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Tips for working with distribution agents (7): Winning the mainland toy market by quality

An interview with Mo Ziqiang, general manager, Guangzhou Jintonghui Toys Co Ltd

With more than 20 years' experience in the toy distribution business, Mo Ziqiang, general manager of Guangzhou Jintonghui Toys Co Ltd, has won the regional dealerships for several leading brands and has a good working relationship with Hong Kong companies. He attaches great importance to management, service and the mix of marketing channels. He shares his experience and observations with particular reference to changes in the demand characteristics of the mainland toy market and the winning card to market competition on the mainland.

Cater to quality improvement, target mid- to high-end market

Founded in 1999, Jintonghui mainly deals in toys and products for infants and children. It is the distributor of toys by VTech and Playgo of Hong Kong, Toyroyal of Japan and MJX R/C of China. It also distributes baby and children’s products and prams by Philips AVENT of the UK, NUK of Germany, and Goodbaby and Happy Dino of China.

Mo Ziqiang has been in the business of toy marketing since 1986. With more than 20 years' experience in the toy business, he has seen with his own eyes the changes in market demand on the mainland. "The concept of toy consumption was far from mature in the early days and cheap products could sell easily. However, under the stimulation of economic development and the one-child policy, parents are now increasingly willing to splurge on food, toys and daily necessities for their little ones," he said. "We can thus see a change in demand on the mainland toy market: consumers are attaching increasing attention to product safety and quality and agree that brand-name products provide better quality assurance. Brand-name toys are selling better and better and have registered jaw-dropping growth. Take Japan's Toyroyal products for instance. This brand has been selling in Japan for more than 90 years and has high safety standards and good quality as its selling points. We set up a special counter for this brand at L-Baby when it was first introduced into the China market and turnover reached Rmb20,000 in the first month, rising to Rmb60,000 in the third month," he said.

Mo Ziqiang noticed the growing demand for quality improvement for toys a long time ago, which is why Jintonghui has all along positioned itself at the mid- to high-end of the market and most of the goods it distributes are mid- to high-end brands of good quality. Brand-name toys may be more expensive, but they have quality assurance and good after-sale service and are accepted by more and more consumers as value for money. Market development lent proof to this. The advantages of brand-name toys are becoming more obvious. With higher market recognition (both understanding and acceptability), they are more readily accepted and have less trouble getting shelf space at retail outlets. Sales are also growing from year to year.

In-depth distribution with service as winning card

After all these years in the business, Jintonghui has established a marketing network with Guangdong as the centre. It works with a comprehensive range of channels, including maternity and baby products stores, department stores, key accounts (KA) (such as AEON) and hobby shops (such as Foursquare). Good market coverage and networking has effectively boosted growth in sales.

Different retail channels have different revenue-sharing arrangements with suppliers. Maternity and baby products stores, particularly small non-chain stores operated by individuals, mostly make purchases with cash at prices offered by suppliers. Department stores and KAs usually demand a 30%-40% revenue-sharing ratio from suppliers. For long-term partners like department stores, KAs and chain-operated maternity and baby products stores, payment is usually settled once every 60 to 90 days, which means the suppliers will not get paid for goods sold until after 60-90 days. In other words, they can only collect payment in April for goods sold in January. In addition to revenue sharing, there are other channel fees to pay, including listing fees, counter fees and retailer promotion discounts. In view of rising channel fees, retail price is set to rise. These days the retail price must basically be 2.5 times, even 3 times, the purchase price in order to make any profit.

Mo Ziqiang pointed out that his company is very meticulous about in-depth distribution and will assign trained sales promotion staff to stores with special counters for its goods to provide product information and let shoppers have hands-on experience. Its sales teams will also inspect retail outlets that carry its goods every day. They will call on their clients and help them place orders for the coming month on the basis of sales in the current month, and confirm the delivery dates with them. They try to visit each retail outlet at least once a month. "We attach great importance to channel building, in-depth distribution and delivery services", he said. "In-depth distribution can ensure close ties with the retail outlets and help us implement detailed plans for purchase orders and sales promotion. Goods selling fast means money coming back fast and greater flexibility in doing business," he continued. Jintonghui will host a thank-you party for its clients, including distributor and retail outlet representatives, each year. In addition to saying thank you to them, the company will also take the opportunity to promote its latest products and let its clients try out the new products in a bid to increase their acceptance.

