Enhancing consumer perceived quality a case of vinamilk infant formula milk powder

LIST OF TABLES Table 1 Financial highlights 2014 - 2018 Table 2 Infant formula milk powder’s price segmentation Table 3 Growth in volume share and Value share Table 4 Volume share and gr

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-NGUYEN THUY VAN

ENHANCING CONSUMER PERCEIVED QUALITY: A CASE OF VINAMILK INFANT FORMULA MILK POWDER

MASTER OF BUSINESS ADMINISTRATION

STER OF BUSINESS (HONOURS)

Ho Chi Minh City – Year 2019

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-NGUYEN THUY VAN

ENHANCING CONSUMER PERCEIVED QUALITY: A CASE OF VINAMILK INFANT FORMULA MILK POWDER

MASTER OF BUSINESS ADMINISTRATION

STER OF BUSINESS (HONOURS)

Ho Chi Minh City – Year 2019

he has done for me

Secondly, I would like to use this chance to give deep gratitude to all lecturers of International School of Business (ISB) – UEH for their helping me in during my academic years at ISB I have been assisted very much in the completing of this thesis by the knowledge and skills that I have learned

Furthermore, I would like to appreciate the contribution of people who help me complete the in-depth interview to share their valuable time and support me with useful information

for completing this thesis

Last but not least, I would like to express my special thanks to my family who always support and encourage me both physically and mentally during the time I do this research

EXECUTIVE SUMMARY

When global infant formula milk powder market gets a remarkable growth with CARG at 3.0%, especially targeting key emerging country With the fastest growth rate since 2011, Vietnam’s economy reach 7.08% of GDP in 2018 Then, Vietnam would be a competitive market for infant formula milk powder category with strong competition from domestic and foreign manufacturers

Nowadays, behavior of Vietnamese consumers are changing rapidly due to development

of technology and globalization Vietnam’s IFMP industry has experienced an update trends and changes as the rise of premiumizations and shifting from powder milk to drinking powder milk Then it is crucial for manufacturers to change in order to meet their target consumer’s need and want

Recent year, sales revenue of powder milk has decreased with CAGR of -2% compare to

2013, while sales revenue of drinking milk powder has gradually increased Besides, volume share of Vinamilk’s IFMP also has changed among price segmentation According

to the result of in-depth interviews and previous study, this study aims to figure out what the main problem is, validate the main problem, the importance of main problem This research will explore the cause of the main problem The findings of research implements that the low level of consumer’s perceived in quality leading to change in sales revenue and volume share Then the alternative solutions would be suggested to improving the low level of consumer perceived in quality

