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Cold-calling China
Haagen-Dazs had done its homework well for China
Martin Daniel Alonso, Katherine Brown, Jessica Julmy, Pamela Mirels and Susanne Winkler
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Executive Summary: In the mid-1990s, the Chinese were highly price-sensitive consumers with little dairy in their diet. In walked Haagen-Dazs, pitching its full-fat ice cream at prices five times higher than in the US. To anyone unfamiliar with Chinese culture, this looked like a recipe for disaster. But HaagenDazs had done its homework - and done it well. The name Haagen-Dazs was invented by Reuben and Rose Mattus in 1961, because they thought it looked Scandinavian, and because Denmark was known for dairy products. Fifty years on, HaagenDazs sells in over 80 countries. Its revenues were over $750 million in 2011. In the global ice cream market, Haagen-Dazs has only a two per cent market share, while Unilever has 18 per cent and Nestl 14 per cent. But in the premium category, Haagen-Dazs is ahead of Unilever's Ben & Jerry's brand and Nestl's Mvenpick. Haagen-Dazs created the Read the full case study from "premium ice cream" category London Business School here with its rich ice cream made with exotic ingredients such as Belgian chocolate and vanilla beans from Madagascar. It reinforces the message of indulgence through its prizewinning advertising campaigns and new flavours.

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Haagen-Dazs mooncakes are an example of how the brand has adapted culturally while retaining its global identity"

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For Haagen-Dazs, the temptation to expand operations to China was great. Despite the traditional lack of dairy in the Chinese diet, demand was rising as the population gained exposure to Hong Kong since 1984, but venturing on to the mainland in 1996 introduced a completely different set of challenges. One of the most appealing was to direct the brand at the local hunger for luxury goods that were markers of economic status. Luxury brands such as Louis Vuitton and Cartier lined the high-end
businesstoday.intoday.in/story/case-study-haagen-dazs-in-china/1/184779.html
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Haagen-Dazs had done its homework well for China - Business Today - Business News

shopping areas of Shanghai and Beijing. With increased buying power and a diminishing stigma on displays of wealth, upper-class Chinese appeared well situated to appreciate Haagen-Dazs's themes of indulgence and self-gratification. In carving out a brand identity specific to China, Haagen-Dazs decided not to compete with incumbent ice cream brands, and instead aligned itself with western icons of luxury. As Pedro Man, Vice President of the company's Asia-Pacific operations, told reporters in 1998: "What Rolls-Royce is to cars... Haagen-Dazs is to ice cream."

Before entering China, Haagen-Dazs did extensive research to plan distribution. Its products need a constant temperature of -26C, so the company decided to handle distribution itself. It would import products from its US and European factories rather than manufacture locally, because the quality of Chinese dairy products was poor. Shipments from overseas would be brought to warehouses in Shanghai and Beijing, and then go out to retail outlets across the country in specially designed refrigerated trucks. This would ensure the quality that was crucial to the brand, though it would mean huge transport costs and import duties as high as 93 per cent. The market research also yielded other vital information. First, Haagen-Dazs observed that many Chinese stores stopped carrying frozen desserts in winter, and their refrigeration did not meet its standards. Second, unlike Europeans, who eat ice cream at home, the Chinese preferred to eat it in the retail environment. Chris O'Leary, Head of international operations at General Mills, explains: "It's not an ice cream cone they're buying; it's an occasion." So Haagen-Dazs decided to sell its ice cream in China in stand-alone shops instead of supermarkets. And, unlike the casual ice cream parlours in western countries, China's were designed as luxurious spaces. Haagen-Dazs opened its first Chinese cafe in Shanghai in 1996, with plans to invest another $40 million over 10 years to open more shops across China, starting with major eastern cities and following the spread of prosperity into the hinterland. SPECIAL: Read more case studies from Business Today here The strategy was simple: high-end real estate and service reminiscent of a five-star hotel. Patrons were served on Wedgwood tableware by highly trained staff, in an ambience that suggested a European patisserie. The extensive all-dessert menu had the word "Indulgence" on the cover. These were intended as environments for couples and professionals. Shop managers were recruited locally, so they were familiar with the customers' culture and could ensure that their experience met expectations. Traditionally, the Chinese have been price-conscious, but the perception of quality turned this on its head: a higher price and respected brand name mean quality. This is why companies with high-quality products often find themselves in reverse price wars in China, raising prices to attract people who will only buy expensive brands. By constantly reinforcing the message of quality and luxury, Haagen-Dazs could command premiums far above those of the local competition. Prices on cafe menus were equivalent to as much as $35. Even a banana split cost $12. To put this premium in perspective: the average Chinese factory worker earns $150 a month. Alongside the perception of quality was the notion of a luxury product as a status symbol. In a country where people felt increasingly free to display their wealth, guests at a Haagen-Dazs cafe enjoying expensive sundaes with friends or colleagues gained instant bragging rights. Lastly, the brand took advantage of the Chinese mindset of "saving face", because of which giving only premium brands as gifts allows the giver to appear generous and the recipient to feel important. Food is a culturally sensitive business. Haagen-Dazs managed the challenge of tweaking its products to suit Chinese preferences while maintaining its global brand identity. It also spotted an opportunity in a Chinese gift-giving tradition. In 1997, it introduced mooncakes to its product range. This is a type of confection traditionally given to family, friends, and clients during the Mid-Autumn festival. HaagenDazs's version, which is essentially a mini ice cream cake, sells like the proverbial hot cakes businesstoday.intoday.in/story/case-study-haagen-dazs-in-china/1/184779.html

Just as Starbucks was expected to fail in a nation of tea drinkers, HaagenDazs was expected to flop, as dessert in China was just fruit"

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mooncake sales have grown around 25 per cent a year since they were introduced, and account for 28 per cent of Haagen-Dazs's revenues in China. Haagen-Dazs decided to retain its name, rather than translating it into Chinese. The association of the brand name with the West, and the Nordiclooking 'a' in particular, gave weight to Haagen-Dazs's claim of quality and its price premium.

