A PROPOSAL TO IMPROVE THE MARKET SHARE AND PROFITABILITY OF MUJI IN CHINA

A PROPOSAL TO IMPROVE THE MARKET SHARE AND PROFITABILITY OF MUJI IN CHINA

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Table of Contents

TOC o “1-3” h z u 1. Introduction PAGEREF _Toc73775281 h 32. Research Objectives PAGEREF _Toc73775282 h 33. Literature Review PAGEREF _Toc73775283 h 43.1 Understanding the Chinese Consumer and Retail Market PAGEREF _Toc73775284 h 43.2 Price Sensitivity in the Chinese Consumer Goods Retail Industry PAGEREF _Toc73775285 h 53.3 Online Retail Market in China and its Impact on Retail Companies PAGEREF _Toc73775286 h 63.4 Strategies Used by Top Chinese Retail Companies PAGEREF _Toc73775287 h 74. Methodology PAGEREF _Toc73775288 h 85. Estimated Cost PAGEREF _Toc73775289 h 106. Conclusion PAGEREF _Toc73775290 h 117. Short Reflection PAGEREF _Toc73775291 h 12References PAGEREF _Toc73775292 h 13

1. IntroductionThis document presents to the Board of MUJI a comprehensive report and plan for conducting research designed to improve on the recent issue of declining sales in China in a way that will match sales in Japan and also maximize profits as well as increasing the market share of the retail industry in China. The overall aim is to provide a plan for MUJI to improve on the recent issue of declining sales in China in a way that will match sales in Japan and also maximize profits as well as increasing the market share of the retail industry in China. The report begins by outlining the aims of the plan and relevance, followed by a presentation of the objectives of the research. A detailed literature review will then be provided, including benchmarking scholarly perspectives and a visual model that will summarize key insights and the relationship in literature. The plan then details the methodology with a report on the proposed unit of analysis, the data collection methods, and the approach proposed for data analysis. Estimated costs will then be provided detailing the time and monetary value, followed by a conclusion that will emphasize on the significance of the research plan in terms of a business perspective and the implications of the findings. A short reflection will wind up the research plan offering a personal view of the entire process.

2. Research ObjectivesMUJI, a Japanese retail company, is involved in the selling of a variety of household and consumer products in the market. Having started operations in the late 20th century, the company has grown from a small-sized local firm operating out of Seiyu Supermarket Japan to become of the best companies in the retail industry. According to Song & Guangan (2019), the company had managed to increase the range of products that it retails to 7,000. Some of the products that the company is engaged in include: pens, pencils, kitchen appliances, household care products, food items and notebooks. The primary business areas for MUJI are home furnishing, Cafe MUJI, Meal MUJI, MUJI campsite and it has recently began operating in the automobile and the architectural sectors.

The following are the research objectives that will guide the research plan:

To ensure that there is a critical assessment of MUJI’s competition in the market.

There is the need to design and develop a new pricing strategy for MUJI in China.

To provide an affective advertising strategy for MUJI.

To develop an effective strategy, which will contribute to an overall reduction of the cost of the MUJI’s products.

The justification for the above research objectives include the evidence of a decline in MUJI’s sales in China over the last few years, the fact that the company’s products in China are considered to be expensive in relation to the imitation products and the price by the rival companies (Masuda, 2019)), a possibility that a majority of its customers are losing interest of the company’s products, and a need to determine if there is any unique approach that the company can undertake to reduce the overall price of its products.