Since 2013, Jintonghui has been stepping up its efforts to build the new O2O (online-to-offline) channel, that is, building physical flagship stores and selling goods both offline and online in conjunction with Tmall. On the one hand, it is building and operating its online business as it is optimistic about the future of online shopping. On the other hand, it is setting up flagship stores to provide face-to-face and meticulous service to consumers. "The flagship store concept is no longer a simple buyer-seller relationship. It is a place where consumers can learn more about baby toys and goods, a place where little children can come and have fun," said Mo. "Future competition will be a competition of services, and only good service can give consumers better brand experience and help build good brand reputation," he said.

Close cooperation in good faith for win-win results

Mo said he relied mainly on exhibitions for contacts with new products and new suppliers. In addition to domestic toy fairs, Jintonghui also participates in toy fairs in Hong Kong every year. "More and more Hong Kong manufacturers are turning their eyes to the mainland as the economic environment worsens in the European and American markets," he said. "When we went to the Hong Kong fairs in the past, even if we were interested in particular products, their manufacturers would tell us they only do business with overseas clients. Things are different now. Many of them are keen on expanding domestic sales and would take the initiative to contact us," he added.

On how a distributor should select suppliers, Mo suggested the following four points for consideration: First, whether or not the products are suitable for the domestic market and whether the supplier has the ability to make innovations and has sufficient foresight. Second, the supplier's understanding of the domestic market and how it is run. Third, whether the supplier is willing to devote resources to brand building and promotion. Fourth, animation character products have higher recognition on the mainland and make market promotion easier.

On the division of work between the distributor and supplier, the distributor is mainly responsible for channel building and marketing and recommending promotional strategies to supplier, while the supplier is responsible for preparing the necessary documentation (including trademark registration, quality inspection and certification, 3C certification and tax returns) for the sale of products on the mainland and handling customs clearance procedures, all of which may be commissioned to relevant service providers. It is also responsible for after-sale maintenance and product returns. Product promotion should involve both parties. "Since we mainly deal in products of mid- to high-end brands, which have better quality and a lower rate of defective and substandard items, the pressure of after-sale maintenance and returns is reduced," said Mo. Meanwhile, since most of Jintonghui's suppliers have manufacturing facilities on the mainland, there is no question of customs clearance and delivery speed is guaranteed. Cooperation with suppliers mainly takes the form of purchase and sale agreement, with payments settled on a monthly basis.

Hong Kong background an advantage, but innovation is most important

Jintonghui has ties of cooperation with several Hong Kong brands. On cooperation with Hong Kong companies, Mo admitted that Hong Kong background is definitely an advantage, especially manufacturers with experience in exports to overseas markets, as their products basically measure up to EU standards and have guaranteed quality with a low defect rate. However, this advantage may work against them, as manufacturers that used to trade with foreign countries are not familiar with the mainland market. They do not understand how the market operates and may even find it troublesome. They may be fearful of the mainland market and try to keep it at arm’s length. Companies determined to venture into the mainland must have a long-term point of view and work closely with their mainland distributors for future development.

At the same time, they must pay attention to the fact that there is a difference between foreign and domestic products in terms of suitability. Products that are selling fast abroad may not be selling well on the mainland. Domestic toy manufacturers are making fast progress, especially in product updates. For example, while sound, light and power are the basic features of battery-operated products, further development has been made to produce products with more features and functions, such as remote control by mobile phone, launch of projectiles and ejection of bubbles. A greater variety of products in turn stimulates consumer interest. OEM manufacturers that are less familiar with the mainland market tend to be weaker in their product innovation capability.

Mo Ziqiang is optimistic about the mainland baby and children’s products market with toys as an important component of this market. Educational toys will see particularly swift development and products may be developed to meet the needs of children at different stages of their growth. For example, for infants, products may be developed to help them recognise sound, shape and colour. For children, products like learning machines, story machines, remote-control toys and building sets may be developed to stimulate their intellectual growth. After the target groups have been identified, the products developed will be more targeted and more readily acceptable by the market.

Special correspondent, Vantage Marketing & Research in Guangzhou

Content provided by Picture: HKTDC Research
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