So the management's efforts on four fronts - product, pricing, promotion, and distribution - reinforced one another to build HaagenDazs into a brand highly desired by affluent Chinese. It was further strengthened by celebrity endorsements. Adjusting products to suit local tastes helped the company create demand and space in the massive Chinese food market. Imports ensured quality, which justified the high price, and this in turn made the product more desirable in the culture of "saving face". The retail ambience guaranteed delivery of the expected brand value. Locating shops in prime locations meant that customers were "dressed to impress", which further enhanced the premium brand image. Haagen-Dazs has turned out to be one of the most successful global food and beverage brands in China. It is often mentioned alongside Starbucks in case studies of successful market entry in a challenging country. Like Starbucks, which many thought would fail in a tea-drinking country, HaagenDazs was expected to fail as people ate fruit for dessert and considered dairy products foreign. But by 2009, more than 50 per cent of Chinese had heard of Haagen-Dazs. Today, the company has more than 160 shops in China, including stores in second-tier cities. Eager to introduce pints for consumption at home, Haagen-Dazs has also installed 5,000 freezers, costing $15,000 apiece, throughout China. The company does not disclose exact figures, but revenues were estimated at over $100 million in China in 2010, with an annualised growth rate of 21 per cent over the three previous years. About 80 per cent of revenue comes from ice cream parlours as opposed to supermarket sales. The sailing hasn't all been smooth, however. In 2005, the company learned a lesson about the Chinese media's propensity to disproportionately scrutinise foreign multinationals, after a makeshift kitchen in Shenzhen producing ice cream cakes without a food hygiene licence sparked public outcry. The company publicly apologised, closed the kitchen and distributed refund vouchers, but the media continued to criticise it. However, Haagen-Dazs was able to rebound because of its strong brand. Today, it is grappling with growing competition - both foreign and local - and saturated primary cities. Another challenge is to expand in China's secondary cities while continuing to open shops in primary ones. As luxury brands look to benefit from the vast Chinese market, many struggle to find the balance between preserving their aura of exclusivity while reaching as many customers as possible. HaagenDazs is no exception. FLYING IN THE FACE OF TEXTBOOK ADVICE Haagen-Dazs in China is an interesting case because it is so counterintuitive. The usual pushback from local managers in emerging markets is that multinational companies (MNCs) need to be sensitive to lower income levels and price products competitively. This advice is frequently found in marketing textbooks and followed by many MNCs, from Coca-Cola to Unilever. Yet, here is Haagen-Dazs, selling in China at two to three times the unit price in the United States, and China is their second most successful market. How is this possible?
China's luxury consumption will account for 60% of global demand by the end of the decade: Nirmalya Kumar

In China, Haagen-Dazs did not compete with other ice cream companies, but aligned itself with luxe brands"

First, China has developed a voracious appetite for luxury brands. Its growth and the recession in developed markets have led to it displacing Japan as the "must have" luxury market. Only the US has more billionaires, and there are more than a million millionaires in China. This newly created wealth is different from "old money" in its desire for conspicuous consumption. According to some estimates, Chinese consumption of luxury brands will account for 60 per cent of global demand by the end of the decade.
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Haagen-Dazs had done its homework well for China - Business Today - Business News

Second, Haagen-Dazs has pulled off an amazing feat, positioning itself as an experience luxury brand, rather than as a food product or ice cream brand. The power of this creative strategy leads some Chinese rural households to save a month's salary and trek to the city for a treat at Haagen-Dazs. So the next time you hear a local manager arguing for selling at low prices in emerging markets, and why local consumption patterns do not encompass the global product, just say: "Haagen-Dazs in China!" Nirmalya Kumar, Professor of Marketing and Co-Director of Aditya V. Birla India Centre, London Business School

IT'S ABOUT THE CUSTOMER, NOT THE PRODUCT It can be rewarding but risky to have a narrow and segmented brand like Haagen-Dazs. It is vital to understand the core motivations of the customer. The challenge is to avoid the temptation to extend the value proposition to new segments to increase volume and revenues. Do it wrong and you accomplish exactly the opposite!
The beauty of this case is The Haagen-Dazs case demonstrates the power of premium brands. the application of learnings They defy convention and question the whole notion of categories. from expensive categories What is the logic of paying $10,000 for a bag? Or similar premiums for to a low-priced one: Kathrine Mo a pair of shoes or a car? You kid yourself if you think that a premium brand is about a product. It is about the customer and the brand that the person wants to be. It is about portraying success to the world and demonstrating status.

The beauty of this case is that General Mills took learnings from very expensive categories and applied them to a relatively low-priced category. You need to understand what customer need you are satisfying. Haagen-Dazs is not competing in the ice cream category in China it is competing in the category of status symbols. And the cost of a Haagen-Dazs is a relatively small price to pay to show your friends your success. It is similarly impressive to see the insights into local culture. The distribution set-up adds to the core of the brands success. Similarly, the mooncakes allow for an extended brand experience whilst increasing business results. Further success will come from finding new ways for the target segment to portray themselves stay true to the core! Kathrine Mo Vice President, Brand Management, Statoil ASA

How will you rate Haagen-Dazs's achievement? Send in your views to btcasestudies@intoday.com. The best response will win a book by Professor Nirmalya Kumar, Co-director of the Aditya Birla India Centre at London Business School. Full version of the case study at www.businesstoday.in/casestudy.

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