International Marketing Week 5
Reply all the question of the study cases
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12GLOBAL PRICING
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CASE 12-1
STARBUCKS IN HOT WATER IN THE UNITED KINGDOM AFTER TAX-RELATED
CUSTOMER REVOLT
Starbucks opened its first U.K. shop in 1998. Over the 14 years
that the chain had operated in the United Kingdom, Star-
bucks had paid just £8.6 million despite £3 billion sales. One
Labour MP (member of parliament) who had campaigned
against companies that use tax avoidance techniques com-
mented: “The fact they [Starbucks] have paid 0.3 percent tax
on their turnover is utterly scandalous. If they didn’t think they
could get away with it, they wouldn’t dare it.”
The main reason why Starbucks had avoided paying taxes
for a 3-year string in the United Kingdom was a complex
transfer pricing scheme for transactions within the company.
Starbucks UK had incurred losses due to a 4.7-percent pre-
mium paid to the Netherlands division where the coffee is
roasted and another 20 percent premium to Switzerland where
it buys the coffee beans. The claim of losses, however, was
contradicted by statements that corporate executives made to
analysts about the U.K. business. For instance, in 2010, John
Culver, the president of Starbucks international division, said:
“We are very pleased with the performance in the United
Kingdom” in spite of filing a £33 million loss.
When news about Starbucks low tax contributions spread
in 2012, pressure groups and British MPs called for an inquiry
into the company’s tax affairs. UK Uncut, a grassroots group
that targets companies that it accuses of tax dodging in the
United Kingdom, called on the government to change the
law to stop what it described as “unfair and unjust behavior.”
Other multinationals, including Google and Amazon, had also
been attacked for using arrangements that channeled profits
to European subsidiaries based in countries where taxes were
lower.
Sources: “Starbucks to Pay £20m in Tax Over Next Two Year
After Customer Revolt,” http://www.guardian.co.uk, accessed Jan-
uary 14, 2013; “Starbucks ‘pays £8.6m Tax on £3bn Sales,’” http://
www.guardian.co.uk, accessed January 14, 2013; “Starbucks Pays Up
to Avoid Boycott,” http://www.ft.com, accessed January 14, 2013.
In December 2012, surprised by the public outcry, Star-
bucks UK announced that it would volunteer to pay
£10 million in taxes in each of the coming 2 years even if the
coffee chain failed to make any profits. Kris Engskov, man-
aging director of Starbucks UK, stated in an announcement
made at the London Chamber of Commerce: “I am announc-
ing changes which will result in Starbucks paying higher cor-
porate tax in the United Kingdom—above what is currently
required by law. Specifically, in 2013 and 2014, Starbucks will
not claim tax deductions for royalties or payments related to
our intercompany charges. In addition, we are making a com-
mitment that we will propose to pay a significant amount of
corporation tax during 2013 and 2014 regardless of whether
our company is profitable during these years.”
UK Uncut was not pleased however. It claimed that the
voluntary tax Starbucks offered to pay was still far less than
the taxes paid by the chain’s closest competitor, Costa Coffee.
It vowed to continue organizing a protest action planned
in Starbucks stores around the country in December 2012.
According to the organization’s spokesperson: “People will be
transforming Starbucks stores into refuges, crèches, and other
services which the government are cutting with their unjust
and unnecessary austerity plans.”
DISCUSSION QUESTIONS
1. Explain why transfer pricing is so complicated especially
for a company like Starbucks.
2. The case mentions that Starbucks UK’s decided to pay
a voluntary tax of £10 million per year in 2013 and 2014 in
wake of the protests and tax dodging allegations. Google and
Amazon, who were also accused of dodging taxes, declined to
follow Starbuck’s example, insisting that they paid the correct
level of tax. Evaluate Starbucks’s decision vis-à-vis Google’s
or Amazon’s.
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2 • Case 12 • Global Pricing
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CASE 12-2
STARBUCKS UNDER FIRE IN CHINA OVER ITS PRICING POLICIES
On Sunday, October 20, 2013, CCTV aired a report that
accused Starbucks of charging its customers in China much
higher prices than in other markets, helping the coffee
retailer to achieve fat profit margins. The news report claimed
that a medium-sized latte in Beijing cost 27 yuan ($4.43),
one-third more than at a Starbucks store in Chicago. In the
report, Wang Zhendong, director of the Coffee Association
of Shanghai, told CCTV that “Starbucks has been able to
enjoy high prices, mainly because of the blind faith of local
consumers in Starbucks and other Western brands.” (See
https://www.youtube.com/watch?v=wPxH2PQcLt4)
PRICE OF A STARBUCKS GRANDE LATTE
City Local currency U.S. dollar equivalent
Beijing RMB30 $4.84
Chicago $3.95 $3.95
Mumbai Rs. 135 $2.44
Sources: “Starbucks Under Media Fire In China For High Prices,”
http://www.reuters.com, “5 Ways Starbucks Is Different in China,”
http://www.businessinsider.com.