Contents

ACKNOWLEDGEMENT 3

EXECUTIVE SUMMARY 4

LIST OF ABBREATIONS 7

LIST OF TABLES 8

LIST OF FIGURES 8

1 INTRODUCTION 9

1.1 Company’s background 9

1.2 Vinamilk’s powdered milk category 10

1.2.1 Infant formula milk powder (IFMP) 11

2 PROBLEM CONTEXT 12

2.1 Global infant formula milk powder market 12

2.2 Vietnam FMCG landscape and infant formula milk powder market 13

2.3 Vinamilk’s infant formula milk powder situation in Vietnam 16

2.3.1 Sales revenue gradually shifts from powder milk to drinking powder milk (UHT) 16

2.3.2 Change in Volume Share of Vinamilk’s IFMP category 17

3 PROBLEM IDENTIFICATION 19

3.1 Potential problems 21

3.1.1 Inadequate product’s recognition 21

3.1.2 The low level of consumer’s perceived in quality 23

3.1.3 Market condition 24

3.2 Problems validation 26

3.2.1 Eliminating inadequate product’s recognition and market condition as main problem 26

3.2.2 Illuminating low level of consumer’s perceived in quality as the main problem 27

3.3 Justify the importance of low level of consumer’s perceived in quality 30

3.4 Potential causes 33

3.4.1 Less reliable source of information 33

3.4.2 Less visibility in high-end segmentation 34

3.5 Cause validation 37

3.6 Cause – and – effect tree 38

4 ALTERNATIVE SOLUTIONS 39

4.1 The first alternative solution: building strong positive traditional word of mouth 40

4.2 The second alternative solution: building the strong positive electronic Word – of – Mouth

through social media 43

4.3 Solution justification 47

5 ACTION PLAN IN ORGANIZATION 48

6 CONCLUSION 51

SUPPORTING INFORMATION 52

REFERENCES 70

LIST OF ABBREATIONS

CAGR Compound annual growth rate

eWOM Electronic word of mouth

FGD Focus group discussion

FMCG Fast moving consumer good

HMO Human Milk Oligosaccharide

IFMP Infant formula milk powder

IHV In home visit

KOL Key opinion leader

MAT Moving annual total

MFGM Milk Fat Globule Membrane

SKU Stock keeping unit

TY This year

UHT Utra high temparature

WOM Word – of - Mouth

YA Year ago

YTD Year to date

LIST OF TABLES

Table 1 Financial highlights 2014 - 2018

Table 2 Infant formula milk powder’s price segmentation

Table 3 Growth in volume share and Value share

Table 4 Volume share and growth rate IFMP

Table 5 Sales revenue of Vinamilk’s powder milk

Table 6 Sales revenue of Vinamilk’s drinking powder milk

Table 7 Estimated cost for building strong positive traditional WOM

Table 8 Estimated cost for building strong positive e-WOM through social media

LIST OF FIGURES

Figure 1 Vinamilk’s product portfolio

Figure 2 Vinamilk’s powdered milk category

Figure 3 Global infant formula milk powder market forecast 2023

Figure 4 Vietnam (MT Urban) 2018 - Volume share IFMP + Specialty

Figure 5 Value Share Nation Wide 2017 - 2018

Figure 6 Sales revenue Vinamilk’s infant formula milk powder

Figure 7 Volume share – Vietnam modern trade urban

Figure 8 Vinamilk IFMP volume share – price segmentation

Figure 9 Sources of information to buy the first IFMP product for children in 2018 Figure 10 The most important reasons for switching IFMP brands

Figure 11 Birthrate (crude)

Figure 12 Percentage of household

Figure 13 Volume share %

Figure 14 IFMP Volume share – Price segmentation

Figure 15 Consumer’s buying decision making process

Figure 16 Number of mom & baby stores

Figure 17 % share of occasion shopping

Figure 18 Infant formula milk powder buying behavior

Figure 19 Shopping occasion in 2018

Figure 20 Cause and effect diagram

1 INTRODUCTION

1.1 Company’s background

As one of the biggest companies in Vietnam, Vinamilk established in 1976 under the first name of Southern Coffee-Dairy Company In 1978, it renamed as United Enterprises of Milk Coffee Cookies and Candies and changed into Vietnam Dairy Company in 1993 Since 2003, as followed the IPO to market of Ho Chi Minh Stock Exchange, it has changed into Vietnam Dairy Products Joint Stock Company (hereafter called as Vinamilk)1

Vinamilk’s products portfolio are conducted in business industry including in producing and distributing more than 250 SKUs with main products categories as fresh milk, yogurts, powdered milk & nutrition powder, sweet condensed milk, ice-cream & cheese and soya milk, fruit juice & beverage

Figure 1: Vinamilk’s product portfolio

(Source: Vinamilk’s internal report 2018)

In 2018, Vinamilk achieved the total revenue at 52,135 billion VND with a CARG of 10.6% compare to year 2014 and increases in revenue 2.9% than 2017 Profit after tax is 10,206 billion VND at a CARG of 13.9% compare to year 2014

Table 1: Financial highlights 2014 - 2018

(Source: Vinamilk’s financial report 2018) Vinamilk1 would like to become one of the most favorite brands in Vietnam 1According

to CEO of Vinamilk - Mrs Mai Kieu Lien that the leading manufacturers in Vietnam dairy market, Vinamilk should be always innovative and innovation is a key success factor that makes Vinamilk to achieve its mission how to deliver the valuable nutrition to community with its respect, love and responsibility

1.2 Vinamilk’s powdered milk category

Vinamilk’s powdered milk category consists of three types of product for: adult, pregnancy and infant formula milk powder

Figure 2: Vinamilk’s powdered milk category

(Source: Vinamilk’s internal report 2018)

Total revenue 35,187 40,223 46,965 51,135 52,629 10.6% 2.9% Profit befor tax 7,613 9,367 11,238 12,229 12,052 12.2% -1.4% Profit after tax 6,068 7,770 9,364 10,278 10,206 13.9% -0.7%

As one of key product category of Vinamilk, powder milk category contribute 26% revenue and 28% gross margin profit for Vinamilk in 20171 With 27% share in 2017, Vinamilk’s powdered milk category is leading in the market and has strong impact on the growth of this category

1.2.1 Infant formula milk powder (IFMP)

The international Codex Alimentarius Commissions2 states that infant formula is a breast-milk substitute specially manufactured to satisfy, by itself, the nutritional requirements of infants during the first months of life up to the introduction of appropriate complementary feeding Infant formula milk powder is also defined as a a manufactured food designed and marketed for feeding to babies and infants, usually prepared for bottle-feeding or cup-feeding from milk powder (mixed with water)2

According to Nielsen3 - a global performance management company that provides a comprehensive understanding of what consumers Watch and Buy, infant formula milk powder can be segment by price as table below:

Table 2: Infant formula milk powder’s price segmentation

(Source: Nielsen’s report 2018) Due to price segmentation of Nielsen3, Vinamilk’s infant formula milk powder category is divided into three segments: premium, mainstream and specialty; particularly as mentioned

in figure 2 Based on formulation, Vinamilk’s IFMP can be divided into powdered milk (mixed with water) and drinking milk (not mixed water) Furthermore, according to the basic of product type the market is segmented into starting milk formula, follow-on milk formula, toddlers milk formula, and special milk formula

