China tech brands build brand value on innovation: BrandZ

Tencent and Alibaba dominate brand equity in China on the back of their innovative platform offerings.

Construction in Shanghai (Source: Pixabay)
Construction in Shanghai (Source: Pixabay)

Tencent has again come out on top of the annual BrandZ Top 100 Most Valuable Chinese Brands report, thanks to a 25% year-on-year increase in brand value to $132.2 billion, according to the report released by WPP-owned entity Kantar Millward Brown.

Alibaba is placed second, with $88.6 billion in brand value on 53% growth, while other internet-economy brands Baidu, JD.com, Suning and Sina are placed at 5, 12, 30 and 64, respectively, on the ranking.

Speaking to Campaign Asia-Pacific, Elspeth Cheung, global BrandZ valuation director with Kantar Millward Brown, attributed Tencent’s continuing stronghold to its ecosystem platform model.

Furthermore, she noted the narrowing gap in brand value among the Chinese tech brands, with JD.com inching up two places in this ranking, for example. A large gap persists between tech brands and non-tech brands. “Tech companies are moving really quickly to show what is important and what matters to the Chinese economy now,” said Cheung.

Yet half of the top 10 ranking is still dominated by the traditional banking and insurance sectors, including state-owned entreprises (SOEs) such as ICBC (at position 4), China Construction Bank (9) and Agricultural Bank of China (10).

“The traditional brands are facing a lot of pressure to innovate," Cheung said. "If we look back at the top two players Tencent and Alibaba, as well as JD.com, they are building a very strong financial arm on their platform, making it very relevant to consumers. Instead of going to the bank, they can buy insurance on their mobile phones." However, she also pointed out that a few players from the traditional sectors have responded to the “pressure” by partnering with the tech giants to be part of the ecosystem and stay relevant to consumers. Ping An Insurance, which is eighth on the ranking, has been such a brand with its recent venture into fintech, AI, facial recognition and blockchain technology, as Nikkei Asian Review reports. 

“Partnership is going to be very common because brands couldn’t just leverage on their own brand equity or their own traditional consumer base," Cheung said. "They really have to work with the relevant platforms to track consumers, to make sure they can keep up with the dynamics of ecommerce. They have very good knowledge about insurance and wealth management in terms of product development and design. That’s their advantage over the tech giants and it will add value to the partnership.”

Overall, the brands documented in this report achieved a 23% rise in brand value from $557.1 billion in 2017 to $683.9 billion this year. Cheung said brands that did not achieve a 23% growth in brand value would have seen a drop in rankings. “It doesn’t maean that they are not good," she said. "We still see a lot of good brands, what that implies is that all the other brands are moving so quickly. If you are just maintaining status quo or just growing at your own rate, on an average level, you will be falling behind." With regards to the performance of China Mobile which sees a 15% fall in brand value, Cheung urged the telco player to rethink its proposition on what it can offer beyond network services.

Meanwhile, the ranking also records the greatest one-year growth since the China-focused ranking was first launched in 2014. The report combines financial data with consumer opinion gathered from interviews with over 400,000 Chinese consumers to give a dollar value to how brand powers business. Among the measurements used, the report cites that being seen as different is a component of ‘brand power’, a BrandZ measurement of brand equity which implies the consumer predisposition to choose one brand over another. Other components of ‘brand power’ include ‘meaningful’ (meeting needs in relevant ways) and ‘salient’ (easy recall).

In addition, the BrandZ China Top 100 Share Portfolio (all the brands in the China Top 100 ranking) increased 179.1% since July 2010, almost tripling the growth ot the MSCI China Index, which increased only 61.6% over the same period.

“Even though the economy is not growing as fast, brands are growing at a much faster rate because people are looking for better living standards,” said Cheung.  

Rising categories: logistics, education

As the Chinese ecommerce boom demands quicker delivery time, logictics is a new category introduced to this year’s BrandZ China Top 100 Brands.

SF Express shot up to 11 on the ranking along with four other logistics brands listed. Cheung dubbed logistics as “new commerce” while a 2016 McKinsey report said this sector has been growing at 30% a year. “The delivery in China is done by third parties, unlike Amazon which handles its own delivery,” said Cheung. “Logistics is playing a very big part along with the growing importance of ecommerce, as it is bridging the virtual platform to day-to-day lives.”

