You are on page 1of 45

LUSH in Taiwan: The role of product attributes in consumer decision making

Ben Boyden 95933047 Andy Chang 95933015 Delta Fliz 95933040 Farah Wooley 95933052 Sylvain Snchal 95933044

International MBA Program College of Commerce, National Chengchi University

Taiwan Soaps 2

Table of Contents
1. ABSTRACT.................................................................................................................................................4 2. INTRODUCTION......................................................................................................................................5 3. RESEARCH FLOWCHART....................................................................................................................6 4. LITERATURE REVIEW & FIELD OBSERVATIONS........................................................................7
A. TAIWAN MARKET ....................................................................................................................................7 B. TAIWAN SOAP MARKET ..........................................................................................................................8

i. Characteristics of specialised soap & toiletries stores......................................................................8 ii. Field Observations............................................................................................................................9 iii. LUSH differentiation and in-store experience...............................................................................16 C. ROLE OF EXPERIENCE ............................................................................................................................17 i. Sensory Experience...........................................................................................................................17 ii. Smell................................................................................................................................................17 5. THE FOUR COMPONENTS OF BRAND VALUE FOR LUSH .......................................................19 6. RESEARCH QUESTIONS & HYPOTHESIS .....................................................................................21 7. METHODOLOGY...................................................................................................................................23 8. RESULTS & ANALYSIS.........................................................................................................................24
A. DEMOGRAPHICS.....................................................................................................................................24 B. CUSTOMER LOYALTY.............................................................................................................................26 C. PRODUCT AWARENESS...........................................................................................................................28 D. RANKING OF ATTRIBUTES .....................................................................................................................28 E. OBSERVATION ANALYSIS .......................................................................................................................32

......................................................................................................................................................................33 9. APPLICATION OF RESULTS...............................................................................................................34 10. BUSINESS PLAN...................................................................................................................................35


A. PRODUCT ...............................................................................................................................................35 B. CHANNELS..............................................................................................................................................36 C. COST ANALYSIS......................................................................................................................................37

11. CONCLUSION.......................................................................................................................................40 12. REFERENCES.......................................................................................................................................41 13. APPENDIX..............................................................................................................................................43


A.

ENGLISH SURVEY...................................................................................................................................43 National Chengchi University IMBA Marketing Survey....................................................................43 B. CHINESE SURVEY ..................................................................................................................................44 1 ..........................................................................................................................................................44 3 LUSH ?..........................................................................................................................44

..............................................................................................................................................44 .......................................................................................................................................44 .........................................................................................................................................44

Taiwan Soaps 3
4 .............................................................................................................................................44

LUSH .......................................................................................................................................44 ..................................................................................................................................44 LUSH ..............................................................................................................................44


5 LUSH ............................................................................................................................44

............................................................................................................................................44 ........................................................................................................................................................44 ....................................................................................................................................44


6 LUSH ..............................................................................................................................44

........................................................................................................................................................44 ..................................................................................................................................44 ................................................................................................................................................44


7 1 5 1 5 ............................................44
C.

RESULTS OF SURVEY..............................................................................................................................45

Taiwan Soaps 4

1. Abstract
A number of international companies selling high end soaps and toiletries have entered the Taiwan market, which until relatively recently only offered consumers a limited choice of products. The Taiwan markets focus has traditionally been on whitening and sun protection skin care products, but these new specialized soap & toiletries brands add value through more environmentally friendly, high-end products based on natural ingredients, and offer more of an in-store sensory experience. The study looked specifically at LUSH to determine which attributes (from product attributes, greenness, and sensory experience) were most important in the consumers decision making process and to establish whether or not specialised soaps can be considered to be an impulse purchase. The study also sought to establish age group and gender demographics of LUSHs customer base. The research results showed LUSHs customer base to be younger than the cosmetics industry in Taiwan as a whole but to contain the same proportion of males. It also determined specialized soap could be considered an impulse purchase, and that the most important attributes for LUSH customers were safety for skin, product performance and product ingredients. These findings were consistent with previous research of the Asian cosmetics market, and also showed that fragrance was an important attribute for LUSH customers. Lastly, these findings formed the basis of a basic business plan for selling hand-made soap in Taiwan.

Taiwan Soaps 5

2. Introduction
One of the members of our group recently became interested in making soap after his wife developed a skin allergy to almost everything. After experimenting with some natural ingredient-based soaps, the group members recognized an opportunity to sell hand-made soap in Taiwan. Our group hopes to use this research project to establish a marketing strategy for selling soap in Taiwan. We determined that LUSH would be the best candidate to evaluate as its products shared many similarities with our own hand-made soaps, and their business model is more suitable for potential start-ups Lush has no marketing budget and started with just one store, before building from there. We then formulated some hypotheses tests to establish which LUSH product attributes were the most important i.e. which attributes are most important in the consumer decision making process. We then designed a short survey for LUSH customers to test these hypotheses. We also observed customer behaviour to see if there was anything we could learn about the consumers purchasing decision process (VOC). Our survey results, observations and literature review, as well basic costs estimates, were then used to help us determine a create a basic business plan and budget for our proposed soap selling business.