Lower Mainstream

Upper

Price's segmentation

2 PROBLEM CONTEXT

2.1 Global infant formula milk powder market

The global IFMP market is value at 27.7 billion USD in 2018 and will reach 35 billion USD by the end of 2025 at a CARG of 3.0% during period from 2019 to 20254 Due to high purchasing power, the middle class become the engine of development in many countries It is not only one of the largest categories within health and wellness (HW) packaged food but was also a very fast growing one during the review period, despite the decline in birth rates and an increasing number of breastfeeding campaigns4 Changing lifestyles, female participation in the workforce along with the lack of time and inconvenience is expected to boost the global infant nutrition market The slowdown in sales in developed regions has caused leading players to target key emerging markets, which are driving the global market.4

Figure 3: Global infant formula milk powder market forecast 2023

(Source: Market Research’s Report 2018) Asia Pacific is the key region, led by China, which saw the largest absolute growth over 2010-2015, followed by Hong Kong, Indonesia and Vietnam China is seeing a movement

towards premiumisation – a trend which is apparent in both emerging and developed markets5 According to Euromonitor International, China alone accounted for 46% of milk formula market in 2015 Europe is the second-largest region-wise market with 21.46% global consumption share3

Based on report of Euromonitor Interbational5, premiumisation strategies are likely to remain driven by free-from special baby milk formula including hypo-allergenic milk formula, naturally healthy products such as organic, as well as goat milk formula The emergence of HMOs and MFGM in milk formula are also likely to fuel new product launches

2.2 Vietnam FMCG landscape and infant formula milk powder market

According to General Statistic Officer (GSO)6 Vietnam, in 2018 Vietnam’s economy represent the fastest growth rate since 2011 to achieve GDP at 7.08% CPI has been under control to remain index below 4% since 2015 The retail sales of consumer goods also increases to 12% in 2018 reflecting the high domestic demand of Vietnamese consumers

In 2019, economic growth is forecasted to up 6.8%.6

According to Kantar World Panel7, FMCG market is lagging in Urban areas, while still growth in rural areas In the rural areas, market will get its momentum back and expect to continue with 5-6% year-on-year growth in 20197 In urban 4 key cities, dairy is still stagnant On the other hand, the year 2018 dairy continue growth at 7.9% in value and 6.6% in volume compare to year ago

Based on Euromonitor International report5, Vietnam is a competitive market for infant formula products The infant formula market in Vietnam is relatively small in terms of demand but quite large in terms of supply in comparison with other markets in the region The research shows that strong competition in the market brings benefits to consumers in terms of both wide products ranges and price points that are available for consumers

Figure 4: Vietnam (Modern Trade Urban) 2018 - Volume share IFMP + Specialty

(Source: Nielsen’s report) According to report on update trends and market changes in 2018 of Nielsen3, there are three main trends in IFMP industry that is increasing in drinking milk, decreasing powder milk and premiumization trends Vietnam IFMP market share has gradually shifted from powder milk to drinking milk Share of drinking milk keeps its momentum, posting the double-digit growth; in contrast, powder milk keeps declining

Figure 5: Value Share Nation Wide 2017 - 2018

(Source: Nielsen’s report)

Vinamilk Nutifood

Abbott

Nestle

Dutch Lady Mead Johnson

As can be seen from table below, it changes not only in volume share but also in value share as well In comparison to 2017, the growth rate of powder milk volume’s share and value share in 2018 were -13% and -11% respectively; while the growth rate of drinking milk powder were 20% and 17% respectively Then, Vietnam’s IFMP market has shifted gradually from powder milk to drinking milk powder

Table 3: Growth in volume share and Value share

(Source: Nielsen’s report) Nielsen also figured out the changed in each company in Viet Nam market as well In general, Vinamilk is leading in volume share of IFMP + specialty category accounting for 39.7% share of total category in 2018; whereas, Nutifood is leading in drinking milk powder accounting for 54.9% share Besides, the growth rate of total category in 2018 compare to year ago is also negative In contrast, volume share of drinking milk powder category in 2018 increase 22% compare to 2017

Table 4: Volume share and growth rate IFMP

(Source: Nielsen’s report 2018)

To sum up, Vietnam IFMP’s industry are more and more challenges with fiercely competition from both of domestic and foreign competitors

% Growth 2018 vs 2017 % change Volume % change Value

2.3 Vinamilk’s infant formula milk powder situation in Vietnam

2.3.1 Sales revenue gradually shifts from powder milk to drinking powder milk (UHT)

According to Vinamilk’s internal report, sales revenue of powder milk has decreased since

2016, with CAGR of -4% compares to 2015 In 2018, powder milk achieved 4,496 billion VND with the growth rate of -17% compare to 2017 Besides, as a premium brand of Vinamilk’s IFMP category, sales revenue of Optimum Gold (powder milk) has slowdown its growth rate since 2017 Although the CAGR was 10% compare to 2015, its growth rate

in 2018 comparing to 2017 is -9%

Table 5: Sales revenue of Vinamilk’s powder milk

(Source: Vinamilk’s internal data)

On the other hand, after the first launching in the end of 2014, sales revenue of Vinamilk’s drinking milk powder has increased gradually at CAGR of 111% compare to 2015 It achieves growth rate of 39% compare to 2017 Sales revenue of Optimum Gold UHT with CAGR of 159% also has increased significantly since 2015

