Book excerpt: Cultivating brand innovation in China

Co-written by Greg Paull and Goh ShuFen of R3, China CMO: Best Practices in Marketing Effectiveness and Efficiency in the Middle Kingdom is based on discussions with 17 CMOs. The book provides a snapshot of some of the most successful brands on the Mainland and the marketing leaders driving the award-winning work behind these brands. This exclusive excerpt, reprinted with permission of R3, discusses the definition of innovation in China and the relationship between relevance and breakthrough.

Chapter 2: Innovation and Insights
Four great inventions to one million patents

When a Haier call center received a complaint from a customer in Sichuan about dirt reappearing in his washing machine after each cycle, it appeared to be another routine after-sales service checkup. Making the trek to a small Sichuan village, the Haier technician was shown a load of freshly harvested and washed potatoes in the washing machine by the farmer who had made the call.

The Chinese consumer electronics and home appliances giant didn’t dismiss the case, however. Rather than informing the farmer of his misusage of the product, Haier asked, “Who else is using our machines for this purpose, and how can we adapt our products to accommodate for unexpected usage cases like this?”

A long history of innovation shows that good design is not about staying within predefined bounds. It’s about borrowing ideas across categories, improvising solutions out of a set of preexisting conditions, and taking calculated risks based on pressing constraints or a fresh insight. The seed idea for an innovation can come from anywhere, but it takes a keen sense of observation to pick up on the opportunity. And that’s exactly the approach Haier took when they developed a washing machine that could handle not only dirty laundry, but also freshly harvested produce.

That’s the kind of open mentality that brands in China today must embrace to get to the bottom of consumer needs and desires before their competition or even consumers themselves do. Just as the Chinese define innovation differently from people from other parts of the world, Chinese consumer wants and needs are also much different from those of a consumer in the US or a consumer in India. While the recent buzz around crowd-sourced products indicates that listening to customer feedback is the key to unlocking groundbreaking ideas, Haier’s example indicates that ordinary occasions for consumer behavior observation can take you further than meets the eye and can help you to unlock deeper insights.

Despite the bad rap China gets for its counterfeit culture and a supposed lack of creative prowess, China is no stranger to innovation. Home to the Four Great Inventions—the compass, printing, gunpowder, and papermaking—China was a major player in the innovation game beginning in ancient history. Fast forward to today and the middle kingdom now sits on an inventory of more than one million patents, which some pundits like to point to as an indication of China’s growing capacity for innovation. But has China caught up enough to live up to its old glory days and claim a modern day Four Great Inventions?

Perhaps no—at least not yet. But to understand the long journey of China’s inventive tradition, there are a few fundamental factors underlying the country’s unique environment for cultivating innovation.

Sowing Seeds of Innovation in the Mainland

Up till now, China’s relaxed policy towards intellectual property standards has stemmed not only from a desire to drive immediate economic growth, but also from a cultural dissonance with the concept of IP in itself. Economically speaking, there are strong incentives for China to ignore intellectual property rights. By imitating internationally successful products and business practices, developing nations such as China can gain a competitive advantage. What many Silicon Valley enthusiasts often forget is that Japan and Korea also blazed the path from imitation to innovation, giving rise to brands such as Samsung and Toyota. On the cultural front, while the West often prizes innovation as an individual act born out of the creative genius of one inventor, forms of imitation have been respected as a learning tool in collective societies like China. In the short run, this has proven to be a fairly beneficial strategy—the Chinese economy has been growing exponentially, with counterfeits accounting for 15%-20% of all products made in China and for 8% of China’s annual GDP.

On the flipside, China’s lack of intellectual property rights has not only threatened to compel foreign businesses to reduce the amount of business they do both in and with China, but it has also reduced the incentive for domestic innovation since innovators are not guaranteed to profit from the fruits of their developments. With many businesses contending that poor IP protection stands as one of the most significant challenges for doing business in China, China’s leadership is looking to bolster innovation in the country.

