, and 5.1 million inhabitants respectively.

10 11

https://www.cia.gov/library/publications/the-world-factbook/geos/fr.html https://www.cia.gov/library/publications/the-world-factbook/geos/br.html 12 http://www.everyculture.com/Bo-Co/Brazil.html 13 http://countrystudies.us/brazil/29.htm

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Figuur 3 - Population density

2.3.3 Brazilian ethnicity Given its violent and unstable history, Brazil has a very heterogenic society. Though the main influence came from the western of Europe, a lot of people from the Middle-East, Africa and even Japan immigrated to the country throughout the history. Because of the lack of a clear colour distinction and a strong cultural tradition of tolerance and cordiality, as well as longstanding explicit laws against racial discrimination, Brazil is known as a ‘racial democracy.’14 This ideology is only partly true though, because racial prejudice and discrimination do exist. It is just done in a more subtle way. Maybe that is why it is more difficult to handle the problem. Prejudice and discrimination are about more than only the racial difference, because the country grew up with this diverse ethnicity. Discrimination is more a matter of social class, rather than race.15 The graph gives an image of the relative importance of every race. The data are obtained from the CIA’s World Factbook.16

14 15

http://countrystudies.us/brazil/34.htm http://www.everyculture.com/Bo-Co/Brazil.html 16 https://www.cia.gov/library/publications/the-world-factbook/geos/br.html

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White Mulatto Black Others (Japanese, Arab, Amerindian)

Figuur 4 - Skin color

2.4

Religion and superstition

Brazil doesn’t have an official religion and there is a freedom of religion by law. The biggest part of the people (74%) is Roman-Catholic, which makes Brazil the largest Catholic country in the world. The Catholicism comes from the influences of the European and African culture, mainly caused by the invasion of the Portuguese fleet. The presence of a big religion implies a belief in one big truth. A variety of other religions like Protestantism, Islamism and certain ancient Indian religions exists also in the country so a large syncretism is nowadays at hand. There has always been a peaceful coexistence of these religions. Due to this mishmash of religions and cultures through the history, a lot of different beliefs and conveniences have entered the society. The Brazilians are fascinated by mysticism and the supernatural. Particularly the slavery brought in so many types of superstitions as people wanted to create certain believes for them to escape from their misery. With this high rate of religion and superstition we expect the people to have a high rate in Hofstede’s uncertainty avoidance.17

Roman-Catholic Protestant No religion Spiritism Others

Figuur 5 - Brazilian religion
17

http://en.wikipedia.org/wiki/Religion_in_Brazil

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2.5

Socio-cultural environment

2.5.1 Language: verbal and non-verbal communication The official language in Brazil is Portuguese and is spoken by 99% of the population. Other languages are spoken by immigrants and Amerindian groups. Nonetheless, still 210 languages are spoken in Brazil, with 80 of them being Amerindian. The difference between Portuguese from Portugal and Brazilian Portuguese is almost the same as the difference between British English and American English.18 A typical slang is also spoken here. This slang has a certain word for ‘you’, voceê. It is better not to use this, but the more respectful senhor.19 There isn’t much difference between certain dialects of Portuguese, so one Brazilian is able to understand another rather well.20 In Brazil, they are attached to titles, most of all followed by the front name instead of the family name. Touching each other while you speak is also common. Physical appearance and surroundings are thus very important. Interrupting and talking with a high tone is common in Brazil thus one should be aware of the fact that talking loud isn’t an indication of anger or hostility. Non-verbal communication like greeting or saying goodbye is similar to the western equivalent. The personal or physical space is not perceived as important for Brazilians, so holding a distance may be seen as impolite. Maintaining eye-contact is good, although one should avoid contact if you are younger or porrer, certainly with men. By this you show the person you are talking to some respect.21 Be aware that showing the OK-sign can be interpreted as offensive; one should better show his thumb then. Holding your thumb between the index and middle finger is the sign of wishing someone good luck. Good conversation topics are soccer, carnival, family and children whereas talking about Argentina, politics, poverty and the rain forest should be avoided. Sales of our products should thus be focused on a very physical way of communication. Maintaining eye-contact, talking clearly and using a friendly title to greet the person are crucial in making a good impression. Using the good conversation topics like soccer and carnival in our advertising can have an appealing effect on the people.
18 19

http://en.wikipedia.org/wiki/Languages_of_Brazil http://internationalbusiness.wikia.com/wiki/Brazilian_Communication_Patterns 20 http://www.everyculture.com/Bo-Co/Brazil.html 21 http://internationalbusiness.wikia.com/wiki/Brazilian_Communication_Patterns

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2.5.2 Symbols and colors 2.5.2.1 Brazil as perceived by foreigners

Corruption culture The Brazilian culture is often considered as very corrupt. This is true, even when dealing with non-governmental persons, you may have to pay twice: once for tasking and once for asking. Corruption is perceived as normal by the native people. This is the main reason why I would establish my own sales force and factory in Brazil, and not get into any alliance. Soccer Soccer is the perfect way to climb up the ladder of this very hierarchical society. It is a sport that units the country and makes everyone proud. Brazilians themselves describe soccer as an “art that is akin to dance”. Brazilians are known for their very technical and attractive style of playing that made them four times world champion. Brazilians don’t attach much value time, coming late is common. Appointment times and reservations are only a guideline. Also music and the sexiness of the country are main attributes that are linked with the Brazilian society.22 2.5.2.2 Brazil as perceived by Brazilians

A lot of people in Brazil say life’s too short to take it seriously. They emphasize on the fun parts of life rather than on the stress and the mundane things. They like to shake the stress away with salsa on Copacabana beach. The philosophy of ‘carpe diem’ is a good summary of their view on life. Brazilians value warmth, spontaneity and have lack of prompt and ceremony. Brazilians consider themselves as well-developed, tired of everyone labeling them as a developing country. They place themselves also higher than the other Latin American countries, thinking they are freer, more vibrant and more alive. A certain form of arrogance is shown to these neighbors.23

22

http://www.atozworldtravel.com/worldtravel2_country.asp?nid=20.08&next_nid=20.09&cid=19&parent=Soci ety%20and%20Culture
23

http://www.atozworldtravel.com/worldtravel2_country.asp?nid=20.08&next_nid=20.09&cid=19&parent=Soci ety%20and%20Culture

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2.5.2.3

Colors

In bringing your products to your consumers, it is vital to know how products attributes are perceived by those people. Colors that are used in the packaging and the design of your product should try to evoke positive feelings by the consumer. Given that the meaning of colors largely differs from country to country, it’s necessary that we look at the meaning of principal colors in Brazil. The country’s national flag was adopted in 1902 and has a high symbolic meaning. The green on the flag stands for the green meadows of Rio de Janeiro. The yellow represents the gold that was extensively found in Brazil. The circle represents the blue nocturnal sky as perceived in Rio de Janeiro on November 15, 1889, the day the flag was designed. The sky shows us 27 stars that are grouped in 5 groups, symbolizing the constellation of the stars that night. The 27 stars represent the 27 states of the country. The stars are 5-pointed, referring to the fact that there are 5 regions in Brazil. The white strip envelops the blue circle as the equator and displays the country’s motto: ‘Ordem et Progresso’. This is a quote of Augusto Comte, a French philosopher.

