Accessing the ASEAN Consumer Market: Baby andMaternity Products (Market Entry Strategies)

Foreign brands are finding the routes to the ASEAN market increasingly diverse andcompetitive. For baby and maternity product suppliers from Hong Kong, selecting theright distribution channel can be an important part of ensuring they achieve a competitiveadvantage. They need to consider the characteristics of each channel, including itslocation, market reach, management costs and degree of control. The right retail channelcan help suppliers expand their geographical coverage quickly.

Own-managed or Licensed Stores

While the Internet allows businesses to be based anywhere in the world, the presence ofa bricks-and-mortar retail location enhances the brand awareness and customerexperience. This is particularly true in ASEAN as in-store shopping is a favourite pastimefor consumers in the region.

The PETIT BATEAU store in Jakarta.

Many global baby and maternity brands haveopened their own stores in major ASEAN cities,including Mothercare, Chicco, Combi, Bebehaus,Petit Bateau and mamas&papas. Mothercare hasthe strongest presence across the region and hasbecome a household name in Thailand, Malaysia,and Indonesia.

Licensing to retailers in ASEAN allows brandowners to penetrate the local markets withouthaving to make a heavy investment. Walt Disney,the world’s number one licensor, has tapped intothe baby product market in ASEAN through itsrich portfolio of licensed merchandise such as Marvel's Avengers, Frozen, and Mickey and Minnie. Other famous licensed characters likeBarbie, Sesame Street, and Snoopy can also be found in many ASEAN nations. Expandingthrough licensing involves several key issues, such as dealing with the differences incultural, legal and financial practices in each country, and getting to grips with the needsand capabilities of prospective licensees.

Market to Retailers

Dealing with a retail chain gives suppliers access to a wider customer base withoutinvesting in opening their own stores. If suppliers can build a good relationship with keyretailers and department stores, they may benefit when those companies expand theirnetworks across the ASEAN region. Notable retailers with good regional exposure includeParkson Department Store, Central Department Store, Tesco, Giant, and specialist chainMothercare.

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Wide range of baby product brands at a departmentStore in Kuala Lumpur (1).

Wide range of baby product brands at a departmentStore in Kuala Lumpur (2).

One major shortcoming of selling direct to retailers is that nowadays most retailersrequest a consignment agreement rather than an outright sale. Under such anagreement, the consignee does not have the same pressure to sell the merchandise inquestion as it would if it owned the product. Whatever remains unsold can be returned tothe consignor, usually at the consignor's expense.

There are a few other considerations that an overseas supplier or brand should bear inmind when selling direct to retailers in ASEAN:

1. Logistics – Retailers expect suppliers to ship the right number of items, asrequested, and on time. Some department stores have their own distribution centres(DCs), and overseas suppliers are required to warehouse a minimum amount for eachstock keeping unit (SKU) in the designated DC. Some department stores, such as theones run by The Mall Group in Thailand, do not have a centralized DC and requiresuppliers to deliver their goods directly to individual department stores. However,omnichannel fulfilment strategies such as buy online/pickup in-store or orderonline/deliver to home require multi-logistics formats and real-time inventoryvisibility.

2. Merchandising – Retail merchandising is the key to a supplier’s success. Productsthat are not properly displayed, and not adequately stocked, will result in lost salesfor the brand. Ideally, suppliers should monitor store-level demand in real time inorder to ensure the top-selling items remain in stock. Within the store, suppliers needto be sure that their products are right in the line of customer traffic. Products standless of a chance of being bought if they are tucked away in the furthermost corner ofthe store where customers hardly ever go. Suppliers cannot rely on the retailers,especially if they are big chains, to do their merchandising for them. For some motherand baby products, such as high-quality feeding equipment or baby clothing and clothdiapers made from organic fabrics, it is essential that they are presented in store witha brief guide on the product benefits.

3. Marketing – Most retailers require the brand owner or supplier to provide acomprehensive marketing plan. This requirement means the brand must have a basicunderstanding of the local market, consumer behaviours, and marketing and

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promotional channels.

4. Manpower – To encourage retailers to sell their product, suppliers must provideproduct training for the retail sales team, together with sales incentives. Departmentstores usually give suppliers an option to place sales personnel in the store to answercustomer inquiries. Although hiring sales staff obviously involves extra operationalcosts, it is likely to prove profitable as the presence of a dedicated sales person in thestore is likely to lead to a big increase in sales.

5. Minimum Orders – It is often hard to request minimum orders from prominentretailers in ASEAN. Suppliers might have to consider allowing “no minimum order” onthe first purchase as an incentive to retailers to sign up.

Through Local Agents/Distributors

Hong Kong suppliers wanting to start exporting to a new market often prefer sellingthrough local agents or distributors in order to minimise their initial investment. Agentstake orders in the supplier's name while distributors act in their own name and may stockproducts purchased from the manufacturer for resale.

