Managing retail customers at duong minh phuc company limited

UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
------------------------------

Le Thoai Vy

MANAGING RETAIL CUSTOMERS AT
DUONG MINH PHUC COMPANY
LIMITED
MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – Year 2017


UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
------------------------------

Le Thoai Vy

MANAGING RETAIL CUSTOMERS AT
DUONG MINH PHUC COMPANY
LIMITED
MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: Prof. Tran Ha Minh Quan

Ho Chi Minh City – Year 2017


SUPERVISOR’S REPORT ON THE THESIS PROPOSAL SUBMITTED

FOR DEGREE OF MASTER of BUSINESS ADMINISTRATION

The thesis proposal title: MANAGING RETAILS CUSTOMERS AT
DUONG MINH PHUC COMPANY
Student name: Le Thoai Vy
Supervisor: Dr. Tran Ha Minh Quan
1. General comments:
• Remarks on the student’s attitude:
...........................................................................................................................
...........................................................................................................................
• Remarks on the assignment’s academic quality:
...........................................................................................................................
...........................................................................................................................
2. Overall assessment:
 Meet requirement for submitting
 Not meet requirement for submitting
3. Other remarks:
- Did the student follow the report schedule?
󠇒 Yes

󠇒 No

- The turning plagiarism percentage:
Supervisor’s signature

󠇒 Other: …………………


Table of Contents
EXECUTIVE SUMMARY

1. INTRODUCTION
2. PROBLEM CONTEXT
3. PROBLEM IDENTIFICATION
4. CAUSE VALIDATION
5. ALTERNATIVE SOLUTIONS
6. ACTION PLANS
7.

CONCLUSION

8.

SUPPORTING DATA

APPENDIX
REFERENCES


EXECUTIVE SUMMARY
Recently, the financial statement of Duong Minh Phuc Co., Ltd has experienced a
significant drop in the sales and has not shown any signal of recover yet. Although there
was a stability in the sales around 50 units over the years, the company still saw a
dramatic fall in sales in 2017. This circumstance is mostly due to the reduction of existing
customers and the possibility of new buyer attraction. In order to discover the issues that
DMP is facing, the survey about customers’ satisfaction and thoughts has been taken.
DMP had organized some meetings with Sales department, Marketing department and
company CEO to research and analyze the survey’s result.
DMP has used the theory of Michael Porter referred to "Porter's Five Competitive
Pressure" to determine the competitive pressure that the company is facing in recent days.

After interviewing some potential consumers, DMP has found out some reasonable
factors that made the sales in product reduced. The main reason is due to customers’
dissatisfaction and the penetration of new substitutes. Interviewers have complaint about
the attitude of company staff as well as the promotion for old buyers. DMP has not
focused much on marketing strategy when it comes to household consumer segment; as a
result, the existing customers tend to choose other distributors for the gas cylinder.
However, the problem and cause itself may not correct and appropriate due to the limited
interviewer and the fluctuation of market. Because of the limited resources and time,
DMP only interviewed some potential consumers, which may result in the subjective and
there is no guarantee that answers to determine the whole problem of company is valid
and reliable. Therefore, managers of all department will analyze the problem and cause
carefully and specifically to find solutions for each issues. The solutions will mainly focus
on how to improve and develop the customers’ service and marketing the product,
especially in training the staffs, promotion programs and has a straight plan for the future.

4


1. INTRODUCTION
Company background
Duong Minh Phuc Co., Ltd (hereafter referred to as “DMP”) was established in 2015
specializing in providing high-quality liquefied petroleum gasoline for residential and
industrial uses. Newly penetrating to Ho Chi Minh City market, DMP is still at an
experimental stage of tweaking its products and services to meet the consumers’ need,
response to their expectation and well-adapt the market.
With a small scale of fewer than 10 employees, DMP is categorized as small and medium
enterprises (SMEs). Consequently, DMP’s organization structure is extremely simple
which is suitable for its operation since the company needs flexible and efficient
managements. The chart of organization is as follows:

Director

Sales

Accounting

Logistics

Engineer

Mission:
•

To commit to deliver the high-quality products to customers.

