Qingdao Haier Executive Summary

University of Denver, Daniels College of Business
Strategic Marketing, Spring Quarter 2007

© Yu-Chieh Chen, Bryan Harmsen, Scott Stewart, Yu-Fen Su, Justin Wolf

Recommendation

The Team recommends that Qingdao Haier focus on building Haier brand recognition in the U.S. market through increased production from U.S. factories and increased distribution through all available channels, rather than through an acquisition of Maytag.

Conclusion

Brand Strategy

Haier’s acquisition of Maytag would presumably involve the divergence from Haier’s multi-product, single-brand strategy to a multi-brand strategy. This change in strategy would require sweeping changes to the operations as well as Haeir’s culture and values. The Maytag acquisition also has the potential to cannibalize Haier’s U.S. sales by competing side-by-side with Haier-branded products.

Promotion Strategy

Haier America should continue to employ “push” promotion tactics to deliver Haier branded products through as many channels as possible. This strategy will increase recognition and improve total sales while recognizing that home appliance consumers are likely to arrive at the retail store with an open mind in terms of brand.
Haier America should focus their advertising on the quality of the Haier brand and the fact that it is made in the U.S.A.
Although only introduced five years ago in the U.S. market, Haier has managed to build brand recognition among consumers and capture a relatively significant market share, particularly in refrigerators and freezers.

Situation and Evaluation

Critical Issues

Brand Equity - It seems clear that acquiring Maytag might undercut the Haier brand in the US, at a time when the company is seeking to bolster the strength of the Haier brand. Under a different scenario it may be beneficial for a company to acquire Maytag, but that is not the case for Haier at this time. Haier America is rapidly building brand equity in the U.S. and should continue to do so with their current strategy.

Haier is increasing U.S. sales and brand presence successfully. They will reach $1 billion in sales in the U.S. market in 2005.

U.S. Market Sales Growth – Haier has seen success in the past five years in terms of significant growth in the U.S. market. They have achieved tremendous market share in just a short period of time across many categories, from refrigerators and freezers to wine cellars and dishwashers. Although acquiring Maytag may increase their overall sales, it will do nothing to help them capitalize on the brand success that they have achieved thus far.
Buyer Behavior – 70% of the U.S. appliance market is due to replacement and the remaining 30% is by first time buyers. There is an opportunity to reach the 10% of consumers who will change their minds on the brand after entering the store. Haier is well positioned to capture these consumers with a strong brand that is well recognized for quality at a reasonable price.
Short-term vs. Long-term Strategy – If Haier was not interested in building their own brand name, the Maytag purchase may be a good acquisition. However Qingdao Haier CEO, Zhang Ruimin, stated that if you operate through acquisitions, you will “always be working for somebody else.” Haier seems intent on building the Haier brand name in the global home appliance industry and the firm will likely experience continued success in the long run without Maytag.

External Environment

Worldwide Home Appliance Market

The U.S. market is mature, as virtually 100% of homes possess the appliances that Haier manufactures. In the face of this saturated market environment, Haier has successfully gained market share since entering the market.
The Asian market shows strong signs of long term growth as the need for appliances, and the means necessary to afford them, continues to grow. This might be a place for Haier to put its savings (from not buying Maytag) to good use by expanding their efforts there.

Maytag – Maytag’s performance over the course of the past few years has been lackluster in terms of financial performance and market share change. This is probably a reason that Maytag is a target for takeover, but it does not necessarily mean that this is the right fit for Haier. Just because assets are undervalued, does not mean Haier could make the marriage successful. They are more likely to cannibalize their own brand and hurt their long term competitive positioning and overall corporate strategy.
Distribution – Purchasing Maytag could provide Haier with new retail channels given Maytag’s longstanding relationships with independent retailers, national chain retailers, appliance distributors and wholesalers. These advantages do not address the fundamental issue of whether the acquisition makes sense considering Haier’s strategic positioning.
Competition – Competition in the home appliance market is significant and dominated by global multinational firms like Whirlpool, Electrolux and GE. Each major competitor has significant market share, with different firms having the advantage in different key markets. Haier’ U.S. sales have improved dramatically since entering the market 5 years ago. This early success is a strong sign of future performance for the brand.

Internal Environment

The Haier Brand – The Haier brand strategy seems to be clear throughout the company and has been for many years – build the Haier brand over all else. The entire company seems aligned with this mentality and it is a fit. Diluting that fit with Maytag is the wrong move for the company at this time.
Haier Worldwide - Haier-branded products are sold worldwide in 160 countries. Among the global markets, Asia is the largest market in which Haier takes the leading position with approximately 10 percent market share for household appliances. Haier captures about 3 percent of the North America market, close to 2 percent of the Western and Eastern European market, 1 percent of the Australasia market, and nearly 2 percent of the Latin American market, respectively. The emerging presence of Haier-branded products enables Haier to further penetrate these markets and consolidate the brand image in the minds of international consumers.
Haier America - Haier’s global market penetration approach is to enter difficult markets first, such as the United States and Western Europe, before markets that could be more easily penetrated. Haier believes that the success in penetrating difficult markets will lead to success in easier markets. With the rapid growth of the U.S. market, Haier built brand reputation and receives a high margin on sales. Hence, with the successful launch in the U.S. market, Haier can focus on further marketing its products under the single Haier brand name with the competitive product attributes of durability, feature innovation, and low costs to continue increasing the brand awareness in the U.S market as well as other overseas markets.
Distribution - Haier-branded products are mainly sold through national chain retailers in the United States. The U.S. national chain retailers account for about 70 percent of appliance manufacturer sales. This major distribution channel enables Haier-branded products to increase their presence and brand awareness in the U.S. market. However, the national chain retailers carry variety of brand selections that will lead to a more competitive market. If Haier wants to capture a significant market share through this channel, the company has to consider placing a greater emphasis on marketing efforts with those chain retailers.
Core Competencies and Competitive Advantage – Haier’s competencies Multi-product single-brand marketing, unique market penetration strategy, innovative product feature development. Haier’s focused single-brand strategy is the competitive advantage that has made it more profitable than many competitors in the global home appliance market.

Alternatives

Acquire Maytag – The purchase would probably increase the power of the Haier company, particularly in the appliance area for the US. This would come at a significant cost to the overall corporate strategy of building the Haier brand worldwide.
Run from this perceived opportunity – Purchasing Maytag would have the following effects on Haier:

The risk of acquiring the struggling Maytag are not fully fleshed out. The marriage of the two companies might ultimately be unsuccessful, if Haier can even make Maytag profitable.
The Maytag brand would directly compete with Haier’s own brand and may cannibalize sales.
The Maytag brand acquisition would do nothing to assist Haier in achieving its stated corporate objective of building successful worldwide brand.

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