Pros and Cons of Using a Distributor

Many exporters would rather deal with a regional distributor (or a local distributor in eachcountry) rather than local retailers, as each order may involve a lot of follow-up work andhassle. Typically, distributors find local retailers and/or e-tailers for the suppliers’products. This means that suppliers can start to achieve sales quickly through thedistributor’s network, without having to make a heavy investment in building retailchannels. One example of this is Bubble Bright, a Thai distributor of baby products. Thecompany distributes products through major department stores and baby specialiststores, as well as online platforms, such as Lazada and Central Online Shopping.

Distributors can help handle transportation and customs clearance. They may havesystems in place to keep track of inventory in the DC and individual retail stores and helpreplenish stocks in good time. They also understand the local cultures and consumerbehaviour. An experienced local distributor in ASEAN can be very valuable, as eachASEAN country has its own unique mix of ethnicity, language, and religion.

Suppliers can also turn over the responsibility of administering customer services to theirlocal distributor and eliminate the need to invest in a customer services department.Under a distribution agreement like this, suppliers would only have to deal with thedistributor, while the distributor would deal directly with local retail customers.

Despite these advantages of working with a local distributor, the practice also has itsdownsides. Firstly, in return for taking on the supplier’s trade-related risks and burdens,distributors will expect heavy discounts and generous credit terms (up to 60 days).Secondly, suppliers may lose some control of the way their products are marketed andpriced. Thirdly, distributors often demand a long period of exclusivity, so suppliers needto be sure that the distributor they choose has experience of selling their type of productsand has an existing network of customers on hand.

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Retailers may also find it convenient to deal with distributors. If they deal directly withmanufacturers, they may have to visit factories, review product catalogues, set up newbusiness credit forms, send out business information, set up efficient ordering andaccounting systems, and so on. Most distributors can also purchase products in bulk.Some distributors sell multiple brands, they act as aggregators and offer bulk discountsfor retailers that buy multiple brands.

The distribution business is a margins game, so distributors will gravitate towardproducts that are easy to sell with the least effort. Manufactures or suppliers trying to sellcomplex products should make promotional and sales materials ready to supportdistributors’ sales efforts. Sufficient training and communication are crucial for anydistributors to perform and grow their business.

How to Find an Overseas Distributor

One of the best places to connect with potential partners is at trade shows - either inHong Kong, or even better, in the markets exporters are targeting for entry. Attendinginternational trade shows is often a good starting place for relatively new exporters. Atthe same time, they can also get a snapshot of the market and competition (For moredetails, please see the upcoming article “Accessing the ASEAN Consumer Market: Babyand Maternity Products (Marketing)”.

B2B online marketplaces are another way to connect with potential overseas partners.Alibaba’s B2B e-commerce has more than 40 industry categories and connects buyersand sellers in more than 190 countries worldwide. Another platform to consider for B2B isAmazon Business. The Seattle-based company's platform serves businesses of all sizesand across all industries and connects buyers, manufacturers and sellers.

That said, the best way to find good partners is always word-of-mouth. Suppliers whoknow the right person in the local market can steer others to the right place faster. Tradeassociations are usually the starting point to get to know industry players.

Selling Direct to Consumers

With the advent of emerging technology, brands no longer need to rely solely on theirdistributors or retailers to sell their products. Today, many online platforms offer brandsand manufacturers the opportunity to expand overseas by selling direct to consumers.

While most well-known baby and maternity retailers operate their own bricks-and-mortarstores, they also sell through their own websites. Mothercare, Happikiddo, Bebehaus, TheBaby Loft, Lilsoft Baby & Elegant Kids and Naturally! BeBe are just a few examples ofthis. Established conglomerates like Central Group in Thailand and PT. MAP BogaAdiperkasa (MAP Group) in Indonesia are also embracing e-tailing as an opportunity toserve their customers better and reach out to a wider audience.

Benefits of Direct Selling to Consumers

There are many benefits of selling direct to consumers. For a start, the time to market issignificantly decreased. In a market in which product cycles are becoming significantlyshorter, being able to launch the newest products quickly provides a definite competitiveadvantage.

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Brands can also retain complete control over their brand image without it being subjectto distortion or dilution by third parties, while consumers can interact directly with abrand and get prompt, first-hand information about a product. Furthermore,manufacturers and brands have control over their product’s price. They can alsocommunicate directly with consumers about price points.

Most importantly, selling direct allows brands to gain access to consumer data. Makinguse of customer data effectively can result in better products, greater relationships,easier conversion, more sales, and ensure long-term brand success.

Risks and Mitigations

Hong Kong brands and suppliers of baby and maternity products may see the rise of e-commerce as a catalyst for selling directly to customers. However, they should carefullyconsider the risks associated with selling direct and create plans for mitigating thoserisks.

