The strategy of online development for electrics

manufacturer—— Case of Haier

johngrady@126.com

1. Research purpose

As the structure of Chinese market and the competence of the Chinese company

is changing fast. The new information technology innovation combined with the

business has subverted a lot of industries. There are a lot of company try to innovate

and establish a new competence adapt to the new trend especially the online market.

Haier is a largest electrics company in the world which is famous for its

management and dynamic strategy. It’s meaningful to analysis Haier’s strategy of

online business, and conclude some suggestion that can be absorbed by the other

traditional customer product manufacturers.

2. Background and data analysis

(1)The electronic industry and online market

Nowadays Chinese online market’s revenue of electrics count nearly 21% of total

sales and still grow 30%+ per year. The mobile internet market grow much faster, count

about 50% of the total online market revenue.

Item 2015 2014 2013

Total Sales(Billion RMB) 1450 1237 1178

Online Sales(Billion RMB) 300 220 145

Percentage (%) 21% 18% 12%

(Data resource: the report of household electrics online sales data in 2015, Syntun)

(2)The development of Haier’s strategy

In 1992, Haier decided to convert itself into a diversity company. In 1998, Haier

decided to expand the internationalization strategy. In 2006, they set up their strategy

of global brand, and then capture more than 10.2% of the global customer electrics

market. Around 2012, Haier start the networking strategy.

(resource: http://www.haier.net/cn/about_haier/strategy/)

(2)The financial behavior of Haier

Haier have increased more than 25% per year since 1992, and reached 88 billion

RMB revenue in 2014. The domestic market has larger profits than oversea market

which counts 13% of total sales.

In 2015, Haier’s online sales would count more than 14% of total sales. Haier has

keep No.1 of household electrics in Taobao 11.11 consumer festival for 4 years.

sales percentage 2015 2014 2013

Fridge 31% 28% 30%

Air-condition 23% 23% 21%

services 19% 20% 19%

washing machine 16% 17% 17%

kitchen and bathroom 8% 7% 7%

Equipment 3% 5% 7%

Domestic 87% 88% 89%

Oversea 13% 12% 11%

Online sales(E) 14% 9% 6%

(Data resource: ZOL.com.cn; Finance report of Haier ,2011-2014)

(Data resource: The Financial Report of Haier, 1992-2014 )

3. Result of research

(1)Self-build B2C website is hard to survive competed to the 3rd party one

Like other household manufacturers, Haier has set up their own B2C website

around 2009, but after then, the flow of online is becoming more and more costly and

concentrated into Tianmao, JD.COM and Suning. It is hard for a manufacturer sell the

most of product via their own platform. The 3rd party B2C platform become the main

channel of sales and marketing to manufacturer.

(2)Manage the 3rd party B2C website as a channel but give more authority

Though self-build website is hard to survive, it is necessary to strengthen the

control of channel including the online channel. In 2012, Haier have set up the flagship

store in Tianmao and built an independence Micro team to operate it. Since then Haier

also cooperate with Suning and finally establish another micro team and become the

strategic partner of Suning. Each of the Micro team can decide the annually promotion

plan and the SKU structure. At the same time, they set the Incentives according to the

market, 40% of the employee’s salary is assessed by the sales.

(3)Joint operation model is the trend of B2C to manufacturer

In 2015.12.12, Haier’s sales on Suning has increased 400%, that is a result of joint

operation model. Haier form a Micro team which is independent to other B2C website

and then set the sales goal with the 3rd party website. What’s more the promotion

policy is also negotiated by both side of Haier and Suning.

(4)The influence of online market deepen the reform of business system

B2C has totally influenced the Business system of manufacturer, especially the

period of marketing, sales and service. Firstly, Haier focus on the price policy to keep

the balance between online and offline, by provide more promotion instead of cut

price directly.

Secondly, they try to focus on the product and provided the customization

product only on the 3rd party B2C website, In 2013 Haier created the tactics of 3721

which mean strongly determine to be customization, at the same time Haier transform

3 factories into Internet- Factory. Then they invited the online brand 统帅 to the

online sales which is totally customized by the online consumer.

Thirdly, Haier not only keep an online service team to provide service that is differ

to offline but also use the data analysis team to help converting the demand to the

product.

(5)The organization reform is the key factor to be success in innovations

After decided to enter e-commerce area, Haier quickly establish a team which is

quite differ to the former sales team or manufacturer team. They set a new system to

support the new business model. In order to deal with such challenges, Haier already

reformed their organization and business strategy in advanced by the 4th and 5th period

of strategy which have cut the team into three roles to release the margin resource

and combine the market goal with the personal by the dynamic organization. That

make it possible to keep up with the changing of online market which is several times

faster than offline.

(6)New challenge appear when Haier focus on the new opportunity

New Competitors will appear and you can’t speculate it. Some innovation

enterprise like Xiaomi(小米) and Lesee（乐视）already succeed to enter the household

electrics market. LeTV has sold 4 million TV since 2014, their sales on Tianmao 11.11

festival is just ranked behind Haier while Xiaomi ranked NO.1 in the category of

electrics.

Customer needs is becoming more and more individualization. Though Haier

input a lot of resource to make their product suitable to the online market, the period

of customization just gather data then design by themselves and is not the open to the

customer which will form a fierce stress to the manufacture period.

The differentiation cannot last too long. The online platform make it possible for

the customer to compare the product with the others, it also make it easier for the

competitor to imitate both product and operation model especially in the emerging

countries.

Resources are distributed into the different platform, and make it difficult to be

integrated the resource at the same time. Haier have different Micro team to support

different online website, the standard is quit variety between different platforms. It is

hard to arrange the resources between different platforms.

Confliction of Human resource is apparent. After the former CEO of Haier online

business resigned July 2015, Haier’s self-build online website is decreasing quickly, the

online team is not good at mobile internet marketing. Haier have a lot of employee

but even divided them in to several roles, but it still need to renewing the organization

and need to fire or hire lot of personnel.

Haier

platform

innovator

Micro business

4. Conclusion and suggestion

(1)The main pattern of online market for electronic manufacturer.

The trend of e-business to electronic manufacturer is C2C to B2C to B2B to C2B.

The distance between customer and manufacturing is becoming shorter. Link is much

more important than marketing. Data is much more important than sales.C2B is much

more important than B2C.

Though the self-build website is still difficult to compete with 3rd party platform

in the near future. But with the development of C2B, the 3rd party platform won’t

satisfy the need of deep customization from marketing to manufacturing. The self-

build B2C website can developed to C2B website which can linked the customer with

their upstream partner.

（2）Keep dynamic to environment of future

The main barriers to develop a new business system including the business

structure, human and the distribution of core resources. Change the organization

firstly is important to a big company. It is necessary to form a dynamic capability and

be care about the technology change and focus on the customer demand.

Haier have to integrate their resource in different online platform by set up the

exchange mechanism. The dynamic would cause inefficiency, the exchange of human

resources and knowledge is very important.

Haier also should enhance the usage of user data by building the user database

not only rely on the 3rd party platform. The core competence of 3rd party online sales

website is user data and the services based on it. To innovate the channel in the future,

it is important to gather the user data by themselves.

What’s more, Haier also should be prepared for the future market based on the

internet of things and create the platform of C2B.

The dynamic strategy to the manufacturer in the future have to deal with three

important factor, costumer needs, intelligent production and the designing. The

innovation should focus on the needs instead of function. The smart household

electrics is the platform for common consuming in the future. Value added service

should be designed in advanced.