•

Enhance consumers’ perception of safety in using gas to avoid the risks.

•

To become one of Ho Chi Minh City’s leading distributors in the field.

The category of customers:
•

Geography: urban or rural

•

Type of using purpose: individuals, family, hospitality

•

Income: low or high

5


Products and services:
•

Gas

•

Maintenance: cleaning stoves…

•

Products: valves, stoves.

•

Services: LPG system installation for restaurant, factory, F&B consultant

•

Integrated products and services

2. PROBLEM CONTEXT
2.1.

Risks and challenges in LPG Retail industry

First of all, the nature of retail sector for LPG is fierce competition. More specifically,
diverse retailers provide customers with similar products or services as well as compete
intensely on the basis of price, quality, and after-buy services. Thus, DMP has to learn
and forecast the competitors’ strategy on the way of making its own plan to gain more
market share as it is a new enterprise in Ho Chi Minh market. Therefore, forecasting
method is consider to be the key factor for the company’s comparative advantage.
Secondly, the next challenge could be continuous changes in consumer trends or
preferences. Customer is the new point-of-sale, as a result their satisfaction and trends can
effect considerably on the market share. There are major variety of shopping ‘experience’
thanks to connected consumer networks. Moreover, customer’s commitment to the
businesses can be very weak when they cannot be beneficial from the products or
services. Because the number of suppliers in the market is huge, the costumers are tended
to change a new products with more benefits if the company cannot meet their
satisfaction.
Furthermore, attracting and retaining talented employees is an obvious challenge. Key
personnel who impact the business’ ability to deliver customer service should not be
replaced regularly in order to avoid interruption in keeping contacts with customers.
Senior manager should concentrate not only on consumers, but also on their employees by

6


some incentive policies to maintain the employees’ loyalty. This step can create a mutual
benefit for both party.
LPG is a special and typical business strictly supervised by Government in terms of price,

business practices, and other related regulations. However, in the context of rapid growth
of the economy, more and more LPG related companies have been established, which
reaches saturation in the urban areas. Under the situation of the fierce business
environment, LGP companies in general and DMP in particular is facing difficulties and
challenges that can be realized as follows:
• Loss of gas cylinders
• Unfair competition
• Inability to keep track the movement of the gas cylinders
• Illegal filling
• Lack of regular inspection and tight controls from authorities
• High costs of LPG refilling
• Unskilled staffs
• Safety threat to customers
• Heavy taxation by the Government

7


2.2.

Problems in service management at DMP
Number of customers

60
50

50,050,050,0
47,047,047,047,0
43,043,043,043,043,0
42 42 42

40

38 38 38
32 32

30
25 25
20
15 15 15
10

2015

2016

Jun

Apr

May

Mar

Feb

Jan

Dec

Nov

Oct

Sep

Aug

Jul

Jun

May

Apr

Mar

Feb

Jan

Dec

Nov

Oct

Sep

Aug

Jul

Jun

0

2017

Figure 2.1 The number of customers from June 2015 to June 2017
As can be seen clearly from the line chart, even though having a leveling off in the
beginning when the number of consumers remained unchanged at 15 costumers for 3
months since its establishment, DMP still had a strong growth in overall. Especially, in
2015 the company witnesses a considerable rise in the quantity within 6 months only,
from 15 to 32 clients. DMP experienced a peak of this number from the last quarter of
2016 to the first month of next year. However, the figures began to decrease from 50 to
43 since the beginning of 2017. This still counted to be a good performance for the
company since the number of customers of DMP in June 2017 was by nearly triple of that
in June 2015.
Although there is more growth than when the company first entered the market in Ho Chi
Minh City, the number of customers in 2017 compared to 2016 has dropped significantly
(from 50 to 43). This shows that company DMP has ineffective business strategies that
lead to customer dissatisfaction, thereby losing a significant number of customers. Pricing
strategies, marketing or after-buy service are also one of the key points for many
companies today to retain their customers. However, perhaps with some wrong steps in
8


