Qingdao Haier, Ltd. : Considering the Maytag Acquisition Executive Summary Situation Executives at Chinese home appliance manufacturer Qingdao Haier, Ltd. (Haier) have just learned that Ripplewood Holdings placed a bid to purchase Maytag Corporation for $1. 13 billion or $14/share. Maytag Corporation, the 3rd largest home appliance manufacturer in the United States, has announced that it will consider competitive offers for the acquisition of the company. Chinese home appliance manufacturer, Qingdao Haier, Ltd. ust evaluate the pros and cons of the Maytag Company and assets and decide whether or not to bid on the acquisition of the Maytag business. Action Haier will evaluate the current status of its business and the goal to become at least #3 in the U. S. home appliance industry. Haier will then evaluate the current status of the Maytag business and what parts of the business may become assets and liabilities to Haier if acquired. Haier will then determine if the pros to purchase Maytag Corporation outweigh the cons in helping Haier achieve the company’s long-term goals. Result
Haier will place a bid to acquire Maytag Corporation for $1. 28 million or $16/share. With the acquisition of Maytag, Haier will use the company’s innovative product design and marketing strategies to revitalize the Maytag brand presence and gain market share in the U. S. home appliance market, while continuing to market the successful Haier brand in other areas of the world. Company Overview Chinese company Qingdao Haier, Ltd. started out as a very low performing refrigerator manufacturer known as Qingdao Refrigerator Plant. In 1984, Qingdao Refrigerator merged with Germany’s Liberhaier Company to become Qingdao Haier, Ltd.
Haier has become one of the top 50 transnational corporations in developing countries. In addition to refrigerators, Haier manufactures a wide range of household appliances including washers, dryers, freezers, microwaves, air conditioners, televisions and mobile phones. All of Haier’s 90 product lines are all marketed under the Haier brand name. Haier was recently named China’s most valuable brand name by Forbes magazine and holds a 30% share of China’s $13 billion household appliance market due to the company’s reputation for product quality, continuous innovation and customer service.
Haier trails Whirlpool, General Electric, Electrolux and Bosch-Siemens as the 5th largest house appliance company in the world. Haier markets products in 160 countries and operates design, production, distribution and after-sales service centers all over the world. Haier America, the U. S. sales and marketing division of Qingdao Haier Ltd. , has its headquarters, a research center and product showrooms in New York City. Haier also operators numerous manufacturing facilities at the Haier Industrial Park in Camden, South Carolina and therefore can place a “Made in the U.
S. A” sticker on the appliances made in these facilities. Haier America has been quite successful as a result of the company’s reputation for product feature innovation, quick product design and delivery, competitive prices, product quality and the development of new product categories that larger manufacturers have overlooked. Haier’s Mission Haier strives to achieve globalization by creating a localized brand name through complete localization of design, manufacture, and marketing of its products. Global Home Appliance Markets
North America – The North American market is the largest market for large household appliances based on dollar sales, however it is also the most mature market with saturation levels of 80-100% due to the high percentage of households that own numerous appliances. There are four major competitors leading the US Market: Whirlpool, General Electric, Maytag and Electrolux. Europe – The European Market is a growing market with household appliance saturation levels between 40 and 50%, meaning approximately 50% of consumers do not own many of the home appliances.
The main competitors in the European market are Electrolux, Bosch-Siemens, Indesit and Whirlpool; however no one competitor currently holds a dominant market position. Asia – Due to large the population and immense spending power of Asian consumers, the Asian Market is the biggest market for household appliances. Asian households also have very low saturation levels, allowing the potential for a large quantity of new consumers. Due to the high growth potential of this market, there are over 50 competitors fighting for market share in Asia.
