Jiego Michael Tanchanco

LS 127 S
WACC #1: Lamoiyan Corporation of the Philippines: Challenging Multinational Giants
1.

Strategic Profile and Case Analysis Purpose

Lamoiyan Corporations beginnings started as Aluminum Container Incorporated that supplied aluminum
toothpaste tubes for companies such as Colgate-Palmolive, Procter & Gamble, and Unilever. However, in the long run, the
company closed because the toothpaste companies decided to switch from aluminum to plastic tubes. His expensive
equipment was forced out of commission and his entire workforce, including himself, was forced out of the job. However,
Pedro turned this misfortune into opportunity and thought that if nobody wanted his aluminum tubes, he might as well fill
them up with his own toothpaste. Pedro then created the Lamoiyan Corporation and built his own brand of toothpaste,
Happee.
Happees eventual success, however, was not without multiple significant setbacks. Upon Happees launch,
Lamoiyan experienced months of failure caused by three major barriers: (1) the consumers perception that locally
produced goods were inferior, (2) the consumers preference for Colgates taste, and (3) the lack of awareness or the
Happee brand. Lamoiyan immediately attempted to eliminating these barriers by emphasizing to its customers that
Happee was produced in partnership with a Japanese company to affirm its high quality, focused on producing a flavor that
was comparable to toothpaste, and utilizing community outreach programs, Lamoiyan sponsored local schools by giving
hearing-impaired students free education, and supporting the Philippine Olympic team when no one else wanted to. In
doing so, Happee managed to be recognized as a product that is proudly Filipino.
To compete with the entrenched multinational brands, Lamoiyan utilized four different strategies to combat the
multinational giants powerful influence: (1) by competing with a price no other big company could imitate, (2) by catering
to the specific tastes of different market segments, (3) through selective marketing, and (4) sponsoring various company
outreach programs. By lowering its products price compared to major competitors, the only area where Colgate and
Unilever cannot compete in, Happees sales shot up and its competitors did not have the means to combat Happees
strategy in terms of price. Lamoiyan also capitalized on marketing opportunities their competitors could not imitate. By
producing specialized products for niche markets such as children and the elderly, (that may have comprised 2% or 3% of
the market), it has managed to capture many small shares of the market and produced an aggregate of 20%. Through its
selective marketing and community outreach campaigns, Lamoiyans charitable acts increased its publicity and enhanced
its public image.
The multinational competitors initially did not see Happee as a direct threat, instead considering the upstart
brand as a marginal low-end product that was benefiting from temporary economic trends. However, when Happee
managed to capture at its peak its 20% market share, the multinational giants wanted to buy them out, but Pedro insisted
on fighting on. In response, Colgate lowered its prices really close to the price Happee is selling their products in to kill
them. Low-price rivals such as Zest-Os Beam toothpaste also emerged to steal Happees shares by offering a much lower
price. Fortunately, Colgate failed to maintain its low prices due to economic crises wherein Happee prevailed, and through
the launch of Kutitap, ultimately undermined Zest-Os efforts and successfully countered both international and domestic
rivals.
From its initial expansion of launching the Dazz Dishwashing Paste that quickly captured 25% of the market,
Pedro contemplated on opening his company to the public to raise funds for expansion and growth, penetrating deeper
distribution channels specifically in sari-sari stores, launching more new products that complements the companys existing
product lines, and finally expanding internationally.
From successfully fighting against multinational giants and claiming a peak 20% market share in a domestic
standpoint, I believe that the purpose of the case is to find out how Lamoiyan will retain its market share in the toothpaste
industry while looking for ways to possibly build its market share in new product categories in a similar fashion on how
Happee was built as a brand. From successfully working around the multinational brands by targeting the smaller niches
the bigger players cant cater to, Lamoiyan also has to find a way to expand and further its successes in order to grow while
avoiding any means that could cause an aggressive reaction on the part of big players. In other words, the purpose of this
case is to show students that the biggest players dont always win, you dont need all the shares in the market to win, and
smaller, local brands have the capacity to successfully compete against bigger multinational players and win if they
efficiently use their resources and skills well.

2.