Figuur 6 - Flag of Brazil

As could have been expected because of the colored society, colors are important in Brazil. One should thus use colors in his advertisement that are perceived as happy and flashy, not some lusterless colors that don’t represent the joyful Brazilian life. Yellow, green and red have a positive image, whereas black and purple have the traditional negative image, especially in the country of carnival.

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2.5.3 Hall dimensions and its implications Edward Hall distinguished two different cultures: high-context and low-context cultures. A high-context environment is characterized by its informality. People know each other well thanks to long-term relationships of understanding. Formal and explicit communication is often not necessary as there are strong boundaries between the members and thus everyone knows what the other thinks or what the other will do in a situation. A low-context environment is a more rule oriented society. Interpersonal communication is rather short. Knowledge is more codified, external and public available. That is the reason why knowledge becomes more transferable and not so much depending on individuals.24 Brazil is known to be a high-context society. This means that what Brazilians interpret not solely depends on what is said, but also on how it is said. Messages are understood in terms of the full context of the communicators’ relationship with each other. It may thus be crucial to establish personal relationships with your business people; this enables some level of trust to engage in a business relationship.25 High-context societies tend to have a polychromic attitude at time and a low territoriality when regarding their personal space.26 As we have already mentioned, this is correct for Brazil, as they don’t attach much value to promptness and like physical contact. France too can be considered as a high context society, but not as much as Brazil does. If Brazilian and French people communicate, we can encounter thus some small differences. 2.5.4 Hofstede dimensions and its implications Power distance (PD) Given the fact that Brazil has a history of slavery and colonization and the current spread of wealth in the country, we predict a high power distance. The Hofstede score indicates this and is very high. This can be useful for the marketing of our product because it implicates that powerful people want to look good, healthy and well-fortuned. A good social status is

24 25

http://www.culture-at-work.com/highlow.html http://www.referenceforbusiness.com/encyclopedia/Assem-Braz/Brazil-Doing-Business-in.html 26 http://changingminds.org/explanations/culture/hall_culture.htm

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thus of vital importance to Brazilians. The use and marketing of cosmetic products will of course contribute to that effect.27 Individualism (IND) The country scores low on individualism so we have a collectivist society. We find societies in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families (with uncles, aunts and grandparents) which continue protecting them in exchange for unquestioning loyalty. The society has very strong cultural links with its history, family and friends. The word 'collectivism' in this sense has no political meaning: it refers to the group, not to the state.28 For the use of our cosmetic product one should establish a marketing campaign representing not one, but more persons who are chatting and laughing together in happiness while using the product. Uncertainty avoidance (UA) We predict that, due to overregulation of the society and the religious character, Brazil is very risk averse and will try to minimize changes. Their way of living is perceived as ‘the one’ and they won’t let anybody interfere in their life. This is also shown by Geert Hofstede’s score of 76, which is similar to the other Latin countries. At first, it may look negative for us, but we are talking here about a fast moving consumer good (FMCG). These are products that have a low lifetime cycle and do not need as much of convenience as very durable goods. So I think this uncertainty avoidance will have a minimum impact on the marketing of our product. Also, UA indicates the fact that people are concerned about getting everything under control. The marketing of a facial nourishing cream against aging and anti-cellulite for women might thus be something all women want to have in their bathroom. Masculinity (MAS) Masculinity and its opposite, femininity, give us an impression of how a society is organized. Given the democratic culture of the country nowadays and the image of sexiness that will later on be analysed we can argue that the Brazil has a ‘masculine’ society, but there is a good balance between masculine values such as assertiveness and competition and feminine
27 28

College notes Hofstede http://www.geert-hofstede.com/hofstede_brazil.shtml

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values such as caring, health and family. The Hofstede score is slightly in favour of masculinity which is what we expected, reflecting a rather elaborate distribution of gender roles. Long-term orientation (LTO) As stated in business culture, Brazilian people tend to invest in long-term relationships on a business but also on a personal level. Respect for tradition, fulfilling social obligations, and protecting one's 'face' are the main elements of a long-term orientation. A good effort is valued high by Brazilians as it indicates your drive to give them a pleasant feeling. Showing that people are involved in the marketing process of your product can give a positive pulse and image to it. Inquiries about the product and actually taking in mind the desires of the consumers give the people a feeling that they are involved. Due to difficult practical implications these inquiries are taken online, on PaDu’s website. The name of the website should be stated on the bottle and not on the package as people don’t look much to those boxes.

Figuur 7 - Geert Hofstede Brazil

Figuur 8 – Geert Hofstede France

When comparing the Hofstede scores for France and Brazil, we can conclude that the Brazilian society is less individualistic, more masculine and less uncertainty adverse compared to France. Being able to relate this Hofstede scores to some kind of behaviour in practice is the next step. In her paper, Marieke de Mooij demonstrates how Hofstede’s model can be applied to international marketing strategy. Marieke de Mooij is a doctor in Communications and is a

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consultant in cross-national communication. A few interesting behaviouristic attitudes can be found when you have correlation figures with relation to the Hofstede data.29 Consumption of mineral water When talking about the consumption of mineral water, you can refer to it as a healthy aspect of lifestyle. Eating and drinking healthy is passive, easy and possibly the only solution for people who have high uncertainty avoidance. It is proven that people with a high uncertainty avoidance practice less sports. Given Brazils high UA, we can conclude that Brazilians have a rather passive interpretation of health. Main food shoppers Depending on the degree of masculinity in a society, roll patterns are different. Empirical evidence shows that women do the shopping in masculine societies. Given the masculinity of Brazil, women can be considered as the target group of our advertising campaign. Importance of physical appearance Countries with a big power distance and high uncertainty avoidance tend to attach more importance to physical appearance. The figures of Brazil are high for both of the attributes so the marketing of a skin care products should be successful here. However, the ‘consumption of cosmetics’ is negatively correlated with UA. This means that our product can’t be very cosmetic; it should use as much natural products as possible. Our commercials should definitely stress this!

2.6

Value systems

2.6.1 Role of women in society Legally, women and men are the same. Women have voting rights since 1932 and are able to travel across borders since 1988. Nowadays, 35 percent of the Brazilian labour force is done by women, with most of them working in the service sector. The election of a female president indicates the improving influence of women in the society. But this doesn’t

29

College notes

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guarantee an equal treatment in reality. There is still a big inequality in salary with the male counterpart. Women earn on average 40% less than men. The Brazilian society is strongly characterized by machismo, which means that the men like to show their virility, while women have to wait to be chased on. Women in marriage need to be loyal, caring and uncomplaining. They have to accept the power of their man and not question what he has been up to. Women have to look well, so men can show off with their ‘conquest’. But there is a positive evolution; the World Bank says that there is a positive image of women developing in the country with an increase in life expectancy, a decline in birth rate and a decline in illiteracy of women. Because of the big social gaps in Brazil, there is still a big difference between middle- or high-class women and rural women.30 Many women have been engaged in the huge direct selling projects of beauty concerns like Avon. Avon employs now over 700 000 women in direct selling. Those women not only help the people feel better about their body, but also benefit because it is a way out of poverty for them.31 Like this, Brazilian women are able to break with the traditional pattern of men vs. women. This illustrates that we should be careful if we use an image of ‘the’ Brazilian women. We can only aim for the middle- or high-class women, as the products have a luxury character and won’t be affordable for the rural women. 2.6.2 Family values As can be expected from a high collectivist society, the Brazilian family is the foundation of the social structure. The family is used as a social network and helps you in times of need. Everyone, also the extended family is considered as very close. The average amount of persons in the family was big, but the number is declining now.32 This stresses again that the family value should be used in our marketing strategy.