This extreme number of competitors has resulted in competitive pricing strategies and low profits. Australia & New Zealand – The market for home appliances in Australia and New Zealand has saturation levels of approximately 40-50%. The market has attracted 15 appliance manufacturers. Of these competitors, Electrolux is leading the market with 28% market share, followed by LG Electronics with 10%. Maytag and Whirlpool also compete in this market but only have market share percentages of 6% and 5%, respectively. Latin America – The Latin American home appliance market is a growing market due to low saturation levels.
There are 25 manufacturers competing in this market including Whirlpool which leads the market with 33% market share. Many large companies have identified Latin America as a viable growth opportunity. U. S. Home Appliance Industry The U. S. home appliance industry consists of manufacturers, distributors and consumer that produce, sell and buy home appliances such as convection ovens, microwave ovens, dishwashers, refrigerators, washing machines, dryers, air conditioners, etc. Sales in this industry have been steadily increasing since 2000.
There are four main competitors leading the U. S. Home Appliance Industry. The market share of the major competitors in the U. S. market is as follows: [pic] Manufacturing and facility costs are very high for home appliances, therefore most manufacturers tend to retool existing manufacturing facilities rather than build new production plants. Cost of goods sold for appliances consists of raw material costs (60%), labor costs (20%) and shipping and fixed costs (20%). Due to rising raw material costs, manufacturer’s gross profit margins have been decreasing.
Additionally, manufacturers have experienced pressure from other manufacturers, retailers and consumers to lower the price of their appliances. Prices for household appliances declined approximately 3. 7% in 2003 and 3% in 2004. Major home appliances in the U. S. are distributed to consumers through chain retailers, independent appliance retailers and distributors/wholesalers. 70% of sales in the U. S. are to major chain retailers such as Lowe’s, Home Depot and Wal-Mart who sell the appliances below MSRP (manufacturer’s suggested retail price).
Independent Appliance Retailers such as Sears account for 25% of home appliance sales and typically sell appliances at the MSRP. The remaining 5% of sales are to distributors/wholesalers who typically sell the appliances to commercial buyers such as builders and contractors. Most top home appliance manufacturers in the U. S. offer complete product lines containing multiple models with different features, specifications, colors, sizes, etc. The products are positioned along a price-quality continuum using flagship brands and sub-brands to target different consumers.
For example, the Maytag Neptune contains added features and is priced significantly higher than the conventional Maytag models. Multi-branding is another strategy used in this industry to further differentiate products and attract different types of consumers. For example, Maytag markets the lower-end brand Admiral as well as the higher-end brand Jenn-Air in order to penetrate different target markets. On average, U. S. Home Appliance Manufacturers spend about 1. 4% of sales on consumer brand advertising usually focusing on introducing new models or sustaining brand equity.
The outlook for the industry in the near future (2006) is very similar to the current state of the industry in 2005. Rising raw material costs will continue to increase prices and decrease profit margins for most consumer product companies. Additionally, major companies will continue to work through restructuring efforts in order to reduce costs and defend the company’s market position. Falling gasoline prices are expected to increase consumer confidence and increase consumer buying activity, however company downsizing is expected to place pressure on consumer buying behavior and heighten the consumer’s sensitivity to price increases.
Home appliance manufacturers in the U. S. will continue to face intense competition from foreign companies and will be forced to adjust their strategies to adapt to the new market environment. Volume growth is expected to be at approximately 1 – 2% which is similar to growth rates in 2005. U. S. Appliance Buying Behavior Due to the durability of the products, home appliances are not frequently purchased in the U. S. 70% of purchases through retail chains are replacement purchases typically caused by appliance failure.
The other 30% of sales are discretionary (upgrading features, colors) or first-time purchases. In contrast, only 47% of purchases through independent retailers are due to appliance failure. The majority of sales (53%) at independent retailers are due to remodeling, first-time purchases, upgrading or moving. Repeat appliance purchasers typically buy the same brand that they are replacing, especially if the time between the original purchase and the replacement purchase is lengthy. In the mind of the U. S. onsumer, the most important factors for retail stores are product selection, price, convenience and service. Trends in the U. S home appliance industry are leading to increased sales for high-end and low-end products and decreased sales for middle-level appliances. SWOT – Qingdao Haier, Ltd. Strengths Haier currently holds a dominant position in the Chinese market with 30% market share in the home appliance industry. Due to the company’s reputation for quality, innovation and customer service, the Haier brand was named “China’s Most Valuable Brand” by Forbes magazine.