Taiwan Soaps 6

3. Research Flowchart

LUSH
Field Observations Research Questions Literature Review Fragrance Taiwan Cosmetics

Hypothesis

Method Descriptive analysis Conjoint analysis Data Collection


Data Compellation

Cluster analysis

Data analysis Conclusion Business Plan Go/No Go

Cost

Taiwan Soaps 7

4. Literature Review & Field Observations


a. Taiwan Market According to Chou (2003), initial demand for cosmetics in Taiwan was limited, but increased as living standards and income gradually improved. Chou (2003) also reports that the first companies to enter the Taiwan cosmetics market were Japanese, and they remained unchallenged for almost 10 years. Early launches in Taiwan by western cosmetics brands with largely unsuccessful at first, primarily because their products were not specialized for the Asian market. However, the Japanese brands offered skinwhitening products, which enabled them to enter to market successfully. The perception among Taiwanese women was that Japanese brands where more suitable for their needs, as they were designed with Asian preferences in mind. This situation started to change in the 1990s when Western brands recognized the demand for these products and introduced their own whitening products. Now, most imported brands include a variety of skin-whitening products and account for the majority of total cosmetic sales in Taiwan (Chou, 2003). In 2004, the Taiwan cosmetics industry was valued at NT$65 billion and is expected to continue increasing at a rate of about 7-8% percent annually (Freundl, 2005). Recently, new interests have caused sales in other categories of cosmetics increase rapidly. For example, makeup and perfume sales have grown at a rate of 5% (Chou, 2003). Western companies are now introducing their core line of products with growing success. Stores offering environmentally friendly natural-ingredient products have also been expending recently.

Taiwan Soaps 8 b. Taiwan Soap Market i. Characteristics of specialised soap & toiletries stores The cosmetics market in Taiwan is extremely competitive, with many local and international companies giving Taiwanese consumers numerous options to choose from. The retail market for pharmacy and cosmetics/toiletries products in Taiwan is currently dominated by Watsons, which has close to 400 stores across the Island. In addition to pharmaceutical, cosmetics and toiletries products, Watsons sells a plethora of other products, from potato chips and soft drinks, to teddy bears, pyjamas and domestic appliances. The market for more environmentally oriented companies and natural ingredients based products is still relatively small in Taiwan, but it appears to be growing at a healthy rate. In recent years, there has been a visible push into the Taiwan market by a number of specialized soap and toiletries brands that are prevalent in this category in Europe and North America. These include AVEDA, The Body Shop, Crabtree & Evelyn, LOccitane and LUSH. Relative to local pharmacy stores and large cosmetics/toiletries chains such as Watsons and Cosmed, there are a number of ways in which specialized soap/bath product stores differentiate themselves. First of all, none of these brands offer the whitening products that appear to be so popular in Asian markets. Instead, the focus is on natural ingredients and environmental friendliness. Secondly, they add value in a variety of ways, such as by offering superior service and more professional staff. Thirdly, these stores tend to offer more of an in-store sensory experience to consumers.

Taiwan Soaps 9 By way of example, upon entering an AVEDA store, customers are handed a cup of hot mint tea, before being asked about requirements and then being given an introduction to products by staff. As a rule, these stores offer customers the opportunity to pre-test products, and some stores even provide wash basins to make testing of the products easier. These stores also tend to have much more distinctive aromas. LUSH has a characteristic citrus smell, AVEDA has a distinct mint smell, LOccitane has an orange smell, and Crabtree & Evelyn has a floral smell. To these companies, the in-store smells have become a key part of their brand, like a radio or TV jingle is for other consumer goods. The one exception to this rule seems to be The Body Shop stores, which do not have any distinct aroma. These stores also use distinctive music as part the sensory experience of consumers. For example, LUSH stores feature loud and vibrant pop music, while AVEDA and LOccitane stores offer more soothing music. In terms of location, almost without exception all these specialized soap and cosmetics stores are located in exclusive real estate locations, where a high volume of walk-by traffic can be expected. In some cases, these brands have a flagship store in an exclusive location, as well as numerous smaller stores and concession stands in high-end department stores such as Sogo and Dayeh Takishimaya. This tends to suggest that specialised soap/bath products are more of an impulse purchase. ii. Field Observations We carried out field observations by visiting numerous retail stores in Taipei of specialized soap and toiletries brands. For comparison, we also observed stores of the pharmacy and cosmetics/toiletries market leader, Watsons.

Taiwan Soaps 10 LUSH Cost of 100g soap: NT$250 $350, Cost of gift set: NT$600 1,500 Taiwan Stores: 23 Positioning: Natural ingredients, handmade and environmentally friendly products and packaging. Focus products are soaps and bath bombs, but a wide range of other products. Emphasizes product innovation.

Store atmosphere: Stores have bright colors, especially yellow and green, with an almost overpowering citrus smell that can be smelt from the street. Vividly colored and eye-catching product displays. Encourage you touch/feel products, and testers available for everything. Most products are not prepackaged. All displays for products and promotions are hand drawn/written on blackboards, much like a market. The staff are friendly, but only attend you if asked. Loud music and lively atmosphere.

Marketing Strategy: No advertising in magazines, newspapers or TV, but does distribute LUSH Times newsletter with information about new products and promotions via stores and direct mail to loyal customers. Also distributes electronic newsletter with product news and listens to voice of the customer through forums on its website, where customers can comment and offer product suggestions. Some discontinued products have even been re-introduced following customer requests.

