Henkel KGaA: detergents division. Global branding issues in the european market - Essay Example

Henkel KGaA: detergents division. Global branding issues in the european market. Situation analysis: Global branding is becoming a bigger challenge day by day as it is no longer possible to isolate a brand and its image. Global branding helps to conceive and control a brand’s global direction. The brand’s core values have to be defined and communicated. Effective communication requires the latest methods and this is the challenge that any brand faces. The detergent division of Henkel KGaA is facing stiff challenge in global branding in the European markets. This analysis is aimed to study these challenges and decision by the company in the face of competition. Henkel has always concentrated in the local markets but in the light of growing internationalization they have to review their brand strategy specifically in Italy and Spain where they had not been able to enter because of historical reasons. Henkel tends to use brand positions that vary from country to country. Henkel’s flagship brand Persil was not present in these markets whereas its competitor (Procter & Gamble) had made recent re-branding moves in these two markets. The dilemma before the company is not just whether to introduce Persil in these markets but to consider the shape of the whole portfolio. Diagnosis and analysis of the problem Henkel’s main competitors P & G and Unilever made moves around 1999 towards reorganizing around global brand categories. This helped them to concentrate their resources on a smaller portfolio of global power brands. They also had the support of the retailers. P & G even re-allocated their budgets. These moves had prompted Henkel to sit up and reconsider their international marketing strategy. Hitherto, they had remained committed to a strategy of strong local brands but the global market was changing every day. The consumer wants local brands whereas the retailer wants international brands. Product innovation accelerated at a very high speed in the 1990s. Except for Henkel’s home German market, P & G was leading in most European markets. The purchase and usage habits for detergents significantly differed from country to country. Research showed that a lot depended upon traditions and habits handed down from generation to generation. These were the causes that necessitated that the company derive an alternative solution to improve its market position. The European market was divided in their requirements. Southern Europeans washed in lower temperatures while the northern Europeans wanted more powerful detergents and washed in hotter water. This led to an innovation market but the compact detergent that was introduced did not work well in southern Europe. The retailers wanted it because it occupied less shelf space for the same or higher price pack. The retailers also realized that their future in Europe market has to be international so they started instituting international buying policies. They had adopted a global procurement system, which allows them to demand a single international low price. To keep both the consumer and retailer satisfied in a competitive market and to increase its market position, Henkel was forced to look into an alternative solution for global brand positioning. Derivation of alternative solution Consumer segmentation is necessary for brand positioning. Henkel’s detergent division included three international brands and a number of national brands. It had too many brands and the same brand was positioned differently in different countries. Growth was healthy but the retailers started demanding international listing. Henkel’s product portfolio was growing larger and more complex because of the company’s continued international growth and product innovation. Production costs and time was high due to switch every time to a different color, perfume or other ingredient. The alternative solution before the company was to reduce the product range, which would help it to cut costs, concentrate marketing efforts on core products and give the retailers what they want. They were losing out to competitors like Unilever, which had reduced its product range from 1600 to 400. Analysis of alternative solution Henkel faced certain problems in trying to revamp the brand portfolio in Europe markets. One of the reasons was that the retailers would accept nothing less than tier A brand hence their premium brand Persil could not be touched. Dixon represented 50% of the division’s national revenues in Italy so this too could not be touched. In Spain it had entered the market through acquisition and had stabilized its position. In France, careful restructuring would have to be done as they had three brands each with an equal market share. Analysis showed that consumers had no brand loyalty and generally used several brands. They could also switch from one to another depending upon usage and availability. They realized in Italy that product standardization was not possible. They could at best consider brand standardization. Recommendation of the best alternative Both Spain and Italy are fragmented retail markets. In view of the sensitive market in Europe, both in case of the retailer and the consumer, Henkel has to first emphasize on performance. Consumers are not concerned about the company. Once they have confidence in the product’s performance, care can be gradually introduced but in countries like Italy where Dixon (care) contributes 50% of the national revenues, has to be left untouched. As far as the retailers are concerned, their margins have to be increased in view of competition. They have resistance to regional buying. The list price has to be high because even if the retailer margin is not affected, low list price tarnishes the brand positioning in the European market. Retailer support is very essential especially when the consumer has no brand loyalty. Implementation of the chosen solution The company should immediately cut down the product range, which would result in a cost reduction. Global brand positioning is cost effective and less confusing to the consumer. Local positioning provides higher customer satisfaction but as can be seen, customers have no brand loyalty. In view of this global branding would not adversely affect the market. Global brand positioning does not mean standardization. Some differences in branding communications can be implemented. As competitive conditions become global it becomes necessary for a company to change its policies to move to a global brand position. Henkel should immediately incorporate changes so that competition does not occupy more shelf space with higher profit margins leaving them with higher marketing budgets. Read More