September 22, 2019 06:19

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Businesses spend trillions VND to gain market share

09:55 | 22/08/2019

VCN- Businesses are spending more and more on sales, advertising and promotion activities to keep market share amid fierce competition from home and abroad.

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Vinamilk spent 901 billion VND on advertising activities in the first six months of 2019

Drastically win market share

At Vietnam Dairy Products Joint Stock Company (Vinamilk), in the first 6 months of 2019, selling expenses increased by 9 percent compared to the same period in 2018, up to more than 6,000 billion VND. In particular, the company spent 901 billion VND on advertising and market research activities, up nearly 100 billion VND compared to the first half of 2018. In addition, Vinamilk also used nearly 4,100 VND billion on promotional services, display, product introduction and sales support, up 9 percent. Accordingly, the selling expenses/revenue ratio of Vinamilk in the first half of this year was 21.6 percent, a slight increase compared to 21.3 percent in the same period last year.

According to analysts, although still holding the top position in the dairy industry in Vietnam, but after many years of growth at double-digit rates, Vinamilk's revenue and profit growth are showing signs of slowing down. Since 2018, the dairy market has started to become saturated. In the first six months of this year, the net revenue of Vinamilk only increased by 8 percent, reaching 27,788 billion VND, while the net profit after tax of the parent company increased only 6 percent to 5,689 billion VND. Therefore, Vinamilk's strong spending on sales, advertising and promotion activities is an appropriate strategy to keep and increase market share.

The Thai owner of Sabeco also advocates for advertising and promotion activities to increase the market share for the beer brand. Accordingly, in the first half of 2019, the cost of advertising and marketing, Sabeco's support cost up to 603 billion VND, up 1.5 times compared to the same period last year. This target has dragged Sabeco's selling expenses by 14 percent. However, this saved 8 percent of enterprise management costs. Thereby, the profit after tax of the parent company reached 2,658 billion VND, up nearly 14 percent compared to the same period last year.

Enterprises in LED production are also facing fierce competition. If traditional lighting products market included only 5-7 competitors before, foreign competitors were limited by import tax, now there are more than 20 foreign companies building LED manufacturing plants in Vietnam. There are over thousands of enterprises importing hundreds of millions of cheap LED lamps from China imported into Vietnam. Therefore, the war to keep market share of brands such as Dien Quang and Rang Dong become more and more challenging. This means the selling expenses of Rang Dong in the first six months of this year increased to 116 billion VND, reaching 335 billion VND. The strong spending on sales has helped Rang Dong increase its revenue by 21 percent compared to the same period last year, reaching 1,804 billionVND, thereby increasing its profit after tax by 20 percent to 96 billion VND. Similarly, Dien Quang lightbulbs also increased by 15 percent of the cost of sales, to 54 billion VND.

Trade off for long-term benefits

The investment in marketing makes the costs of businesses increase significantly and profit margins decrease. But many businesses still accept reduced profits in the short term to invest in the brand, towards long-term sustainability. Selling expenses of Binh Minh Plastics in the first half of 2019 also accounted for 124 billion VND, while the same period last year only lost 57 billion VND. This caused Binh Minh's business results to go down. In detail, although net revenue increased by 22 percent, after-tax profit dropped by 7 percent to only 210 billion VND. Although profit dropped, analysts highly appreciated Binh Minh Plastics in the policy of exchanging profit margins for output growth. Specifically, Ban Viet Securities Company said that Binh Minh plastic has been more active in selling policies, such as more discount for customers and offering more favourable payment terms in the first six months of 2019 to boost sales growth. This development is consistent with the trend of market consolidation in the construction materials industry in general.

Similar to Binh Minh Plastics, advertising expenses of Hoa Phat Group also skyrocketed from 14 billion VND in the second quarter of 2018 to  40 billion VNDin the second quarter of this year. Therefore, the total selling expense in the period increased to 75 percent, to over 269 billion VND. The increase in selling expenses has contributed to the decrease of Hoa Phat's after-tax profit, only 2,050 billionV ND, down 7 percent compared to the same period of 2018. Accumulated over six months, Hoa Phat's selling expenses increased 1.5 times higher with 462 billion VND, after-tax profit also followed, which decreased by 13 percent to 3,860 billion VND.

At LIX Detergent Joint Stock Company, selling expenses also increased by 28 percent in the first six months of this year, to 113 billionVND. According to the orientation of this enterprise, in 2019, the company will reduce a part of profits to promote marketing activities with a total cost of 15 billion VND, three times higher than 2018. With the increasingly competitive market in the market domestic schools, in order to survive and develop sustainably, LIX has implemented many policies to improve competitiveness in the detergent market as a deferred payment policy to attract agents and agents. format goods in the same product line, continue to reduce revenue from making private labels for MM Mega and Big C prioritised by MM Mega imports from Thailand and Big C have no plans to develop brands private.

According to experts, strong business spending on marketing and promotion is an appropriate trend due to increasingly fierce competition. However, not all businesses are strong enough to run this expensive race. By investing in market share, brands that are not one-on-one can bring immediate results, but need to have a methodical strategy.

Experts said that with the roadmap to implement the commitments of free trade agreements such as CPTPP and EVFTA tax rates of many imported goods from European countries, New Zealand, Singapore and Japan will be cut down. 0 percent left. This will create great competitive pressure for domestic enterprises. In some other industries such as steel industry, the increase of capacity of the whole industry has not shown signs of stopping, increasing competition due to the prospect of slowing consumption. Competition becomes more stressful and will be a test for businesses about the strength of market share competition and the ability to maintain profits and cash flows. Weak enterprises will be at risk of being rejected and strong enterprises will have the opportunity to gain market share.

 

By Nguyen Hien/ HuuTuc