Robert Clark
Sep 11, 2014

China pushes MNCs to deliver more

ASIA's TOP 1000 BRANDS: As consumers become ever more discerning, so local brands increase the level of competition with more sophisticated products.

China pushes MNCs to deliver more

This year’s Asia’s Top 1000 Brands report has yielded many of the usual suspects against a backdrop that continues to change at a startling rate. But it’s clear that Chinese consumers are becoming much more discerning and more demanding, and that technology is breaking down some of the old barriers. 

Experts cite as standouts over the past year global brands such as Samsung, Starbucks, L’Oréal and Apple, along with their local counterparts like Tencent, Tsingtao and Taobao. 

They also point to the increased sophistication of consumers, the continued rise of ecommerce and the need for an integrated approach to marketing. They agree it is certainly no longer enough for brands to simply be Western to be perceived as premium. 

“In general, the brands — especially international brands — that have done better in the past 12 to 18 months have become smarter in tweaking not just their communications strategy, but also their product strategy,” says Jimmy Liang, chief executive of Jung von Matt China.

Mark Tanner, MD of research firm China Skinny, notes that brands like KFC, which were pin-ups for Western businesses in China on account of their localisation strategies, have fallen from favour. 

He notes that KFC has undergone its biggest menu refresh in 27 years in China. “Brands that don’t constantly evolve get left behind — more so in China than any other market.”

Apple is still a hot brand, but while it was once “untouchable, local brands such as Xiaomi are now cool in the eyes of consumers and offer a lot of features for a fraction on the cost”, Tanner says. 

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Vineet Arora, Havas Media China’s head of integration, points to Volkswagen, Coca-Cola, Philips, P&G and LG as foreign brands that have maintained their positions of strength. “Nothing stands out that’s campaign-based; they’re more corporate, building a strong position in the market. Once you’re able to do that, it’s important to remember what the brand stands for and what you are trying to achieve.”

Adidas is one brand that has “tweaked” successfully, says Liang. Selling its women’s sports gear to Western audiences, it pitches “hard-core sport and six-pack imagery”, but this doesn’t work in China, where most women do sports for leisure or social reasons. By revamping its communications, adidas has increased market share of women’s products by 40 per cent. 

Liang cautions that this is more difficult than it appears. International brands have a global strategy weighing on them, backed by a lot of research. “Letting go of their ego for a local market is not that easy,” he says.

Forrester analyst Wang Xiaofeng singles out Coca-Cola’s customised bottle campaign in China for creating a buzz on social platform Weibo, and for localising the strategy by using “hot internet nicknames to label the customised Coke bottles”, instead of the first names used in the campaign in English-speaking countries.

But that doesn’t mean the traditional approaches aren’t still effective. One huge national brand is herbal tea Jiaduobao, which has invested heavily in TV as sole sponsor of Voice of China, with extensive use of its prominent red livery. 

“It has become a distinctive brand in China,” says Steven Chang, Greater China president of Zenith-Optimedia. “It’s a classic case. It invests a lot, gets a great return in sales and market share.

Even, so the trend looks to be going in the opposite direction, as illustrated by firms such as smartphone brand Xiaomi, which doesn’t advertise and relies almost solely on social media and free mass media. Customers have to order the phone online and only limited product is available. 

Gordon Domlija, chief strategy officer for Media-Com China, says that so far the China market has tended to demonstrate a direct correlation between market spend and market share. “You advertise, you get sales.”

But this is being upended in categories like cosmetics. “You suddenly have a load of new and localised brands,” says Domlija. “They have market share of 1 to 3 per cent. There’s no visible marketing spend; [it’s just a case of] having the right location and distribution, and social media. They have suddenly undermined all these major players. The communications channels don’t have any share of spend — that is not how you look at this any more. It has really changed.” 

Helping fuel this is the rapid growth in e-commerce and what is called O2O (online-to-offline). There has been a proliferation of ecommerce services and payment systems. As well as the big players like JD.com and Taobao, multiple platforms have emerged in each major vertical, and many retailers have also built their own systems.

One result is the gap between the smaller cities and the fashionable tier-one and -two cities is starting to break down. “Growth doesn’t have to follow that conventional tier-one to tier-five paradigm,” says Mindshare China chief executive Amrita Randhawa. With the mobile phone now the main online access device for 80 per cent of Chinese internet users, brands and consumers “can now cross tiers wherever there is a smartphone”.

Randhawa says O2O has been important since the emergence of Weibo, but “I think there’s still a huge issue around trust” for many consumers. “Despite people loading cash into their WeChat accounts, there’s still some wariness: I’m not sure what brand I’m buying, I’m not sure if it is genuine.”

In other ways, WeChat, the hottest social platform, is still a work in progress. Brands need to work up a partnership with Tencent to use the platform, but the business models are still not fully tested, Chang says.  

One sector that has been in retreat over the past year, despite rising in other markets, has been luxury. That’s because Chinese consumers are increasingly doing their shopping abroad, and also because of the government crackdown on corruption and official extravagance. Randhawa says it is also a move away from simply buying the most expensive or most famous brands. 

This has paved the way for the emergence of fast- fashion brands such as Zara, Uniqlo and H&M. Tanner says such brands have been successful because they provide great value for consumers who are “less concerned about always buying the most expensive” product.

That’s one shift in behaviour, another is that retail is becoming more of an experience than a transaction. Tanner cites the stunning IAPM mall in Shanghai and Under Armour’s “amazing” flagship store, also in Shanghai, which they hope will be as much a brand builder as a sales channel, and also drive consumers online.

Domlija echoes that point. Retail means the right location and the right association with the brand and also getting the store to look right, he says. “This is a generation of consumers who share everything. A lot of brands embrace that cultural dynamic in China to their advantage.”

But there is wide agreement on the need to get integration across all channels. “I think the old strategies that are losing effectiveness are those that are siloed,” says Arora. With O2O in particular, companies must become much more integrated with all their functions, “not just marketing, but the way they operate”.

TV is still the biggest and most powerful platform but, as Domlija points out: “I know exactly who is watching these programmes because I can track them on Weibo. It’s just totally changed how we can use each media. It’s a really interesting time for us, and for the industry, and we are pushing clients to understand the connectivity.”

Burgeoning channels

Mark Tanner, managing director, China Skinny

As in many markets, marketing in China is becoming more integrated, and mobile is a key pillar for a lot of strategies. So is social media. Nine out of 10 internet users have used social media over the past six months, versus around six out of 10  in the UK, while 95 per cent of consumers trust a brand more that they have seen on social media — and trust is imperative in China. 

Online shopping is also soaring. Although the average consumer earns less in tier-three and -four cities than in tier-one and -two, they spend on average 30 per cent more than tier-one and -two consumers online. Another factor driving online sales, and especially important to premium Western brands, is trust.

Brands need to have the registered trademark to sell on popular B2C ecommerce platforms such as Tmall and JD.com. They also pay a sizable deposit that is used to pay the consumer if they buy something that is not what it should be (a fake). Consumers also give feedback for faulty or counterfeit goods, which a lot of Chinese shoppers review. Negative feedback also affects search results on ecommerce platforms, so fake or faulty goods don’t last long.

 

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