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Vietnam’s new wave of marketing
They say when one door closes, another opens. Earlier this year, the Central Institute for Management predicted Vietnam’s export revenue would fall by more than 12 percent in 2009. Given that exports account for 70 percent of gross domestic product (GDP), many Vietnamese businesses are likely hoping that old adage proves true.
And it just might. While foreign direct investment has plummeted and many of Vietnam’s export markets are in recession, domestic consumer demand remains strong. So it’s no surprise that export-oriented enterprises are now looking for opportunities at home.
But as Vietnamese businesses producing for the domestic market have learned in recent years, it’s no longer as simple as placing products on local shelves. Consumers have become savvier and powerhouse brands made by major international firms like Unilever, Nestle and Procter & Gamble represent formidable competition in healthy categories, like fast-moving consumer goods and small luxuries.
Still, Vietnam’s domestic market is hardly saturated. What market share in various segments will look like in the coming years will depend on many factors, not the least of which is the ability of Vietnamese companies to adopt modern marketing strategies and identify and exploit their strengths.
A brand by any other name
Given the relative youth of the free market, it’s understandable that an appreciation for the importance of marketing is itself just emerging.
The absence of branding was so pronounced to Swedish expat Jakob Lennartsson seven years ago that he established his own design and branding firm, Rebranded. Lennartsson said the rule of the domestic market at the time was “it’s not what you know but who you know.”
“It was not about branding. It was not about marketing. It was all about distribution and sales. That’s it,” said Lennartsson. “The one who had the most contacts in sales and distribution, he won. It didn’t even matter if you had a brand or not.”
But in a short time, that has changed. Vietnamese consumers are now very conscious of quality and have a vast range of options thanks to modern retail space like supermarkets, shopping malls and convenience stores. It's now imperative that Vietnamese companies devise ways to build up their brands.
“[The domestic market] is something Vietnamese businesses haven’t been focusing on because the growth in exports has been the focus,” said Matthew Lourey, corporate finance director of consultancy firm Grant Thornton. “They haven’t been making a brand or a value-added good. They need to start doing so.”
Export-oriented companies that are only now turning to the domestic market may find things particularly tough. Many of Vietnam’s exports are price-driven commodities; they’re sold to foreign companies that package and sell them. In a domestic market, it’s more complicated.
“You’ve got to put a brand to [the product] and you’ve got to add value to it,” said Ralf Matthaes, managing director of consumer research firm TNS Vietnam. “Most Vietnamese think that a brand is just a logo. What they don’t understand is that a brand is actually a promise of what you’re delivering to the consumer.”
That said, even Vietnamese companies focused on the domestic market have not yet come up to speed.
“Most companies have never engaged in market research,” said Matthaes. “Ten years ago I would say less than 5 percent of our clientele were Vietnamese. Today, it’s maybe about 15 percent.”
The need to embrace modern marketing has become more urgent. Just last month, the Ho Chi Minh City People’s Council approved a project to restructure the city’s retail distribution system in favor of modern trade outlets.
Lennartsson said companies were taking stock of this situation. “Seven or eight years ago people just wanted to have a unique logo,” he said. “Now they’re thinking about the important things such as the message they’re sending and the strategy that will carry the brand.”
No better time than now
If past recessions prove anything, it's that business acumen matters most in a crunch. Advertising agency Ogilvy & Mather Viet Nam illustrated this in a recent paper called “Optimizing the Marketing Budget in Recession.”
“In an economic downturn, the game is really about market share,” explained Alex Clegg, managing director of Ogilvy & Mather Viet Nam. “There are opportunities if you’re a larger company to really assert market share. The smaller companies and the smaller brands are the more vulnerable and the weaker ones.
While large international firms can leverage market share and prioritize key brands in tough times, small Vietnamese businesses' options are limited.
One tactic that local companies have used to compete with better established brands during the downturn is to offer lower prices. While many retailers report that, right now, price is the consumer’s primary concern, promotions are unlikely to earn customer loyalty.
“When you see a product where the price drops, you start to question the quality,” said Matthaes. “Sure you’ll buy it because it’s cheap. But as soon as the price goes back up, you’ve lost the customer.”
Clegg said he does see some value in the measures. “In a market like this where new categories and new brands are being launched, you very often need to have a combination of longer term brand building efforts and some tactical efforts to stimulate trial and get people to actually experience the product.”
However, he agreed the price tag was not enough, asserting that promotions are most effective when they’re linked to an overall brand message. For Vietnamese companies that have not yet begun developing these messages, doing so in a market that’s growing ever more crowded may pose a defining challenge.
Wiggle room
With 100 percent foreign ownership now legal in the retail industry, some predicted 2009 would be the year that major international retailers like Wal-Mart and Carrefour would enter Vietnam. But fewer enterprises than expected filed for licenses. Just last month, Japanese retailer Takashimaya Co. shelved plans to open a HCMC location, citing the failure of wages and living conditions to rise in proportion to property costs.
Also announced last month was Vietnam’s slide from the top spot on the 2008 AT Kearney Global Retail Development Index to number six this year, due to the effect of declining exports on GDP growth.
Vietnamese companies have taken heed of the opportunity afforded by the pause in foreign development, improving distribution channels and establishing additional retail outlets. These measures, in combination with other factors, could help some local businesses get a foothold before the economy picks up.
“Vietnamese domestic-focused businesses are stronger than many estimate,” said Lourey. “Many own land rights, which have increased in value in recent years, and the level of debt within the economy is at a much lower level than most other economies.
In addition, many opportunities remain at various levels and in different categories in which other factors account for success.
“Very often,” said Clegg, “small companies compete on a price position or they might have a particular stronghold in a region.”
Matthaes agreed. “Vietnamese love products that come from their own neck of the woods.” He cited products with strong regional market share, like Larue beer in Danang (60 percent) and Virginia Gold cigarettes in Hai Phong (70 percent).
And as in any market, there are exceptions to the rule. Matthaes said companies like Kinh Do, Vinamilk and Thanh Hiep Phat Beverage Group have proved that Vietnamese companies can develop and market products like their international competitors, and Clegg pointed to the telecommunications industry, which is dominated by homegrown companies like Viettel, Mobitel and Vinafone.
In the end, the current downturn is unlikely to produce a sea change in Vietnam’s economy. But like all downturns, it has challenged Vietnamese enterprises to reconsider business as usual. It remains to be seen which entrepreneurs will make the most of the lesson.
Tom DiChristopher - AsiaLife
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