30

http://www.atozworldtravel.com/worldtravel2_country.asp?nid=20.32&next_nid=20.33&cid=19&parent=Soci ety%20and%20Culture 31 http://www.timesonline.co.uk/tol/life_and_style/article846650.ece 32 http://www.everyculture.com/Bo-Co/Brazil.html

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2.6.3 Brazil, the country of beauty Being beautiful is something that is very important in Brazil. If you look on the beach, in the streets you see all people have style. And not only the rich but also the poor people care about it. We can state that beauty products aren’t seen as a luxury good, but more as a basic good because even on the corners of streets in slumbs you can see beauty stores. Beauty can thus be seen as a way to overcome social inequalities. A research by McKinsey33 points out that Brazil is the country with the most liposuction surgeries in the world. Brazil is stated as the global capital of plastic surgery because of its affordable plastic surgery cost and the quality of medical procedures done in the country.34 The McKinsey rapport also says that the sales of cosmetics almost doubled between 2003 and 2009. The personal consumption of a Brazilian is now $130. For PaDu it is thus the right moment to pop in. Nevertheless, some cautions are mentioned in the rapport for foreign market entrants:  Catalogue design is important. The catalogue should not only show new products and promotions but should speak for the company when the representative is absent. A dull catalogue is not going to attract Brazilians;  Sales representatives are crucial. Most representatives are willing to change companies, so players need to develop an attractive business proposition in order to recruit, develop and retain an effective sales force;  Companies considering the Brazilian health-and-beauty market need to think about their sales-channel strategy carefully. Although direct sales are booming, competition is fierce, and getting it right requires mastering specific skills. An alternative would be to invest in retail channels, particularly pharmacies and drugstores. Since PaDu is new on the Brazilian market, competing by direct selling might be too difficult in the beginning if you consider for example a sales force of 700,000 women of Avon. Bearing in mind the high quality and high price approach of PaDu we would focus on pharmacies and beauty salons. The Sunday Times reports that Brazil prices physical beauty very high. When you call someone vain it is often received as a compliment, because it shows that they try hard to
33 34

http://csi.mckinsey.com/en/Knowledge_by_region/Americas/brazilbeauty.aspx http://www.scribd.com/doc/6430219/The-Plastic-Surgery-Capital-of-the-World

21

make themselves attractive. In a research done by Avon, 99 per cent of the women consider beauty products as a necessity, not as a luxury product, compared to an average of 77 per cent in the world. 35 The explanation that Avon gives is the attempt of women to enter the labour market, using good looks to persuade their future employers. "It's important to look good, and feel good if you want to confront the male-dominated executive world," said Marcia Gonsales, of Avon Brazil. Also, the tropical climate makes men and women wear less clothes so physical aspects become more important to catch the eye.36 To conclude the second chapter on the culture of Brazil, we give the results (in %) of a survey, where the question was: ‘What is more important for you: country, religion, family, or work?’37
COUNTRY BRAZIL 6 RELIGION 10 FAMILY 69 WORK 15

When comparing these figures with the other Latin-American countries in the paper, we can conclude that values for religion and family are relative high. The results thus confirm the above mentioned cultural research.

35 36

http://www.timesonline.co.uk/tol/life_and_style/article846650.ece http://www.redorbit.com/news/oddities/7615/brazilian_women_vainest_in_world_study/ 37 J. García-Gonazález. How to avoid the pitfalls in multi-country research? Esomar. 2005

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3. Economic Culture
3.1 Why Brazil?

The Marketing Manager gave Guillaume Ducray the advice of investing in Brazil. In the World Economic Forum rapport of September 8, 200938, we read that Brazil has a high attractiveness on investors. It is clear that the days where Brazil was seen as a high-risk country to invest are over. The Brazilian market is now even perceived more save than for example the Belgian market. As the chart illustrates, the risk premium asked for loans is lower for Brazil. The enormous domestic market potential, a solid financial structure and a modern business culture are among the biggest strengths. Although the country suffered more from the economic crisis than the other BRIC-countries, it is recovering well due to stimulating measures of the government and the lowering of the interest rates. However, these measures should be sustained if the country wants to grow in a durable way.39

Figuur 9 - Riskpremium on loans

38 39

http://www.eyebrazil.com/index.php?option=com_content&view=article&id=300 http://www.eyebrazil.com/index.php?option=com_content&view=article&id=44

23

Figuur 10 - Economic recovery world chart

3.2

Political environment

Brazilian politics are characterised by a fractiousness that mirrors the country’s diverse socio-economic make up. The increase in economic prosperity started largely thanks to a stable political environment present since 2003. Populist president Luza da Silva (Lula) has led the country for two consecutive terms from 2003 to 2011. Now, another member of his Workers’ Party (PT), Dilma Rousseff, will lead the nation’s government. It is believed that she will proceed with Lula’s policy. As the Workers’ Party (PT) focuses on state intervention and state industrial policy, most of her followers came from the poor north. In order to get support of richer and better-educated people too, it is crucial that Henrique Meirelles and Antonio Palocci stay on as governor of the Central Bank and Minister of Finance. This provides stability and continuity in their market-friendly economic policy.40 Dilma Rousseff promises to eradicate extreme poverty, control inflation, improve health, education and public security and to open doors for women in public life.41 In order to cope with the global economic slowdown, Lula’s administration focused on an expansionary growth acceleration program of public investment. Lula advocates for both government participation in the economy and respect for investor’s contractual rights: he promotes public-private partnerships, not privatisations, to attract private capital. Despite significant progress in the simplification of the foreign exchange regime, important residual controls remain, e.g. foreign currency bank accounts are not permitted. Regulatory agencies
40 41

The Economist. Brazil’s next president – Stepping into outsize shoes. November 6 2010 th The Economist. The Battle Ahead. January 8 2011

th

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are weak and bureaucracy is cumbersome. Procedural requirements to start a business in Brazil take 120 days against a regional average of 45,5 days.42

3.3

General economic facts

Brazil has a free market economy. The main sectors of the country are agriculture, mining, manufacturing and service sectors. Of course, the presence of a lot of raw materials like iron ore, bauxite, manganese, nickel, uranium, gold, gemstones, oil and timber gives them a lot of bargaining power. The Brazilian economy outweighs the other economies of LatinAmerica. Its macro-economic stability is caused largely by building up foreign reserves, adhering to an inflation rate, reducing its debt and committing to fiscal responsibility. 43 66% of the people work in the service sector, 20% in agriculture and 14% in industry sector. There is a current unemployment rate of 8,1%. 3.3.1 GDP With a GDP (PPP) of $2.01 trillion (USD) in 2009 Brazil is now the 10th biggest region in the world, a lot bigger than the other Latin-American countries. Although it suffered hard during the recession, the government expects a growth of 5% in 2010 as consumer and investor confidence revived, which isn’t bad at all. The GDP per capita (PPP) as of 2009 in Brazil is $10,100 (USD), ranking the country at place 109 in the world. It should be noted that the GDP per capita of Brazil is a lot smaller than the one from France, where the GDP per capita amounts to $32,500 (USD). PaDu should definitely take this in mind when thinking about its pricing strategy. 3.3.2 Wealth distribution The wealth distribution is important for PaDu. It can be a good indication for the pricing strategy our company has to follow. Brazil has an income distribution that is largely dispersed and that varies a lot over the country. The country has the fourth largest Gini Index (60,7) in the world, mainly due to a lot of poverty (with a poverty percentage of 26). The highest segment of 20% earns 62,5% of the Brazilian GDP. This inequality is something
42 43

http://www.doxtop.com/browse/626d877c/general-political-environment-in-brazil.aspx https://www.cia.gov/library/publications/the-world-factbook/geos/br.html