The Haier brand is marketed in 160 countries and the company operates design centers, service centers, industrial complexes and manufacturing facilities in numerous parts of the world. Weaknesses Although Haier is a dominant player in the Chinese market, the brand only captures 3% market share in the United States. Haier markets all products under the Haier brand name and does not have experience in multi-branding or sub-branding strategies. Opportunities Haier can utilize the innovative strategies that helped the company succeed in China in order to develop products that are new and desired by the U.
S. consumer. Haier can capitalize on its lower prices to attract consumers and gain market share. Haier can aquire Maytag Corporation in order to utilize the Maytag brand reputation coupled with Haier’s innovation to further the success of the Maytag brand in the U. S. Threats The home appliance market in the U. S. is heavily saturated and buy behavior usually leads to consumers purchasing the same brand as the brand they previously owned. Rising material costs in the U. S. are decreasing gross profit margins throughout the industry. SWOT – Maytag Corporation Strengths
The Maytag brand name is one of the most recognizable and respected brands in the U. S. market. The “Lonely Maytag Repairman” advertising campaign effectively communicates Maytag’s position as a premium mid-priced brand based on product quality and innovation. Maytag markets multiple brands along a price-quality continuum to attract consumers in different target markets. Maytag also owns the Hoover brand which is the market leader in the U. S. floor care market. Weaknesses Maytag’s manufacturing facilities are only operating at 60% capacity, causing increased costs and low absorption.
Maytag was only mildly successful in the attempt to expand into the Western European Market and does not have market presence in China, Asia or Eastern Europe. Maytag is performing poorly in terms of financial performance with the market share, sales, operating profit and gross profit decreasing over the past few years. Maytag lost distribution as Best Buy has decided to no longer sell Maytag branded products in their stores. Opportunities Maytag has the opportunity to continue marketing its products along a price-quality continuum in order to gain market share with different target markets.
Maytag could also redesign and streamline their manufacturing facilities using Lean Six Sigma Manufacturing techniques such as 5S, Kaizen and Rapid Changeover to decrease costs and increase productivity and, in turn, increase profit margins. Threats Foreign companies such as LG Electronics and Samsung are entering the U. S. Market and gaining distribution at chain retailers such as Home Depot. The home appliance market in the U. S. is heavily saturated and buy behavior usually leads to consumers purchasing the same brand as the brand they previously owned.
Rising material costs in the U. S. are decreasing gross profit margins throughout the industry. Financial Analysis – Maytag Corporation Maytag Corporation’s net sales have hovered around the $4. 7 billion mark over the past three years from 2002 – 2004. Maytag experienced a 1. 5% decline in sales in 2004 and first quarter 2005 sales were down 4. 2% compared to first quarter 2004. In 2004, the company experienced a net income loss of $9 million. In addition to a decline in sales and net income, Maytag has also been experiencing a decline in market share since 2001.
Maytag currently holds $969 million in debt. Despite pressure by competitors, retailers and consumers to lower home appliance prices, Maytag increased the prices of its major appliances by 5% in January 2005. Maytag also offers smaller trade margins to retails than the company’s competitors. According to industry financial analysts, the average price-earnings (P/E) multiple in the household appliance industry was in the range of 16-20 times corporate earnings-per-share. Maytag’s stock price was trading at $15. 31 per share on June 15, 2005.
