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Vertical Brand Extension at Vinamilk, Vietnam

Article  in  Asian Case Research Journal · December 2016

DOI: 10.1142/S0218927516500127

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 ASIAN CASE RESEARCH JOURNAL, VOL. 20, ISSUE 2, 331–350 (2016)
ACRJ
This case was prepared by
Dr. Nguyen Quang Tri of
Asian Institute of Technology,
Thailand, Assistant Pro-
fessor Winai Wongsurawat of
Mahidol University, Thailand,
and Professor Rian Beise-Zee
of Ritsumeikan Asia Pacific
University, Japan, as a basis
for class discussion rather
than to illustrate either an
effective or ineffective han-
dling of an administrative or
business situation.
Please address all corre-
spondence to Dr. Nguyen
Quang Tri, Former Cat-
egory Marketing Director,
Vinamilk & Dba Candidate,
School of Management,
Asian Institute of Tech-
nology, Thailand. E-mail:
tringuyenquang@gmail.com
© 2016 by World Scientific Publishing Co. DOI: 10.1142/S0218927516500127
S0218927516500127.indd 331
Vertical Brand Extension at
Vinamilk, Vietnam
THE COMPANY
Vinamilk (VNM), short for “Vietnam Dairy Products Joint-
Stock Company”, is Vietnam’s largest dairy company, and
the country’s largest listed company in terms of market
value. In 2010, it was the first company in Vietnam to be
included in the Forbes Asia’s 200 “Best Under-A-Billion”,
a list highlighting 200 top-performing small- and mid-sized
companies with annual revenue under US$1 billion in Asia.
Established in 1976 as the state-owned Southern Coffee-
Dairy Company, it was renamed “United Enterprises of Milk
Coffee Cookies and Candies I” in 1978. In 1993 it assumed the
name “Vietnam Dairy Company”. Following its Initial Public
Offering (IPO) in the Ho Chi Minh Stock Exchange in 2003,
the company legally changed its name to “Vietnam Dairy
Products Joint-Stock Company” (Vinamilk). With more than
45% of the company’s stock owned by the government, VNM
continues to be perceived by the public as a state-owned
company, albeit one with a trusted brand and reliable prod-
ucts. According to a brand health tracking study conducted
in November 2011, 90% of consumers interviewed trusted the
quality of VNM products, and 83% considered VNM prices
“reasonable” (the comparable statistics for Dutch Lady, its
key competitor, were 72% and 67% respectively).
12-01-17 5:05:05 PM
 332 ACRJ

Country Background

Vietnam is the easternmost country on the Indochina pen-

insula in Southeast Asia. Through the 1960s, the country
endured a prolonged war between the Communist North
and the U.S. supported South. The North eventually pre-
vailed, but the country’s post war economic performance
was sluggish. The Communist Party decided to introduce
reforms toward a market economy and international integra-
tion, referred to as ´Ĉәi mӟiµ or “Renovation”, beginning in
1986. Since the reforms, Vietnam has enjoyed one of the most
impressive economic growth records in the world. Hanoi, the
capital city and government administration center, is located
in the north. Ho Chi Minh City (formerly Saigon) is located
in the south and is the largest metropolis in the country and
home to more than 7.5 million of the country’s 86 million
citizens. Both cities boast a large array of successful home-
grown businesses as well as branches of major multinational
corporations.
As part of its economic reform, Vietnam is undergoing
a gradual privatization process, of which Vinamilk has been
a rare success story. Instead of targeting large state-owned
enterprises (SOEs), privatization in Vietnam has been occur-
ring mainly for smaller SOEs, and inefficiencies arising from
state ownership still are largely unaddressed8. The prob-
lematic efficiency of the state-owned sector is reflected by a
higher incremental capital output ratio — the ICOR indexa —
relative to the other two sectors: 7.8 as compared to 3.2 of the
private sector, and 5.2 of the foreign direct investment (FDI)
sector6. While state policy has always stressed the decisive
role of SOEs in the Vietnamese economy, their contribution to
the country’s GDP has been declining, while that of the FDI
companies has been growing (see Table 1).
In a picture that is not so bright for the state-owned
sector, the spotlight illuminated by a successful dairy com-
pany like Vinamilk, where state ownership is still dominant,
is encouraging to the national economy.

a ICOR is a metric assessing the incremental amount of investment capital needed to

make the next production unit.