Starbucks was the latest multinational doing business in
China that was being accused of price gouging by the Chinese
media. Earlier in 2013, Apple and Nestlé were also criticized
for their high prices or poor customer service.
Starbucks has been rapidly expanding in China. It antic-
ipated China to become its second-biggest market by 2014,
overtaking Canada. The pricing story quickly became a lead-
ing topic on China’s social media such as Sina Weibo, China’s
version of Twitter. However, many discussants took Star-
bucks’s side. One user observed: “Those who are saying Star-
bucks is expensive are probably those who don’t drink much
coffee. The prices are competitive and the quality makes
people feel safe.”
DISCUSSION QUESTIONS
1. Why do you think multinationals often come under
scrutiny in Chinese media for their pricing practices?
2. Is Starbucks pricing practice in China unfair? What could
explain the higher prices?
3. How should Starbucks cope with the CCTV story? Should
the company lower its prices? Why or why not?
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CASE 12-3
CARLSBERG MALAYSIA—SELLING BEER IN A 60 PERCENT MUSLIM NATION
Malaysia’s beer market has been under heavy pressure lately.
From 2004 to 2006, the industry saw heavy increases in excise
duties. With an excise duty of RM7.40 (US$2) per liter,
Malaysia now has the second-highest beer tax in the world
(Norway ranks first). The price increases have narrowed the
price gap between beer and other alcoholic drinks such as
wine. Beer drinkers have balked: consumption dropped from
1.4 million (2004) to 1.2 million hectoliters (2006) as a result
of the price increases. Many beer and stout customers have
turned to wine and liquor due to the narrowed price gap for
these products with beer.
The tax increases have also reshaped the competitive land-
scape. Carlsberg bore the brunt of the price increases. Until
Sources: www.euromonitor.com/Beer_in_Malaysia; “Guinness Confi-
dent of Warding Off Newcomer,” www.theedgedaily.com, accessed
February 19, 2009; and “Malaysian Beer Brands Facing Pricing Prob-
lem,” Media, November 27, 2008, p. 21.
recently, two big brewers carved up Malaysia’s beer market:
Carlsberg, which has been operating in Malaysia for over
35 years, and Guinness Anchor Berhad (GAB), the maker
of Guinness, Tiger, and Anchor beer. In 2000, Carlsberg had
a 55-percent market share while GAB had the remaining
45 percent. By mid-2006, GAB’s share had risen to 55 percent.
In 2007, a new local beermaker under the name of Napex
Corporation joined the two brewers selling a beer named
Jaz Beer. Differences between the brand portfolios of GAB
and Carlsberg partly explain the market share reversal.
GAB sells pricier brands such as Guinness and Heineken
while most of Carlsberg’s sales came from the lower-priced
Carlsberg green label. Buyers of premium brands are wealth-
ier and less price sensitive than cheap beer consumers. Soren
Jensen, managing director of Carlsberg Malaysia, explained
the situation as follows: “Once you have high duties, you
don’t have much cheap beer. The premium brands have
strengthened because the relative price difference is smaller”
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Short Cases • 3
(Media, November 27, 2008). Charles Ireland, the head of
GAB, said: “We sell premium brands, they sell brands which
are of lower prices; we have different business models and our
consumer markets are different” (www.theedgedaily.com).
To shore up Carlsberg’s position, the firm overhauled its
brand stable by adding new high-end offerings such as Tuborg,
Skol Super, and Carlsberg Gold as well as importing Corona
from Mexico. GAB also outspent Carlsberg in advertising
during 2007: RM10.4 million ($2.8 million) for GAB ver-
sus RM6.8 million ($1.8 million) spent by Carlsberg on its
core brand (see Table A). Television, radio, and outdoor are
not used. Print accounts for 70 percent of all advertising
spending, cinema 19 percent, and point-of-sale 11 percent.
Other promotional activities include relationship marketing,
trade promotions, and sponsorships. Global brands such as
Heineken and Carlsberg also get exposure through global
sponsorship activities: Carlsberg with Liverpool, Heineken
with the UEFA Champions soccer league.
TABLE A
TOP FIVE BRANDS BY ADSPEND (000S)
Carlsberg RM6,780 (Carlsberg)
Heineken RM5,867 (GAB)
Tiger Beer RM2,967 (GAB)
Skol RM1,884 (Carlsberg)
Anchor RM1,603 (GAB)
DISCUSSION QUESTIONS
1. What do you see as the main challenges that Carlsberg is
facing in Malaysia?
2. From 2004 to 2006, the beer and stout market in Malaysia
saw heavy increases in duties. Carlsberg bore the brunt of
these increases, losing market share to GAB. What strategic
initiatives would you recommend to Soren Jensen to meet the
challenges Carlsberg is facing?