Taiwan Soaps 11 The Body Shop (LOral) Cost of 100g soap: NT$130 220 Cost of gift set: NT$300 1,500 Taiwan Stores: 55 Positioning: Emphasizes natural ingredients and has a very broad product range, as well as many gift sets. Promotes recycling by encouraging re-use of containers, and claims to be against animal testing, although this is less prominent than in the past (since being acquired by LOral).

Store atmosphere: No strong in-store aroma. Stores are clean and bright, but a little sterile. Everything is pre-packaged, but recycled packaging is used and refills are available. Testers are available for most but not all products. Staff are not attentive unless asked, and dont seem highly trained or professional (most likely students). Stores play mainstream pop music, not too loud.

Marketing Strategy: Promotes environmental campaigns, as it has traditionally been company policy to not advertise products. Also provides brochures in store, and sends customers newsletters. Offers free samples with some purchases.

Taiwan Soaps 12 LOccitane Cost of 100g soap: NT$160 300 Cost of gift set: NT$3,000 10,000+ Taiwan Stores: 38 Positioning: Emphasizes high-end natural ingredients and essential oils, particularly fruits. In-store focus is on creams, especially anti-wrinkle face creams. Also sells bath products, hair care and soap. Focuses on its French origins for branding.

Store atmosphere: Well illuminated, spacious stores with an orange aroma and soft relaxing music. Staff are attentive, if the customer looks like a suitable target customer. Otherwise the staff are not so friendly and give an impression of exclusivity. Tester products for most products, and many in-store promotions going on.

Marketing Strategy: Advertises through TV, magazines, billboards and electronic newsletters. Customers can also receive free catalogues every month. Also provides free samples with purchases.

Taiwan Soaps 13 AVEDA Cost of 100g soap: NT$250 Cost of gift set: NT$2000 4000 Taiwan Stores: 8 (+ 11 outlets) Positioning: Natural, organic ingredients, focusing on specialized hair care, bath products and soap, as well as some make up and other cosmetics. Brands some products as therapy products. Some stores offer spa/salon services, and has outlets through salons and spas in addition to stores. Supporter of environmental and third-world causes; products are all made with organically grown plants and flowers, while ingredients are sourced from traditional communities.

Store atmosphere: Spacious stores with relaxing atmosphere and a strong aroma of mint. Friendly and very attentive staff each customer is given a cup of mint tea upon entering the store. Professional and highly trained staff that are keen to offer product advice. Soothing soft music gives the impression of entering a SPA.

Marketing Strategy: Marketing effort is focused on salons and spas, as 70% of sales come through this channel. AVEDA also advertises its products and services through magazines, billboards and electronic newsletters.

Taiwan Soaps 14 Crabtree & Evelyn Cost of 100g soap: NT$300 -500 Cost of gift set: NT$600 - 3000 Taiwan Stores: 21 Positioning: Luxurious skin care, bath and body products based on natural ingredients, especially flower and plant extracts. Brands itself as traditionally English, and all products come in fresh smelling, floral paper packaging. Target market appears to be middle-aged and older ladies lots of lavender scented products.

Store atmosphere: Friendly service but very formal and conservative. Stores have a cosy feel and a relaxing floral aroma. Tester products for some products but not all mostly to promote new products.

Marketing Strategy: Promotes products through magazines, billboards, electronic newsletters and brochures. Has a preferred customer program giving loyal customers a 10% discount and a birthday card with a 25% off coupon. Also frequently provides free samples with purchases.

Taiwan Soaps 15 Watsons 100g soap: Gift Set: NT$300 - 1,500 Taiwan Stores: 386 Positioning: Almost infinite product range, including soap & bath, cosmetics, medicine, food & beverages, gifts, home appliances, etc. Also sells cheaper own brand products. Known for offering lowest prices pile them high and sell them cheap. Some stores feature Boots concession stands, offering a limited selection of higher-end products. Mainly targets women, of all ages and lifestyles.

Store atmosphere: Store is crammed full of products and displays, especially at the front. Can be difficult to move around, as stores are sometimes messy with boxes everywhere. Loud music and in-store promotions, with no characteristic smell. Customers have to ask staff for help, except if hovering around high-end products.

Marketing Strategy: Provides brochures in the store and aggressively distributes direct mail to promote specials of the month. Also uses billboards and TV advertising.

Taiwan Soaps 16 iii. LUSH differentiation and in-store experience LUSH is known for the distinct aroma and vibrant decoration of its stores, as well as the innovative nature of its products and unique packaging. Innovation is a central part of the companys mission, and the company constantly introduces new product lines while retiring less successful ones. Some of LUSHs more innovative products include shower jellies, bath ballistics and buttercreams. In fact, LUSH pledges to retire a third of its product line each year, to be replaced by new products. It also launches new products every season according to the occasion. Examples of seasonal products include Christmas pudding soap and eggnog flavoured lip-balm. Products are hand-made, and typically feature vivid colors, original design and a strong, distinct smell. Most products are based on organic fruits and vegetables, as well as essential oils. LUSH is committed to using safe ingredients in their products without animal ingredients. LUSHs key revenue generators are bath ballistics (effervescent balls that add bubbles) and soaps, accounting for 40% of sales (Conley, 2005), but it also offers many other products, including skincare, fragrances and hair care. Products are reasonably priced considering the ingredients and amount of time that goes into the process. LUSHs product names are also distinctive and somewhat witty, with names such as Skin Sin, Happy Hippy and Sonic Death Monkey. Soaps are generally cut in-store, off of a large handmade block and wrapped for the customer, much like a piece of cheese would be at a deli store. A lot of effort goes into in-store displays, which are usually placed near the front of stores where they can be