Table 6: Sales revenue of Vinamilk’s drinking powder milk

(Source: Vinamilk’s internal data)

To sum up, based on internal sales report of Vinamilk IFMP from 2014 – 2018, Vinamilk’s IFMP has switched gradually from powder milk to drinking milk in the revenue of sales CAGR of drinking milk is valued at 111% comparing to first launching in 2015, whereas milk powder’s sales revenue has decreased since 2016 Hence, behavior of consumer in buying IFMP’s product has been changing gradually from powder to drinking powder, which is more convenient

Figure 6: Sales revenue Vinamilk’s infant formula milk powder

(Source: Vinamilk’s internal data)

2.3.2 Change in Volume Share of Vinamilk’s IFMP category

According to Nielsen report, volume share of Vinamilk’s IFMP category increased 0.5%

in December 2018 after several months decreasing Volume share of total IFMP category increased due to volume share of drinking milk has increased significantly Although total volume share of YTD 2018 increased 1%, volume share of IFMP category has been gradually decreased since December, 2017

Vietnam(MT Urban) - Volume % Share | Period Ending DEC18 | Share of IFMP + Specialty

Source: ACNielsen | Retail Index (<< Viet Nam >> ), data to DEC18

Figure 7: Volume share – Vietnam modern trade urban

(Source: Nielsen report 2018) Briefly, volume share of total IFMP category slightly increased due to volume share of drinking milk powder increased Furthermore, volume share of lower mainstream decreased, while upper mainstream and premium increased Hence, volume share has shifted among price segmentation as well

Figure 8: Vinamilk IFMP volume share – price segmentation

(Source: Nielsen’s report)

This study approach is based on qualitative method with primary data from in-depth interview and data from Nielsen, Euromonitor International, GSO Vietnam, Kantar World Panel, data of Vinamilk sales and marketing departments

3 PROBLEM IDENTIFICATION

According to the result in home visit (IHV) test that IFMP category’s marketing team conducted by visiting consumer home and asking about source used to find information about IFMP to purchase for the first time and influencing purchasing Yearly, brands team and research team often conducts IHV and FGD (focus group discussion) to investigate buying behavior and consumer insights in four main cities Ha Noi, Ho Chi Minh, Da Nang and Can Tho IHV test that IFMP category’s team conducted among consumers who are pregnancy, especially at 8th – 9th months and mom, who have babies from 0 – 3 years old (equally divided 0 – 1, 1 – 2, 2 – 3) Consumers provided some sources to find information for the first products they would buy for their child

Figure 9: Sources of information to buy the first IFMP product for children in 2018

(Source: Vinamilk in-home visit report 2018)

Based on the result of IHV test in 2018, it highlights the important of recommendations from health care Professional (HCP), recommendations from friends and family, parenting websites and TV advertising as the main sources of information that new parents used to learn about the first IFMP for their child According to HCP recommendations and recommendations from friends/family; interviewer also mentioned the most important reason for not choosing Vinamilk’s IFMP brands as first source of nutrition for their child

is breastfeeding and origin of products

Besides the test also figures out the most important reasons for switching IFMP brands Feedback from friends and family is the most important reason for consumer to switch brands Recommendation from HCP, TV advertising and social media also have significantly impact on consumer’s decision

Figure 10: The most important reasons for switching IFMP brands

(Source: Vinamilk in-home visit 2018)

In order to clarify possible problems and validation potential problems, together with literature reviews and theories about consumer buying behavior and result from Vinamilk’s IHV, the in-depth interviews are conducted to gather valuable opinions and perspectives

of respondents as below:

- The first group includes two respondents who are currently working at Vinamilk as medical field force

- The second group includes sales and marketing managers in IFMP category such as: Ms Ha The – Sales manager of milk powder category, Ms Hang Bui – Optimum Gold Brand Manager, Mr Chau Le – Dielac Brand Manager and Ms Thanh Van – Marketing director of Vinamilk’s milk powder category

- The third group are customers who accepted to buy Vinamilk’s IFMP category and who refused to purchase

By conducting in-depth interviews and data collection from both customer’s perspectives and insights of relative people of Vinamilk’s IFMP, there are three potential problems that lead to decrease sales revenue including: (1) Inadequate product’s recognition, (2) Low level of consumer’s perceived in quality of domestic product (3) Less premium (4) Market condition

3.1 Potential problems

3.1.1 Inadequate product’s recognition

UNICEF8 stated that “Breastfeeding is still the best source of nutrition and growth for infants” 7The benefits of breast milk consist of providing infants with all nutrition need for healthy and grow, boosting immune systems of children to protect them from diarrhoea and acute respiratory infections

Firstly, breastfeeding become popular discussion topic on Vietnam’s social media to promote beneficial to babies’ development With an increasing emphasis on health and wellness and the consumption of products that are organic and safe to eat, breastfeeding was increasingly popular over period

Ms Ngan Nguyen – Medical field force executive in Ho Chi Minh acknowledged that doctors from big maternity hospital in Ho Chi Minh such as Tu Du, Mekong, … often recommend mom to totally feed their babies under 6th month with breast milk if enough condition