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 VERTICAL BRAND EXTENSION AT VINAMILK, VIETNAM 333

Table 1. GDP contribution (%) by economic sector in Vietnam6

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008
SOEs 38.52 38.40 38.38 39.08 39.10 38.40 37.39 35.93 34.35
Private Enterprises 48.20 47.84 47.86 46.45 45.77 45.61 45.63 46.11 46.47
FDI 13.28 13.76 13.76 14.47 15.13 15.99 16.98 17.96 18.68

Vietnamese Dairy Industry Background

Vietnam is a growing nation with low per-capita milk

consumption: only 14.8 liter/person/year9, among the
lowest in the world2. Without an established cow husbandry,
Vietnam has not historically been a milk-drinking nation.
While lactose intolerance is still very prevalent among the
Vietnamese population, the younger generation is increas-
ingly likely to have been growing up consuming dairy prod-
ucts regularly. The below data from Euromonitor show how
the dairy market has been progressing in the period from
2007 through 2012 and from 2013 through 2017 (estimated).
As can be seen from Table 2, the dairy market has been
growing at double-digit rate, with the liquid milk — a more
convenient product format with reassured nutrition values —
growing disproportionately more than the total market,
making it an increasingly important contributor.

Product Portfolio

VNM’s key product categories are liquid milk, sweetened

condensed milk, powdered milk, yoghurts, cheese, soya
milk, ice cream, and other products derived from milk. One
year after the Vietnam War ended (1976), VNM was estab-
lished based on South Vietnam’s old manufacturing facili-
ties (some from Nestlé, some from Foremost — the former
name of FrieslandCampina) to produce mainly sweetened
condensed milk. In 1988, two years after the Vietnamese
government enacted the open-door market economy
(“Doi moi”), VNM refurbished the old Nestle manufac-
turing facility and launched its first powdered milk brand,

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Table 2. Growth in value (VND) of liquid milk vs. total dairy in Vietnam: 2007–2017

CAGR* 2007–2012 (%) CAGR 2013–2017 (%)

Liquid milk (ready to drink) 25 17

Total dairy 21 13

Liquid milk contribution in total dairy 30% 37%

CAGR: Compounded average growth rate.
Source: Ref. 3.

“Dielac”. By the 1990s, additional technological investment

enabled VNM to produce more complicated products such
as spoon yoghurt and liquid milk, first in the Ultra Heat
Treatment (UHT) form, then in the Pasteurized form. Four
major product categories (sweetened condensed milk —
21%, powdered milk — 19%, liquid milk — 40%, and spoon
yoghurt — 17%) make up approximately 97% of VNM’s sales.
Contributions from other small categories such as cheese,
ice cream, fruit juice and other beverages are insignificant.
VNM’s products are exported to 26 countries such as those
in the Middle East, Cambodia, the Philippines, Australia, the
U.S., etc. although exports account for only 10% of sales in
2011.