the above strategies, the company has lost a lot of market share in Ho Chi Minh City. In

addition, the technical aspects of the product such as packaging, product quality, safety
and reliability are also one of the key factors that help the company gain the trust of
others. With the fiercely competitive gas market in Ho Chi Minh City, DMP needs to
improve its design and product quality to match the tastes of its customers as well as catch
up with its competitors.
Average turnover of gas cylinders (12kg)
002
001
001

Unit

001
001
001
000
000

2015

2016

Jun

May

Apr

Mar

Feb

Jan

Dec

Nov

Oct

Sep

Aug

Jul

Jun

May

Apr

Mar

Feb

Jan

Dec

Nov

Oct

Sep

Aug

Jul

Jun

000

2017

The line graph presents the average turnover of gas cylinders from June 2015 to June
2017. Overall, there was a moderate drop in this number over the past two years. It has
been significantly lengthened from 0.75 – 1.0 months to 1.5 – 3 months for a consumer to
assume one cylinder of gas since June 2016 to current. It means that the gas cylinders to
be consumed in a month has gone down from 1 unit per month to only 0.3 unit per month.
Part of the reason for this situation is because the business policy of the company has not
really suited to the consumer market in Ho Chi Minh City. The market saturation at 1.0
unit in the first year when the company just entered the market is understandable, because
they offered a new product, so the market needs time to adapt and trust. However, the
9


sharp decline from the highest point to the lowest in the two years from 2016 to 2017 is
very worrying.

The root of the problem is various choices in replacement of gas such as electronic stoves
or food delivery as its more convenience. Technology products are increasingly
developed and widespread, making gas appliances become obsolete in major cities.
Trends in cooking utensils as well as consumers 'eating patterns have greatly influenced
consumers' perceptions about the use of gas. In addition, the competition in the industry is
quite a factor that makes the market share decline significantly. As the economy grows,
the gas market is also expanding, many enterprises enter the industry, giving customers
more choices. As a result, DMP's strategies are no longer relevant to the sector's
competition and lose much of its market share.
This puts financial burden on the business operation due to the increase on weighted
average cost of capital (i.e. spending more to order more cylinders). DMP should have
more stringent cost control policies in the coming years. Because the decline in market
share has partly increased fixed costs, the financial burden of the company has increased
respectively.

10


MVND
16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

-

Jun

Jul

Aug Sep Oct
2015

Nov Dec

Jan

Feb

Mar Apr May Jun Jul
2016

Aug Sep

Oct

Nov Dec

Jan

Feb

Mar Apr May Jun
2017

COGS
2,84 2,84 2,84 5,01 5,01 6,41 6,41 11,4 11,4 11,4 8,01 8,01 5,37 6,01 6,01 3,84 3,84 4,08 4,08 10,2 8,77 8,15 3,26 3,26 3,26
(million VND)
Sales Revenue
3,61 3,61 3,61 6,02 6,02 8,18 8,18 14,5 14,5 14,3 10,1 10,1 6,77 7,58 7,52 4,49 4,81 5,45 5,45 14,4 12,4 12,9 5,16 4,95 4,95
(million VND)

Figure 2.2 Cost of goods sales and Sales Revenue from June 2015 to June 2017

11


The presented figure gives data on cost of goods sales and sales revenue at DMP from June 2015 to June 2017. In
general, the cost and revenue of the company increased annually. Costs and sales of the company both have the highest
score of 11.4 & 14.5 respectively in 2016 and 10.2 & 14.4 in 2017. Although revenue is always higher than costs in the past
three years, but this is still not a positive sign when revenue continued to fall sharply last year. As mentioned above, the
reduction in market share leads to higher costs due to fixed costs of the product. Over time, the rate of revenue growth will
not be greater than the rate of increase in costs, leading to losses of the company. The chart above shows how the decline in
sales will affect profitability, as the company's revenue has fluctuated significantly over the years and the company's profit
has also decreased. Although the number of customers has been increasing for months, the profit gained has not been rising
accordingly. Increasing cost over the years and reducing revenue is one reason for this, DMP has been trying to overcome
these costs as well as attract more customers with preferential policies, keeping in mind the aim of increasing and stabilizing
market share of the household consumer segment.