Medical staffs often organize prenatal clubs to train pregnancies about nutrition for pregnancy period, preparing to give birth, feeding babies with breast milk, problems often happening for babies under 1 years old

Beyond threat of being rendered obsolete by breast milk, IFMPs are expected to reposition themselves in the market to meet ever-changing consumer demands in order to achieve competitive advantage in the IFMP industry Besides, Vietnamese mothers who can not supply enough breast milk for their babies expected more about ingredient of IFMP products to not only ensure that their babies developed physically but also has similar effectiveness as breast milk Furthermore, Euromonitor International5 research stated that with greater awareness of the health benefits of breast milk, IFMP manufacturers, in an attempt to resemble its composition, are focusing on nutritional ingredients as a key driver

Abbott9 launched Similac Pro-Advance in 2016 containing one of these HMOs, 2’FL, while in 2017 Nestlé10 launched Nan Optipro Supreme, marked a further development as

it contains these two HMOs, 2’FL and LNnT Other players planning to introduce new products containing HMOs include FrieslandCampina11 MeadJohnson12 launched the first infant formula with MFGM (Milk Fat Globule Membrane) which is similar to breast milk Besides, Ms Ngan Nguyen – Medical field force executive also acknowledged that:

Recently, I often received questions from medical staff about ingredient of Optimum Gold such as “It

is similar to breast milk, is not it?”, “Does Vinamilk have plan to adding HMOs or MFGM into Optimum Gold’s formulation like Abbott, MeadJohnson and Nestle?”

As mentioned by Ms Ngan Nguyen, ingredients of Vinamilk’s IFMP product still have not add special nutrients such as HMOs, MFGM would be difficult to compete with other competitors like Abbott, Nestle, Mead Johnson Recently, HCP from big maternity hospital

pay more attention on those special nutrients and value of adding those ingredients for mom who can not supply their baby with breast milk

To sum up, Vinamilk’s IFMP category formula, particularly Optimum Gold ingredients are still not adding HMOs or MFGM – nutrient in breast milk; then, it would be challenge for Vinamilk’s IFMP products to compete with other foreign products that are communicating similar to breast milk Therefore, inadequate product’s recognition would

be one of potential problem leads to shift in sales revenue and change in share volume

3.1.2 The low level of consumer’s perceived in quality

Based on the result of brand health check in the second haft of 2018, respondents perceived image of Vinamilk’s IFMP category as mainstream segment In 2015, Vinamilk launched Optimum Gold as the first brand of Vinamilk’s IFMP category in premium segment However, in premium segment, although Optimum Gold is a premium brand of Vinamilk’s IFMP category, respondents also valued brand image of Optimum Gold as less premium than other competitors in the same segmentation

Vinamilk’s IFMP category seems to be less premium than foreign competitors in the same segmentation Mrs Linh – a mother of 8th months babies believes that:

After review functions of several types of milk powder, I believe in products that produces in European and American would have higher quality than domestic products As reviewed from several website, the taste of Optimum Gold is slightly sweet and it is easy to cause constipation

According to Zeithaml as cited by Alhaddad13 measured consumer’s perceived in quality

as the evaluation about overall products quality or superiority

Firstly, as cited by Veale and Quester14, previous studies stated that perception about country of origin create basis of belief in consumers evaluate quality of products or services

Country of origin is one of key criteria for parents to select a IFMP product for their child Consumers also perceived IFMP’s products with foreign origin would have higher quality

than domestic Then, as a domestic product with Vietnam origin, consumer perceive Vinamilk’s IFMP as lower quality than products with foreign origin

Mrs Linh – a mother of a 8th months baby mentions that she cannot provide enough breast milk for her baby after 6th months after giving birth and backing to work As the first time being mother, she did not know how to choose an IFMP for my kid After referring to information from forums and information channels, some people suggest that she should buy Japanese milk products like Meiji, Morianna, Wakodo, etc for babies at home to use Meanwhile, some others advise she to use the line of Nan milk produced in cool Russia does not cause constipation, similar to most breast milk, so the baby does not quit breastfeeding

Besides, consumer consistently use price as a predictor of quality, particularly when they have limited knowledge of product category offerings Lower price means lower quality and less premium Mrs Linh – a mother of a 8th months baby also stated that

After scanning information from several websites, I recognized that IFMP product with higher would

be better for development of babies I decide to feed my baby with Nan OptiPro at price of 200,000 VND for tin 400gr a little higher than Optimum Gold 1 (~180,000 VND) but with higher quality

As emphasized by Veale and Quester14, when consumers have limited information about products, they consistently use price as predictor of quality Consumers also believe that higher quality products are more expensive, whereas lesser quality products are cheaper14

To conclude, the low level of consumer’s perceive in quality in comparison with other competitors in the same segmentation would be a potential problems leading to shifting in sales revenue and change in share volume

3.1.3 Market condition

IFMP is becoming increasingly saturation with the entry of numerous international players over the review period Only a few domestic manufacturers such as Vietnam Dairy Products (Vinamilk) and Nutifood Nutrition Food stands out