CASETOTO 02/
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CAN WASHLET CLEAN UP THE CULTURAL DIVIDE? THE
REST OF THE WORLD IS LAGGING BEHIND THE JAPANESE
SHOWER TOILET GENERATION*
r r r r r r r r
r r r r r r r r r r r r r r r r r r r r r r r r r r r
Kunio Hashimoto the CEO of TOTO LTD finally arrived home
at midnight. He had just returned from Tokyo where he had
attended his high school reunion party. It was exciting to meet
his old schoolmates, as everybody’s life had changed so much.
He walked to the bar in the living room, filled a glass of his
favorite Japanese whisky and made himself comfortable on the
couch.Whileslowlydrinking,helookedata pictureanoldfriend
had givenhim.Hisfriend had traveled abroadfor the first time in
his life and had visited Beijing. His friend gave him the picture as
a joke and said that the CEO of TOTO should invent a Chinese
toilet. Kunio read the translation written above the signs: “It’s
time to enjoy, not to create. We don’t want you to fall off.”
In fact, the evolution of the toilet in Japan has not simply
stopped at the transformation from the squat-toilet to the more
comfortable seat-toilet. For many years, Japanese society has
fully adopted the shower toilet. A standard toilet in Japan
means a warm, comfortable seat, washing, bidet, and massage
function with adjustable warm water. Kunio has always been
fascinated both by the fact that Japan uses toilets that are so
much more advanced and that the rest of the world is lagging
behind. He strongly believes that the shower toilet will become
the standard for most of the countries and cultures in the world,
and this makes it one of the most strategic products for TOTO.
However, competitors in Europe and the United States are
looking at the shower toilet and have introduced similar
products in the market.
Kunio knew that TOTO had much experience with cus-
tomer-satisfaction and technological know-how. However,
TOTO was seen by outsiders as being a Japanese domestic
company with few internationally successful markets. But
considering Japan’s low growth economy, TOTO must rapidly
grow in the international sector. Kunio had implemented the
TOTO V-Plan 2017 in which the internationalization of the
Washlet was one of the major initiatives for success. Moreover,
Kunio has already envisioned many possibilities for evolving
the toilet to better serve customers and help them enjoy better
health. Soon the wireless-connected toilet will combine Wash-
let technology with the preventive health care business by
providing sample testing results and other body measurement
data. Kunio took the glass from the table, drank the remaining
whisky and said aloud to himself, We must win the Washlet
battle in the U.S. and Europe in order to thrive in the future! The
next morning Kunio sent an invitation for a business review
meeting for the key markets: Germany and the United States.
BACKGROUND
What is a Shower Toilet?
The core feature of the product is to provide a shower function
that creates a paperless toilet and a bidet function for women.
Additional features are controllable warm water, a warm seat,
air dryer, deodorizer fan, remote control, automated cleaning,
sensor controlled energy saving, and more. Shower toilets can
be just a seat, or they can be entirely integrated into the whole
toilet. The toilet is either a wall-mounted toilet (common in
Europe) or standing on the floor. Depending on the maker,
price, and design, quality and functionality can vary.
History and Evolution of the Shower Toilet
in Japan
The idea for the shower toilet comes from Switzerland. Hans
Maurer invented the first hygiene toilet in 1956 using a garden
chair,awaterhose,anda hairdryer.Basedonhisvisionofa toilet
*This case was prepared by Yukari Adam, Thomas Karwath, Jon Palmer, Hiroe Sakai, and Wilson Steiger of the Fox School of Business at Temple
University under the supervision of Masaaki Kotabe of Temple University for class discussion rather than to illustrate either effective or ineffective
management of a situation described (2014).
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CASETOTO 02/12/2014 13:45:25 Page 2
with an integrated bidet, he founded the company Closomat, and
he sold about 100,000 bidet toilets over the next 50 years until his
company faced bankruptcy. In 1978, the Swiss company Geberit
introducedinWesternEuropeaseatattachmentGeberellaanda
water spray toilet Geberit-O-Mat.” In Japan TOTO introduced
the Wash-Air Seat in 1954, an imported product from the United
States. A competitor, INAX, followed the innovation path with
the shower toilet in 1967. TOTO recognized early that the voice
of the customers is a powerful tool to further customize and
improve the quality of a product. Due to TOTO’s limited
nfluence on the U.S. imported product, TOTO started its own
development and production for the Wash-Air Seat in Japan in
1969. TOTO’s breakthrough came with the Washlet G-Series,
launched in 1980. In Japan, the Washlet was widely adopted, and
today more than 70 percent of all households enjoy one. In
addition, the public sector also adopted the Washlet in hotels,
restaurants, offices, and even in the bullet-trains. The reasons for
the rapid early adoption in Japan are:
² Japanese have a positive image of Western technology, and
originally the Washlet was recognized as a new Western
lifestyle choice.
² The Japanese have a strong sense of body hygiene and bathe
daily.
² A growing economy led to increasing prosperity, and more
and more Japanese were able to move into modern Western-
style apartments or houses.
² The government expanded countrywide sewage systems and
required private households to connect bathrooms and
toilets to the system in order to reduce pollution.
² Extremely high land prices led to small apartments and houses.