As a part of China’s latest Five Year Plan, shifting China to an innovation-based economy—from ‘Made in China’ to ‘Designed in China’—has become a top priority. With heightening intellectual property standards and 2.5% of China’s GDP to be allocated toward R&D by 2020, China is taking measures to be an innovation superpower once again. Currently, China falls only second place to the US in terms of R&D expenditure, with the US spending USD 405.3 billion (2.7% of GDP), China spending USD 296.8 billion (1.97% GDP), and Japan spending USD 160.3 billion (3.67% of GDP) on R&D. China’s digital and technology spaces are a good indication of the breakthrough developments anticipated, with the last decade seeing the birth of the high speed train and new ground covered in mobile commerce by online shopping platform Taobao. And now, there are more than 1,500 R&D centers owned by leading overseas companies such as General Electric, Proctor & Gamble, and PepsiCo for the purpose of creating products for both the Chinese and international markets.

So how can your brand be on the frontlines of China’s innovation platform and pick up on opportunities before others do?

Have a relentless brand purpose

When it comes to identifying the right opportunities, some brands in China pursue everything they perceive to be ‘the next big thing’. However, being able to tune out the noise and identify the opportunities which strike the right chord with both the brand and the consumer is key.

Allowing your core brand values to drive opportunity identification begins with understanding your brand’s hierarchy of needs. Prioritizing what’s important allows companies to narrow down the selection process and maintain sharp focus, which is vital to keeping afloat in this market.

Marie Han Silloway of Starbucks shares, “There’s a lot of noise when you’re in China, regardless of what company you’re in. For us, there may be global initiatives we must consider, a new food regulation, or a government changeover—so we have to be very agile in that respect. But we also have to be very focused by asking, ‘what is our North Star that we are ultimately working towards?’”

Staying grounded in your brand’s core values allows consumers to hear a consistent brand message across the board and ultimately builds towards unshakable brand awareness in this market. Being able to give up the good for the great will boldly differentiate your brand from a sea of competitors.

Lawrence He at Philips speaks to the importance of brand calling to drive all innovation opportunities:

“We call it innovation that matters. In our research lab, there are a lot of great ideas. But the question is, do they matter? The core essence of Philips is that we continue to innovate new solutions and breakthrough technologies, for the customer. So we always ask, ‘what does the consumer need and what is the innovation that we can bring?’ We design innovative products around our customers, because it’s our brand calling.”

The Great Leap Forward in value through your innovation

Whatever innovation your brand decides to bring to market, making sure it adds value to the lives of your consumers and also brings value to your brand is essential. Creating a leap in value for your consumers begins with identifying a true consumer insight and designing your product around it. It doesn’t begin with focusing on competition. Designing around already known insights will only result in me-too products, so coming up with a truly fresh and unexpected idea is vital to making a breakthrough.

No matter how incremental or groundbreaking, your innovation will be of no use if your brand fails to communicate its value to consumers in a relevant way. Catching the attention of an audience is just one part of the challenge. Maintaining it is another story. To spark interest and hold attention, the leap you make with your product must be a far enough departure to add value, but close enough to still be relevant to your consumers’ lives. Framing your innovation in a way that speaks to the value set of your audience makes for easier reception and adoption of your product or service. By linking the new feature, technology, or experience that your innovation offers to what Chinese consumers value, your brand’s innovation can be easily taken in stride.

Anthony Lau’s advice for overseas brands is to: “Do your research and understand your customer well before you consider how you would launch your product or service. You’ll most likely need to adapt your product or service, because the things they value are quite different from other parts of the world. So you really need to understand Chinese culture and behavior.”

AB InBev’s Rex Wong says, “When we came here, we looked at the research to decipher what the value sets in China are, and what Chinese people think.”

Take the recent success of Chinese children’s clothing brand Greenbox. Ranked in The World’s 50 Most Innovative Brands by Fast Company and number one children’s clothing apparel on Taobao, the Shanghai based clothier was recognized for responding to the unmet needs of brand consciousness and product safety among China’s growing middle class. While overseas clothing companies offered the status sought by mothers shopping for their prized children, they didn’t necessarily offer the right fit for the Chinese market. On the other end, Greenbox created a standard of safety in a market where no such standard existed among local brands. In a society dominated by a two-parent-four-grandparent family with the desire to pamper their only child, Greenbox offers a leap in value through a combination of personality, status, and safety that cannot be found elsewhere.