3. Literature Review3.1 Understanding the Chinese Consumer and Retail MarketChina has developed significantly over the last few decades with numerous reports indicating closeness to overtaking the United States as the largest economy in the world. In the recent past, the retail industry in the country is termed by Ding (2017) as among the best in the world, and Liu et al. (2018) echoing these remarks to indicate the growth of its retail sector over and beyond other global economic giants. Changing consumer preferences and tastes and technological advances have helped to reshape the retail landscape in China. According to Atsmon and Magni (2012), the Chinese consumer has different and more complex expectation in terms of products, prices, experiences, value, and services than observed in the last century. The consumer now dictates a seamless experience in every shopping process and for every retail experience. In the same line, the proliferation of the internet has meant that online retailing poses a challenge to the more traditional forms of retail (Vazquez, Dennis, & Zhang, 2017), thereby pushing away consumers from businesses that have not shifted their focus to e-tailing (Zheng et al., 2012). As the retail industry evolves, players in the market are required to increasing find better strategies to adapt and keep up with the changing environment. Despite trailing the US in terms of economic development, position, and the retail market (Castelló & Mihelj, 2018), China’s total retail sales in consumer goods are gaining pace and are nearly becoming the best in the world. That said, Zhu, Ye, & Chang (2017) also presents evidence of a deceleration in terms of retail sales growth in China due to external factors such as slower growth of the economy and other financial factors such as the recession following the 2008/2009 global financial meltdown and the recent COVID-19 pandemic. Parker, Haytko, & Hermans (2011) also indicate a chance that the presence of thousands of companies specializing in retail have taken away a significant portion of the market share in China, including a reduction in the price of commodities due to an oversupply position. Upon the implementation of an open-door economic policy, the Chinese market and specifically the retail industry changed significantly (Liu, 2020), to include international companies like MUJI. From then to date, factors such as industry competition, new entrants, suppliers, savvy buyers, and substitute products have led to a shift in the way the market operates (Zhang, Cude, & Zhao, 2020). Therefore, the transformation begun with government policies and has continued to expand with reference to other external contributors, leading to a position where traditionally operated companies are having a hard time competing with newer market entrants. The change from the old protected system to the new more open and free market has led to a change in the modus operandi, not just for business entities but also for individual consumers.

3.2 Price Sensitivity in the Chinese Consumer Goods Retail IndustryThe Chinese consumer has become progressively savvy over the years empowered by an increase in disposable income. As per the findings of Chellaswamy, Natchimuthu, & Faniband (2020), Chinese consumers now expect more in a product, product quality, customer service, and the satisfaction of expectations. As the needs and wants of these consumers evolve at a rate much faster than predicted compared to consumers in the US and Europe, their utility in a product is also changing to match expectations (Ghali-Zinoubi, 2020). In matters price, Chinese consumers have been found by Zhu, Ye, & Chang (2017) to be price sensitive and Zheng, Li, Fang, & Zhang (2021) concluded that their price sensitivity is low but are brand conscious. In another study, Wang, Pham, & Dang (2020) determined that price is quite often used as the determining factor in the process of making purchase decisions for the Chinese consumer. However, Huang & Voges (2011) noted a fondness for luxury products visible in the Chinese market. This duality can be explained by the Chinese culture where social status and the outward face are important elements. Therefore, if a product or brand is able to signal high social as well as economic status, then the Chinese consumer makes the decision to pay premium price. Where a product is not associated with luxury and does not offer economic or social status, then Chinese consumers become overly price sensitive. Zhang, Cude, & Zhao (2020) uses a different approach to explain the duality noting that even with the rapid growth of the Chinese economy, different regions are growing at different rates, meaning that trends and income levels vary with different groups and regions. In this description, the sensitivity to prices is affected by the mindset and preferences based on consumer groups and their purchasing power.

For businesses doing well in other global markets, using the same models and approach in China always leads to massive failure, such as the case with Google, eBay, Samsung, and automakers like Toyota. The secret to a successful venture in China is presented as quality understanding of the consumers in China, the main characteristics, changing needs, and other factors that have evolved with time to influence purchasing behavior (Gao, Zhang, & Mittal, 2017). A price sensitive and brand conscious market like the one defining Chinese consumers is a puzzle to many companies. The Chinese consumer attaches a lot of value to every purchase (Zhu, Ye, & Chang, 2017), even for basic household items or food items. Therefore, wherever a purchase can be linked to social and economic status, then the Chinese consumer foregoes price considerations and vice versa. Again, the Chinese market notably lacks trust, a key component that defines online and e-retail industries today (Ghali-Zinoubi, 2020). Paying first before a product is delivered does not sit well with Chinese consumers, a factor that has punished e-commerce players such as eBay. The introduction of AliPay by Taobao addressed the issue of trust through an introduction of a third party to ensure that trust can be guaranteed (Jin, Zhao, & Santibanez-Gonzalez, 2020). Alibaba became an instant success in China due to this model. Therefore, aside from the duality in price versus brand consciousness, trust is also a key factor to consider before entering the Chinese market.