Strategic Intent

VNM’s vision is “to become the leading trusted Vietnamese

brand on nutrition for human life”. According to the com-
pany’s mission statement, “VNM is committed to bringing
the best-quality nutrition products to communities reflecting
our respect, love and responsibility for the people, life and
society”. By “respect”, “love”, and “responsibility”, VNM
means to put conscience, devotion, dedication, and caution
into whatever it offers consumers. Despite its portfolio being
skewed towards dairy products, and “dairy” constituting
the important part of the company’s name, VNM does not
discount its intent to penetrate into other food and beverage
segments as long as the products are healthy and nutritious.
The word “nutrition” is hence still at the core of its vision

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 VERTICAL BRAND EXTENSION AT VINAMILK, VIETNAM  335

statement. With that vision in place, the company sets its core
values to include: (1) integrity (integrity and transparency in
actions and transactions); (2) respect (to show self-respect and
respect to colleagues, the Company, and partners; to coop-
erate with respect); (3) fairness (to be fair with employees,
customers, suppliers and other parties); (4) compliance (to
comply with legal regulations and the Company’s Code of
Conduct, regulations and policies); and (5) ethics (to respect
the established ethical standards and act accordingly). The
company aims to maximize shareholders’ value and pursue
a business growth strategy based on the following principal
elements as stated in its corporate strategy: (i) expand market
share in existing and new markets; (ii) develop a comprehen-
sive portfolio of dairy products to target a broader consumer
base and expand into higher margin and higher value-added
dairy products; (iii) develop new product lines to satisfy dif-
ferent consumer preferences; (iv) cultivate brands; (v) contin-
uously enhance supply chain management; and (vi) develop
raw material sources to ensure a reliable and consistent fresh
milk supply base.

Competition and Performance

VNM’s main competitors in Vietnam are FrieslandCampina

Vietnam (formerly known as Dutch Lady Vietnam — DLV),
a joint-venture between FrieslandCampina of the Netherlands
and a local partner, Nestlé Vietnam, Abbott, Mead Johnson,
and TH. VNM is the market leader with a 44.8% market share
in 2012, followed by DLV at 18.0%, Abbott at 11.4%, Mead
Johnson at 6.3%, and Nestle at 2.2% (market shares shown
in Figure 1). Of note, Abbott and Mead Johnson, albeit being
infant and toddler formula milk manufacturers, have taken
leading share positions in the total dairy market in which
infant and toddler milk accounts for 34.3%. VNM has grown
significantly in the past several years, from 32.4% market
share in 2007 (in value term) to 44.8% in 20123. VNM’s busi-
ness results over the past 5 years can be summarized in
Table 3, and VNM’s market share progress over the period of
2007–2012 is shown in Figure 2.

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Market Value Share (%) — 2012

Source: Ref. 3.

Fig. 1. Vietnam Dairy Market: Value share by manufacturer — 2012.

Table 3: VNM’s sales and profit: 2009–2013

Financial Year Ended

2009 2010 2011 2012 2013
December 31
Revenues (trillion VND) 10,820 16,081 22,071 27,102 31,586
Net profit (trillion VND) 2,376 3,616 4,218 5,819 6,534
Foreign exchange rate as at 21 July 2014: USD1 = VND21,190, XE Currency Converter, 2014.
Source: VNM’s annual reports.

Source: Ref. 3.

Fig. 2. VNM market share (in value: VND) year-on-year from 2007–
2012.

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 VERTICAL BRAND EXTENSION AT VINAMILK, VIETNAM  337

VNM’s success can be attributed to its strong leader-

ship. Madam Mai Kieu Lien has been the company’s CEO
since 1992. She was selected by Forbes as one of the top 50
most powerful businesswomen in Asia for two consecutive
years in 2011 and 2012. The following quote is from “Forbes
Asia’s 50 Women in the Mix”:

One of the most profitable brands in Vietnam and a blue

chip on the local stock exchange, Vinamilk has delivered
consistent growth in revenue and profit since its stock
market listing in 2006. Despite a difficult year for most
companies in Vietnam, Vinamilk booked a 23% rise in 2012
sales to $1.3 billion, while net profit jumped nearly 40%
to $280 million. Mai is propelling the dairy company into
international markets; it now exports to 23 countries.
— Source: Ref. 4