Theneedforspace-efficientproductspushedTOTOtodevelop
a multifunction Western toilet with a water tank and an inte-
gratedsinkfor washinghands.Thehighly standardizedproduct
allowed the Washlet to be an optional attachment.
² Since most Japanese houses have no central heating, it is
cold in the winter. The Washlet provides not only good
hygiene, but also a comfortable warm seat.
TOTO HISTORY AND GLOBAL NETWORK
Nippon Toki Gomei began working on the first Japanese-
made seated toilet in 1912. In 1914, it succeeded and through
various name changes, economic ups and downs, war, natural
disasters, and currency fluctuations the company endured
and became known as TOTO in 1970. As the company grew,
so did its product lines. TOTO ventured into a variety of
areas, most related to the kitchen and the bathroom. It also
focused much energy into product innovations, such as the
Washlet in 1980. With increasing sales and expanding prod-
uct lines, TOTO began to look at the overseas markets. It
expanded sales and manufacturing facilities in many countr-
ies around the world and continues to expand today. The
chart below shows the major different markets where TOTO
does business.
As can be seen in the chart, TOTO is present throughout
much of the globe, and continues to look for opportunities
abroad. If it continues to innovate and learn from these
markets, then the outlook for TOTO seems very promising.
As of the fiscal end of 2012, TOTO has achieved total net
sales of ¥452.6 billion (∼USD 3.88 billion). It is the largest
publicly traded company in the toilet and bath industry and
holds the majority market share in Japan.
Total net sales
¥476.2 billion
54%
Net Sales* Structure by Business
Segment (Fiscal 2012)
Overseas Sales Breakdown (Fiscal 2012)
New Business Domains
¥14.1 billion
Others ¥100 million
3%
16%
27%
Overseas Housing
Equipment Business
¥75.1 billion
Domestic Housing
Equipment Business
(New construction)
¥128.6 billion
Domestic Housing
Equipment Business
(Remodeling)
¥258.1 billion
19%
Asia and Oceania
¥14.12 billion
54%
China
¥40.43 billion
3%
Europe
¥2.66 billion
24%
Americas
¥17.88 billion
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CASETOTO 02/12/2014 13:45:25 Page 3
Corporate Vision
TOTO aims to be a truly global company that remains
indispensable to customers around the world by providing
a “new everyday.” To achieve this, TOTO created the V-Plan
2017, in 2009. The V-Plan will reinforce corporate govern-
ance and promote the three core businesses (domestic hous-
ing equipment, overseas housing equipment, and new
business domains) and four cross-organizational innovation
areas (marketing innovation, supply chain innovation, man-
ufacturing innovation, and management resource innova-
tion). The driving force behind the V-Plan will be the
TOTO Green Challenge, which will encourage better envi-
ronmental conservation throughout the entire organization,
production, and products. Much of this growth is expected to
come from overseas markets through sales of the Washlet
and TOTO’s superior technology, which is the reason TOTO
has a large international focus today. The V-Plan targets a
sales goal of ¥600.0 billion in fiscal 2017 and operating income
of ¥48 billion. Their overseas net sales target is ¥150 billion
with an operating income of ¥18 billion.
Product Portfolio
TOTO has a wide variety of products. Most of these can be
found in the kitchen or the bathroom, but others deviate more
from the core business. The core of TOTO focuses on bath-
room and kitchen accessories, baths, bidets, faucets, valves,
sinks, toilet seats (including the Washlet), toilets, showers,
urinals, and pre-manufactured bathrooms. Similarly, they
innovate with new technologies that their products can use,
such as the many features of the Washlet, as well as Hydrotech,
which acts as a barrier on surfaces to prevent bacteria, mold,
and dirt from accumulating.
Other business areas TOTO is advancing into include
expanding its ceramics business, remodeling and construction
services, sales of building material and paints/coatings, licens-
ing Hydrotech for other products, and selling photocatalytic
coatings, ceramic power generating cells and ceramic power
generation modules.
Shin Yamate: CFO
Some of the company’s leaders had serious concerns. Shin
feared the current strategy was not going to be enough to meet
the V-Plan’s targets. In the past few years, sales had been
increasing, and 2013 was expected to be a good year, but to
reach the V-Plan goal of ¥600 billion by 2017, changes were
needed. He thought, But what can we do? We tried everything
that made us successful in Japan, but the European and U.S.
market just do not seem to care about the Washlet. Maybe we
should just focus on selling other products. Nevertheless, he
knew that focusing only on other products was not really an
option. TOTO employees were too dedicated to the Washlet to
see it fail. But would an endless attempt to push the Washlet
into other cultures achieve the V-Plan goals, or would it be a
financial black hole?