12


3. PROBLEM IDENTIFICATION
Michael Porter, the world's foremost strategic and competitive strategist, provided a
theoretical framework for analyzing and modeling the business and arguing that every
business must be affected by five major competitive forces(1). This model, commonly
referred to as "Porter's Five Competitive Pressure", is considered a useful and effective
tool for understanding the source of profit. Most importantly, this model provides
competitive strategies for businesses to maintain or increase profitability. DMP will use
this model to find out the problems that the company is experiencing, thus providing
practical and effective solutions.
The five forces are:
1. Supplier power: An assessment of how easy it is for suppliers to drive up prices. This
is driven by the: number of suppliers of each essential input; uniqueness of their product
or service; relative size and strength of the supplier; and cost of switching from one
supplier to another.
2. Buyer power: An assessment of how easy it is for buyers to drive prices down. This is
driven by the: number of buyers in the market; importance of each individual buyer to the
organization; and cost to the buyer of switching from one supplier to another. If a
business has just a few powerful buyers, they are often able to dictate terms.
3. Competitive rivalry: The main driver is the number and capability of competitors in
the market. Many competitors, offering undifferentiated products and services, will
reduce market attractiveness.
4. Threat of substitution: Where close substitute products exist in a market, it increases
the likelihood of customers switching to alternatives in response to price increases. This
reduces both the power of suppliers and the attractiveness of the market.

13

5. Threat of new entry: Profitable markets attract new entrants, which erodes
profitability. Unless incumbents have strong and durable barriers to entry, for example,
patents, economies of scale, capital requirements or government policies, then
profitability will decline to a competitive rate.
Reviewing DMP’s business performance from 2015 to 2017, revenue has not
compensated expenditure, which leads to the result of zero in profit. Conducting a survey
on 53 households using DMP’s LPG, the symptom has been mainly caused by following
mediating variables:

Unfairly
compete

High cost of refilling

Low buyers satisfaction
Low buyers’ awareness

New substitutes

3.1.

Supplier power

14


2017
Time

Cost of
goods sales
(million
VND)
Sales
Revenue
(million
VND)

Jan

Feb

Mar

Apr

May

Jun

10.2

8.77

8.15

3.26

3.26

3.26

14.4

12.4

12.9

5.16

4.95

4.95

Figure 3.3: Cost and revenue of goods sold in 2017
In Vietnam, the business of producing gas cylinder is heavily dependent on the
government, as the government is the official and legal supplier of the domestic gas
market. The cylinders of gas market revolves around the government's gas supply and the
production of gas cylinders by LPG companies. Therefore, when the government sets
regulations on the price of a gas refilling and the minimum gas quantity regulations,
resulting in the difficulties for LPG companies. The cost of DMP for refill gas is shown in
the table above illustrates that the cost is far different from revenue that DMP achieved,
resulting in a minimal profit. Therefore, the high cost of refill gas is one of the difficult
problems that DMP needs to find a solution. In addition, Decree 19/2016 and Circular 03
of the Ministry of Industry and Commerce stipulate that distributors must have tanks with
a total capacity of at least 300m3; the quantity of bottles of all kinds eligible for
circulation on the market shall be owned by traders with a total tonnage of at least
2,620,000 liters (equivalent to 100,000 bottles of 12kg grade gas cylinders) to be licensed
for operation on market

(2)

. Though there are many opinions and appeals, this Decree is

still applied because no other Decree has been replaced recently. This has negatively
impacted the cost of the DMP when they previously just had to invest certain capital to
meet the conditions that the government offered, but now the cost has increased steadily
as the government changed and tightened regulations. The cost control problem is always

15


difficult for all businesses and that is no exception for DMP, so cutting down some
unnecessary costs will be the strategy that DMP is looking forward to in the future.
3.2.

