Shiseido (PK) (USOTC:SSDOY)
Historical Stock Chart

From Jun 2019 to Jun 2024

After years of peddling higher-end offerings in the U.S., consumer-product companies have begun to tout their most affordable offerings. In China, they are headed in the opposite direction.

Cosmetics giant L'Oreal SA (LRLCY) said Friday in Beijing it is officially launching its Elseve hair-care product line in high-end drug stores in China in its first attempt to squeeze into the premium hair-care market there.

Other multinationals are doing the same. Procter & Gamble Co. (PG), which recently said it will sell more lower-priced products in the U.S., has been touting the success of a more-expensive version of its Pantene brand in China.

P&G launched the new product line for its popular Pantene hair-care brand, Clinicare, in Asia at the end of 2007, and sold it at a 30% premium to the brand's other products. Sales of Clinicare in China have doubled in one year. The product became so successful that P&G's new chief executive, Robert McDonald, singled it out during a recent conference call.

By contrast, P&G recently launched Tide Basic, a lower-priced version of its well-known detergent in the U.S.

"We've got Chinese consumers buying Pantene [Clinicare] and liking that form of Pantene a lot," McDonald told investors. P&G's profit declined 18% in the quarter, hit by the economic recession as consumers shied away from its higher-priced products in the U.S.

"You've got more millionaires in China buying premium products than you do in the United States," McDonald said. "So in China we've got to have higher-priced products that meet the needs of those consumers looking for that kind of value."

In China, around 1.6 million families now earn more than CNY200,000, or $29,412, a year in urban areas. McKinsey & Co., which uses that income threshold to define wealthy households, estimates the number is going to reach four million in 2015. This economic class has become the target of international companies seeking new revenue sources outside slower growing developed countries.

The demand for high-end products is rising fast. For example, the premium hair-care market in China is expected to reach $166.6 million this year and grow up to $238.2 million in 2013, according to marketing-research firm Euromonitor International.

Many international brands are relying on celebrities to promote their brands as representatives of a lavish lifestyle. Pantene Clinicare uses international supermodel Du Juan, whose appearance in the Milan fashion week with shimmering hair further helped boost Pantene Clinicare's brand awareness and credibility. To maintain the brand's premium image, P&G limits the distribution of the product to Watson Pharmaceuticals Inc. (WPI) drug stores, Carrefour SA (CRERY) markets and a few other high-end retailers.

P&G competitor Unilever PLC (UN) recently reformulated its Lux shampoo and launched a new product line called Lux Super Rich. The company filmed a seven-minute video for the product, featuring actress Catherine Zeta-Jones, that aired only in the Asia market.

Shiseido Co. (SSDOY) and Kao Corp. (KCRPY), two Japanese personal-care and cosmetics companies, both launched similar premium product lines last year using supermodels and actresses from the region in advertising.

P&G's Clinicare is likely to perform well in the short term in China, as the product is in line with the latest consumer trends, according to a report by Euromonitor International.

Clinicare is also offering a smaller-sized package for convenience-driven consumers looking for just one wash, Euromonitor analyst Michelle Huang said.

Consumer-product multinationals are expected to continue to focus on the middle market in China and also to push into poorer rural areas, home to a big chunk of the population. Still, Huang says only a limited number of Chinese consumers will choose to buy premium hair-care products, especially during the economic downturn.

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com