Shin concluded he must look more into the international
numbers. He knew TOTO provided some of the best technol-
ogy in the world and produced an outstanding product, so they
would have to find a way for the Washlet to be successful
abroad. He looked over his overseas sales information. It
looked very promising. Overseas markets showed the largest
growth percentage, but the actual yen amount of growth was
relatively small. Also, much of this growth was due to the
changing value of the yen; in addition most of the American
sales were in standard toilets, not Washlets. Shin began to
think of other options for expanding overseas. An acquisition
was a possible option, since TOTO was sitting on almost ¥50
billion, but would that be enough to buy a competitor? The
U.S. and European markets are dominated by a few big
players, and mostly they were only present in their domestic
markets. Some of the companies are also privately owned,
which means they might not even consider an offer from
TOTO. A Japanese competitor, Lixil, recently bought the
large American company American Standard, and Grohe,
which is a major player in the European and Chinese markets,
but is this the best strategy for TOTO? A merger could be a
possibility, but knowing the pride of the TOTO Company,
losing its image through a merger would be devastating as well
and probably not achieve their V-Plan goals. The company was
currently involved with a joint venture that was showing some
promise in Europe, but the new strategy needed to find
another way to achieve the goals, while still following the
TOTO way of doing business.
Shin had one idea left, one that had worked in Japan, but
might need some modifications abroad. In Japan TOTO cre-
ated strong relations with plumbers who installed the Washlets.
Free products or higher margins were offered to the plumbers
to help encourage the sales of Washlets. But would this work
outside Japan? Could TOTO tap into the same overseas
channels? What else could they do to increase awareness of
the Washlet? As he thought about this he laughed and thought,
This sounds more like a job for marketing, not the CFO. The
important thing is to hit the V-Plan numbers; this will need to be
discussed with marketing and to see if the current advertising
invests are paying off.
Akira Matsuda: Market Research Director
Akira Matsuda, TOTO’s Market Research Director, joined
TOTO five years ago. One major reason why he joined TOTO
was that he had always been a big fan of the Washlet, TOTO’s
strategic product, and was very curious about why the shower
toilet has been overwhelmingly successful in the Japanese
market with a 74 percent penetration rate in 2012, but has
not enjoyed this kind of success in the other countries. He
Can Washlet Clean up the Cultural Divide? ² 3
CASETOTO 02/12/2014 13:45:26 Page 4
thoughtthatthere mustbesomeculturalmarket-specificreasons
why the Washlet has not been accepted in the same way as the
Japanese market, and saw this situation as a great challenge.
After reading the e-mail from the CEO, Akira reviewed how the
Washlet successfully penetrated the Japanese toilet market and
conducted research on the market situations in the U.S. and
Germany. His review is summarized below.
TOTO’s Successful Market Penetration in Japan
Tapping into infrastructure development: For its Washlet
campaign, TOTO was able to take advantage of Japan’s
infrastructure development. The Japanese government was
expanding the nation’s sewage system. Only 30 percent of
the country had had sewage systems in 1980, but this increased
to 67 percent by 2003. During this time, Western-style flush
toilets connected to sewage systems replaced traditional pit
toilets, in addition to the new construction or remodeling of
houses. This provided a great opportunity for TOTO to install
Washlet toilets.
Awareness Building: TOTO took various marketing
approaches to build public awareness of the Washlet. When
the Washlet was launched in 1980, it was a novel, high-end
product, and TOTO created TV commercials with sensational
catch phrases such as “bottoms just want to be cleaned,” which
was developed by the famous catch-phrase writer Takashi
Nakahara, who won the gold medal in the Cannes Advertise-
ment Festival with his “Rain and Poppy”commercial for the
Suntory whisky Torys. While TOTO initially received many
complaints about using the word “bottom” (oshiri), in the
commercial, this campaign created strong word-of-mouth
buzz and greatly increased public awareness of the Washlet.
In addition, TOTO promoted trial usage by installing
Washlet toilets in public places, such as hotels and golf courses,
and a “Washlet map” was distributed so that people could find
and try them. Furthermore, TOTO utilized a plumber’s net-
work to spread the use of Washlets. In Japan at this time,
people usually knew their community’s plumber, so TOTO
gave away its Washlet toilets to plumbers for personal use
them, and the plumbers then gave customers first-hand opin-
ions about the Washlet. The company also gave plumbers high
commissions for selling Washlets, so in effect plumbers became
highly influential Washlet ambassadors.
In addition, TOTO sales staff visited gynecologists and
doctors specializing in hemorrhoid treatment to promote the
therapeutic properties of Washlets.
The U.S. Market
TOTO entered the U.S. market in 1989. TOTO targeted mid-
to-high-end segments, which made up two thirds of the market,
and opened four galleries in New York, Los Angeles, Fort
Lauderdale, and Chicago where people could view and try a
Washlet, but not purchase them, so as to maintain an exclusive
image. The Washlet was available only through dealers.
In the United States, most end-users consult with architects
or interior coordinators when they are renovating existing
bathrooms or building new ones, rather than consult a
plumber. The final decision on what toilet to use is normally
made by architects or interior coordinators based on the total
design of the bathroom, not the toilet itself. In addition, to
maintain its high-end product image, TOTO did not distribute
the Washlet through Do-It-Yourself (DIY) channels.