Buyer power.

3.2.1. Low buyers satisfaction.
a. Poor customers service
Due to its limitations of human and financial resources, DMP has performed a poor
customer service. Currently, there are around 2 – 3 part-time manual mechanics who is
responsible for all technical problems at DMP. They appears not to respond in time to
customers’ inquiries and not to solve problems as quickly as possible. Many staffs are
considered as lack of friendly attitude to the customers. Many complaints received from
DMP’s customers for this issue.
The concept of ‘supplementary customer services’ introduce by Parashuraman (1998)
defines those services as ones free of charge, attached to the core products and/ or
services. Swoboda(3) et al. (2007) suggests that service is the most vital element in

building and fostering a brand besides other criteria such as value, assortment, advertising
and store design. In fact, DMP has not created its great differences from its competitors
to improve its image or brand identity in customers’ perception. The customer services
are not rich enough to keep loyal customers or attract new ones. DMP has few policies to
treat its loyalty customers, which makes them feel unsatisfied to continue to use DMP’s
products and services and they easily move on to a competitor’s offer. Also, there are no
strategic promotion and advertisement to introduce widely its brand name.
The problems are due to the lack of professionalism and low level of expertise of the
company staff. Because DMP is a small and medium enterprise, the shortage of human
resources has led to many low-skilled employees being recruited. For the marketing
department, Marketing staff do not really understand and research the trend of price
fluctuation of the market. In addition, the company do not strongly paid attention in
promotion programs and presents for old consumers in holidays. Moreover, the financial
16


department has not appropriately and effectively controlled the costs that the company has
spent, leading to high costs and less profits over the period of years. The technical
department is not qualified enough to meet the requirements of household customers,
resulting in customer dissatisfaction with the product of DMP. The most important part is
the connection between different department of DMP was not linked and relevant enough,
which lead to they cannot come up with the best strategic planning to capture market
share and retain customer loyalty. Thus, DMP executives need to have reasonable policies
to meet customer expectations and maintain their loyalty in the household segment.
b. Poor communication
DMP’s organization structure is quite simple and flexible to ensure that it can work
economically at the greatest efficiency. Next to the Director who is responsible for
general supervision and management, DMP has mostly recruited part-time employees in
the purpose of saving the money for operation, which becomes its significant challenge to
managing customer contact points. The part-time employees hardly feel committed to the

company because they spend less time there and find it easier to leave for more stable
compensation and benefits. Hence, they are not encouraged in contribution towards
creating the best value to the company. They simply do their assigned tasks within
normal working hours without the intentions of being more active in their work. Interview
one of current customers, it could be recognized that DMP is losing their loyal customers
by lack of frequent and stable interactions with customers.
In addition, part-time employees do not have the expertise and professionalism needed to
serve the job in the DMP. More than 60% of DMP employees are part-time employees,
resulting in the lack of stability and cohesiveness within the company's personnel, which
made the DMP does not address the problem and meet the needs of their customers
leading to a significant loss in the number of potential customers. Most of the part-time
employees are either freshmen or graduate, so they have not had the experience in
communicating or taking care of clients. The clear evidence is shown in the majority of
surveyed clients said they were not satisfied with the behaviors and information provided
17


by the company's employees. Furthermore, the attitude of employees is also the core
factor in the process of contact and customers service. As mentioned above, some
interviewers complained that the attitudes of DMP staff were not positive and proactively
provided the necessary measures or information that the client requested. Moreover, some
employees are uncomfortable and do not want to interact with the consumers. These
factors have created the weak point of DMP in information transfer and interaction with
customers. While other competitors are pushing for customer care, DMP seems to be
quite distracted and has not really focused on this segment. This is another critical issue
that the company is facing in meeting the customer satisfactions.
c. Poor customer loyalty programmes
Loyalty of customers is demonstrated to be a component of satisfaction, studied Fecikova,
2004 (4). According to Fecikova, customer loyalty is a measure of their satisfaction with a
company's products and services. Consumers will only reuse the company's products