3.3 Online Retail Market in China and its Impact on Retail CompaniesE-commerce has grown significantly over the last few years in China and Bei & Gielens (2020) and Hingley, Lindgreen, & Chen (2008) found increasing growth in both value and volume of e-commerce. As expected, the development brings with it newer, innovative, and more exciting ways for companies to access the markets, interact with consumers, and even cross borders to other markets or industries (Tolstoy et al., 2021). In China, competition from companies such as Miniso, OCE, Nome, and Gordmans Stores has shifted as a majority of these Chinese-based firms shift to e-commerce platforms. Largely, MUJI relies on the traditional brick and mortar stores to make sales. While this has worked very well in the past and in other markets, Li, & Jin (2014) posit that the shift in consumption patterns and the increasing trust amongst the young Chinese consumers will see many companies change to online retail. According to Reinartz et al. (2011), companies using a purely online retail model are able to compete on the basis of price because of the reduced costs from overheads, labor, and other costs associated with having physical stores. Another major consideration that companies operating in the retail industry must consider is the growth of e-retail in China. A report by Zhenxiang & Lijie (2011) described the Chinese e-commerce market to be the largest in the world, surpassing even the United States, and it is expanding even more becoming open to foreign goods, and attracting immense competition. Even with the recent financial crisis from the 2008 meltdown and the recent market shakeup due to the COVID pandemic, Zhang, Cude, & Zhao (2020) still see the potential for the Chinese e-commerce market to continue expanding. The e-commerce sector is a positive opportunity for every retail industry player in China. Zhu, Ye, & Chang (2017) assert that overseas travels, increase in the usage of internet, foreign brands exposure, and a surging demand for foreign produced brands have made the Chinese market more attractive and has enabled brands foreign-owned brands to connect with the Chinese consumers. However, the same opportunities are also available for millions of startup companies and foreign competitors. New entrants are more innovative, hungry, and may bring a disruption factor such as the recent move towards use of social media for a majority of online trading (Ye, Lau, & Teo, 2018). Retail companies must remain committed to adapting to new market conditions, especially on the e-retail platform that will redefine how consumers in China interact with brands in the near and long term future.

3.4 Strategies Used by Top Chinese Retail Companies

One of the greatest benefits of a large population in the Chinese retail market is that companies are able to reach more people and thus increase their profitability. It is now evident that a majority of retail businesses in the Chinese market use online platforms to reach and interact with consumers (Zhu, Zhang, Zhang, & Yang, 2013). For example, companies such as Tmall, Pinduoduo, and JD.com are among the largest retail businesses in China, all of which operate primarily e-commerce retailers. In order to penetrate and dominate the retail industry, Couture, Faber, Gu, & Liu (2021) concluded that companies must be willing to enter the e-commerce scene. Firms such as Suning.com Group and Gome Electrical Appliances dominate the retail market in China by combining traditional brick and mortar physical outlets with a heavy online distribution network. Li, Frederick, & Gereffi (2019) identified the remarkable economic rise in China combined with the internet revolution as the main driver for change, enabling companies to operate better and more efficiently through direct interaction with consumers. The convergence of heavy internet usage and the improvement of the lives of the Chinese people is expected to push further growth in the coming years. The retail landscape has changed significantly over the last ten years, unleashing what Kshetri (2018) termed as a wave of entrepreneurship and innovation. In a country and region where every other sector is expanding rapidly, retailing is moving online, in a concept now termed as e-tailing, that is predicted to produce astonishing growth for companies operating in China.