She was also awarded the Asian Corporate Director Recogni-

tion prize in 2012 by Corporate Governance Asia (a journal on
corporate governance in Asia). Madam Lien is supported by
functional heads in a standard organizational structure as
shown in Figure 3.
VNM has a clear strategy in winning the mass con-
sumer market through products of international quality at
affordable prices. The company’s products are distributed
through a wide retailing network with more than 178,000
outlets located in both urban and rural neighborhoods. VNM
has also seriously been investing in brand building. One of its
most famous advertisement clip on YouTube has been viewed
more than 14 million times. The company’s brand has been
recognized as one of Vietnam’s top 10 according to a Nielsen
survey in 2010. According to Campaign Asia:

Vinamilk, the biggest milk manufacturer in Vietnam with

diverse beverage categories including fruit juice and
drinking yogurt, ranked ninth, while Coca-Cola, claimed
the 10th position for its high brand equity through its
heritage...
— Campaign Asia, as quoted in Proi, 2010

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 338  ACRJ

S0218927516500127.indd 338
Source: VNM’s 2012 annual report.

Fig. 3. VNM’s organizational structure.

12-01-17 5:05:06 PM
 VERTICAL BRAND EXTENSION AT VINAMILK, VIETNAM  339

Brand Modernization Period and the Crisis

The period starting from 2006 (with the arrival of a new Head
of Sales and Marketing poached from Pepsico) saw a break-
through in brand performance. The brand had been rejuve-
nated with the new positioning “beautiful life”, making it
more vital, confident and modern to consumers. In the early
stage of this brand-modernizing period, VNM had even
turned an industry crisis into a great opportunity for brand
growth.
In 2006, a controversy broke out over Vietnamese
manufacturers labeling their products “fresh milk” when the
product contents were not entirely 100% fresh cow’s milk.
Contrary to international standards that use the term “fresh
milk” exclusively for pasteurized milk, official regulation in
Vietnam permits manufacturers to use the term “fresh milk”
for both pasteurized and UHT milk (but not reconstituted
milk). To the average Vietnamese consumer, however, liquid
milk is often called “fresh milk”, regardless of whether it is
pasteurized, UHT or reconstituted from milk powder. Pas-
teurized milk, which requires refrigeration, represents only
about 1% of total sales in Vietnam, while three quarters of
total sales are of reconstituted milk.
Table 4 clarifies the conflicting standards and lingo.
According to the international standards or even to the Viet-
namese regulation, liquid milk can be classified into two main
groups: UHT (or UHT sterilized) milk and pasteurized milk
based on the processing method. If the raw milk is processed
using the UHT sterilization process, that is to go through an
ultra heat treatment (up to 140 degrees Celsius in 4 seconds)
then through a quick cooling phase (down to 4 degrees
Celsius immediately after the UHT treatment), the finished
product will be called either “UHT milk” or “UHT sterilized
milk”. The term “pasteurized milk” is used for the product
having gone through the pasteurization process, whereby
the raw milk is “pasteurized”/heated to a more moderate
temperature (from 75 to 95 degrees Celsius in 30 seconds).
By international standards, the word “fresh” is not used for
UHT milk, but only for pasteurized milk. Also by interna-
tional standards, when the content of the UHT milk does not

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Table 4. International vs. Vietnamese standards for dairy products

Processing
UHT Pasteurized
Method

Fresh Milk + Powder Milk

Composition Fresh Milk Only Fresh Milk Only
Reconstituted

International UHT (sterilized)

UHT (sterilized) milk Pasteurized fresh milk
standard recombined milk

Vietnamese
Sterilized “fresh”
regulation Sterilized milk Pasteurized “fresh” milk
milk
standard

To average
Vietnamese Fresh milk Fresh milk Fresh milk
consumer

come totally from raw fresh milk but is composed of powder

milk reconstituted into liquid by remixing with water, the
finished product will be called UHT recombined milk. The
confusion comes in Vietnam where the word “fresh” can be
used for UHT milk in the condition that the milk content
should come from raw fresh milk, not powder milk recon-
stituted. The confusion gets worse even when it comes to
the language of Vietnamese consumers most of whom call
all liquid milk as “fresh” milk, regardless of whether it is
UHT “fresh” milk, UHT “recombined” milk, or pasteurized
fresh milk!
Overwhelming media coverage during the crisis
resulted in consumers feeling cheated, with one respondent
as quoted in Lindgreen’s research (2009) expressing doubts
about the origin of “fresh milk”:

In reality, in Vietnam, there are not many herds of milk

cows. If powdered milk is not imported from foreign coun-
tries to produce sterilized milk; the demand cannot be met.
The misunderstanding between journalists, consumers and
milk producers was that producers put “fresh milk” on the
package, whereas it wasn’t all fresh milk.
— from Ref. 7

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 VERTICAL BRAND EXTENSION AT VINAMILK, VIETNAM  341

VNM was not immune from the negative fallout but the
company quickly addressed the problem by changing the
phrase “pure sterilized milk” to “sterilized milk” on product
labels if the contents were not totally fresh cow milk7. It also
took the opportunity to launch a new product line, “VNM
100%”, to unambiguously signal its high-end product con-
taining only UHT fresh milk (i.e. no reconstituted powdered
milk).
In launching this new product line, the company
also replaced its old brand positioning from “international
quality — VNM quality” to the new and brighter slogan
“beautiful life”. An innovative television commercial (TVC)
for VNM 100% introduced the new message “happy cows
produce great milk” and featured cheerful cows singing and
dancing in a unique way. The ad has gone on to become one
of the most loved and memorable TVCs in Vietnam. Since
breaking air in 2007, the TVC has garnered more than 14
million YouTube views (as of November 2013), as shown in a
screen shot captured in Figure 4.

A kid eats 3 meals a day. Each meal, the ad has to be

watched at least 10 times. So, it is not very surprising that
this ad has 10 million views! It is my personal thinking,
since in every meal, only if my kid watches the ad many
times, does (s)he accept to eat.
— YouTube comment from 2007, translated from Vietnamese

Fig. 4. VNM’s 100% fresh milk commercial on YouTube.

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 342  ACRJ

In addition to revitalizing the VNM brand image, making

it younger, more dynamic and fun loving, the campaign
also helped boost the company’s position in the liquid milk
market. In 2006, DL led the liquid milk market with a market
share of 35.7% followed by VNM with 32.2%. The gap was
closed, thanks to the successful campaign launch in 2007,
with the two brands each obtaining 35.9%. By 2011, VNM
had garnered a significant lead with a 55% market share com-
pared to DL’s share of 29%. In the larger dairy market, VNM
increased its market share from 33.1% in 2006 to 45.2% in
20123. According to the company’s brand health tracking in
2011, VNM topped the survey categories of “trustworthiness”,
“innovativeness”, “freshness”, and (not surprisingly) “fun and
interesting advertisement”. When consumers were asked to
name the ‘premium’ diary brand(s), VNM led the pack with
71% followed by DL (45%) and TH (44%).

VERTICAL EXTENSION

Prior to 2010, VNM dominated the premium market with its

“VNM 100%” fresh UHT milk marketed in brick boxes. The
much larger, “value-for-money” segment, accounting for 78%
of sales, was occupied by “VNM Fino”, reconstituted milk
sold in loose paper packs. As mentioned earlier, the average
Vietnamese consumer still has difficulty distinguishing ‘fresh’
and reconstituted milk. According to a survey in 2010, only
8% of surveyed customers were able to correctly tell apart the
two types of milk. This percentage goes up to only about 21%
among urbanites in Hanoi and Ho Chi Minh City.
One reason that reconstituted milk has maintained its
popularity in Vietnam might be the nature of the market seg-
ments. While adults look for ‘freshness’ and ‘purity’ and are
thus drawn to “fresh” milk, nutritional benefits may be sig-
nificantly more important when mothers purchase milk for
the consumption of their young children. In the minds of the
Vietnamese consumers, perhaps fresh milk does not offer sig-
nificant benefits above and beyond the reconstituted product.
Historically, VNM sales have been skewed toward the adult
market due to its strong position in the “fresh milk” segment