The brands that avoid getting caught up in trying to outperform their rivals can focus on pioneering untouched, value adding territory. When companies can create a great enough leap in value for consumers, they are no longer held up against the benchmarks of their competitors—rather, all competition is made irrelevant.

The Path Less Traveled

While entering into existing markets comes with its own set of predefined rules and boundaries, venturing into unchartered territory gives brands an opportunity to create their own rules.

The number of unmet consumer needs in the China market presents a goldmine of opportunity for brands unafraid to make bold moves. GE’s Global Innovation Barometer study found that while other markets focus on incremental innovations, the China market is becoming increasingly disposed to innovations that push the envelope, with 81% of Chinese executives pushing for the development of entirely new products.

So what implications do these trends have for brands in China? With consumers’ high expectations for foreign brands to bring something new to the game, there’s no better time than now to shape a new market.

When Nestle introduced the first major commercial coffee brand into China 20 years ago, they took matters into their own hands by creating the coffee category from the ground up. “We opened up and professionalized coffee growing in Yunnan. We had a 20-year head start to do that ahead of our competitors. Nescafe is really a flagship in terms of embedding a foreign product into the Chinese market,” shares Nestle’s Paolo Mercado.

Identifying a breakthrough point to develop a market where there is little or no competition begins with choosing a specific industry and product that makes sense for your brand. It’s hard to know where to begin looking for such a breakthrough point, but here are a few questions to get your creative engine running:

» Go back to the drawing board and revisit your assumptions—what’s changed in the market since you first began?

» What direction are market trends pointing towards on a global, national, and local level in your industry?

» Who are the consumers between markets that aren’t quite getting their needs met? What are their idiosyncrasies and how can your brand tap into them?

The key to shaping a new market lies in being able to own an aspect of your category—whether it’s the category itself, the consumer rituals within it, or having the most compelling brand story behind it. Visa’s Vivian Pan relates, “From top to bottom in Visa, everybody is trying to think about how we can lead the payment category for the next fifty or hundred years.” The brands that carve out their own categories or rituals are the ones that create lasting brand equity among Chinese consumers.

Summary

For any brand, innovation is essential to remain competitive in a market. Although the concept is universal, the rich nuances making up each market must be taken into account, particularly in China. As high as the demand is for unparalleled experiences from companies among Mainlanders, the demand is just as high for products or services which fit the context of their everyday needs. The challenge for brands lies in striking a healthy balance between creating a product that is inimitable (i.e. branding) yet affordable for consumers.

In a country where change that would typically take 30 years takes place in just one-third of the time, being at the cutting edge is the only way to get ahead. Every marketer is fighting for a piece of the pie, but what sets great marketers apart is their ability to identify unmet needs and to innovate based on their insights. China’s dynamic nature and growing socioeconomic gaps make for new problems that need solving every day, and the brands which explore and uncover relevant and creative solutions will be able to cut through the clutter.

Innovation Roadmap

» China has both the scale and the pace for businesses to grow

» The concept of innovation in China is determined by the dimensions of relevance and breakthrough experiences

» Research is necessary to ensure your innovation fulfills a latent need, especially when Chinese consumers hold different values compared to other countries

» One way to avoid getting caught in the rat race is to move into untapped, value-adding territory

» The key to shaping a new market lies in being able to own an aspect of your category

» The China market grows at such a rapid pace that marketers must be able to adapt to in order to keep up with the relatively short time of creating a new product and putting it on the market

» An in-house R&D team will give you a direct understanding of the market and emerging trends

» Relevance can only be achieved when brands let go of the Western mindset and innovate based on local insights

» Communicating the value of the innovation effectively is just as important as creating it

Excerpt from China CMO, Copyright 2013 Greg Paull and Goh ShuFen