25

very persistent through the country’s history. A large score in the Hofstede dimension of PD proves this point. 3.3.3 Brazilian Real The modern real was introduced in 1994 as part of the Plano Real, a big reform in the Brazilian monetary sector, with the purpose to put an end at three decades of serious inflation. In the beginning it had a fixed exchange rate with the US dollar, but after devaluation this system had to be abandoned. Nowadays, the exchange rate is floating and of approximately BRL 1,7 to USD 1,0.44 Since 2005, the Brazilian government tries to keep the inflation rate stable at a target of 4,5%. The table below of the evolution in recent years shows us that in 2004 a threat of hyperinflation was present. Since 2004 they managed to keep inflation rate under control, despite the financial crisis last year. YEAR INFLATION (consumer prices) 2004 2005 2006 2007 2008 2009 2010 14.70 % 7.60 % 6.90 % 3.00 % 3.60 % 5.70 % 4.20 %

The fact that the government has the inflation rate relatively under control is a positive element for a company seeking to invest and enter the market of Brazil. Investments in a high-inflation environment are riskier, because costs can get out of hand. 3.3.4 Imports and exports Brazils export amounts for $158.9 billion (USD) and the main commodities are transportation equipment, iron ore, soybeans, footwear and coffee. Brazils import amounts to $136 billion
44

http://en.wikipedia.org/wiki/Brazilian_real

26

(USD) and the main commodities are machinery, chemicals, oil, automotive equipments and electronics. The chart below shows us the importance of the main trading partners.45

Figuur 11 - Export partners

Figuur 12 - Import partners

There exists already a good relationship between France and Brazil, as the two countries entered a formal strategic alliance in 2008. France recognized Brazil as their first business partner in Latin-America and will help the emerging country to realize its ambition of becoming a world partner. This bilateral cooperation wants to strengthen positions of both countries in nuclear and renewable energy, technological development, defence technologies, joint investment in Africa and environment issues.46 Today, Brazil is the fourth most important partner of France, totalling a total trade of $6.5 billion (USD). All imports and exports are controlled by SECEX, the foreign trade secretariat. I will give a brief explanation of the main import regulations of Brazil. Shipments to the country must contain a detailed summary of the goods that are brought in. Certificates are required for special goods, such as food and health products. The duty tariff is based on the MERCOSUR common external tariff (TEC) and is now approximately 20%. Two taxes are applied on imported goods: the industrial products tax (IPI) and the merchandise and service circulation (ICMS). The first one usually ranges between 0 and 15%. The second one is 12% and is levied on goods moved through Brazil.47 Exports shouldn’t be analysed because it isn’t very relevant in our case.

45 46

http://www.economywatch.com/world_economy/brazil/export-import.html http://en.wikipedia.org/wiki/Brazil%E2%80%93France_relations 47 http://fedex.com/us/international/irc/profiles/irc_br_profile.html?gtmcc=us

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Given this high amount of import taxes and import duties, PaDu chooses to only import the raw materials of their products.

3.4

Business culture

Brazil has a typical group culture so face-to-face contact is primordial. Never embarrass or criticize someone in public, because both the offender and the victim will lose face. Always take your time to negotiate, because Brazilian people want to get familiar first with you as a person and the company as a whole. Bringing a Brazilian colleague or a Portuguese translator to the negotiations might thus help the conversation, because Brazilians aren’t used to the fact that foreigners speak Portuguese and it can thus be seen as a sign of big respect. Brazilian business is hierarchical, so the people you get to see mostly aren’t the eventual decision makers. Brazilians don’t like outside legal presence, so bring a local lawyer and a local accountant to the meetings. Business meetings rarely begin on time and have to be appointed 2 or 3 weeks before the meeting. Brazilians like to invest in long-term business relationships, both in money and in time.48 With this information, we can say that the people like to see a local head for face-to-face marketing of our product; that is why we will train Brazilian people from the first day on, so they can replace the French staffs who initiate the project. The company person should not rush into the people and have a good pronunciation of the Portuguese language. Brazilians focus on a personalised relationship.

3.5

Legal environment

Two main regulators can be distinguished for the marketing of health and beauty products in Brazil: Anvisa and Conar. While Anvisa concentrates more on the well-being of the people, Conar determines the advertising one can use. Anvisa’s mission is “to protect and promote health, ensuring the hygiene and safety of products and services and taking part in developing access to it".49 Anvisa is a public organisation within the structure of the ministry of Health. They try to control production

48 49

http://www.kwintessential.co.uk/resources/global-etiquette/brazil-country-profile.html http://www.brasil.gov.br/sobre/health/organs/anvisa/br_model1?set_language=en

28

and marketing of products and services that are of sanitary interest. The agency controls ports, airports and borders and has liaisons with the Brazilian Ministry of Foreign Affairs concerning international sanitary trade.50 Conar is a non-governmental organization that was founded to enforce the Brazilian Advertising Self-regulation Code. The Self-regulation Code tries to find equilibrium between a lack of control and total control by the government. It was designed by a group of broadcasters whose main vow was to respect the ethics in a country. The guidelines are not binding but are widely accepted because it helps to settle disputes out of court. For a summary of the guidelines, we refer to their website.51 PaDu shouldn’t have problems with both of these organizations as their products are environmental friendly and no ethics of the country will be violated in their advertisements.

50 51

http://www.anvisa.gov.br/eng/institution/introduction.htm http://www.gala-marketlaw.com/pdf/AdvertisingRegulation.pdf

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4. Segmentation of Brazil
Segmentation of our market is a key element in our marketing strategy because an average consumer doesn’t exist, not even in Brazil. Datamonitor market studies that contain the most important figures for market segmentation can’t be used here, because a big amount has to be paid in order to use them. I will use my own intuition and try to give sufficient numerical evidence to justify the choices I made. The population density and the income distribution will be used to segment the potential of the Brazilian market for our product. We will try to segment the market given these two important determinants of consumption. PaDu sells a considerable high-priced product and needs to be distributed efficiently because PaDu still is a considerably small concern. A very efficient use of resources and thus very good target segments must be formulated. We focus on women only, since they are the main users of the products. Also, women mostly do the shopping in households, so advertising and selling should be directed to them. On the chart of Brazil we see a highly populated south-east region. The west is less populated because of the forests and the mountains. The south-east contains the biggest cities, e.g. Rio de Janeiro and Sao Paulo, and the highest populated states, e.g. Rio de Janeiro, Sao Paulo and Parana. The limited resources of PaDu and the huge competition at the market suggest us to target the urban part of Brazil, it is the east side of the country. Too many costs should have to be endowed to reach people who live in the non-urban part of the country. However, it can be an expansion strategy for our company to settle in that market segment in the future. Having defined the urban and non-urban part of the country we should now divide them up with relation to income, social status and age. The determinant ‘income’ is obvious, as our skincare product is high quality and given the very unequal social structure of the country. ‘Social status’ of women is also important. A woman can be single or not, employed or unemployed and this will determine her way of living and hence buying behaviour. In the urban segment we will distinct 3 different groups: the rich, normal and poor people, defined as the upper, middle and lower class. Each group can then be characterised by different social statuses and age 30