Taiwan Soaps 17 clearly seen by passers-by. All products can be pre-tested, and stores also include wash basins to encourage consumers to try out the products.

c. Role of experience i. Sensory Experience According to Lindstrom (2005, p55), our senses sight, smell, sound, taste and touch are all contact points with products and brands. According to new research by Harvest Consulting Group, for brands to maximise contact with consumers, as many of the senses as possible should be engaged, thereby providing a more complete experience. Soaps offer an opportunity to use the sense of smell to its full potential since the smell of soap is one of its primary attributes. Touch can also come into play and can become integral part of the customers experience when buying soap. ii. Smell Fragrance has been recognized as playing an important role in customer behaviour, as it can have a powerful effect on peoples mood, emotions and evoke memories. Smell is actually the sense with the most precise and longest memory. Lindstrom (2005) reports that in the U.S., memories of childhood are experienced by 76% of all consumers when they smell Crayola color pens and 68% of all consumers in the U.K. associate the smell of a new car with positive memories despite the fact that the smell is sprayed into the car prior to leaving the factory. The characteristics of aromas are now being used on many levels in sales and branding. Lindstrom (2005) reports that scents can be added to an environment or product to transfer harmonious feelings and memories associated with the smell to the product. For example, real estate agents have long known that the smell of fresh bread can help sell

Taiwan Soaps 18 homes. Harmonious scents are now used in many settings, from the smell of leather in shoe stores dispersing the scent of cherry in electronic stores. Leather gives people a sense of tradition and authenticity, while Sony has successfully used cherry scents to sales enhance of consumer electronics goods to women (AFP, Nov 19, 2006). Smells can also attract attention in the same way a large billboard or display could. In all the visual clutter of downtown Taipei, with neon signs everywhere, a distinct smell is much more likely to attract attention. Another increasingly important aspect of aromas is how they can be incorporated into a brand, and fragrances can be used to help consumers recall a product. In this way a scent can be more effective than a logo or a jingle, as memories of smell last longer (Lindstrom, 2005). Although humans can differentiate up to 400,000 odours, they cannot be classified the way colors can, so smells are categorized by associating them with previous smells or memories. Therefore, when people identify smells, it usually starts with it smells like. Although this means smells can be a powerful tool in branding, it also means it is very difficult to research. It would not yield reliable information to ask in a survey what is your favourite smell? since smells are only subjectively stored in memory, and only the actual smell brings the memories to mind.

5. The Four Components of Brand Value for LUSH

Taiwan Soaps 20

6. Research questions & Hypothesis


Our general research question is How can we make money by selling soap in Taiwan? To find the answer to this question many details need to be determined first. What type of consumer good is soap? What type of product should we make? What should be our pricing strategy? What should be our target market? What kind of channel should we use? What attributes should we emphasize? Greenness, safety for skin, or smell? Which fragrance and color should we use? Obviously we cannot answer every question in one paper, therefore from reading previously made research and our own observations we formulated some relevant hypotheses. Our first hypothesis is that specialized soaps are an impulse buy. This was also supported by Managing Director of LOral Taiwan, Alvin Michael Hew, who recently told us cosmetics goods were an impulse buy. Our second hypothesis is that sensory experience attributes are more important for LUSH customers than green attributes, price, location or packaging. A study performed in Thailand to determine the value of green marketing (Johri, Lalit & Sahasakmontri, Kanokthip, 1998) concluded that although the value of green attributes was increasing, many other attributes were still more important to consumers. We also expect this will be the case in Taiwan. Although we expect sensory attributes to be an important factor for LUSH customers in Taiwan, a study by Tamkang University in Taipei showed that the most important attributes for cosmetics consumers in Taiwan, China, Korea and Japan was clearly product safety (Huang, Chin-Wen & Tai, Ai-Ping, 2003). We expect this will also be the case for LUSH customers in Taiwan.

Taiwan Soaps 22 A third hypothesis is that LUSH customers are younger than the average for the cosmetics industry in Taiwan. From our observation of LUSH stores in Taiwan, we believe the target audience is probably younger than the industry average. In 2003 women 18-44 represented 70% of skin care products consumers (Chou, 2003). In addition to our quantitative analysis, we also made many observations of LUSH stores and customers, some of which will be discussed later. When dealing with the effects of smells simple customer observations can be very valuable even though harder to quantify.

Taiwan Soaps 23

7. Methodology
To find out whether or not LUSH soap could be deemed an impulse purchase, establish the age and gender demographics of LUSH customers in Taiwan, and determine product attributes that were most important in the consumer decision making process of LUSH customers in Taiwan, we conducted a survey of customers of LUSHs flagship retail store in Taipei. We administered surveys by intercepting 30 customers outside LUSHs flagship store on Taipeis Chungxiao East Road. The respondents included 25 females and 5 males, which is proportionately consistent with broader Taiwan cosmetics industry. Questions regarding LUSH attributes were administered using an ordinal question, featuring 12 separate attributes. We identified these 12 attributes, which can be grouped into product, sensory experience and green attributes, from previous academic studies of the cosmetics industry in Asia, as well as from our own observations of LUSH stores and customers. We then carried out quantitative analysis of the gathered data by carrying out hypothesis tests, including t-tests of proportions and chi-square tests of independence, always using 95% degree of confidence. We then use these data results, as well as some of our own field observations, to form the basis of the business plan for our proposed business.