when the benefits it brought to them is more than the other similar products in the market.
This is shown in the similarity between cheap with low quality, after-buy service and
high-priced products with good quality and service, consumers will tend to favor the
second choice. Because one of the most crucial tools to keep loyal customers nowadays is
promotions and after-buy services. Moreover, competitors rely on suitable and effective
marketing strategies in order to win the trust and loyalty of their customers. Besides, loyal
customers help increase company profitability by their retention of the company’s
products and services, and by word-of-mouth, according to Bowen and Chen, 2001;
Fecikova, 2004. In Vietnam, following the crowd and word of mouth are one of the best
tools that LPG companies use to build their reputation and product brand. In addition,
with these tools, LPG companies can save money and have an economical budget for
promoting the company's image. Customer loyalty and satisfaction are the two main
determinants of this free tool. Especially in the household segment, where consumers
shop mainly through word of mouth and listen to the experiences of previous users, the
loyalty of the old and new customers must always be put in high concern and priority.

18


DMP has not brought its customers sales promotion or loyalty programmes, which are
one of the minus points comparing to the competitors. This is quite understandable, as the
main market for DMP is not only concentrated on the consumer segment but also on the
industrial segment. Due to the company's limited resources, DMP has not really focused
on investing in marketing and promotion programs to gain loyalty. Moreover, since the
company has only penetrated the market for two years, it is difficult to avoid the
uncertainties and challenges in operational structure of the gas market in Ho Chi Minh
City. The company has different marketing programs such as gifts, coupons, etc so far,
but DMP just focused on running marketing campaigns for longtime and familiar
customers without attracting the new consumer. In the household segment, the acquisition
of loyalty of new customers has not been taken in advance, so with different marketing

strategies from competing companies, DMP has lost a lot of opportunities to gain the
loyal customers.
3.2.2. Low awareness
The activity of filling of LPG cylinders is potentially extremely hazardous, which requires
experienced experts and skilled operators for safe filling as well as use of certified
equipment, complying safe working procedures, and a safe environment. However, in
order to gain the maximum profits, many retailers have been performing refilling activity
unlawfully, which does not include all of the necessary safety elements required for filling
LPG cylinders. Customers are unlikely to recognize guaranteed LPG cylinders because
they are not conscious of the dangers of using poor quality such as leaks resulting in a
strong probability of explosion and causing injuries or even fatalities.

As a result,

customers will tend to find retailers who provide them with the products or services at the
most competitive prices instead of keeping using quality brands like DMP.
Additionally, for saving costs, some unstandardized providers use manual and unsafe
techniques to exact gasoline to cylinders, which declines in gasoline quality (the
concentration of C2+, C5+) and is also potential dangers to consumers. Competitors can
use cheap but inexpensive gas valves or tubes to manufacture and assemble gas cylinders.
19


This is one of the noticeable reasons that competitors' prices are cheap, or even lower in
the future. However, many household customers do not acknowledge about this
circumstance; because only professionals in the industry recognize the features of the
various components in the product and whether the quality of the product is good or bad
and. The quality of products in the gas industry is one of the most important things that
any company must strictly adhere to. Because it not only affects the lives of consumers
but also affects the reputation of a business. A typical example of the danger is that gas

quality is reported to be attributed to a gas explosion in a household in Vinh Phuc
province, which has left one dead and two seriously injured. Or the fire in Thanh Hoa due
to the quality of the gas valve burned many assets of a family and cause 3 people injured.
Both cases are only part of the irresponsibility of gas tank manufacturers as well as
customer subjectivity. Building customer perceptions is an important step in the process
of gaining trust and loyalty. Therefore, DMP companies need strategies to attract
customers with promotional and advertising promotions. Extensive levels of safety and
quality of products, from which the consumer perception not only in terms of price but
also in quality of products.
3.3.