4.1

Upper class

Trying to reach this rich segment of the Brazilian population, a certain luxury image should be created. Based on the Cameo data52, this segment represents 12,6 % of the households but controls 80% of the income of the country. The amount of persons in a household varies from 1 to 4. These upper-class people live most of all in spacious apartments or private homes in the best part of the inner cities, far away from the so-called favelas. The upper class has powerful positions in the corporate and public world of Brazil. A lot of them search for protection as they fear violence. Having an employee such as a driver or a maid, is very common. Most of these people got rich thanks to the booming in Brazilian minerals and raw materials. You have two different types of women in the marriage, those who work and those who take advantage of the career their husbands have build up. Income of single women compared to single men is still lower. People in this segment are in the range of 4060 years, because they have build up a nice career already. It is believed that those people visit beauty centres and spa resorts a lot. Women usually spend significant amounts on skincare products in order to maintain their social status of success.53 The social status that has to be aligned with this segment is one of social pressure, where men and women have to maintain their luxury image as their favourite leisure time is spent in fine restaurants and fancy nightclubs. Beauty products in this segment of the market are perceived as a necessity, because you don’t want anyone to gossip about you and thus affect your delicate reputation.

4.2

Middle Class

The Brazilian society can’t be reduced to a very dualistic society where there exist only a powerful elite and an oppressed lower class, like in the most other Latin American countries.54 The present middle class does not own large properties, industries or firms but also is not destitute. It consists largely of a technical work force, clerks, professionals, teachers, salespersons and public servants. Its position is based more on knowledge and

52 53

http://www.callcredit.co.uk/media/53193/cameo_brazil_table.pdf http://projects.cbe.ab.ca/ware/social/student%20work/taylorm/wealth.htm 54 http://www.photius.com/countries/brazil/society/brazil_society_social_classes.html

31

skills than on property.55 The Cameo data56 tell us that 29,05 % of the households live of an average income. The number of members in households varies from 1 to 7. People live mostly in the suburbs of the city. A distinction can though be made between the higher and the lower middle class. The upper middle class could still have some potential for our high-priced luxury product. Typically, households where two persons have an income and the amount of children is less than 3 should be able to afford our products. This type of people corresponds with the third group in the Cameo-subdivision and represents 9,21 % of Brazilian households.

4.3

Lower Class

The poor families can usually contain up to more than 10 persons. The families are poor and illiterate. The loan that comes in is small and certainly not enough to spend on skincare products. The families live in so-called favelas at the border of the city or big flats in the city. Parents save a lot of money and have few children, so children maybe can get through to the middle class in sometimes. However, this doesn’t happen often because children are sent to work early in order to contribute to the household, taking away their chances of a good education. It is logical that this kind of people won’t be the target of our marketing strategy.

55 56

http://www.photius.com/countries/brazil/society/brazil_society_social_classes.html http://www.callcredit.co.uk/media/53193/cameo_brazil_table.pdf

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5. Targeting and Positioning
5.1 Brazilian skin care market

The Brazilian skin care market currently reaches a value of R$7.3 billion, growing 14% in 2009. The skin care market is expected to have a 5% CAGR (Compound Annual Growth Rate) in the future. Last year, the market grew at 14%, which was rather slow because the major companies were competing on price while sales volumes were growing. 5.1.1 Submarkets The skin care market can be subdivided in three submarkets: the market for body care, facial care and hand care. The market for body care has a turnover of R$3,575 billion and is as big as the market for facial care with a turnover of R$3.483 billion. Analysing the market for nourishers and anti-agers we can see that they account for a turnover of R$2,116 billion, more than the half of the facial care market. This turnover has doubled over the last five years. The other relevant segment for PaDu is the anti-celullite market, with a turnover of $254 billion. This last segment has a growing part in the body care market because turnover tripled in five years time. A recent phenomenon is that demand for nourishers is high within the group +25, as companies stress prevention of aging at a young age. Also anti-cellulite products have gained value share, especially during the summer and spring when people go to the beach. We can conclude that there are favourable perspectives in both our segments, considering their growth pace and growing relative interest in their submarkets. 5.1.2 Market analysis 5.1.2.1 Anti-aging market

5.1.2.1.1 Products

PRODUCTS Renew Chronos Nivea Visage La Roche Posay

COMPANY Avon Natura Cosmeticos BDF Nivea Belocap Produtos

MARKET SHARE (%) 36,2 19,9 3,6 3,2 33

Vit Active Botica Commercial L’Oréal Demo Expertise Revita. Belocap Produtos 5.1.2.1.2 Competitors

1,9 1,8

COMPANY Avon Natura Cosmeticos Belocap Produtos BDF Nivea Boteca Commercial Johnson & Johnson

TURNOVER (in R$) 766 mio 414,7 mio 139,6 mio 76,1 mio 40,2 mio 36 mio

MARKET SHARE (%) 36,2 19,6 6,6 3,6 1,9 1,7

When looking at these figures, 80% of the displayed 70% of the market is realised by two companies, Avon and Natura. These two companies are marketing their products through direct selling:  Avon employs 700,000 women who are selling products as an additional income job. Avon’s marketing strategy is to sell only to women.57 Given the high recruiting costs and the huge set-up time of a direct selling team, it’s not in the company’s options to develop such massive team;  Natura Cosmeticos is one of the leading companies in social network advertising. They discovered the huge potential of social network sites like facebook and their fan- and grouppages. Natura Cosmeticos gives hints about how a company should start successful online marketing.58 These direct selling companies hold their strong position in the skin care market due to aggressive advertising and ongoing innovations. The other companies mentioned in the table sell via retail channels such as pharmacies, parapharmacies or drugstores. 5.1.2.2 Anti-cellulite market

5.1.2.2.1 Products

57 58

http://www.cosmeticsdesign.com/Financial/Avon-sticks-to-women-and-direct-sales http://www.mlmprobobwick.com/articles/natura%20cosmeticos/natura%20cosmeticos-facebook-socialnetwork-marketing-strategy-and-social-media-review-14337/?c=35549

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PRODUCTS Nivea Body Avon Solutions Cellu-Sculpt Avon Skin-So-Sof Natura Mamae & Bebe L’Oréal Body Expertise BodyActive 5.1.2.2.2 Competitors

COMPANY BDF Nivea Avon Cosmeticos Avon Cosmeticos Natura Cosmeticos Belocap Produtos Botica Comercial

MARKET SHARE (%) 24,1 15,3 10,2 8,1 4,7 2,1

COMPANY Avon Cosmeticos BDF Nivea Natura Cosmeticos Belocap Produtos Botica Comercial

TURNOVER (in R$) 87,1 mio 61,2 mio 20,5 mio 16 mio 5,3 mio

MARKET SHARE (%) 34,3 24,1 8,1 6,3 2,1

When looking at these figures, again about 80% of the displayed 74% of the anti-cellulite market is realised by Avon and BDF Nivea. Furthermore, the companies present in the anticellulite are the same as for the anti-aging market so we have to deal with the same competitors when entering both markets.