Taiwan Soaps 24

8. Results & Analysis


a. Demographics We used questions 1, 2 and 5 of the survey to gather some demographic information and compare LUSH Taiwans customers to cosmetics customers in Taiwan. Chou (2003) reported that men accounted for 20% of Taiwan cosmetics consumers, but only 7-8% of total sales. Our survey proportion of 5 men from a total of 30 respondents is close to the average for the Taiwan market. Cosmetics brands typically offer some products specifically for men, such as shaving products. Even though LUSH does not have such a line, it still attracts a proportion of male consumers consistent with the industry average. We wonder if a significant proportion of men shopping at LUSH are purchasing for another person, i.e. purchasing a gift. We therefore performed a Chisquare test of independence between the variables gender and purpose of purchase (Who are you buying for?). Figure 1: Gender of LUSH customers and purpose of purchase (Q1 & Q6)

45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Yourself Someone Else Both

Male Female

Female Male

Taiwan Soaps 25 The resulting p-value is 0.867, much larger than 0.05. We therefore cannot conclude men are more likely than women to be purchasing a gift. Although there is probably a difference in product preference between male and female consumers, LUSH does not appear to be catering exclusively to female consumers as male consumers are just as likely to be purchasing LUSH products for themselves. Another important part of demographics we considered was the age groups of LUSH customers. From the same study by Chou (2003), we found that women aged 18 to 44 years constitute 70% of the consumer base for skin care products. From our own field observations we hypothesised that the LUSH consumer base is likely to be younger than the industry average. Our survey respondents aged between 16 and 35 years accounted for 73%, with 50% aged 25 years or younger. Figure 2: Age groups of LUSH customers (Q2)

10% 17%

0%

0 - 15 16 - 25 26 - 35
50%

36 - 45 45+

23%

It appears LUSH has successfully positioned itself and targeted a younger generation of consumers. This could be to LUSHs benefit, as the younger generation segment is expected to expand at a faster rate than older generation segments, while

Taiwan Soaps 26 high school and college students have greater purchasing power than ever before and favor fashion and new-to-market products (Chou, 2003).

b. Customer loyalty To asses the extent of brand loyalty we asked LUSH customers How often do you buy LUSH products? (Q3) and What soap do you use (Q4)? We expected to see a low level of brand loyalty exhibited, because, as stated in our hypotheses section, soap is an impulse purchase. Figure 3: Frequency of purchase of LUSH products by respondents (Q3)

70% 60% 50% 40% 30% 20% 10% 0% First time Sometimes (1-2x per month) Frequently (more than 2x per month)

Taiwan Soaps 27 Figure 4: Brand of soap used by respondents (Q4)

60% 50% 40% 30% 20% 10% 0%

Only Lush Soaps

Only Others Soaps

Both

Interestingly, only two respondents said they frequently bought LUSH products, and these were also the same respondents to report using LUSH products only. This finding was consistent with our expectations and reveals that although LUSH does have some loyal customers; the majority of respondents (93%) are using other brands of soap. The survey results also showed that LUSH is successful at attracting new customers, as more than a quarter of respondents were trying LUSH for the first time. Somewhat surprisingly, Figure 5 shows that half of respondents do not use LUSH soaps. To look more closely, we carried out a Z-test of proportion for dependence between frequency of purchase and brand of soap used variables and calculated a p-value of 0.02. We can therefore infer that there is a relationship between these two variables. This was evident from the data and makes much sense; essentially first-time customers almost all reported using other types of soaps. New customers account for almost half of respondents who reported never using LUSH soaps; the other half can be explained by the presence of other types of products in the store. Overall the data shows the majority

Taiwan Soaps 28 of customers are not using LUSH brand soap exclusively, which is consistent with an impulse-purchase product. c. Product awareness Question 5 addressed how consumers become aware of the LUSH store. From our own observations we could see that the majority of customers that entered the store were originally just passing by. It was noticeable that most customers became aware of the store by smelling it first, and only then did they enter. Through our research of LUSHs business model, we found that with the exception of distributing a newsletter to registered customers, LUSH does not do any advertising outside of its store. The data did confirm that passing-by was the way most people first learned of LUSH. Figure 5: How respondents first learned of LUSH (Q5)

70% 60% 50% 40% 30% 20% 10% 0% Word-of-mouth Advertisement Noticed the store

d. Ranking of attributes Question 7 allows us to determine the attributes of LUSH that its customers feel are most important in their purchasing decision process. By doing so, we can focus our business plan and resources on the product attributes that are the most likely to add value.

Taiwan Soaps 29 Since LUSH stores clearly offer more of a sensory experience than most other competitor stores, we expected to find that attributes related to the sensory experiences would be more important to respondents. The attributes of sensory experience we analysed were store atmosphere, appearance of product, fragrance and opportunity to pre-test. Figure 7: Overall ranking of attributes by respondents (Q7)
300 250 200 150 100 50 0
Sa Pr fe od fo uc rs tp kin er fo rm an ce In gr ed ie nt s O ut le Co ta no st tm tt os es ph te d er on e an im al ha s nd pr od m uc ad tf e ra gr an ce pr pa od c k uc ag ta op in pp g po ea rtu r ni an ty lo ce to ca pr tio en te co st nv en ie nc e

Figure 7 shows that the aforementioned sensory experience attributes were not the most important attributes for respondents. Some attributes did not show any clear statistical difference between one another, so a one-tail t-test of difference of means with a 95% level of confidence was performed to determine which attributes were indeed more important.