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 VERTICAL BRAND EXTENSION AT VINAMILK, VIETNAM  343

Table 5. Base Dairy Consumer Usage & Attitude Study, 2010

Vietnam % Sample Vinamilk 100% VNM Fino Dutch Lady

Nation-Wide Contribution BUMO BUMO BUMO
Kids (2-9) 80.6% 77.9% 78.0% 86.3%
Adults (22-45) 19.4% 22.1% 21.6% 13.7%
Sample size 2,855 1,541 245 716
Note: BUMO is short for brand used most often.

and the reconstituted Fino. Meanwhile, its main compet-

itor, Dutch Lady, has been comparatively more popular in
the young children segment with its strength in brick-boxed
reconstituted milk fortified with micronutrients needed for
child development. Table 5 presents results from a survey
asking different customer groups about the brand used most
often (BUMO).

The ADM Launch

To strengthen its presence in the ‘nutrition-for-young-

children’ segment, VNM launched a reconstituted milk
product fortified with micronutrients packed in a paper
box. The new product was given the name ADM+ (or just
ADM). The acronym was meant to stand for the fortification
formula that included Vitamin A, Vitamin D and magnesium.
The key benefits of ADM communicated to consumers were
“height development and eyesight improvement”. The ADM
line would directly target mothers of children aged 2 to 9,
the segment that accounts for only 18% of the total popula-
tion but is responsible for more than two-thirds of total milk
consumption.
ADM was intended as a step-down vertical extension
of VNM 100%, as it was an extension in the same category
(UHT liquid milk), but at a different price or quality point.
While the retail price of VNM 100% was about 143% of Fino,
ADM was priced at about 132%, slightly lower than Dutch
Lady’s product that was priced at 137%. Figure 5 and Table 6
supply the positioning details of VNM’s product line.

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Fino ADM+ VNM 100%

(200-220 ml) (110-180 ml) (110-180 ml)

Fig. 5. VNM’s liquid milk product line-up in 2011.

It is worth noting that the ADM launch was not the

first time VNM did vertical extension for its liquid milk busi-
ness. The first liquid milk product line introduced in the
market long before (in mid-1990s) was Fino — a reconsti-
tuted liquid milk (also UHT sterilized) in a soft paper pack
format. It looks cheap, and suitable for drinking at home for
heavy users or using in coffee outlets in large amounts. Fino
is hardly advertised (it was actually advertised once or twice
tactically to drive consumption due to its “value for money”
positioning). It has always been sold by itself, driven by wide
distribution, and cheap price. With Fino being VNM’s first
liquid milk product introduced in the market, the introduc-
tion of VNM 100% can be called a step-up extension from
Fino, and the case in review — the ADM launch — a step-
down extension from VNM 100%, or step-in-between from
the previous two lines.
The ADM launch was supported by heavy consumer-
pull and trade-push marketing. A TVC featuring a VNM
cow (the same fun-looking character from the hit VNM 100%
commercial) playing with a cute child drinking ADM high-
lighted the functional benefit of “height development and
eyesight improvement”. The message was repeated in other
communication materials such as in print advertisements and
supermarket billboards. Games and activities were organized
in schools with free samples distributed to students. On the
push side, stores were given favorable terms to stock ADM

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 Table 6. VNM’s product portfolio

S0218927516500127.indd 345
Vinamilk Fino Vinamilk ADM+ Vinamilk 100%

Value Value for money, targeting economy and Fortified with micronutrients, targeting Gold standard for liquid milk,
proposition heavy users (i.e. the entire family) children aged 2 to 9 targeting premium users who are
mainly adults