Whilst the birth rates in key cities such as Ho Chi Minh city and Ha Noi have slowed, the birth rate in rural areas is still growing, and represents potential demand for infant products Relevant nutrition to target specific target consumers will be necessary over the forecast period, as consumers in rural and urban areas in Vietnam will have differing needs, and manufacturers will need to adjust to tap into this demand

Over the forecast period, the competition in baby food is expected to intensify, as international players continue to enter the market and as domestic players fight for their share of sales Although local knowledge can provide domestic manufacturers with the edge to succeed, knowledge without good execution and the necessary operations to support products will not be enough to succeed in Vietnam, and manufacturers which have expertise in both areas are likely to succeed over the forecast period

Ms N T T Van – Marketing director of Vinamilk’s milk powder category stated that the appearance of an electric breast pump makes breastfeeding more convenient Many electric breast pump can be easily purchased online or at Mom and Babies shops Furthermore, there are several activities encourage mom with breastfeeding

Breastfeeding becomes a trend on social communication and the development of technology machines enable mothers to breastfeed more easily

To sum up, market condition with trend of breastfeeding and development of milk substitutes product would impacts on sales revenue and volume share of infant formula milk powder category The picture of IFMP category’s competition would be more and more intensive due to development of machinery and equipment like electric breast pump facilitating mothers to feed their baby with breast milk Simultaneously, consumers favor other types of products that are convenient for external consumption would be challenge IFMP’s manufacturers Hence, markets condition with high competition from foreign competitors, especially grass milk and Japan milk, and whilst birthrate would be one of potential cause that lead to reduce in sales revenue and change in share volume

3.2 Problems validation

IFMP category has a large contribution in the growth rate of milk powder Although Optimum Gold is leading in volume share in premium segmentation of Vietnam IFMP market, negative symptoms of reducing sales revenue of milk powder and shifting from powder milk to drinking milk and change in volume share play vital role to Vinamilk’s IFMP growth Then validation of the main problems among three identified problems above plays a significantly role to propose possible solutions for Vinamilk

3.2.1 Eliminating inadequate product’s recognition and market condition as main problem

Regarding to inadequate product’s recognition, this issue is not a major problem leading to reduce sales revenue of Vinamilk’s IFMP

First of all, IFMP products are generally the same in terms of the most basic nutrients needed A IFMP product is produced under sterile conditions and tries to "copy" breast milk through a complex combination of nutrients such as proteins (including animal and plant proteins), sugar, and fat, essential vitamins and minerals

The point of making the difference of the formula is in the ratio, the content of the ingredients and some added supplements For example, substances that benefit the digestive system, increase height, develop intelligence: fiber, bacteria, DHA, ARA Most formula brands add nutrients to their baby's intelligence: Omega3-fat is essential for brain development and young eyesight DHA is important for brain and retina development.Furthermore, formula of Vinamilk’s IFMP consists of most basic nutrients needed and adding supplements such as DHA, ARA, Luterin, … with foreign standard Particularly, brand Vinamilk Optimum Gold was researched and applied wide range of formulation from European expert with UKAS certification

Mrs B.T.Hang – Brand manager of Optimum brand acknowledge that:

Almost Vinamilk’s IFMP formulation was developed based on Vietnamese children condition Vinamilk also coordinated with Vietnam Nutrition Institute to conduct Clinical Nutrition test on Vietnamese children Optimum Gold formulation has lacto with ratio similar to breast milk

Furthermore, Vinamilk also conducted FGD (focus group discussion) to ask consumer about option adding HMOs and OPO Currently, consumer still not clear about what is HMOs or OPO and its function According to Ms Ha The,

Based on consumers' needs, they need fake manufacturers to tell them what nutrients are and the role

of nutrients in health This is why the formula is good for your child Currently, Vietnamese consumers

do not really understand the nutrient formulas contained in milk cans on their packages, and how to maintain them when they buy milk for their children

To sum up, the ingredients of infant formula milk powder is similar It is differences in the ratio of nutrients and some vitamins & minerals and supplements added.The product of Vinamilk is suitable for Vietamese children’s condition Moreover, most of Vinamilk’s IFMP product has cooperate with Vietnam Nutritional Institute to conduct clinical tested

to verify benefit of product on Vietnamese children Then, inadequate product’s recognition would be eliminated as main problem

For market condition, IFMP industry has recently showed signal of recovery thanks to the contribution of premium and super premium segment Need to make available high-priced options to attract this group of buyers Despite the supporting of technology, however, after returning to work due to diet and stress in work, mothers gradually did not have enough milk for their baby's meals At this time, mothers must find solutions to use formula milk Therefore, market condition would be eliminated as main problems as well

3.2.2 Illuminating low level of consumer’s perceived in quality as the main problem

Consumer behavior can be defined as the mental and physical activities that consumer look for, purchase, use and evaluate goods or services to meet their demands15 It relates to thoughts and feelings people experience and action they perform including all factors influence15

Consumer’s perceived in quality can be considered as perception of consumer on product

or service’s quality13 According to Zeithaml as cited by Alhaddad13 also claims perceived quality as one of component of brand value; then brand with higher perceived quality would motivate consumer to buy rather than its competitors