Bathroom setting: Since 86.9 percent of all occupied homes
in the United States had a central heating system in 2011,
heated toilet seats are not viewed as necessary. In addition,
some U.S. states require that electricians install power outlets
in bathrooms, so end-users must hire one if they want to install
a Washlet. Furthermore, in U.S. public restrooms, paper sheet
covers are commonly provided for sanitary purposes, and a
Washlet requires some adjustment of the paper sheet to avoid
interference with the shower function.
Cultural Aspects: Americans normally feel uncomfortable
about discussing their bathroom habits with others, which
made it difficult to increase Washlet awareness through
word of mouth. In order to tackle this obstacle, TOTO
launched the Clean Is Happy campaign in 2007 with creative
photos of naked buttocks with smiley faces imposed over them.
This campaign caused a backlash from a religious group that
was offended by the nudity, and Toto was forced to halt it, but
the situation drew strong media attention that eventually
helped to increase public awareness of the Washlet toilet.
Also, TOTO benefitted from very positive word-of-mouth
talk from celebrities who used Washlets.
German Market
In 2008, TOTO established TOTO Europe GmbH in Germany
to enhance its sales of bathroom equipment, mainly the Wash-
let. Penetration of shower toilets in the Western European
households is estimated below 5 percent, as it is positioned as a
high-end product. TOTO has one sales site in Dusseldorf, but
has no gallery in Germany, and the distribution channel has not
yet been well established. It is common for end-users to visit
wholesaler showrooms to decide on bathroom equipment, and
toilets are purchased to match overall bathroom design. This
means there are high expectations of quality and design.
Choices and variety enabling customization are the key deci-
sion-making criteria.
Bathroom setting: In Germany, 91 percent of households
had central heating in 2005. Normally, there is limited use of
appliances in the bathrooms, so electric construction is
required for installing Washlets, and even if Washlets are
installed, they cannot be heated all the time due to EU energy
conservation regulations. In addition, a survey conducted by
Geberit revealed that most Europeans do not feel comfort-
able with heated seats as they think the heat came from the
previous user.
Cultural Aspects: Word-of-mouth advertising does not
work well in Germany, since Europeans feel uncomfortable
discussing their bathroom habits. But because some European
hotel chains have ordered large volumes of Washlets when
renovating their bathrooms and because Europeans are more
familiar with bidet toilets, the effectiveness of the shower
function of the Washlet is easily understood and valued.
TOTO is seeing a different sales trend compared with the
United States, where such large orders have not been placed.
Ken Tokugawa: Competitor Analyst
Ken Tokugawa, TOTO’s competitor analyst, was expecting a
very slow and relaxing week at work, but then he read the e-
mail from Mr. Hashimoto, his CEO. He trembled when he read
that he had to complete a competitor analysis in less than two
weeks for a presentation to the big boss. Ken had been focusing
his entire efforts on the Chinese market and competition there,
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but Mr. Hashimoto requested to see information on Germany
and the United States. These were not markets that Ken had
studied in depth, but luckily he had some data from a previous
project where he was researching the major players for both
markets, Geberit in Germany and Kohler in the United States.
He had used this data in a white paper for future growth. Now
if he could only find that whitepaper! Ken remembered the last
time he discussed the white paper was at the 82 Ale House near
Tamachi Station and he immediately remembered that he
placed the paper in his satchel after a few fingers of Scotch.
Ken rushed to the closet and opened his satchel and felt an
immediately sense of relief when he saw his paper was still
there and in one piece. Below is what Ken had written:
“The Kohler Company, based out of Kohler, Wisconsin,
founded in 1873 is a 100 percent privately operated company
still managed by the founding family. David Kohler, president,
is the fourth-generation leader of the company while his father
maintains the CEO position. Being a private company has not
restricted Kohler to a small market, as it currently is the market
leader with approximately 34 percent market share for bath-
room fixtures in the United States. Some estimates place
TOTO holding 28 percent of the market share. As for Shower
Toilets, Kohler has a very small yet impressive product line.
The first product that Kohler offers is a C3 toilet seat.
“This shower toilet seat is an optional add-on to any of
Kohler’s toilets to turn that toilet into a shower toilet. The basic
features of the C3 are essentially the same as TOTO’s with a
heated seat, anterior and posterior washing wands propelling
heated water, a deodorizing fan, and a full-featured remote
control. Some features missing from this product are a flush
control and streamlining (or tank less/one-piece toilet). The
Kohler Company does have a premier line as well, branded as
Numi. This is its ‘sexy’ line that features a fully automated, one-
piece, or tankless, toilet with all the functions that we offer in
our Washlet, but they also add a full-color-screen remote
control. One unique feature only found in the Kohler Numi
is a foot warmer at the base of the toilet. Similar to most other
manufacturers, Kohler has included the ability to program in
music and playlists, so that you can enjoy your favorite songs
while using the toilet. The cost of this product is much higher,
but to a high-end consumer this is definitely a product we need
to be aware of in the United States.