Product Recombined base milk available in 4
basic variants: plain, sweetened,
strawberry and chocolate
Recombined milk fortified with
micronutrients: vitamins A, D,
Magnesium, Manganese, and Zinc,
available in 3 variants: sweetened,
strawberry and chocolate
100% non-reconstituted UHT milk,
available in 4 basic variants: plain,
sweetened, strawberry and chocolate

Packaging In paper loose pouch (200–220ml) with In brick pack (110–180ml) with a In brick pack (110–180ml) with
simply-drawn cows as the key visual cartoonish cow as the key visual photographed cows as the key visual

Pricing 100× 132× 143×

Distribution Mass Mass, skewed towards mom and pop Mass, skewed toward bigger stores in
stores and expanding into rural areas urban, high-end areas

Target • Moms & kids, female adults.
*
• Socio-economic class (sec) : BCD.
• Heavy user.
• Price conscious, seeking a “saving”
milk product that can still provide
high-quality nutrition for their family.
• Moms of kids aged 4–12.
• Sec: BCD.
• Seeking specific benefits for her
child’s physical & mental
development.
• Progressive moms.
• Sec: ABC.
• Health conscious, seeking the best
nutrition solutions for her family,
believing purity and naturalness is
the best source of food.

Communication None, apart from the umbrella branding Interaction between a cow and a Stories about happy cows giving good
growing child drinking VNM fortified milk
milk

*Socio-economic classes: a classification system used in consumer research, segmenting consumers into A, B, C, D, E, F groups in order of household
incomes decreasing.
VERTICAL BRAND EXTENSION AT VINAMILK, VIETNAM  345

12-01-17 5:05:07 PM
 346  ACRJ

and give the product prominent shelf space. Sales confer-

ences were organized and incentives schemes developed to
motivate sales personnel. With almost all marketing and sales
effort focused on the ADM launch, no major support was
given to the premium line — VNM 100% fresh milk, except
for some trade promotion to keep to product line stocked at
retailer outlets at the ADM launch time.

Launch Results and Challenges Ahead

ADM sales in the first eight months after launching exceeded

the full year target. The company received repeated “out-
of-stock” complaints as the new product flew off retailers’
shelves. ADM grabbed more than 8% market share, resulting
in VNM gaining an additional 2% share in the overall liquid
milk market. A customer survey indicated that about a
third of ADM users had switched from Dutch Lady. Con-
sequently, VNM’s biggest competitor suffered a significant
share loss. Suspecting that one of the new product’s key
benefits, improved eyesight, had not been adequately ham-
mered home, VNM intensified its promotional activities in
schools to reiterate the new product’s health benefits. Subse-
quent surveys indicated that a large percentage of kids who
previously consumed a competitor’s product had switched
over to ADM. Company executives believed that the suc-
cessful launch of the new, nutritionally-fortified product also
strengthened VNM’s overall brand image by associating other
products under the VNM brand umbrella with wholesome-
ness and health benefits.
The former Executive Director – Marketing, Ms. Nguyen
Huu Ngoc Tran stressed:
Together with the current strongly perceived premium
100% Fresh Milk, the new mainstream UHT milk would
not only help grow VNM liquid milk business sustain-
ably but also help build the new and larger brand vision
“Vinamilk — Keep growing Vietnam”.
Although cannibalization of the company’s high-end product,
VNM 100%, was a key consideration when planning the

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 VERTICAL BRAND EXTENSION AT VINAMILK, VIETNAM  347

Table 7. Fair share analysis for ADM’s source of users — Brand Health Tracking, 2011