Per the below chart which projects Maytag’s stock price over the next few years based on projected earnings per share, the stock price on June 15th was trading at approximately 28 times the corporate earnings-per-share and would be considered to be overpriced. Recommendation In order to come to a decision on the Maytag acquisition, Qingdao Hiaer, Ltd. reviewed the current status of the company though a SWOT and financial analysis as well as reviewed the company’s long-term goals and strategies. Qingdao Haier also thoroughly researched Maytag Corporation through a SWOT analysis, market review and financial analysis.
Finally, Qingdao Haier evaluated the competitive landscape of the market, industry trends and buyer behavior. After gathering and analyzing these many factors, Qingdao Haier has decided it is in the company’s best interest to acquire Maytag Corporation. Although the financial analysis of Maytag Corporation is not promising in its current state nor in the near future due to large debt, declining sales and revenue and overpriced stock, Qingdao believes the fundamentals of a strong company are present within the Maytag framework, lead by the strong Maytag brand reputation within the U.
S. market. Qingdao Haier believes it can utilize the company’s success in China to reinvigorate the Maytag branded products through innovative design and quality. Qingdao also believes it can utilize the designs of its existing manufacturing networks in conjunction with the Lean Six Sigma competencies possessed by Maytag to redesign Maytag’s facilities to lower costs and increase productivity and therefore increase profits. The acquisition of Maytag would immediately increase the company’s market share in the U. S. nd other markets and is consistent pressure from the Chinese government to expand Chinese companies to overseas markets. In addition to increased market share, the acquisition would immediately lead to increased display space in retails stores and would give Qingdao acess to the partnerships that Maytag has developed over the years. Overall, Qingdao Haier believes the acquisition of Maytag Corporation and its many flagship brands will allow Qingdao to reach and even surpass the company’s goal of becoming the #3 home appliance manufacturer in the U. S. market. Marketing Mix Product
With the acquisition of Maytag Corporation, Qingdao Haier will market home appliance products under both the Haier and Maytag brand names. The Haier product line will include washing machines, dryers, dishwashers, refrigerators, ovens, microwaves and other home appliances. Haier will reinvigorate the Maytag brand by utilizing the innovative product specifications and features that have made the Haier brand successful in China. Haier will also introduce an “energy efficient” product line featuring appliances that use fewer natural resources such as water and also utilize less power to operate.
Haier will strive to have their appliances meet the guidelines set by the Environmental Protection Agency and the U. S. Department of Energy and earn an Energy Star. Haier will continue to offer Maytag products positioned along a price-quality continuum. Haier will continue to market value brands such as Admiral and Magic Chef and premium brands such as Jenn-Air. Haier will discontinue mid-level brands such as Amana as the sales and demand for mid-level products are steadily decreasing. Place
Haier products will continue to be marketed in areas outside of the United States with the Haier brand name as it is well-known and respected in countries such as China. Maytag branded products will continue to be marketed within the U. S and may be expanded to other countries in conjunction with Haier branded products. The products will be distributed through 3 main outlets. The first outlet is chain retailers such as Lowes, Home Depot, Wal-Mart and Target. The second outlet is independent retailers such as Sears and Best Buy. The third outlet is wholesalers and mass distributers.
Qingdao Haier will no longer utilize the Maytag retail stores as a means of distribution. All remaining stores will be phased out and replaced with increased distribution to chain retailers. Home appliances marketed by Qingdao Haier will also be available for purchase online through major chain and independent retailer websites. Promotion As discussed in the product section, home appliances within the U. S. and Eastern Europe will be marketed under the Maytag brand name and will emphasize the fact that the products are “Made in the U.
S. A. ”. Maytag products will continue to be represented by the lonely Maytag Repair Man because he is highly recognized by the U. S consumer. Qingdao will utilize the company’s innovative strategies to transform the lonely Maytag repairman image into a contemporary advertisement that appeals to today’s consumers without losing the connection with Maytag’s history and reputation. Qingdao will present advertisements geared toward the consumer as well as advertisements focused on the retail customers.