According to Aaker as cited by Alhaddad13, brand image can be measured as a “set of brand association that are anything linked in memory to a brand, usually in some meaningful way” Besides, Rio et al also stated brand image as brand’s perception as reflected by the impression of consumers about brand in their memory13 Furthermore, brand image can be defined as “a set of beliefs held about a particular brand” Then, it takes a vital role in consumer’s buying decision making process when finding alternative brands13

First of all, the rise of premiumisation has significant impact on consumer buying behavior Consumer are looking for premium and super premium products with special ingredients According to Mrs B.T.Hang – Optimum Brand Manager also acknowledged that

Abbott relaunching Similar adding HMO and MeadJohnson relaunching Enfa with MFGM has significant impact on the Vietnam IFMP

Nielsen16 stated that premium products are experiencing strong sales growth around the world The competition to provide customers with higher quality items can be defined as premiumisation According to Nielsen report, premium perceptions are about more than price and about 60% of FMCG categories in Vietnam are up-trading It offers superior function or performance

According to Kantar worldpanel17, the population is getting older and the group of families with young children is getting smaller The birthrate (crude) reduced from 18.6 in 2001 to 14.7 in 2017

Figure 11: Birthrate (crude)/1000

(Source: Kantar World Panel’s report – Urban 4 cities Vietnam)

Ms N.T.T Van – Marketing director of Vinamilk’s milk powder category also stated that

Birth rate decreased (birth rate of 3 - 3.5 person/family) with only 1-2 children per family Economic conditions are getting better and better, then parents would be able to focus on investing in their children Parents want to give the best for the future generation

Kantar Worldpanel’s report17 also stated that the percentage of household without kids greater than 12 years old has increased since 2016 from 45% to 50% in 2018 On the other hand, the percentage of household with child age less than 48 months and from 4 – 12 years old has decreased Then, group of family with kids has been gradually narrow

Figure 12: Percentage of household (%)

(Source: Kantar World Panel’s report – Urban 4 cities Vietnam)

Then, as a domestic product, Vinamilk’s IFMP is perceived as less premium than foreign products; especially products from Japan

Furthermore, according to Decree 100 about baby food, ceiling price of domestic products are limited in accordance with Vietnamese regulation Then price of domestic products like VInamilk’s IFMP is lower than foreign products; whereas, consumer also perceived lower price mean lower quality

To conclude, the rise of premiumization and narrow size of household family have significantly impact on behavior of Vietnamese consumers Consumers are looking for more and more premium product to bring their only child the best thing Then, the low level of consumer perceived in quality is considered as the main problem that lead to change in sales revenue and share volume of Vinamilks’ IFMP category

3.3 Justify the importance of low level of consumer’s perceived in quality

To strengthen the importance of main problem, the research will propose some possible consequences of the low level of consumer’s perceived in quality Consumer’s perceived

in quality can be considered as perception of consumer on product or service’s quality13 According to Zeithaml as cited by Alhaddad13 also claims perceived quality as one of component of brand value; then brand with higher perceived quality would motivate consumer to buy rather than its competitors

Mr Chau Le – Brand Manager of Dielac Grow Plus and in charge of drinking milk powder acknowledged that:

Premiumisation becomes the main trend in rural and urban areas It is rising not only for powder milk but also for drinking milk powder as well According to price segmentation, consumption of powder milk is rising in premium products, especially in rural areas Consumption of premium drinking milk powder is rising clearly in urban area

However, the strengths of Vinamilk’s IFMP category are mainstream and specialty segments Ms Thanh Van – Marketing director of Vinamilk’s milk powder category also stated that

Currently, Vinamilk is strong in mainstream and specialty segments with such brands like Dielac Alpha, Dielac Alpha Gold, Dielac Grow and Dielac Grow Plus Revenue of those brands contributes 60% of total sale revenue in 2018

The rise of premiumisation has significant impact on the lower and upper mainstream products of Vinamilk Lower and upper mainstream contributes more than a haft of Vinamilk’s IFMP sales revenue and volume Mr Chau Le – Brand Manager of Dielac brand also gave his comments that:

Total IFMP sales volume decreased significantly comparing to 2017, especially for lower mainstream Premium segmentation is getting share volume from mainstream in rural areas and modern trade According to report of Kantar worldpanel17, volume share of IFMP category in Urban 4 cities and Rural Vietnam change among economy, medium and premium segments for both powder milk and drinking powder milk Share volume of premium segment increased while medium segment decreased compare to the year 2017

Figure 13: Volume share

(Source: Kanta Worldpanel’s Urban 4 cities and Rural Vietnam)

Ms N.T.T Van – Marketing director of Vinamilk’s milk powder category also stated that competitors invest more in the premium and super premium segment and less in the mainstream segment

Dutch Lady green – a brand in mainstream segment of FrieslandCampina Vietnam has almost disappeared from the market Nutifood has changed their brand image by launching infant milk powder brand Riso Opti Gold which has higher price than its current products poforlio.