Current BUMO Among Previous BUMO Among

Index
Liquid Milk Users Current ADM Users

DL 19% 33% 174

VNM 100% 35% 49% 140

ADM launch, the company discovered that it had underesti-

mated the severity of this threat. About half of the ADM sales
were in fact VNM 100% previous customers. A fair share
analysisb as summarized in Table 7, while having confirmed
that ADM has impacted DL the most, also indicates that the
hit on VNM 100% was significant. The analysis shows that
with 33% of ADM current users having come from DL, as
compared to 19% of current liquid milk users using DL most
frequently (indexing 174 = 33/19). If the index was 100, it
would mean that ADM was expected to get the same portion
of DL users among all the brands in the market. As the index
was greater than 100, it was concluded that ADM tended to
draw DL users more than the “fair share” (more than propor-
tionally expected). As for the hit on VNM 100%, the same fair
share analysis shows that with 49% of ADM’s current users
coming from the VNM 100% milk, while that brand (VNM
100% milk) only accounts for 35% of total liquid milk user
base, the index is 140 (more than fair share). Profit-wise, in
total, the whole liquid milk business is still doing well with
ADM lowering the average margin but gaining the absolute
sales units.
Post-launch focus groups revealed that consumers
mistook ADM (reconstituted powder milk with fortification)
as superior to VNM 100% (fresh UHT milk), the opposite
of the company’s intention to make ADM a step-down ver-
tical extension of VNM 100%. A frequent misunderstanding

bFair share analysis is an analysis used to determine sources of a new product line’s

volume from different brand users by calculating the index (ratio) between the
percentage of previously frequent users of each different brand among the now new
product line users, and that of currently frequent users of the same brand in the total
market.

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 348  ACRJ

was that ADM’s lower price was an introductory discount

that would be adjusted later. Most alarmingly, a significant
number of focus group participants understood that ADM
was the replacement for VNM 100%, which was on its way
to be phased out! Results from a detailed investigation sug-
gested a few reasons for these misunderstandings. First,
the ‘push’ strategy may have been overly vigorous causing
retailers to oversell the new product at the expense of existing
merchandise. Second, while ADM was intended as a com-
petitor for Dutch Lady’s product, the new fortified-milk was
often placed on retail shelves side-by-side with VNM 100%,
thus putting the two in direct competition.
This cannibalization has caused serious concern for the
company’s executives. The then Executive Director — Sales,
mentioned in the ADM launch evaluation meeting:
If we do not have a clear differentiation strategy between
100% and ADM, sooner or later, the 100% line will die. Are
we willing to accept the risk of killing the product line that
had brought the VNM brand to the new high level in the
modern time of the company’s history?
As Vietnamese consumers grow wealthier and more
sophisticated, non-reconstituted, fresh milk is likely to
become the biggest seller in the future, a sector VNM cannot
afford to lose. Competition in this premium market is already
heating up, with the entry of “TH true milk”, a young, local
brand promoting fresh milk from modern farms it owns and
operates (VNM outsources some of its raw fresh milk col-
lection to small farmers). Using aggressive marketing and
advertising campaigns, TH has been continually attracting
customers away from VNM 100%. An immediate response
was taken to reverse the product cannibalization. First, the
trade push approach was moderated to reduce the incentives
for retailers to promote ADM at the expense of VNM 100%.
Additionally, the company increased its effort to re-enforce
consumers’ attitudes that non-reconstituted milk was fresher
and thus tasted better than recombined powdered milk.
For a more long-term strategy, VNM has been forced
to revisit its liquid milk product portfolio. A more clearly

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 VERTICAL BRAND EXTENSION AT VINAMILK, VIETNAM  349

defined role for each product line along with effective dif-
ferentiation will be required. An avenue the company is
currently exploring is a vertical step-up from VNM 100%
by introducing supplementary enhancements from natural
sources. Adopting such a strategy would require abandoning
the notion of ‘purity’, a keyword that has traditionally been
used to distinguish “fresh” milk from the reconstituted coun-
terpart. Nevertheless, company executives believe the addi-
tional benefits from the ‘natural’ enhancers will outweigh any
potential drawbacks. Using only ‘natural’ enhancements will
be vital to maintain the wholesome image of the product. As
VNM prepares to venture into further vertical extension, the
search for the optimal product portfolio continues.

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 350  ACRJ

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