The Trump Administration recently announced that it would impose tariffs on $200 billion in Chinese goods as of September 24. China countered with plans to hit $60 billion in US goods with new tariffs. This is on top of the tariffs China and the US imposed on one another—covering $50 billion in goods each—earlier this year. The moves are creating new tensions and uncertainty among government officials, business leaders and consumers on both sides of the Pacific.
What’s at stake in the business world is the tremendous progress international marketers have made in recent years, as they’ve bridged geographic and cultural barriers and created stronger global brands. Now, if a brand or product is suddenly burdened with an extra tariff, marketers must work that much harder to justify the premium. Competitors lucky enough to remain tariff-free must be prepared to push the advantage.
How can marketers best move forward amid rising fears of a trade war? The market in China offers several insights—as both an inspiration lab for any international brand as well as an opportunity for new growth.
A changing landscape for brands
Five to ten years ago, if a Western brand wanted to succeed in China it was enough to be…Western. That alone conveyed cachet, safety and comfort. A wide range of businesses enjoyed significant growth, including French luxury, French and Italian fashion, German, British and Italian cars, Scottish whisky, English gin, French brandy and wine and a constellation of legacy American brands. Many other international successes soon followed as well.
The number of Chinese consumers with discretionary income has increased dramatically since then, and is expected to keep growing, according to the Brookings Institute, which estimates that another 800 million people will join the middle class in China by 2030.
Chinese consumers today have sophisticated preferences and a keen sense of value, which means that marketers must be prepared to fully differentiate their brand and engage in a variety of new ways. This is where Coach and Walmart fell short initially: though strong brands, they simply tried to replicate the franchise rather than embrace the local market.
Starbucks, by comparison, has enjoyed tremendous success almost from the start. They were careful to adapt their menus to local tastes and flavors and celebrate local holidays as their own. This year, Starbucks announced plans to add another 3,000 stores in China by 2022, nearly doubling their footprint. The company is also teaming up with Alibaba to add a delivery service starting this fall. And local competitors like Beijing-based start-up Luckin Coffee are pushing them hard.
It plays in Peoria, but will it sell in Shenzhen?
Successful brands in China remain relevant by engaging and adapting—constantly. Here are five lessons we can learn from them:
Invest in local insights
The days of sending in the expats are long over. Hire local staff with local expertise and go above and beyond to connect with customers and understand their needs and preferences. As Starbucks recognised, it’s about conversation, not translation. Today, Starbucks controls 80% of the coffee market in China. And Shanghai is the home of the largest Starbucks in the world. This kind of dominance does not happen unless a brand is first able to earn local validation and support.
Rewrite your social media playbook
International brands typically have developed some sort of presence on WeChat, which now reaches more than one billion monthly users, and Weibo, which is now larger than Twitter. Problems occur when brands try to apply what they’ve learned on Facebook, Instagram, Twitter and Snapchat. Instead, it makes sense to innovate on Weibo and WeChat, which are really more like operating systems than apps, and create the playbook from there.
Demand more from your analytics
Because social media platforms and environments in China offer more capabilities, brands can learn more if their metrics and analytics are sufficiently robust. China affords marketers the opportunity to create richly differentiated, finely targeted channel strategies and to acquire deep insights into consumer behaviors and preferences. Adidas NEO, for example, is a China-specific brand targeting Tier 2+ cities. Their core consumers were born after 1995 and are redefining athleisure segments for China, which requires Adidas to employ vastly different creative messaging and social channel engagement.
Be strategic in integrating your digital and physical presence
Brands in the US have struggled to put an e-commerce business on a brick-and-mortar foundation (think Radio Shack, Sports Authority and Toys-R-Us). In China, digital and physical have evolved together. One example: Hema, a supermarket line developed by the Alibaba Group, is enticing consumers to order every meal via a mobile app. The meals can be cooked to order in the store or delivered to the consumer’s home.
Let the consumer help build brand equity
The most successful brands in China have established a direct and daily presence in the life of the consumer. Positioned properly, a brand can essentially become a consumer’s “friend,” cultivating a continuously evolving conversation that taps into attitude and ambition and leads to mutual benefit. As trust grows, engagement deepens, as is happening with e-commerce giant JD, whose high-performing delivery teams so impress customers that they are sometimes asked to pose for photographs. Growth in brand equity is sure to follow.
Tariffs present a barrier to global growth and will certainly hurt the progress that US brands like Starbucks and Harley-Davidson have achieved. At the same time, tariffs will favour local brands and even open the door for new competitors from outside the US and China. Life will be a little harder for marketers now, but we remain optimistic about the long term. Chinese consumers will still desire relevant Western brands and there will be many of those around, tariffs or not. With enough focus and diligence, marketers can ensure their brands resonate locally for greater global gains.
Guy Hayward is global CEO and Douglas Lin is Shanghai CEO at Forsman & Bodenfors