Taiwan Soaps 30 Figure 8: t-test p-values of differences in mean average ranking of attributes
t test (ranks) 1v2 1v3 1v4 2v4 3v4 3v5 4v5 4v6 5v6 6v7 6v8 6v9 6v11 6v12 p value 0.243 0.066 0.018 0.049 0.187 0.019 0.155 0.001 0.009 0.242 0.212 0.094 0.075 0.052

Attributes Safe for skin Product performance Ingredients product fragrance Cost opportunity to pre-test Outlet atmosphere hand made location convenience product appearance not tested on animals packaging

mean 3.0 3.5 4.1 4.7 5.5 7.4 7.9 8.0 8.4 8.4 8.5 8.6

rank 1 2 3 4 5 6 7 8 9 9 11 12

The p-values show there are clearly some differences in importance for the highest ranked attributes, but the lowest six attributes were not statistically different. This may be because of the survey type, as respondents appeared to spend more time considering attributes they thought were important to themselves, and paid less attention to the remaining few attributes. The results are consistent with the findings of another study at Tamkang University in Taiwan (Huang, 2003), which concluded that for Asian consumers the most important attributes were related to safety for skin. Even though our survey suggests that sensory experience attributes are not as important as some other attributes for LUSH customers, fragrance was deemed to be a quite important attribute. Interestingly, this differed from the findings of the Tamkang study (Huang, 2003), in which fragrance did not rank in the first 15 of 21 attributes. We can therefore conclude that for selling soap, fragrance is indeed an important attribute and has a significant role in the purchasing process for LUSH customers. In the case of the

Taiwan Soaps 31 other sensory experience attributes, the rankings do not form a clear picture. For example the hand-made attribute scored a poor average rank overall, but opinions were divided. If we assume that attributes ranked first are the most important in the consumers decision making it can be useful to see how many respondents would take into consideration each specific attribute. Figure 9 shows this by dividing attributes in terms of how many times each was chosen in the top three attributes, then in the top-six, and then the remainder. Figure 9: Importance of attributes in decision making

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Sa Pr fe od for uc tp sk in erf or ma n Ing ce re die nts Ou t le Co ta no st tm t te os ste ph e do n a re n im ha als nd pr o ma du de ct fra gr an pa ce pr od ck uc ag ta ing op pp po ea rtu ra n loc ity to nce ati on prete co n v st en ie n ce

7 to 12 4 to 6 1 to 3

Figure 9 shows that although the hand-made and opportunity to pre-test attributes were not ranked highly overall, they are important for some respondents. Although cost was shown to be an important attribute, this does not necessarily mean LUSH customers are especially price sensitive. We can infer however that the consumers perceived value of LUSH products is important. As such, pricing strategy

Taiwan Soaps 32 can be very important, as price can be used to reinforce the first three attributes. Customers might perceive a product as being safer and higher-quality if more highly priced. The same can be said of some of the other attributes that did not rank as highly. Safety and performance cannot be easily assessed, so a professional staff and outlet atmosphere can reinforce these attributes, while the opportunity to pre-test can be a key determinant of product performance. We can also assume that as the fragrance attribute ranked as important, smell is an important indicator of soap quality. e. Observation analysis When dealing with smell and other sensory attributes, observations can be more valuable than a survey. As previously mentioned, fragrance plays an important role in grabbing the attention of consumers passing-by. Many passers-by only noticed the store after smelling it. LUSH also uses brightly colored displays to entice passers-by, with big uncut and unpacked and soaps placed near to the entrance to attract attention. There is also a stand where staff demonstrate the soap, promoting the product performance while attracting attention.

Another observation was that many passers-by actually reacted negatively to the strong smell (). A similar observation was made by a study in Thailand (Johri, 1998), where members of focus groups remarked that some smells were too strong, or colors were too bright.

Taiwan Soaps 33 These strong smells and bright colors were associated with unnatural, chemical ingredients. From our observations, we have learned many Taiwanese consumers are surprised to learn that LUSH only uses natural ingredients. This may be a result of LUSH not offering a line of products tailored to the needs of the Asian market, as the smell and appearance of its products might not represent natural ingredients for these consumers.

Taiwan Soaps 34

9. Application of results
From our data results, we observed that male customers are part of LUSHs customer base, even though LUSH does not offer any product lines specifically for them. Therefore, our business plan should avoid excluding or alienating male customers. Our data and observation showed that although many customers show interest in LUSH and its products, many do not make a purchase or regularly use LUSH products. We believe this may be attributable to the relatively high price of LUSH products in Taiwan, and therefore we see an opportunity for vertical differentiation i.e. offering a similar product at a price more suitable for Taiwanese consumers. We also observed many negative reactions to the strong aroma of the LUSH stores, which we believe represents an opportunity for horizontal differentiation i.e. offer a fragrance tailored to Asian tastes. Lastly, we learned that fragrance is a key attribute in the consumers buying decision process for specialized soaps. Therefore, we believe it would make sense to spend more on high-quality fragrance ingredients (such as essential oils), while save costs on other less important attributes such as packaging.