Disrupt Existing Relationships with Distributors and Retailers

When a brand is currently selling its products through distributors and a network ofretailers, starting to sell direct may be perceived as a declaration of war on its existingdistribution channels. In such circumstances, the brand can offer exclusive products to itsdistributor or retail channels. These can be exclusive designs, packaging or bundlingoffers that are not available via direct-to-consumer channels.

Underinvest in Infrastructure and Manpower

Brands owners need to have a deep understanding of local customer expectations andbehaviour. Besides, they need to have the shipping and customer service infrastructure inplace to support direct sales. Most importantly, they need to have a comprehensivedigital marketing and social media strategy that allows interaction and engagement withtheir potential customers and diverts traffic to their websites. They also should beprepared to ship quickly and handle returns flawlessly.

Picking the Right Platform

One of the most important decisions when suppliers intend to migrate to selling direct isthe selection of the right platform. They need to choose one that is powerful enough tooperate efficiently and flexible enough to deal with sophisticated customisation demandsfrom consumers.

Own Websites

If suppliers decide to use their own websites as the online representation of the brand,consumers will interact with the brand directly. Sales are made directly on the site. Onthe plus side, the brand keeps all the revenue and all the customer data collected witheach visit to the website and each transaction. On the downside, the brand has to localiseits websites, assume all risk for credit card fraud, and must achieve and retain highrankings on search engine results to maintain website visibility.

Third-party Marketplaces

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Not all brands have the digital expertise to create and manage an online platformeffectively by themselves. By listing on key regional players like Lazada, Shopee or othermarketplaces, brands can build a better presence in non-domestic territories and boosttheir search engine results. Multi-brand marketplaces are digitally savvy and know how toprovide an excellent online shopping experience. They provide good back-end supportand cross-border logistic programmes for their sellers (good examples of this are Lazadaand Shopee’s logistic programmes). Another benefit of using third-party platforms likethese is that regional marketplaces have a reach across ASEAN. Having said that, foreignbrands and sellers remain responsible for ensuring that localised product information isuploaded to the marketplaces.

On the downside, marketplaces may charge a commission on sales, brands have tocompete with many other online merchants on the same platform, and they cannotcapture customers’ data which could open up future direct marketing opportunities.

Multichannel Model

Many brands use third-party online marketplaces in ASEAN even when they already havetheir own localised websites. It is because the marketplaces bring the brand and itsproducts to the attention of consumers who are ready to buy. Today’s e-commerceindustry is multichannel. If a brand is planning to join the legions selling directly toconsumers via online channels, building its own websites and listing on onlinemarketplaces are both equally important.

Omnichannel Redefines the Retail Experience

These days, successful enterprises in ASEAN tend to adopt an omnichannel businessmodel that uses both offline and online channels to connect with customers, with salesand distribution channels working together to support a seamless shopping experiencefor its customers. Consumers’ online experiences can bring them to the company’sbricks-and-mortar outlets, while in turn the in-store experience can be extended to weband mobile.

Bricks-and-mortar stores sometimes give retailers a competitive edge. They add valuethrough product display and interaction with staff. Also, online shoppers often prefer tobuy familiar and trusted brands. In spite of the remarkable range of products and priceadvantage offered by online pure-plays, they do not enjoy the brand heritage and loyaltythat legacy retailers benefit from.

Baby product specialty retailers are developing an omnichannel approach. ASEANconsumers still prefer buying baby gear at bricks-and mortar stores. Kanmo Group, anIndonesian retail distribution company that distributes over 70 brands, includingMothercare and Early Learning Centre, has recently rolled out an omnichannel strategywith a retail management software solution to create a seamless customer experience.[1]

Traditional retailers like Central Group, meanwhile, are scrambling to move businessonline and embrace full e-commerce integration. Central Department Stores hasintroduced an Instant Messaging Shopping Service with personalised assistance aimed atmaking shopping easier. Customers can connect with Central Department Stores viaWhatsApp in Indonesia and LINE in Thailand and get help from a digital personalassistant to find the products they want. If the item is available, the customer can chooseto have it delivered to their doorstep or pick it up at the “Click & Collect” service counter.

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Consumers today decide when and where to purchase, how to pay, and when/where/howto take delivery. The shopper's smartphone has literally become their point of sale. It isexpected that more ASEAN online marketplaces and legacy retailers will adopt anomnichannel strategy, which will create both opportunities and challenges for Hong Kongbrands and suppliers. Big data analytics, social media and seamlessly transitioning acrossdifferent channels are the keys to success in an omnichannel environment.

[1] Globalnewswire. “Kanmo Group Rolls Out Omnichannel Strategy with Retail ProPrism”, 30 May 2018

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