Apart from the reliance on the rise of the internet and the e-commerce industry in China, top performing companies have also relied heavily on the rising consuming class in China that has continued to expand over the last few years. China boasts of having the largest online population in the world (Yu & Kim, 2019). The large population, closing in on the 1 billion mark by 2025 (Ma, Chai, & Zhang, 2018), has underpinned the growth and expansion of a consuming class. The e-tail industry is primarily very well managed and is among the best in the world. Private consumption has changed exponentially in China as the e-commerce industry has begun to eat away on the market share traditionally enjoyed by the retail industry. As the economy rises, the medium-sized and small cities in China are beginning to improve, including the people. As expected, the standards of living are improving to a point where disposable income is higher (Zhu, Ye, & Chang (2017). Top performing retail companies in China are aware of these changes, and are using the transformation to gain momentum in an effort to not only beat the competition but also remain relevant in a market that is constantly changing (Li et al., 2021). As more people increase their purchasing power, coupled with the increase in internet usage, it is easier to sell online while maintaining the traditional retail procedures. Another notable issue is that the Chinese retail market is essentially regional, making it hard to scale up conventional store networks over the diverse and large developing nation (Zhang, Cude, & Zhao, 2020). As digital disruption emerges, it is going to be harder for companies without heavy presence in the country to maintain profitability and increase their market share.

4. MethodologyThe unit of analysis is defined by Sedgwick (2014) as the entity that the study talks about towards the end of the report. It is also considered to be the focal point of the study. In this research plan, the unit of analysis is MUJI and the unit of observation is the Chinese retail industry. The research plan intends to present a report about MUJI to its board regarding how to improve its operations in China. Therefore, the focus of the study is MUJI and the focus of observation is the Chinese retail industry. The unit of analysis is also described by the research questions. The unit of analysis is the individual company, MUJI.

In this study, the researcher has determined that the best approaches to collect data are quantitative approach from the consumers and secondary study on the retail market in China. The researcher assumes that these sources of data will provide the researcher with the right data and information that will be instrumental in developing an effective solution for the research problem that was identified. The proposed data collection method is a secondary approach of using document and records-based research. In this approach, Shultz, Hoffman, & Reiter-Palmon (2005) defined it as using the existing data to conduct a study. In this approach, secondary research, data, and other existing sources of information are used to collect information relating to the unit of analysis and the unit of observation. According to Jones (2010), the advantage of using existing records relating to an organization is that there is relative ease in the process of data collection. Particularly, literature reviews will be conducted to provide relevant information relating to the performance of MUJI against other companies in China’s retail industry. Since the relevant data already exists, there will be no need for additional efforts to collect it. However, Bainter & Curran (2015) warns that there is a caveat for this method that the specific data needed is not only available but also up-to-date. In this case, there is a lot of data available relating to the Chinese retail market and all of the relevant information on the competition, the growth of the market, and the performance of MUJI in the last few years. When data is timely and available, record reviews become a very efficient and economical data collection approach.

A case analysis approach will also be implemented for the research plan. Primarily, MUJI is under review in this proposal. Therefore, its performance, policies, and any other business practices in its operations in China will be keenly observed in a case study structure. Again, secondary data will be used in this case including records, books, published statistical data, data archives, databases, and research articles. The methodologies above are chosen for data collection on the basis of their applicability to the case. Due to the difficulties in obtaining primary data, a case analysis approach and a document and records-based research is preferred. A clear benefit of using secondary data is that much of the background work needed has already been carried out. This makes it easier for the company to receive information relating to the research objectives in time. For instance, it is likely that literature reviews and case analyses have been conducted and used in other similar studies. It is also likely that published texts or statistics already exist, as well as media promotions and company appraisals. Such wealth of information and background works mean that the secondary data to be used generally have pre-established degrees of reliability and validity, which does not need to be re-examined in the current research plan.