5.2

Targeting for PaDu

As we know from the demographic description of the country, the female population between 20 and 64 years old accounts for about 60,000,000 women (excluding the group of young women between 15 and 20 years old of about 7 million). Given the fact that there is a degree of urbanization of 86%, we can state that there is a market potential of 51,600,000 urban women. UPPER CLASS MIDDLE CLASS LOWER CLASS TOTAL POTENTIAL (upper + middle class) 51,600,000 x 12,6% = 6,192,000 51,600,000 x 29% = 14,964,000 51,600,000 x 58,4% = 30,134,400 21,156,000

PaDu wants to target on the upper and middle class urban women. This gives us a potential number of customers of 21,156,000. The urban category will be further segmented on an age-basis since we believe both anti-aging care and anti-cellulite care differ with regard to 35

age. We subsegment now on a PPS-base (Product needs, Price sensitivity, Service requirements) for both anti-aging and anti-cellulite products. PRODCUT NEEDS 20-30 years old 30-45 years old No specific needs Quality, intensive use, damage prevention High quality, continuing damage prevention/repair PRICE SENSITIVITY Very price sensitive Price sensitive SERVICE REQUIREMENTS Not much services required yet Services required

45-65 years old

Less price sensitive

High standard services required

PaDu targets for a market share of 2% in the anti-aging markets, in line with main competitors in that submarket, with exception of Avon and Natura Cosmeticos. In the anticellulite market a market share of 3% will be targeted, given the fact that the anti-cellulite market is less developed and more specific. Considering our subsegmentation on PPS-base, we will have a further look of profitability of each of those for the anti-aging products and the anti-cellulite products. We consider the costs in 20-30 and 45-60 segments higher, because it will be more difficult to reach those people through advertising: the 20-30 segment might not feel the need for our products yet and the 45-65 segment is very critical and already stuck in a consumption pattern sometimes. ANTI-AGING 20-30 years old 30-45 years old 45-65 years old MARKET SHARE 0,2% 1% 0,8% PRICE Low Medium High COSTS High Medium High

ANTI-CELLULITE 20-30 years old 30-45 years old 45-65 years old

MARKET SHARE 0,5% 1,5% 1,0%

PRICE Low Medium High

COSTS High Medium High

36

5.3

Positioning for PaDu

5.3.1 The country of origin effect The country of origin effect is determined by certain factors, I’ll give you those proposed in the paper of Sethi/Elango’s (1999). They give three important determinants: (1) economic and physical resources and industrial capabilities; (2) cultural values and institutional norms; and (3) national government’s economic and industrial policies. The country of origin is France. Both France and Brazil are very big countries with a lot of industrial capabilities. Different important values are shared by both countries: cultural diversity, protection of the environment, development of social justice, non-proliferation of weapons of mass destruction and promotion of democratic principles.59 With regards to cultural values, the label ‘Made in France’ gives people an image of luxury, design and creativity. This is mainly due to the accent of the language and the patriotism and proud French people have. French people are chauvinistic. Unfortunately, French are also known for their Roman culture. This means that they are too neglectful which gives them a lack of punctuality and adaptability. They aren’t good in empathizing with other people.60 Comparing this with the Hofstede scores of Brazil gives us that this won’t be a real difference since Brazilians aren’t punctual at all. The culture and the values of behaviour during conversation are very similar. As both are western-orientated countries with open-market economies and have a stable political regime, no big differences have to be taken into account here. Most of all, the effect of luxury and design is appealing for us, and we should take advantage of it. The lack of empathy should be avoided by making the consumer feel at ease, making him comfortable, because the Brazilian society is very warm and caring and likes personal contact and involvement. The above mentioned strategic alliance between Brazil and France is also very important, as this can boost our company in its start-up and be a competitive advantage with regard to other entrants from abroad. Nowadays,

59 60

http://en.wikipedia.org/wiki/Brazil%E2%80%93France_relations College notes

37

A major advantage of our products is the support by top-researchers of the University of Versailles, known for its know-how in cosmetics and member of ‘cosmetic valley’ in France. Their support gives our products a scientific surplus and will help in positioning our products as a viable high-quality product in the Brazilian market. 5.3.2 Product attributes Besides the above mentioned scientific element, certain other appealing product attributes will be listed below:         100% natural product; High quality; Scientifically supported; Exclusive fragrances; “Green” product (good for environment); Bio-degradable packaging and product; Manufacturing in Brazil; Recyclable bottles.

Points of parity with other competitors are high because we need to be conceived as good as them on all the attributes. Regarding POP’s we see no handicaps for our products. On the other hand, with regard to points of difference, we need to differentiate and position ourselves better on important attributes such as a scientifically based, 100% natural composition and environmental friendly packaging and product bio-degradability. It is crucial that our product and its scientific reports are known by dermatologists. This can be of crucial importance if these dermatologists prescribe our products to their customers. Contacting and presenting the brand to those people will be one of the first tasks of the sales team.

38

6. Adaptation of the marketing-mix
6.1 Product and packaging adaptations

The general characteristics for both our products can be summarized as follows: “A unique combination of plant extractions and natural oil dilutions; the products are stabilised by anti-oxidants and aromatised by a combination of fragrances like lavender, eucalyptus and mint.” As stated, we will differentiate our product presentation through different volumes and packaging forms regarding the target group. Product volume anti-aging 20-30 years old 30-45 years old 45-65 years old 50 ml 80 ml 80 ml 50 ml 50 ml Product volume anticellulite 80 ml 150 ml 150 ml 100 ml 100 ml Product presentation Bottle Flask with pump Bottle Flask with pump Bottle Packaging

Very light colours and fresh outlook Colourful and a professional look Exclusive packaging and a design flask

For the 20-30 years old we choose a 50 ml content, because of the price sensitivity and the limited budget of this segment. The bottle aims at easy and fast handling. The packaging should be perceived as young; therefore we use the colours yellow and green, the national colours, appealing to the national identity which is very important for Brazilians. For the 30-45 we choose a bigger dose, given the more intensive use and the longer standing of the product (important for these busy age category on a personal and professional level). We go for two product presentations, aiming at a price differentiation depending on customers’ choice for accurate dosage so waste is limited (flask with pump) or lower price (bottle). The packaging should still be colourful, again appealing the nation’s identity, but less flashy with a professional look matching the characteristics of this age category. For the 45-65 years old, we go again for a 50 ml product volume. Product presentations are similar to the 30-45 age segment, but the packaging is more exclusive and design full. 39

Besides that, the product will be more sophisticated because more attention will be on damage repair. This should justify the higher price asked in this segment, given their lower price sensitivity. For the anti-cellulite products we will use the same product presentation to establish our corporate identity and outlook of PaDu products. Only the product volumes differ, given the different dosage use of anti-cellulite products. Overall, certain items should certainly be mentioned on the bottle and packaging: the website, fanpage on facebook, the scientific approval and the green label of our product. It is believed that we should get our costumers familiar with the product; that’s why free samples of our products will be distributed in the pharmacies in the beginning.