Nevertheless, the report also acknowledged JD.com’s strength in logistics compared to other ecommerce players, while the platform was also adding more distribution locations.

Meanwhile, education led the rate of category value growth for the second consecutive year, with Xueersi recording the highest increase in value at 139%.

SOEs vs. market-driven brands

In the battle between market-driven brands and SOEs, the latter are hands down the winners, contributing most of the value growth in the ranking over the past five years. According to the report, market-driven brands increased 271% in value since 2014, while SOEs have only increased slightly in value. To put it in a better perspective, in 2014, SOEs comprised of 71% of brand value for the ranking but only accounted for 40% of the value in 2018.

Moutai, a traditional sorghum-based liquor brand, is the exception among the SOEs. It has seen promising growth, having first entered the top 10 last year and growing 43% in brand value in 2018. “What’s interesting about Moutai is that it used to be super premium and exclusive. But based on what we’ve observed over the recent year, it has tried to push into the mass market. Of course it is still not a mass market brand, but it does have some lines of products which are more affordable,” said Cheung.

Moutai

Cheung agreed that the austerity crackdown introduced by the Xi Jinping administration could have led Moutai to the mass market push, but said the growing affluence of Chinese consumers was also likely to encourage the purchase of premium products.

Belt and road call

In a statement, Patrick Xu, the China CEO of WPP, said million of consumers are embracing the ‘Chinese Dream’, while market dynamics would also contribute to the improved perception of Brand China. “It’s a really exciting time in China right now with many ambitious businesses recognising the opportunities abroad and the importance of investing in building their brand outside of the region. Many enterprises are responsing to China’s Belt and Road initiative and and strengthening their oversears expansion momentum,” he said.

Lenovo, Huawei and Alibaba are the strongest Chinese brands overseas according to the BrandZ Top 50 Chinese Global Brand Builders 2018 released last month.

On that note, the BrandZ Top 100 Chinese Brands report mentioned that the game is chaning for brands that want to compete successfully in the domestic market. Instead of engaging in corporate social responsibility as brands in other parts of the world do, the higher purpose for Chinese brands is furthering the government agenda. In the current scenario, that also means improving the lives of Chinese people and to drive greater economic equality besides responding to the Belt and Road initative.

Kantar Millward Brown’s Cheung noted that Chinese brands often disrupt from the lower end, based on the findings from both the BrandZ Top 50 Chinese Global Brand Builders and Top 100 Chinese Brands report. “For the smartphone brands, they are very functional and affordable. It does not just happen with smartphones but other categories as well,” Cheung explained. “If you want to move up the value chain you have to be able to show the point of difference in value propositions. This is definitely how Chinese brands conquer at home and abroad."

Advertising benefits

In terms of the changing media landscape, the report noted that brands in the top 100 that continously invested in multiscreen campaigns increased 44.6% in value over the past three years in contrast with a 24.6% increase in value compared with brands that did not go multiscreen.

Another finding from the report mentioned that 39% of Chinese consumers said advertisers were “trying to be all things to all people’ instead of integrating their ads. The majority of the respondents had preferred for the ads to be customised. Meanwhile, brands that scored high in the innovation metric but ran poor ad campaigns had 14% annual growth. Brands with a combined of high innovation scores and great advertising have instead doubled their percentage value increase.

Cheung believes Chinese brands are innovative but they have suffered from a lower profile and engagement especially with the international audience. “DJI is a world leader in drones but what we found out (from the BrandZ Top 50 Chinese Global Brand Builders 2018) was that a lot of people do not know that it is a Chinese brand. It has just gone global, this is how powerful Chinese brands are these days” said Cheung. DJI was ranked at 11 on the BrandZ Top 50 Chinese Global Brand Builders 2018 but is not eligible for  the TOP 100 Brands ranking either due to its size or because the company is not publicly traded, according to the report.

“If you are good, you have to let people know you are good in a way that is most relevant to your target consumers. All these global ambitions have to be customised with local executions, this is what we think Chinese brands have to work on,” said Cheung.

She added that she was impressed with Alibaba’s recent To the Greatness of Small Winter Olympics-themed campaign which also happened to be the first global campaign for the Chinese ecommerce giant. ”The way that they made it very emotional, showing how great is every single person and how small things can make it big, is exactly like how Alibaba has enabled merchats to talk to consumers in China and around the world. I couldn’t tell that it was Alibaba and was very shocked that Chinese brands could be at that level,” she added.

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