Hence, Vinamilk’s competitors are changing their product’s portfolio and upgrading their brand image to meet consumer’s need and want Ms Ha The also stated that

Price of the item in the premium segment is higher than price of product in mainstream segment Along with a human resource, staffs and shops are willing to pay more attention to sell a premium product rather than many products in mainstream segment

To sum up, the rise of premiumisation challenge Vinamilk IFMP category to compete with premium and super premium from foreign producers According to Nielsen4, premium perceptions are about more than price Consumers are also looking for high quality ingredients and superior function to evaluate a brand is premium or not Consumer perceived Optimum Gold as less premium than Similac of Abbott and Nan of Nestle may lead to reduce in sales revenue and volume of share

Figure 14: IFMP Volume share – Price segmentation (2017 – 2018)

(Source: Nielsen report) Mrs B.T.Hang – Brand Manager of Optimum brand stated that consumer looks for more and more premium product year by year

According to price segmentation, Optimum Gold is consider as premium products and competed direct

to other premium and supper premium brands The second haft of 2018, volume share of premium and super premium increased in rural areas due to the rise of Abbott and MeadJohnson

Therefore, the low level of consumer’s perceived in quality plays an important role to figure out the main problem of changing in sales revenue and volume share of Vinamilk’s IFMP category Ms N.T.T Van also mentioned that

Total revenue of IFMP category in Vietnam is about 900 million USD Premium and super premium segments accounted for 60% Increasing income helps to strengthen premium segment when more premium products are consumed This trend continues to be developed in the next years, along with the need of upgrading the consumers’ quality of life

3.4 Potential causes

The central problem could be caused by following reasons: less reliable source of information and less visibility in high-end segmentation

3.4.1 Less reliable source of information

Previous study has shown interest in consumer behavior and consumer’s buying decision making process for long decade In general, consumers would experience through five stages in making purchase decision including need recognition, information search, evaluation of alternatives, purchase and post purchase evaluate15 The consumer decision-making process can be described as the phases that consumers go through in making a final purchase decision The task of a marketer is to focus on the whole purchasing process instead of emphasizing solely on a purchase decision, because consumers experience different phases before reaching a conclusion In this model, stage 2 “information search” would be the most important stage for today’s customers

Stage 2 – Search for information plays an important role in making decision for parents, especially new parents Consumers will decide how much information is needed by searching around via social media as a platform where explicit knowledge flow occurred when someone commented on the piece of information15

Figure 15: Consumer’s buying decision making process

Mrs Linh also mentioned that before making decision she also get advice from friends

As recommendation of my friends, they often refer me to use foreign products like Friso, Nan, … Besides, I often search for information on forums and social to hear how other mothers take care of their children

Hence, less of reliable source of information would be one of potential causes that lead to the low level of consumer perceived in quality

3.4.2 Less visibility in high-end segmentation

According to Nielsen Report18, in urban area, sales revenue of fast-moving consumer goods (FMCG) in modern trade channel reached double-digit growth of 11.3% in quarter 2 of

2018, outperforming traditional trade which was up 1.6% The report also stated that health and wellness is a top-of-mind priority for Vietnamese consumers which also has been mentioned as important previously Nowadays, shoppers have a tendency to look for high-quality products or trusted brands in modern stores Then, companies must be aware of changing consumption patterns in the country to propose suitable distribution channel for their products

Furthermore, Nielsen19 also emphasize that with the fastest growing of middle class in Vietnam, demands of parents in purchasing products for their kids would be higher in both

of quantity and quality When the market is saturated, source of growth would be driven

by innovation and high-end products Recent year, the rise of “Mom & baby” shop like Concung, Bibo Mart and Kid Plaza provides parents a chance to find high-quality products for their baby Nilsen20 report stated that number of stores in mom and baby channel grew 32% in 2018 compare to 2018 Concung’s store increased significantly with 121 new stores

to strengthen its top positions Kid plaza also expands its presence by opening two new store

Figure 16: Number of mom & baby stores

Source: (Nielsen report) According to Kantar Worldpanel report16, mom and baby shops become the first shopping channel for mothers to purchase the first products for their kids

Figure 17: Percentage share of occasions shopping (2017-2018)

Source: (Kantar Worldpanel)

Moreover, Nielsen3 report states that less SKU (stock keeping unit) in store then it is challenge for IFMP company to select main products

Mrs T.T.Ha – Sales manager of milk powder category acknowledge that

Less SKU in store Foreign companies launch drinking milk powder but store does not have more SKU High-end store like “Mom & babies” shop will tend to display foreign products which are segment as premium and super premium

In specialized stores, powdered formula and liquid milk form the majority of market share And in these 2 categories, specialized stores expand their markets well, especially accounting for a large proportion in IFMP category

Figure 18: Infant formula milk powder buying behavior

Source: (Kantar Worldpanel)

In conclusion, for infant formula milk powder, consumers would tend to choose products

at higher price segment5 Then, less of visibility in modern trade, especially mom and baby shop would be potential cause for the low level of consumer’s perceived in quality Mrs T.T.Ha – Sales manager of milk powder category acknowledge that