6.2

Price level

Since we are a new company in a very competitive and price-driven market we will adapt a follower strategy, meaning that we will price us a little under our competitors in the pharmacies and beauty salons. We don’t necessarily need to be cheaper than direct selling of Avon and Natura but focus on price strategies of competitors in the above mentioned segment. The price elasticity depends on the four main factors: 1. The availability of alternative products: the higher the availability of other products, the higher the price sensitivity will be; 2. The urgent character of the demand: the more urgent a product is, the less price sensitive it will be; 3. The relative importance of the product in the total budget: if the product asks for a large investment, it will be more price sensitive; 4. The time horizon of purchase: if a consumer has enough time to adapt to a certain change, he will be less sensitive for price changes. Taking these principles into account, we can conclude that the anti-aging product is price sensitive since the number of alternatives is high. The anti-aging hasn’t got an urgent character and the importance in the total budget can be minimized. Concluding, the anti40

aging products are rather price sensitive and since we have to enter a new market, we need to take a follower position in pricing. The average price for 1 litre will be R$200. The anti-cellulite market is different, since this market has a more preventive character and is therefore a more distinctive and exclusive market. Analysing sales in the Euromonitor report, we see this. The value creation in anti-cellulite market is much higher compared to the anti-aging market. A possible explanation is that cellulite problems aren’t as visible as wrinkles in the face. Following our competitors in this market and pricing a bit below them, should yield us thus a bigger margin. Anti-cellulite products are less price sensitive than antiaging because of the more exclusive character and the longer time horizon. The average price for 1 litre will be R$300. The relevant prices are based on those of Avon, putting PaDu a bit lower than them. 61 The follower strategy allows us to gain a substantial initial market share. Customer loyalty and a good reputation should allow us to increase prices in the longer term; this should be done with little amounts, given the price elasticity of our products. As stated in point 5.2, different prices should be asked for the products that aim at different age categories.

6.3

Distribution strategy

6.3.1 Transportation Roads are the primary method of transportation of both passengers and freights. The bulk of highways is concentrated in the southern and central regions and important roads have been constructed to link the northeastern and northern areas with the industrialized south. Due to a lack of proper maintenance, the government has privatized the maintenance to the regions. This measure had its success, because the quality of roads has been increasing ever since.62 The railroad system in Brazil is inadequate, since the focus has been on the development of the highway system. The extension of the total track system is declining every year. We can thus exclude this form of transportation. Shipping too is very important given the extended coast line of the country. International as well as national shipping is high developed, with
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http://www.br.avon.com/PRSuite/ourproducts_landing.page http://www.nationsencyclopedia.com/Americas/Brazil-TRANSPORTATION.html

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the greatest harbours being Santos and Rio de Janeiro. Air transportation is also highly developed, with 48 principal airports of which 21 airports are international. Rio de Janeiro’s and Sao Paulo’s airport are the biggest ones in the country. As raw materials are coming in from France, it is important that we localize our plant and warehouse strategically well. We choose transportation over sea rather than air transport in transferring our raw materials to Brazil. This is a cheaper and more environment friendly solution. The production plant and the warehouse should be located near a big harbour, to limit transportation costs within the country. The harbour should be close to the urbanized region in the south-east. Analysing these conditions, we plan to build our factory in the suburbs of Santos, the harbour of Sao Paulo. The location is suitable for highway transport, because of the interchange of important highways in Sao Paulo. National transport within the country should thus take place by truck and alternatively by plane. 6.3.2 Infrastructure We believe that setting up a greenfield manufactory and a warehouse in Brazil is the best entry option for PaDu. A number of cooperations could of course be adopted (i.e. jointventures, alliances, licensing...) but as we know that Brazilian culture is rather corrupt maintaining control over foreign operations is crucial. We could set up only a distribution centre, but we intend to keep risk as low as possible. Of course building a whole manufactory is not the cheapest solution, but we believe it is the best one for PaDu. A number of other facts gave us this incentive:    The high taxes on imported goods up to 60%; Limitation of shipping and transformation costs from France to Brazil, since only the raw materials have to be imported; Since the skin care market grows at 5% a year, we believe our investment is a good long-term option;   Local sellers under supervision of French management; Business cultures of France and Brazil are different, so getting into any sort of alliance, might be difficult to maintain control;

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

Government gives strong fiscal and financial incentives to support greenfield investments;63



Higher flexibility in production when broadening our product gamma.

An office for commercial services should also be set up, near the production plant and the warehouse. Support from the office is needed to manage the inventory, to deliver pre- and post-sale services, to order raw materials, to schedule transportation and to analyse the product gamma. 6.3.3 Distribution PaDu chooses to sell its products through chained pharmacy stores, beauty salons and an online store. We had the choice between parapharmacies and pharmacies, but given the scientific support, our choice for pharmacies is obvious, especially because of the risk-averse society. Even more, negotiators of these pharmacies stated that they would face too much competition from this parapharmacies and their investment wouldn’t be so profitable. We choose chained pharmacies above independent pharmacies, in order to achieve a rapid distribution of our products on a big scale. Negotiations with the three biggest pharmacy (Brazil Pharma Holding, Drogario Sao Paulo and Celesio) chains were set up. 64 Beside pharmacies, the products will also be available in independent beauty salons. Of course, the already available online store will now be opened for consumers of Brazil. Total number of pharmacies Total number of chained pharmacies (25%) Pharmacies owned by ‘the big 3’ Target amount of pharmacies Number of visits / pharmacy / year Total number of pharmacy visits per year Number of visits / sales man / year Number of sales men needed 48,000 12,000 3,000 1,000 6 6000 1500 4

Negotiations with these three firms are looking good and PaDu is confident that they will sell in about 1000 pharmacies. 4 sales representatives are needed, who are supervised by a sales

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manager. These representatives also have to visit beauty salons and dermatologists, trying to persuade them in prescribing our products. Besides this sales team of 5 persons, we need also a marketing team and an administration team. The marketing team will consist of 4 persons. To handle the administration functions at the office we estimate that 6 persons will be employed. Besides this, 10 manufacturers will be employed in the production plant under the supervision of 1 production manager. We will first employ French management people so that the communication with head offices is fostered in the beginning. Employees have to be persons with a lot of experience, since they will face a difficult, new challenge; so the ability to handle under stress is important. Managers should be familiar with Brazil, in order to bridge the cultural difference and to coop with the Brazilian mentality and speak Portuguese fluently. Brazilian employees should be trained in a first phase, on the longer term they might take over management functions.