Situation Analysis

Colgate-Palmolive and Unilevers entrenched status in the minds of its consumers, their influence in the industry, and
their domination in terms of market shelf spaces made it nearly impossible for new players to enter the game. Colonial
mentality and lack of brand identity made it hard for Lamoiyan to establish itself as a brand when Happee was launched.
Pedro then decided to engage in a particular area their competitors could not retaliate in, which is price. Due to his lower
investments in distributive, manufacturing and advertising costs, Happee became resilient in maintaining its lower price
compared to that of its competitors. He could also afford to do so as he benefited from the in-house production of tubes.
He established brand awareness through various community outreaches such as sponsoring the Philippine Olympic team,
partnering with D.E.A.F. by hiring handicapped workers, and donating to school buildings, which created Happees public
image and made it difficult for multinational giants to directly kill Lamoiyans business. He also targeted niche markets
through product variations, creating toothpaste designed for children and packaged accordingly with popular characters.
After a period of stable growth, Lamoiyan was at risk of competiors corporate retaliation, and lost a significant part of
their market share when Colgate cut its prices by 20%. Fortunately, Colgate could not keep their prices low for too long
because of an economic downturn whereas Lamoiyan was more resistant to the change. Also, by targeting the childrens
market segment, Colgate had moved in too late and could not match Hapees first mover advantage. Its status as a local
company enabled Lamoiyan to utilize more direct marketing efforts at lower prices that foreign firms do not have access
to. Happees brand became visible in school and traffic signs, and was given huge discounts in media advertising.
Lamoiyan Corporation did not, however, enjoy the deeper channel penetration its foreign counterparts did and was
characterized by irregular distribution throughout the country. They had failed to take advantage of the proliferation of
sari-sari stores, which grew by 88% because of their lack of sachet-packed toothpastes the consumers frequenting sari-sari
stores preferred. To remedy this, Lamoiyan engaged in aggressive strategies to market to sari-sari stores and successfully
stocked the stores with Happee products.
Another persistent problem was the need for a wider product line in order to have a more efficient engagement with
both small-scale and large distributors. Expanding their product line in a similar way Happee was established allowed them
to capture the marginal niche markets and gain a notably large market share.
The changing macroeconomy in the recent years also brought new opportunities for international expansion. In 2004,
Lamoiyan expanded to neighboring countries such as China, Vietnam and Indonesia. In 2012, the company expanded
further to Middle East, Papua New Guinea, Russia, and Hong Kong.

3.

Formulation Strategy

Porters 5 Forces
Threat of New Entrants

It will be hard for a new company to enter the toothpaste industry because it is already dominated by ColgatePalmolives Colgate and Unilevers Close-Up. Even the Happee toothpaste of Lamoiyan had numerous
difficulties in entering the industry.
New companies are required to invest large financial resources for technologies and machineries to produce
toothpaste in order to compete.
Product differentiation would be difficult since almost all toothpaste is the same to the consumer, and
toothpastes are already synonymous to Colgate and Close-Ups brands.

Threat of Substitution

Threat of Substitution in the toothpaste industry is low since people need the benefits offered by the toothpaste
product of Colgate-Palmolive, Uniliver and Lamouyan. Other substitutes existing in the country were preconventional means such as salt and baking powder. These means are now ineffective, so they would not affect
the existing companies market shares that much. The only threat of substitution would be limited to switching
among different toothpaste brands.
Due to the fact that the most important purchase considerations for Philippine toothpaste consumers such as
most product cleaning and freshening benefits on teeth, gums, mouth and breath are present on most
toothpaste products, consumers were not necessarily locked into a single brand. Therefore, consumers have the

option to constantly switch and substitute to brands with product availability, lower prices, better tastes, and
more prominent user imagery and brand image.
Bargaining Power of Buyers

Since toothpaste products are essentially identical to each other, with the only differences of among toothpastes
are marketing and taste, consumers would be more inclined to buy products of the lower price. Happee
capitalized on this and offered one of the cheapest products available in the market.
Bargaining Power of Buyers is low because although the price of Colgate products is high compared to other
toothpaste brands, its brand recognition and perceived quality as well as being an indispensable commodity for
hygiene helps it retain its large share in the market. Despite Lamoiyans Happee toothpastes lower price, its
market share is still lower than that of Colgate and Close-up.

Bargaining Power of Suppliers

Toothpaste manufacturers produce their own toothpastes, and the only materials that are supplied by thirdparty companies are usually packaging materials. Bargaining Power of Suppliers, therefore, is relatively low
because of the fact that packaging can be acquired from any company that could offer better services at more
reasonable prices.

Intensity of Rivalry

Lamoiyan is fighting with strong, multinational competitors such as Colgate-Palmolive, Unilever, and Procter and
Gamble basically through lower pricing, and lower-priced rivals such as Zest-O Corporation mainly through better
advertising and the launch of the much cheaper Kutitap.
Switching costs in this industry is very low, further intensifying brand rivalry when it comes to toothpaste brands

SWOT Analysis
Strengths

Happee Toothpaste is priced much lower than that of Close-Up and Colgate, and Happees pricing is something
that could not be imitated by the much larger companies without compromising their cost structure and profit
margins. By offering much lower prices, Lamoiyan sells a larger volume of products despite smaller margins.

Weaknesses

Low distribution capabilities because of the companys limited product line.

Due to Filipinos inherent colonial mentality, consumers initially fear that locally produced goods were inferior,
and this concern is prevalent in society today.
Toothpaste is synonymous to Colgate, and consumers have a preference to Colgates taste more than the taste of
any other brand. This possibly undermines Happees popularity and makes them less preferred by the majority.
Due to the dominating visibility of the multi-national brands in marketing media, there is a seemingly lacking
awareness of the Happee brand beyond its targeted niche markets.
Product availability was a barrier to Lamoiyans growth since the majority of distribution channels are dominated
by Colgate and Close-Up, and Lamoiyan lacked the sachet-packaged toothpaste products preferred to its most
accessible distribution channel, the sari-sari store.