Taiwan Soaps 35

10. Business plan

For Asian soap lovers, Shul Fresh hand made soap is the most attentive brand to their needs because ingredients & fragrance are tailored to their taste a. Product Our plan is to make natural soaps using the finest quality natural ingredients and essential oils for the process and our scents. Similar to LUSH, our products would be hand-made, hand-cut and hand-wrapped in small batches to our own unique and standard recipes. Our soaps will be made through the cold process, meaning they will be made from the primary ingredients. The base of the soaps will be a mix to vegetable oils like coconut, olive and palm oil to obtain very creamy and lathering bar of soap. Cocoa butter will also be added for a moisturizing effect in some soaps. Other herbs and plant oils can be added to create different properties. Essential oils will be used to add the scents, an important attribute of the soaps. Special attention will be give to the fragrance of the soap because of its importance, not only does it need to be pleasant it also needs express the soap is natural, safe and of very good quality. Other ingredients are often added, such as herbs or green leaves, oatmeal, honey, natural flowers and other earthly products. Our

Taiwan Soaps 36 handmade soaps will retain all the glycerin, making them superior and gentle bars of soap. With the right ingredients, recipes, smell, lather and color we believe we can successfully reach our target market is anyone who enjoys high quality soaps in Asia. We plan to hold focus groups and present samples to determine which attributes are most suitable to local tastes, especially as specialized soap stores like Body Shop, LUSH and LOccitane have yet to offer products tailored to Asian tastes. We plan to explore the possibility of making soaps using local ingredients (e.g. Chinese herbs, green tea and local flowers) by extracting the essential oils ourselves. We will also look into making medicated soaps from Chinese herbs and producing some whitening and sun protecting soaps. Although whitening soaps are likely to be popular in Taiwan, the process would be more complicated because of the many regulations and hurdles involved with selling medicated cosmetics. b. Channels We will sell the soaps directly from a chain of stands in carefully selected locations. Selling through retailers was ruled out because we feel it would be impossible to communicate the value of our soaps in that manner. It would also require the soap to be pre-packaged and pre-testing would be difficult. We also ruled out opening our own retail stores because it is not within our budget. However, operating our own stands would confer many advantages, including the positive brand benefits of being located in an exclusive retail space (without the associated cost of running a full retail store). Choice of channel is critical in communicating the quality of our products. For example, selling from a night market stand might give the impression of a cheap product.

Taiwan Soaps 37 We also plan to create our own strong and unique store aroma as a central component of our brand. This scent will need to reflect our Asian focus and reinforce our use of natural ingredients. In addition to fragrance, vivid product displays will play a key role in attracting customer interest. Our research also showed that other aspects of the retail environment, such as sales personnel, all need to be consistent with the high-quality of the product. a. Pricing strategy Pricing is an important strategic tool because it positions your product. When buying cosmetics price is also used to estimate quality and we believe this to hold true also to soap. Originally, we wanted to compete directly with LUSH and create a product that would be selling at a high premium price. Our distribution method is also consistent with a lower price and through our observations we believe many potential LUSH customers didnt make purchases because of price considerations. Pricing our soap in a range of NT$75 to NT$150 per 100g would still offer sizable margins (200-300% on BOM), and would potentially attract a larger customer base in Taiwan. c. Cost analysis By selling through stands instead of stores overheads can be reduced (relative to operating a retail store). We believe this would allow us to achieve margins similar to LUSH, even though we would be selling at a lower price. We would also minimize packaging, following LUSHs example. Our research showed that LUSH customers did not see packaging as an important attribute when buying soap, although it can accounts for as much as half of the product cost.

Taiwan Soaps 38 Since LUSH and other stores import their products they must pay duties of approximately 15%, so making soap locally would provide another competitive advantage. One disadvantage we would face would be a higher price for materials, as we would obviously have smaller economies of scale than established competitors. To offset this disadvantage, we could extract essential oils ourselves and offer some products on a seasonal basis. For example, coconut oil in Taiwan is more expensive in winter, while butter is cheaper. The cost of the ingredients can vary greatly depending on buying bulk and the essential oils used. We calculate that a 100g of soap consisting of 1/3 palm oil, 1/3 coconut oil, 1/3 olive oil, lye and water cost approximately NT$8-9. Using ingredients such as honey, chocolate, milk, oatmeal and vanilla to add properties and fragrance increase the price only slightly to about NT$ 10-12 but does not yield as great results as essential oil. Depending on the essential oil used, the total cost of ingredients we intend to use would be NT$14 (orange) to NT$38 (lily). Adding other manufacturing expenses, we estimate the overall manufacturing cost per 100g bar to be between NT$ 24 to NT$ 48. The other costs are difficult to approximate since rents vary greatly and some have fixed costs while others also take a percentage of sales. For example, the rent of a small stand on the main street of Ximen ding was found to be around NT$ 30,000. The gross margin of about 200% to 300% per 100g would need to cover rent, distribution, merchandising, sales personnel and more. 37.5 kilos of soaps (about 375 bars) would be enough to cover one months rent in Ximen ding. We believe this represents an excellent opportunity.