6.4

Promotion

Traditionally, there is a big controversy whether or not to adapt your national advertising strategy when you enter a nondomestic market. When standardising your advertising campaign over different countries, one believes that there aren’t cultural differences and local expectations. A global advertising campaign then satisfies everyone’s needs, because of faster communication there is a convergence of art, media activity, living conditions and cultures.65 An adapting strategy stresses the fact that these differences have to be taken into account as they are insurmountable barriers. As most of the multinationals now know that localisation is necessary, the question is still to what extent you should adapt your strategy. A compromise between the two strategies will be the guideline. Generally, we intend to appeal to the high beauty ideal of the Brazilian people, that’s why products of PaDu in Brazil will be named ‘Brazilian Beauty’. We believe this is a strong brand name, because it also stresses the Brazilian character of our production. Seen the strong national identity, this can be vital for our marketing. The letters are stylish and the picture of the body stresses the importance of physical appearance in the Brazilian society.
65

A. Kanso, R. A. Nelson. Advertising Localization overshadows Standardization. 2002

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Figuur 13 - Brand Logo

Of course, a different brand image has to be sent to the different groups. To the younger segment of our target market we should send a message of looking young and vital, whereas the message to the older segment should be one of high quality and damage repair. Throughout this paper we learned some important things about communication with Brazilians. First of all, the communication, direct or indirect, should be in Portuguese. This is highly appreciated, because it’s a token of respect and commitment to the Brazilian people. Given the highly collectivist society and the importance of family life, the image of a ‘happy family’ should certainly be used in advertising campaigns. As soccer is one of the nation’s greatest symbols, we have already contacted some French international football stars (Zinédine Zidane and Thierry Henry) to co-operate with their family in the campaigns, where their wives are using the products. We believe that the soccer image is as well as appealing for men and women in the Brazilian society; above all, Brazil is still a masculine society and the presence of success and popularity should definitely be used in our commercials. As stated above, we should exploit the beauty of the human body in our campaigns, but violence and corruption should be strictly avoided as people want the media to give solutions for these widespread problems. Above all, as Brazil is known as high-context society, the commercials should evoke an emotion of friendship and loyalty as soccer should be. Another huge marketing advertising potential is given by the so-called telenovela, a type of drama series in Latin-America. These shows are extremely popular. It is believed that telenovela’s reach 90% of the households, with most of the audience consisting of women. 66 Two types of advertising are believed to be crucial here: commercial blocks during the series
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William M. O’Barr. Advertising in Brazil. 2008

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and product placement in the show. Globo is Brazil’s leading channel and broadcasts now 4 telenovelas between 6 and 8 o’clock. PaDu will invest large amounts to establish its brand image during these series. As Brazilian society is a very superstitious society, we have to avoid negative symbols in our advertising. Today, 34,4% of the Brazilians have access to the Internet. An online shop and the use of online social media should be exploited well as this number will grow. There are many reasons why the use of these marketing channels is essential but the low cost and the high potential reach of social media are the most important advantages. Some guidelines PaDu should bear in mind are given by Natura Cosmeticos67 and Bob Wick68, a mastermind in network training:      Use a face on internet, not a logo Build relationships by asking the right questions Offer as many links to your website as possible Give a clear and fair account of the company’s product and business Online surveys about the product

PaDu plans to launch a fan page on Facebook, Orkut and Twitter. These are the three main social network sites in Brazil. An online shop already exists on the PaDu’s website. In Brazil, the most important magazines for women are Claudia, Marie Claire, Caras, Boa Forma and Contigo.69 Contigo and Caras are more gossip magazines, as Boa Forma is more focused on women fitness and health. Advertising in these magazines is vital because it’s the best way to reach the segment of 50+, a public that doesn’t access the Internet much. We intend to contract with Claudia, Marie Claire and Boa Forma. We will also advertise in the pharmacies, with the same photos and symbols as in magazines so to create a recognizable brand image. A summary of the advertising towards each market segment is given here:

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http://www.mlmprobobwick.com/articles/natura%20cosmeticos/natura%20cosmeticos-facebook-socialnetwork-marketing-strategy-and-social-media-review-14337/?c=35549 68 http://ezinearticles.com/?The-Importance-of-Social-Media-Marketing-Today&id=3873989 69 http://answers.yahoo.com/question/index?qid=20091016062848AAXHq6n

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Marketing channel 20-30 years old 30-45 years old 45-60 years old Television, gossip magazines, online social networks, online shop, promotion in pharmacy Television, magazines, online social networks, online shop, promotion in pharmacy Television, magazines, promotion in pharmacy, promotion by mail

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7. Financial Summary
Anti-aging Population Market share (2% and 3%) Annual sales per person Total annual sales Selling price per litre Total revenue Raw materials (40%) Shipping costs (€5 per litre) Production costs (€60 per litre) Marketing costs Salary costs of working class (10 persons) Salary costs of management (16 persons) Factory and office costs Contracting costs with chained pharmacies, beauty salons per litre and dermatologists (€40 per litre) Total costs Total profit 21,156,000 423,120 0,3 litre 126,936 litres €91 (R$200/2,2) €11,551,176 50,774 litres €253,870 €7,616,160 €1,000,000 Anti-cellulite 21,156,000 634,680 0,4 litre 253,872 litres €136 (R$300/2,2) €34,526,592 101,548 litres €507,740 €15,232,320 €1,000,000 €300,000 €800,000 €5,200,000 in total 5% is €260,00070 €15,232,320

€42,202,410 €3,875,358

Analyzing the total profit, we can calculate that sales of 84,350 litres in anti-aging would give us a break-even. This would be 33,5% less than our estimated sales at a market share of 2%, resulting in a loss of 141,954 potential clients. A market share of 1,33% is thus necessary to reach break-even. Sales in the anti-cellulite market would give us a break-even if they amounted up to 225,376 litres. This would be a loss of 11,2% compared to our estimated sales at a market share of 3%. A market share of 2,6% will be necessary to turn break-even. One should of course analyse these numbers with prudence, as a more detailed analysis will give more certainty. The model here suggests however that the potential gains of the entrance in the Brazilian market are large enough. All the figures are expressed in EUR, but of course, the exchange rate RBL/EUR determines the amounts that are earned or spent in
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It is assumed that the amortization rate of the buildings 5% per year. The first year, we thus have a cost of €260,000.

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Brazil. Nowadays, the exchange rate BRL/EUR is 2,22. This value is quite low, due to the financial crisis. Since 2010 however, the exchange rate is increasing, which is promising for our company.71 Given the good growth prospective of the Brazilian economy, we don’t expect to see a drop of the rate to a critical level.

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http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=120.EXR.Q.BRL.EUR.SP00.A

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8. Conclusion
After an analysis of the national culture and economy, its skin care market in particular, it is assumed that Brazil is the best country to enter for PaDu in South-America. The country has promising economic prospective and the people place high value on physical appearance and beauty. PaDu plans to enter in the two fastest growing segments of the skin care market: the nourishing anti-aging market and the anti-cellulite market. PaDu wants to offer high-quality products, supported by strong scientific evidence and a very environmental friendly design. As PaDu wants to position itself as a premium brand and seen the hard competition in direct selling, the company chooses to distribute its products through more professional channels as pharmacies and beauty salons in the highly urbanized south-east. Building a new factory is vital, given the high import taxes and the corruption culture of Brazil. Only the raw materials will be imported from France. In order to gain some market potential, PaDu will adopt a follower-strategy, pricing them a bit lower than their competitors, targeting women between 20 and 65 years old. Promotion must focus on the most important channels that reach the public: television, internet and magazines. Intrinsic cultural values of Brazil like soccer, carnival, family and the human body must be wellpresented in PaDu’s commercials. PaDu attempts to achieve a market share of 2% in the market for nourishing anti-aging products and a market share of 3% in the market for anti-cellulite. Although it will be very difficult to reach these figures in the start-up year, the financial summary indicates that a strong reward can be obtained if the company succeeds in its objectives.

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