Competitive rivalry

3.3.1. Pricing strategy
Pricing has been widely investigated by past-to-present researchers. Among those studies
are the point of view’s Dolan and Simon, 1996; Gabor and Granger, 1966 which
considers the price as a factor of positioning a brand in the market as well as a tool for
customers to measure the brand

(5)

. DMP’s key market is focusing on the areas of Binh

Thanh, and Go Vap District where hundreds of small and medium gasoline retailers have
established their presence in the market. According to statistics, there are 31 main
competitors who provide customers with similar products and services, which consider to
be a major number. Binh Thanh, and Go Vap District are two relatively densely populated
and labor-dominated areas. Therefore, price strategy is the most important when DMP
wants to gain market share in these areas. The more companies enter the market in Ho

20


Chi Minh City, especially in these two areas, the higher the competition rate of the
industry. Consequently, with the company's limited financial resources, DMP has been
researching and surveying consumers for prices to have effective insights and strategies
targeted at this target market.
Mrs Nguyen Thi Tam – a consumer in Binh Thanh shared that:
Gasoline is a necessity to most families for daily cooking. Thus, expenditures for
this type of goods take a consideration from housewives economically. They tend
to buy LPG at a competitive price.
Mrs Vo Ngoc Uyen – a single mom with 2 daughters living in busy residence in Go Vap
expressed her concern openly:
Despite of worrying the truth of “you get what you pay for”, she still had to set
tight budget on spending because she had to struggle with a single-mom life.
Hence, she surely choose distributors who offer the cheapest products or attached
gifts to their goods.
According to statistics, 70 per cent of respondents show their ideas of prioritizing the
cheapest gasoline. The result is understandable because Vietnam is still a developing
country with 80% of the agricultural sector's primary income. Therefore, the per capita
income of the Vietnamese people is still at an average level compared to the world
average. (The average total income of the employees is nearly 5.53 million VND / month
in 2018 (higher than the basic salary is 18.4%), up more than 1.4% compared to 2017) (6).
At such an income level, household workers tend to save budgets of spending, including
those in large cities. According to the data, the average expenditure of a household is
about 7.38 million VND / month, with 17.4% of employees reporting ample and
accumulating; 43.7% said they could afford to live; 26.5% must spend frugally and
miserably; 12.5% said incomes are not enough to live on (7). After studying and analyzing
these statistics, LPG companies in the market often focus on price strategy when
competing in the market In part because gas cylinders are consumer goods, for the

21


household consumer the price is a vital factor when choosing to purchase the product.
Hence, DMP should pay more attention to price strategy and reduce unnecessary costs to
obtain a competitive price that is suitable for the general market.
3.3.2. Unfair competition
a. Labelling illegally and the loss of gas cylinder.
The unfair competition from rival companies in the market is increasing significantly.
Some rivals used illegal tactics to deprive DMP’s intellectual property rights. Moreover,
the unfair competition in LPG distribution to residents. Taking customer services as an
example, some distributors take advantages of maintenance or cleaning service to label
their ordering information on DMP’s cylinders, which makes DMP’s customers confuse
and accidentally use these pieces of information for their next orders. Because household
consumers tend to rely on the label of the company to re-order new gas cylinder in the
next time. As a result, with all the tactics of rival companies, it is perfectly possible for a
DMP to lose a large number of potential customers. Not only that, when rival labeling
their ordering information on DMP's cylinders, it also led to the loss of numerous
cylinders of gas. Only when the company realized the decline of gas cylinders and sent
staff to test, from which the ruse of the new rivals were discovered. Even though it was
discovered early on, DMP could not control the quantity and keep track of the
displacement of gas cylinders, which led to an increase in the cost of purchasing new gas
cylinders and staff costs for checking the packages. Eventually, the increase in product
costs leading to the rise in price and the drop in market share that DMP gained. As
mentioned above, in the household segment, the price factor is one of the determinants of
the company's positioning. This is one of the issues that the company needs to set out to
reach the effective solution.
b. Illegal refilling and Lack of regular inspection and tight controls from authorities
Smuggling gas, the instability of sale of gas and gas market disorder are the persistent

problems in the gas industry in recent years. Consequently, consumers are "pickpockets"