“Kohler offers its products via wholesalers and direct sales,
and consumers are even able to order the products online via
third-party companies (i.e. Amazon.com). Its shower toilet
products range in price from $600 (USD) to $6,000 for the
product not including installation costs or shipping (if bought
online). Some videos advertising its shower toilets are viewable
online, but it does not actively advertise these products in
consumer magazines or television. Being a private company, it
does not post its financial data online, so it is quite difficult to
gauge its net sales. Kohler is a global company, but no evidence
can be found of its shower toilet offerings in Europe. Kohler
has decided that when producing shower toilets it will focus its
strategy only on its home market.
“Geberit is a publicly owned Swiss company founded in
1874. Often the leader of innovations in the bathroom fixtures
industry, it has been said that Geberit invented the first shower
toilet. Its product line is more in line with European designs
where looks take preference over features or cost. Its shower
toilet falls under the brand AquaClean, and it has eight models
ranging from a basic seat to a fully integrated toilet. One
unique point about the AquaClean product line is the absence
of a seat heater. All other features are present, though, and its
full-featured toilet is wall mounted, providing a cleaner instal-
lation, much like our offerings in Europe. Their lower end
product, the AquaClean 4000, is priced around 750 euros
whereas their premier product, the AquaClean 8000 Plus is
priced at 5,200 euros.
“Geberit sells its products to wholesalers only, and the
wholesaler usually has a large showroom in which all makers
present their product offerings. The installers send their cus-
tomers to the wholesalers where the salesperson shows the
desired equipment. After the visit, the wholesaler will provide
a detailed quotation based on the equipment the customer has
chosen. The price in the quotation is based on the end-user
price list. If the installer finally orders any equipment, the
wholesaler will give a price discount in the range of 10 percent
to 40 percent depending on the equipment and maker. Geberit
has decided to only offer its AquaClean product in the Euro-
pean market.”
One of the most important facts that Ken wanted to point
out to the CEO was that only TOTO was available in both
foreign markets, and neither competitor was offering its
products in Japan or in each other’s market. After careful
preparation and review of the material Ken had readily
available, he placed all of this into an e-mail and sent it to
Mr. Hashimoto.
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CASETOTO 02/12/2014 13:45:26 Page 6
Global Integrated Strategies
Utilizing resources from TOTO’s global network, TOTO has
developed structures to meet the product grades throughout
the world, while strengthening local development capabilities.
Partnership: The recent partnership in 2012 with Villeroy &
Boch AG, a German ceramics manufacturer and leading Euro-
pean complete bathroom supplier, brought significant strength
to the TOTO group. Villeroy & Boch offer high-end products
and sleek European stylethat could addto TOTO’s innovations.
In Europe, this alliance demonstrated the European market’s
acceptance of TOTO’s bidet technology. TOTO and Villeroy &
Boch have begun developing a new bidet product. Besides, the
OEM strategy in Europe could reduce the manufacturing and
logistics & distribution cost and expand the European sales
distribution network. In the United States, the sales alliance
has provided North American consumers and distributors addi-
tional value with its outstanding European-designed products
that could improve TOTO’s competitiveness. On the trade,
TOTO has supported Villeroy & Boch sales through TOTO’s
large distribution network in North America. This partnership
has created win-win global solutions for both companies.
“We believe in the future of the bidet toilet throughout
Europe and, as one of the best known European premium
brands, we would like to make this product category a signifi-
cant sales segment for us,” explains Andreas Pfeiffer, head of
the Bath & Wellness corporate division.
Value-Added Products: Incorporating innovation devel-
oped in Japan, TOTO has been adding more eco-friendly
featuresto itsbidet products that canattract more customers and
strengthen each market’s development. As well as providing
high quality bidet products, TOTO has also taken the lead in
introducing water-saving products. For example, the Double
Cyclone flushing system and the super-smooth SanaGlossin-
crease the cleaning strength from water flow in the toilet bowl.
The newest innovations include Actilight, eWater� spray, and
Hydrotect coating, which keep a toilet bowl incredibly clean for
months. TOTO has introduced state of the art technologies that
have enhanced customer usage experiences and strengthened
their competitive advantages.
LOCALIZED STRATEGIES IN THE UNITED
STATES
Despite the challenges in the United States, where the bidet
market includes less than 1 percent of households, TOTO has
found market opportunities that can boost the marketing and
sales of the Washlet. When the Energy Policy Act of 1992
regulated water consumption, TOTO was the one of the first
players with a low-flush toilet. In addition, with its eco-friendly
and water-efficiency features, TOTO takes advantage of the
fact that U.S. consumers are making more environmentally
conscious purchase decisions.
