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Winners

Kirin Brewery

2010 10th Porter Prize Winner Alcoholic beverages
Changed from a zero-sum game to a positive-sum game

Industry Background

The Japanese beer market has been shrinking since 2002, after peaking in 1994. Although the deregulation in 1994 allowed many small local breweries to launch their businesses, Kirin, Asahi, Suntory, and Sapporo continued to dominate the market due to economies of scale in manufacturing, sales, and marketing. Recently, private brand products by retailers are increasing their market share.
Kirin enjoyed a market share of more than 60% until the 1980s, when it was the dominant leader of the Japanese beer industry, achieving a strong hold on liquor shops with a hugely popular product, Kirin Lager Beer.
By 1988, Kirin's market share decreased by 10%, to 50%, following Asahi's introduction of Asahi Super Dry in 1987. The company's market share stabilized at this new equilibrium point for several years, until 1994
In 1994, the distribution of alcoholic beverages became deregulated, and mass retailers started selling beer at a discount. Beer manufacturers used rebates to push their products. Although manufacturers were frequently introducing new products, there was not much differentiation between products. Discounting by retailers made product differentiation even more difficult. Many new products disappeared from the market within a short period of time. Consequently, all the industry players, i.e., manufacturers, wholesalers, and retailers, suffered from low profitability. The Japanese beer industry had entered a vicious circle.
In the same year, 1994, Suntory introduced a low-malt beer, thereby creating a new segment at the low end. (Due to the preferential treatment in the liquor tax for second-category beers, the low-malt beer was 25% less expensive than conventional malt beers.) Kirin immediately followed suit, introducing its own low-malt beer, but could not stop losing market share. Kirin again lost market share of 10%, to 40%. Asahi overtook Kirin in terms of market share in 2001, when Asahi finally introduced its own low-malt beer.
In 2001, Kirin decided to make a turn-around by changing these industry norms with its new value proposition, called "Kachi eigyo" (value-based selling), and a new activity system.
In 2004, a third segment was created through the introduction of a beer product with much less malt or no malt at all, but which still tasted like beer. Kirin entered this segment with the product Kirin Nodogoshi in 2005, and regained the top market share by 2009 by small margin after hitting bottom in 2003.

Executive Summary

Kirin changed the competition from a zero-sum game to a positive-sum game by changing its competitive strategy from "Kakaku eigyo" (price-based selling) to "Kachi eigyo" (value-based selling). Kirin defines "Kachi eigyo" as "sales and marketing activities that do not depend on discounts, i.e. a sales approach which encourages customers to choose Kirin products because of their value, not their price." Although "eigyo" (selling) is part of the expression "Kachi eigyo," this concept is not limited to the sales function. Other functions, such as product development, manufacturing, logistics, and marketing, are tightly guided by this concept. In a sense, "Kachi eigyo" is a strategic concept.
Those activities which Kirin conducts under the name "Kachi eigyo," such as the decreased use of rebates and the increased use of proposals to retailers, which include recommendations for in-store promotional campaigns and shop floor displays, sound like common sense. However, this approach was rated highly on two points. First, Kirin significantly decreased the use of rebates by introducing an open price system and by making the pricing system transparent. This was achieved by committing itself to "Kachi eigyo," and declaring guidelines. Second, the switch over to "Kachi eigyo" was a most effective move for Kirin, and would not have been as effective for anyone else in the industry, as "Kachi eigyo" requires a wide product line and extensive relationships with mass merchandisers.

Unique Value Proposition

Kirin has changed its value proposition from "price" to "value provided to customers." Kirin proposes to consumers ways to enjoy alcoholic beverages and food. Kirin also aims to offer solutions to issues retailers faced, by providing them with suggestions for improvements in merchandising that include featuring the products of other manufacturers, such as packaged foods and vegetables. Kirin creates value by creating sales floor displays that are beneficial to both consumers and retailers.
Kirin's target customers are people who select a beer based on its benefit rather than its price. By conducting activities to enhance its brand, Kirin aims to create a situation where consumers will choose Kirin despite its more expensive retail price. Roughly speaking, the retail prices of Kirin products are 3% to 4% higher than those of competitors.
Kirin has a broad product line. It has the top-ranked or second-ranked product in each of three product segments. It seems to have developed a good portfolio of products, consisting of both long-selling products with strong brand equity and new products, some of which are achieving strong growth to meet diversified customer needs.

Unique Value Chain

Operations
Kirin increases efficiency in manufacturing and logistics in order to reduce costs that do not contribute to customer value. The manufacturing process has been improved to handle a larger variety of products without increasing costs.

Outbound logistics
Logistics costs are being reduced through Total Cost Reform (TCR) activities. Coordination between the manufacturing and logistics functions aims to enhance the effectiveness of inventory management. Through coordination between the logistics and sales departments, the palette was selected as the unit for orders, larger trucks were introduced, and delivery schedules were coordinated to improve the utilization of trucks.