Opportunities

In order to raise more financial funds to execute more projects to further expand the companys product line,
Lamoiyan is contemplating on going public and issue stocks openly.
Lamoiyan aims to achieve deeper channel penetration with existing products by exerting aggressive efforts to
further expand its distribution to sari-sari stores.
By launching new products that complement their existing products, Lamoiyan aims to cover more shelf space in
distribution channels, sell more products to sari-sari at basically the same costs, and utilize a guerrilla-like growth
strategy in a consumer goods environment dominated by multi-national suppliers by achieving a small stake in
many markets to avoid competitor response.
Expanding internationally

Threats

Competitors have larger market share and brand loyalty.

Competitors possess more distribution channels that are more accessible than Happee.

Rumelts 4 Criteria of Strategy Evaluation

Consistency - the strategy must not present mutually inconsistent goals and policies

Lamoiyans goal is to essentially maintain its market share in its current markets, build its share in newer
markets, and expand its business while avoiding any retaliation its competitors might make.
The means of accomplishing its goals have not compromised any objective or policy the company currently has.
Its new product launches belong in the same product category and did not interfere with the operations on the
production of existing products.
Targeting niche markets are further bolstered by focusing on the smaller-scale sari-sari stores rather than
directing competing for shelf space with bigger companies in commercial markets.

Consonance - the strategy must represent an adaptive response to the external environment and to critical changes
occurring within it.

Although the general economy of the country has been improving, the gap between the affluent and the
impoverished has also been increasing. By offering a product of same quality as the leading brands at a much
lower price, it has been able to provide a means to cater to the poor masses hygienic needs despite financial
struggles.
Being a local company operating within the country has made Lamoiyan more resilient to the dynamic economic
conditions of the country moreso than the multinational brands, and is therefore capable of maintaining its low
price despite the competitors actions and various external circumstances.

Feasibility - the strategy must neither overtax available resources nor create unsolvable sub-problems.

Lamoiyans pricing strategy allowed it to make a larger volume of sales that made the company very profitable
despite its small market share and smaller profit margins compared to its multinational counterparts.
The company has also been conservative in its actions, making sure they do not act harshly and do not stimulate
any retaliatory actions its competitors might make in order to kill Lamoiyan. Lamoiyan prefers to create smaller
shares in more markets to avoid any competitors response than trying to capture the competitors market share
themselves. Their current strategy calls for working around the problem rather than confronting it directly, which
makes the strategy more feasible.

Advantage - the strategy must provide for the creation and/or maintenance of a competitive advantage in the selected
area of activity.

Happee Toothpastes best competitive advantage is its low price, because Lamoiyans product is priced so low,
their competitors are unable to do the same without suffering lower profit margins. By offering a lower price,
their sales volume and demand are much higher.
Happee toothpaste captured marginalized and minute niche markets such as the children and elderly market
segments, and such segments are often overlooked by the bigger players. In doing so, Happee achieved some
brand loyalty to these segments that the competing players can not duplicate.
Happee Toothpastes strategy in capturing many smaller markets than dominating in a single, large market
allowed it to prosper without much competition or retaliation from other brands. By targeting the numerous 1%5%, it has managed to create a 20% market share the other players would not be able to claim.

Balance Scorecard
Objectives

Measures

Targets

Initiatives

Financial

Maximize
revenues out of
smaller margins

Maintain price range the

competitors cannot duplicate,
and possibly raise the price in
accordance to the willingness
of the consumer to spend to
maximize profits

Maintain low price

points to keep the
consumers coming
back

Keep cost low in terms of

packaging, promotions, raw
materials, etc. in order to keep
profit margin as high as possible
compared to multinationals.
Maintain 45% discount rate
compared to Colgate

Customer

Establish strong
brand loyalty
among niche
market

Maintain current market

share in niche markets such as
childrens toothpaste and
elderly gingivitis toothpaste

Get these market

segments to keep
purchasing Hapee

Market new childrens favorite

characters in Disney or Cartoon
Network and incorporate them in
the product; or make products

segments

more elderly friendly.

Internal
Business
Processes

Open company
to public
ownership

Detailed strategic plans and

cleaner financial statements;
command should be
consolidated to Pedro despite
public status.

Prepare the
company for
public ownership

Sell at least 20% of stocks to gain

capital for new projects- 80%
owned

Learning
and
Growth

Expand to
foreign
countries

Manufacturing factories and

warehouses should be built in
a foreign country

Selling of product
in local stores and
supermarkets

Establishment of 5% market
presence in the first year

4.

Recommendations
They should extend their product line to lower income families in the oral care industry through introducing new
low-priced products such as mouthwash, dental flosses, toothbrushes, etc.
Explore more niche markets such as people who have braces or retainers and offer them a formulated product
designed specifically for their needs
Lamoiyan should consider improving Happees brand image as the affordable toothpaste brand, maybe possibly
marketed as a toothpaste product for the masang Pilipino, and to children and their other niche markets by
increasing the brands visibility in the media that is most accessible to them.