Incorporating with Social Infrastructure: As many states
and cities today have begun to enforce water conservation,
TOTO has gained its brand awareness by installing water-
efficient products, which may attract more customers for
its bidet products. When the city of Atlanta, Georgia, faced
a 27.5 percent increase on its water and sewer rates in July
2008, TOTO provided water-saving solutions to the Grand
Hyatt Atlanta hotel by installing TOTO’s 1.28 gpf ECO
UltraMax High-Efficiency Toilet. As a result, the hotel
benefited from 63 percent water savings over the previous
3.5 gpf toilets. In 2011, TOTO received an award from the
Chattahoochee Riverkeeper (CRK) for partnering with local
government and businesses in Atlanta to upgrade the plumb-
ing fixtures in the Hartsfield-Jackson International Airport.
TOTO also offers a number of products including bidets that
meet the new California Green, Building Standards Codes
known as CalGreen, which proposed 20 percent water conser-
vation in plumbing fixtures (toilets and urinals) both in resi-
dential and nonresidential building.
Expanding brand recognition: The challenge for TOTO is
to expand their brand recognition throughout the nation.
TOTO continues to expand sales networks and flagship show-
rooms in both inland areas and northeastern cities. TOTO
continues to participate in trade shows and to place ads in
home improvement magazines. For consumers, TOTO dealers
in their neighborhood can be found by searching by zip code on
its website. In addition, TOTO promotes an environmentally
conscious image through its philosophy, TOTOlogy, showing a
commitment to environmental advocacy for water-efficiency,
eco-power, and paperless toilets. Today, the distributors pro-
mote with the slogan “1G (1 gallon) toilet,” a water-conserving
toilet that uses only 3.8 L of water per flush.
Localized Strategies in Germany
Unlike in Japan, where a toilet seat is considered an elec-
tronics product, using electricity for toilets would be
unimaginable to many European households. The adaptation
of a new concept for a daily habit, such as the Washlet
feature, is also difficult. However, the products with
advanced technologies, high-water efficiency, and that are
eco-friendly are attractive for the eco-conscious German
market. The question is how to reach the customers in order
to develop TOTO’s brand.
International Sanitary (ISH) Exhibition: Since 2009,
TOTO group has displayed TOTO’s products in the Interna-
tional Sanitary and Heating (ISH) exhibition held in Frankfurt,
Germany, one of three largest housing equipment exhibitions
in the world. Moreover, in March 2013, the newest Neorest
series Neorest AC with Hydrotect and Actilight technologies
was introduced. After participating in the ISH 2013 exhibition,
TOTO has increased the number of European companies
covered under Hydrotect licensing agreements, which helps
to develop brand recognition.
Sales distribution channel: In Europe, approaching the
market with a stylish total bathroom package, including a toilet,
is a market requirement. As a manufacturer, TOTO must place
its products in the showrooms of wholesalers and plumbers.
Intensive training of showroom staff, as well as plumbers, and
establishing strong relationship management with those channel
partners are the critical success factors, especially for expensive
and innovative products, such as the Washlet. The representa-
tives in the showrooms need to be able to demonstrate to
potential customers how TOTO’s bidet functionality works
and emphasize how thestate of the art and eco-friendly products
can nicely fit in one’s own bathroom. Wholesalers should also
make sure stock is available for next-day delivery. Furthermore,
TOTO should train plumbers how to properly install TOTO’s
bidet products. The incentive for wholesalers and plumbers is a
sales discount, which is not given to end customers.
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THE NEXT GENERATION PRODUCT
In addition to explaining the current strategy in the United
States and Germany, Kantaro also wanted to have the board
members pay attention to the next generation of TOTO’s
products that might enlighten the U.S. and European markets
and to start thinking about how TOTO can promote the future
product.
In today’s world, most developed countries are experienc-
ing a rapidly aging population. Chronic diseases such as high
blood pressure, diabetes, obesity, and so on significantly
increase the cost of health care. In the near future, people will
have to change their behavioral lifestyle in order to manage
such diseases and the related health care costs. This calls for
devices that help individuals monitor their personal health
status on a daily basis.
TOTO and Daiwa House have developed the intelligent
toilet, which enables health-checks at home. It has functions to
check blood sugar, blood pressure, and obesity, factors that
trigger lifestyle-related diseases. to the toilet also checks body
temperature. The results and changes of measurements can be
seen every day on a display panel in the bathroom. The data
are analyzed by computer software, which then recommends
plans for food, exercise, and so on.
So far, the device is too expensive for normal residential
homes. The strategic question is how to introduce this product
successfully into the market. TOTO knows that only an overall
economic cost consideration will make the product successful.
If the intelligent toilet can demonstrate that it has a positive
influence on behavior and as a result that it lowers health care
costs by preventing or managing chronic diseases, then health
care providers (insurance companies) should have an interest
to subsidize or pay for the intelligent toilet.
DISCUSSION QUESTIONS
1. The Washlet or Shower Toilet was a quick success in the
Asian market (China and Korea), so why is this product having
such difficulty penetrating the market in Germany and the US?
2. What after-sales services can TOTO provide to enhance
willingness of customers to try the Washlet in their homes?
3. How can TOTO increase the sales performance at the
point of sales and in general?
4. Should TOTO keep the target segment high-end only, or
should it expand its target segment?
Can Washlet Clean up the Cultural Divide? ² 7