Marketing and sales
Kirin aims contribute to retailers' sales by helping retailers to develop in-store displays that encourage consumers to enjoy food and drinks, and by customizing proposals to reflect local food and culture. These proposals are supported by data and analysis developed by the Market Research Group. The Sales Group delivers customized proposals and Kirin Merchandising (KMD) helps retailers to implement these proposals.
The Market Research and Sales Promotion Groups work together to develop marketing plans, through which product introduction, sales promotion, advertising, and merchandising are coordinated. Such coordination is also supported by the Market Research Group, which develops annual sales projections for each product.
Kirin sets guidelines regarding sales promotion activities to ensure that retailers do not rely on discounts. It considers these guidelines as a tool for enhancing fair trade in the industry, and requires that its own sales people comply with these guidelines.

Technology development
At the Product Development Laboratory, experts in research, manufacturing, and product concept development work together to develop products that have a clear value proposition for customers. Market Research supports this with market analysis.

Human resource management
Kirin trains its sales people, who have data analysis and solution development skills.

Firm infrastructure
Kirin keeps track of successful examples of "Kachi eigyo" and in-store displays in its database, called Kirinology, which makes possible the sharing of information. Kirin's information system also provides support to sales people, in their development of proposals for mass retailers.
In 2004, Kirin undertook a project called "V10 Suishin Project" (V10 Promotion Project) to change its organizational culture. By encouraging discussions among employees across functions and ranks about what the expressions "customer-centric" and "quality-centric" mean for Kirin, it developed a corporate philosophy called "Shurui Jigyo no Chikai" (the Oath of the Alcoholic Beverage Business) and guidelines called "Kodo no Genten" (Basic Principles of Action). To communicate the corporate philosophy and guidelines company-wide, Kirin made it clear that "Kachi eigyo" is not only a change in sales approach, but also a change in the commonly shared values, which helped the functions other than sales to understand the objective and significance of "Kachi eigyo."

Fit among Activities

At Kirin, activities are selected and coordinated around "Kachi eigyo," providing value to partners in the retail business and reducing costs that do not create value for customers. (Please refer to Kirin's activity system map, which appears at the end of this report.)

Innovation that Enabled Strategy

  • Recognized "Kachi eigyo" (value-based selling) not as a different sales approach, but as a change in Kirin's competitive strategy, which requires innovations in the corporate culture across functions.
  • Established concrete guidelines in 2002 to halt the reliance on rebates. It introduced an open price system in 2005, under which Kirin decides only the manufacturer's price.
  • Transferred the merchandising group to a 100% subsidiary, Kirin Merchandising (KMD), in 2002. KMD has local offices, understands retailers, and works in cooperation with Kirin's sales force.
  • Established an information platform, Kirinology, whereby KMD, the sales force, and market analysis specialists can share know-how and best practices.
  • Market analysis specialists participate in presentations to retailers.
  • Kirin Free, introduced in 2009 (first 0.00% non-alcoholic, beer-flavored drink, patented) and expanded the non-alcohol beer segment five times in terms of the share in the entire beer market,2.5 times in terms of sales volume.

Consistency of Strategy Over Time

"Kachi eigyo" started in 2001, when then president Koichiro Aramaki announced "Shin Kirin Sengen" (the New Kirin Declaration), in which Kirin declared its intention to return to a customer-centric and quality-centric approach. Although it took time to make the transition from a strategic focus on "price" to a focus on "value," change employee behavior, and obtain the understanding and cooperation of retailers, Kirin did not return to price-based selling. It continued making efforts to realize value-based selling through trial and error.

Trade-offs

  • Does not target those customers who choose beer based only on price.
  • Keeps to a minimum sales promotion based on price reductions. After the introduction of guidance in 2002, the funding for retail discounts as a sales promotion expense was reduced sugnificantly.
  • Does not provide OEM products to retailers for their private brands. (Ignoring private brands is not so easy, as their market share was 5%, which was about 40 percent that of Sapporo, the No. 4 competitor.)
  • Decreased significantly the use of complementary gifts, such as snacks, tumblers, and miscellaneous goods, for customers purchasing six-packs of beer.

Profitability

Both return on invested capital and return on sales exceed the industry average.

Return on invested capital (ROIC)   (Unit = percentage point)
Difference from industry averag
over 5 year period
Difference from industry average, by year
2005 2006 2007 2008 2009
17.2%P -1.4%P -1.4%P -1.2%P 11.7%P 18.3%P
Inter quartile range (IQR) = 4.4%P
Return on invested capital = Operating income / Average invested capital

Return on sales (ROS)   (Unit = percentage point)
Difference from industry average
over 5 year period
Difference from industry average, by year
2005 2006 2007 2008 2009
4.6%P 2.8%P 3.5%P 5.9%P 5.1%P 4.0%P
IQR = 1.6%P
Return on sales =Operating income / Net sales

Activity System Map

Winners PDF

17th Porter Prize Application period

From 8 May 2017 (Mon)
  to 5 June 2017 (Mon)
Please send the application form to the applicant during the period mentioned above.
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