Taiwan Soaps 39

Taiwan Soaps 40

11. Conclusion
Having made our observations and conducted our research of a sample of LUSH customers in Taiwan, we believe we have identified certain key attributes to focus on if selling our own hand-made soaps in Taiwan. However, we also believe there is a need for further research if we are to determine the preferences for consumers of specialized soap products in the Asian market. We believe this is crucial for success and could be our biggest differentiating factor. For sensory attributes, especially fragrance, questions administered through a survey have many limitations. We will therefore proceed with our project, keeping in mind the importance of smell and the need to tailor it appropriately through focus groups. We will also design our products and brand image taking into consideration the need for every aspect to reinforce the perceived product safety, performance and quality of the ingredients.

Taiwan Soaps 41

12. References
AFP, Washington. Companies with a nose for sales use aroma-marketing. Taipei Times, November 19th, 2006. AVEDA Web Page. www.AVEDA.com Body Shop Web Page. www.bodyshop.com Brand Strategy. LUSH: Pure and simple. http://www.brandstrategy.co.uk/issues/2006/June/Pure_and_simple Chou, Angeli (2003). The Taiwan Cosmetics and Toiletries Market. International Market Insight Coleman, Dean. How are essential oils made? http://www.deancoleman.com/whatareoils.htm Conley, Lucas. Rinse and Repeat. Fast Company, issue No. 96, July 2005, page 76. Crabtree & Evelyn Web Page. www.crabtreeandevelyn.com Enlightened Brand. The Natural Beauty of AVEDA. http://www.enlightenedbrand.com/pages/ebj_2004-4.php#TL Faiola, Anne-Marie. Teach Soap.com. http://www.teachsoap.com/askam.html Feed, Walton. Soap Making. http://waltonfeed.com/old/soap/soap.html Freundl, Diana. Smart marketing helps the Cosmetics Industry. Taipei Times, March 24th, 2005. Harvest Consulting Group (2001). BrandSense: Building brands with sensory experience. www.brandaroma.com/FragranceBranding/Downloads/BrandSense.pdf Huang, Chin-Wen & Tai, Ai-Ping (2003). A Cross Cultural Comparison of Customer Value Perception for Products: Consumer Aspects in East Asia. Cross Management, Vol. 10, No. 4. Johri, Lalit & Sahasakmontri, Kanokthip (1998). Green marketing of cosmetics and toiletries in Thailand. Journal of Consumer Marketing, Vol. 15, No. 3.

Taiwan Soaps 42 Laroche, Michael; Bergeron, Jasmin & Barbaro-Forleo, Guido (2001). Targeting consumers who are willing to pay more for environmentally friendly products. Journal of Consumer Marketing, Vol. 18, No. 6. Lindstrom, Martin (2005). Designing Ambiance Its a Sensory Experience. Create Magazine. LOccitane Wep Page. www.loccitane.com LUSH Web Page. http://www.LUSH.com Neil Corporation. Why Carry AVEDA. http://www.neill.net/AVEDA Rawe, July. LUSH is in no Rush. Time Magazine, Inside Business/Retail, Nov. 2003, page A24. Real Business.co.uk. I will have what http://www.realbusinesssolution.co.uk Mark Constantine is having

Super Survey. http://knowledge-base.supersurvey.com/survey-questions.htm

Taiwan Soaps 43

13. Appendix
a. English survey

National Chengchi University IMBA Marketing Survey


1. You are? Male Female 2. How old are you? < 15 15~25 26~35 36~45 > 45 3. How often do you buy LUSH products? This is my first time. I usually buy products twice or three times a month. I usually buy products more than three times a month. 4. What soaps do you use? Use only LUSH soaps. Use only other brand soaps. Use both LUSH and other brand soaps. 5. How did you know LUSH (First time)
Word-of-mouth

Advertisement

Noticed the store (i.e. passing by) 6. Are you buying for yourself someone else (i.e. gift)

both

7. Ranking most important attribute when purchasing soap (1 to 12).1 being the most important and 12 the least. __ Safe for skin __ Product performance __ Ingredients __ Cost __ Outlet atmosphere __ Not tested on animals __ Product fragrance __ Hand made __ Packaging __ Product Appearance (e.g. color, shape etc) __ Opportunity to pre-test __ Location convenience

Taiwan Soaps 44 b. Chinese Survey 1 2 15 15~25 26~35 36~45 45 3 LUSH ? 4 LUSH LUSH 5 LUSH 6 LUSH 7 1 5 1 5

Taiwan Soaps 45 c. Results of survey


Varialbes
Sex Male Female 0 - 15 16 - 25 26 - 35 36 - 45 45+ First time Sometimes (1-2x per month) Frequently (more than 2x per month) Only Lush Soaps Only Others Soaps Both Word-of-mouth Advertisement Noticed the store Yourself Someone else Both Safe for skin Product performance Ingredients Cost Outlet atmosphere not tested on animals hand made product fragrance packaging product appearance opportunity to pre-test location convenience

Total
5 25 0 15 7 5 3 8 20 2 2 16 12 7 4 19 12 8 9

%
17% 83% 0% 50% 23% 17% 10% 27% 67% 7% 7% 53% 40% 23% 13% 63% 40% 27% 30%

Age Groups

How often do you buy LUSH What soap do you use? How did you learn about LUSH? Are you buying LUSH for:

Total
90 105 122 164 237 255 241 141 258 253 221 253

Rank
1 2 3 5 7 11 8 4 12 10 6 9

Ranking from 1 to 12

You might also like