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with products that do not meet the quality standards and potential fire risks. According to
statistics in 2016, up to 30% of gas in each home is gas to illegally extracted, not
controlled quality and potential fire risk(8). The illegally refilling gas market is
increasingly expanding with complicated and sophisticated tricks from manufacturers. In
order to reduce costs and increase profits, they avoid law and government regulations to
get cheap gas cylinders to attract more customers in the market. A typical example is the
illegal extraction of gases in Long An province which has helped the producers of gas
cylinders with monthly profits of up to VND 2 billion to VND 4 billion for output from
800 to thousands of bottles (on peak days)

(9)

. Besides that, in Ho Chi Minh City, Binh

Chanh District Market Management Team discovered 51 gas tanks of 12kg type
connected to 14 self-made gas trays, 5,000 mini gas cylinders and 7 motorcycles designed
as delivery vehicles. With a gas bottle of 12 kg to illegally extract, the producer gained
the profit about 300,000 VND for one bottle (10). It is because of such huge profits that
illegal manufacturers are constantly entering the market and making it difficult for
companies like DMP to have comparative advantages to compete in price competition.
In addition, the lack of government rigor and control is also one of the reasons for the
growing illegal refilling gas market in major cities. The market for illegal gas extraction is
a large and potential market with profitable benefits with low cost as well as high market
share. As a result, with the increasing number of unlicensed manufacturers entering the
industry, the government cannot control it, and with ineffective policies, they has

contributed to increasing competitive pressures for LPG companies in general and DMP
enterprises in particular. In 2015, a draft by the Ministry of Industry and Commerce
drafted, with the condition that was not only tightened but opened for the gas business.
Accordingly, instead of 300,000 shells as before, businesses only need to have 100,000 to
150,000 gas cylinders will qualify as wholesale traders, distributors and licensed
operations. However, this draft has encountered a lot of opposition and appeals from the
authorities of Ho Chi Minh City to the senior leaders of large companies (11).

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Nguyen Phuong Dong, deputy director of the Department of Industry and Trade of Ho
Chi Minh City, said that the "lowering" will make management difficult, while the
situation in the gas business has not been effectively corrected (12).
"Lowering this standard means encouraging more businesses to join the market to
continue scattering. Accordingly, the situation of occupying the bottle, swapping to
extract gas and illegally refill gas is more difficult to control leading to the market more
disorder "- Le Thi Anh Man, deputy general director of Petrovietnam One Member
Limited Liability Company HCMC (Saigon Petro), said(12)..
Le Thi Anh Man stated that the extraction station only need to have a fully-fledged paper
that can operate is a major flaw in management system(12).. Those filling stations only
need to sign a contract with a focal point trader to legalize, and then manually launch the
unauthorized extraction of a series of other brands to gain illicit profits. Therefore, in
order for the gas market to remain stable and legitimate, the government should set up
appropriate and effective policies in this large market management, as well as severely
punish those that do illegal action which against the law. DMPs also need to have certain
policies, especially cost control policies, to create competitive advantage in the household
segment.
3.4.

Threat of new substitutes

3.4.1. New technological gadgets
High-income households have tendency to switch to use electric stoves substituting for
LPG. In-depth interviews are conducted illustrating clearly for this trend.
Ms. Ninh Hong Ngoc: “Recently, I have not often used gas for my cooking because
my daughter-in-law advises to switch to electric stove due to its safe and
convenience. So, now I just cook on the gasoline stove when I need to be quick like
cooking instant noodles (smile). It may take up 4 – 5 months to require a new gas
cylinder.”

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