For products in other areas that will be marketed under the Haier brand name, advertising will focus heavily on the end consumer with only a small portion of the marketing budget dedicated to retail advertising. This is unlike the current marketing strategy for Qingdao Haier in which 80% of the budget goes towards retailer-directed advertising campaigns. Both products marketed under the Haier and Maytag brand names will focus advertising for the energy efficient products within their product lines.
Advertisements will emphasize the benefit to the overall environment as well as the personal benefit created by energy efficient tax credits. Both brands will also adopt the Haier brand tagline: “What the World Comes Home To”. Qingdao Haier will partner with chain and independent retailers to offer free delivery and installation for consumers who chose to research and purchase their home appliances online. Price Haier branded products will utilize the full-cost pricing strategy rate-of-return pricing in which the price is set to obtain a specific rate of return on investment.
This strategy assumes that because of the tremendous brand recognition and value statement that Haier products provide, consumers are less sensitive to changes in price. Maytag branded products will utilize the product-line pricing strategy that is consistent with each product’s position on the price-quality continuum. Sub-brands classified as value brands that have limited features and are designed to perform only basic functions will be the lowest priced items in the product-line. The low price for the value brands is designed to attract customers inexperienced buyers or buyers who are willing to sacrifice quality for price.
Premium brands that contain additional features, options and benefits above and beyond the basic function of the appliance will be among the highest priced items in the product-line. Premium products are positioned to be perceived as very high in quality and value therefore justifying the higher price point. Sub-branding in conjunction with the product-line pricing strategy allows the company to provide brands that provide different value statements and appeal to very different consumers.
This diversity in product offering and price will hopefully lead to increased sales and market share. Audit and Control Procedures The marketing-mix and product-market plans outlined in this marketing document will be reviewed periodically to allow Qingdao Haier, Ltd. to acknowledge changes in the marketing and production environments and adapt strategies in a timely manner. The audit and control process will focus on strategic control to evaluate if the company doing the right thing as indicated by the company’s goals, strategies and objectives.
The audit and control process will also focus on operations control to determine if the operations of the company are doing things right and obtaining the goals and objectives efficiently and effectively. In order to complete an audit of the company’s strategic control, Qingdao Haier will periodically perform an analysis of market evolution, technological innovation, market redefinition and marketing channels to determine relevant changes and predict upcoming trends.
With this information, the company can compare strategies and objectives against the current industry and/or market climate and adjust as necessary to remain profitable and adapt to the trends of the market. In order to complete and audit of the company’s operations control, Qingdao Haier will periodically perform a marketing-cost analysis, product-service mix analysis, sales analysis, marketing channel analysis and customer profitability analysis. With this information, the company can evaluate the product mix and take actions to improve the productivity of all marketing efforts.
Within the first year or two of the acquisition, Qingdao Haier should closely monitor the success of both the Haier and Maytag brands by performing audits at least every 3 months. After the initial 2 years, the company should perform a thorough analysis at least every year, more often if the market environment seems to be changing more rapidly than anticipated. Reference List Energy Star, 2010 On-line. Available from Internet, http://www. energystar. gov/, accessed 11 April 2010. Haier America, 2010 On-line. Available from Internet, http://www. haieramerica. om/en/, accessed 11 April 2010. Miller, Jon. 2005. Qingdao Haier’s Bids for Maytag: LeanSigma Goes to China? Gemba Panta Rei, 23 June. On-line. Available from Internet, http://www. gembapantarei. com/2005/06/qingdao_haiers_bids_for_maytag. html, accessed 11 April 2010. 2005. Fitch: U. S. Consumer Products Industry Outlook – Limited Upside in 2006. Business Wire, 8 December. On-line. Available from Internet, http://www. thefreelibrary. com/Fitch%3a+U. S. +Consumer+Products+Industry+Outlook+-+Limited+Upside+in… -a0139559550, accessed 11 April 2010 ———————– [pic]