The proposed data analysis methods is the secondary quantitative data analysis. This approach is chosen because it will offer methodological benefits and will also contribute to the research by generating new knowledge on the research matter. The main goal of the secondary research method is similar to other approaches, that is, to contribute positively to knowledge through providing alternate perspectives. The only difference is that the secondary analysis approach relies on existing data. With the improved methods of storing high quality data, the research plan will take advantage of this availability and contemplate the potential value in gaining knowledge as well as giving insight to a broad range of issues affecting the retail market in China through the use of secondary data analysis approach. By using multiple sources of secondary data, the research plan will bolster confidence and reliability of findings, whether two or more data sources come to the same conclusion for purposes of comparison or if they diverge, offering an alternative for contrast.

5. Estimated CostItem Cost ($)

Equipment 15000

Travel 4500

Materials and Supplies 9500

Library enrollment fees 1000

Printing 1500

Total 31500

A new computer and an analysis machine are required exclusively for use in this project. The catalog prices quoted by a distributor for these items is $ 15,000. There will be travelling for the researcher between different locations on more than one occasion. The total estimates for the entire project is $4500. Total request of $ 9,500 is based on estimates of physical textbooks and subscription based materials required for the study. A library enrolment fee of $1000 is also quoted for purposes of data collection. Printing of final material will use up $1500 as quoted by a local printing company. The time taken to conduct the research plan from start to finish is estimated to be three months, beginning May all through to end of July.

6. ConclusionThe business significance of this research plan is allow MUJI to find new knowledge and enable digging deeper into several factors to discover issues and best practices and learn about the new retail business environment in China. A research plan will also allow MUJI to stay focused on its goal to increase profitability and market share in the retail industry in China and remain on the path of discovery. The overall aim of the proposal was to provide a plan for MUJI to improve on the recent issue of declining sales in China in a way that will match sales in Japan and also maximize profits as well as increasing the market share of the retail industry in China. The study finds that China has developed significantly over the last few decades with numerous reports indicating closeness to overtaking the United States as the largest economy in the world. Despite trailing the US in terms of economic development, position, and the retail market, China’s total retail sales in consumer goods are gaining pace and are nearly becoming the best in the world. The presence of thousands of companies specializing in retail have taken away a significant portion of the market share in China, including a reduction in the price of commodities due to an oversupply position. Upon the implementation of an open-door economic policy, the Chinese market and specifically the retail industry changed significantly. Factors such as industry competition, new entrants, suppliers, savvy buyers, and substitute products have led to a shift in the way the market operates. The change from the old protected system to the new more open and free market has led to a change in the modus operandi, not just for business entities but also for individual consumers. The Chinese consumer attaches a lot of value to every purchase, even for basic household items or food items. Therefore, wherever a purchase can be linked to social and economic status, then the Chinese consumer foregoes price considerations and vice versa. It is expected that the research study will recommend that MUJI lowers its prices significantly and also enters the e-commerce e-tail market to compete more effectively in China.

7. Short ReflectionMy view of BRD was that they are unnecessary part of a business process that increases the bureaucratic procedures in the act of conducting a business. However, I now understand the need to have BRD in any business settings. The benefits derived from BRDs include significantly reduced changes in the improvement and control phases of implementing a strategy. A good BRD gives a description of issues within a project and tries to solve such problems in a way that intends to create and deliver value. A BRD is also responsible for directing and ensuring a smooth sailing for a project and keeping all stakeholders focused on the objectives. A BRD also captures and describes business needs of the main stakeholders, gives an assessment of the business area, and identifies what is important to an organization through both primary and secondary user communities. A BRD yields better estimates, reduced costs, better meeting of goals, and improved business processes. I now understand the need for BRDs and the significance they have on ensuring better outcomes for an organization. I see a BRD as a vehicle towards the attainment of expected outcomes and a pathway that outlines the requirements to meet these goals and objectives. My perspective has changed in a way that I can confirm that a BRD serves to give clarity, helps in the retention of focus, reduces and removes ambiguity regarding the needs and/or objectives of a project or objectives.

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