How Chinese companies are carving their success

There’s a Chinese proverb that says, “If a jade is not cut and polished, it can’t be made into anything” (Yù bù zhuó, bù chéng qì). In other words, one cannot become useful without being educated, and so for younger generations to prosper, training and discipline are necessary.

This conveys part of president Xi Jinping’s vision for China’s future; a future in which prosperity, national pride and ‘the rejuvenation of the Chinese nation’ will be achieved through collective effort—the Chinese Dream.

China has undergone remarkable economic growth over the last three decades and there’s a huge commitment from the leadership and the Chinese people to deliver a better life for themselves and their families. Pursuit of the Chinese Dream not only offers greater prospects for Chinese consumers, it also creates opportunities for brands to grow and become more established in both domestic and international markets.

Record growth and category innovation

This year’s BrandZ™ Top 100 Most Valuable Chinese Brands report announced the greatest one-year increase in the combined brand value of all the brands in the ranking since the first BrandZ China Top 100 ranking was published in 2014 (see also, "China tech brands build brand value on innovation: BrandZ"). Its 23% growth in value, to almost $684 billion, represents a substantial rise over the 6% growth a year ago. Over the past five years, the BrandZ China Top 100 has grown by 80%, outpacing even the BrandZ Global Top 100’s 27% growth. A closer look at the categories highlighted within the report provides a valuable insight into Chinese consumer spending habits.

The Chinese government’s promotion of responsible and sustainable growth, rather than growth at all costs, influences the purchase choices made by consumers. People who have attained a reasonable level of wealth shopped less for fast moving consumer goods (FMCG) and spent more on discretionary items such as entertainment and small electronic gadgets. Airlines expanded their overseas routes, and travel agencies, like Ctrip, acquired brands to provide expanded services for Chinese abroad. Brands in categories as diverse as apparel and food and dairy responded to a growing concern about personal health and wellbeing and healthcare was among the fastest rising categories in value. However, one of the most popular items purchased was intangible, and that was knowledge.

For the second consecutive year, education has led in the rate of category growth value, increasing 68%, after a 46% rise a year ago. Two leading education brands appear in this year’s rankings—Xueersi and New Oriental, ranked 65 and 43 respectively. A combination of factors powered the growth of the education category in China. They include the determination of Chinese families to succeed, and the reality of educational success in China, which requires navigating an elaborate testing system.

Xueersi again led the rankings in year-on-year percentage value increase, with a 139% rise in brand value, which followed its 58% rise in 2017. The continued growth of the education category, and its two leading brands, was helped by China’s decision to rescind the one-child family policy in 2015. This aimed to help rebalance the population demographics from aging to youth and stimulate greater brand consumption from larger families. According to Xueersi, China’s overall birth-rate increased by 16.6% between 2009 and 2016, and many categories experienced— or are anticipating —a positive impact on sales, including baby care and education.

Innovative thinking in education

Innovation is extending far beyond the giant Chinese technology and retail companies that dominate the BrandZ Top 100 Most Valuable Chinese Brands, such as Baidu, Huawei, Tencent, JD.com and Alibaba. Education is no exception.

To address a perceived weakness in Chinese education—the focus on rote learning—Xueersi introduced a new English language programme in which classroom time is spent developing critical thinking ability. Outside the classroom, the programme expects students to study vocabulary and grammar prior to class, and to sharpen speaking skills online by interacting with teachers located overseas.

Innovation is leading to growth in the education category. New Oriental, the brand of the New Oriental Education & Technology Group, expects the market for Kindergarden-to-12 after-school tutoring to expand by a 14% between 2015 and 2020. The number of students enrolling in courses is also a good indicator of growth. Tal Education Group, which controls the Xueersi brand, reported 3.2 million course enrolments, while New Oriental had almost 5 million students signing up for educational enrichment.

Top Riser brand value growth was distributed across 10 categories. Home appliances was the most represented category, with five brands, followed by alcohol with three brands, and education, technology, retail, and hotels with two brands each. One brand appeared from real estate, cars, insurance, and travel.

However, the strength of the education category stands out and reflects the priorities of Chinese society; the determination to succeed; and the commitment of Chinese parents to provide their children with the tools for success.

Mix, message and memorable communications

Brand loyalty through trust is something that is earned by brands over time. To effectively impact today’s consumer, whether they are parents or young students, it is important to communicate brand know-how, innovation and uniqueness.

Innovation is particularly key. Chinese consumers appear more willing to pay a premium for innovative products and services. More sophisticated in their purchasing decisions, consumers are responding to those brands that grab their attention and meet their needs in relevant ways with products and services that are both innovative and different.

It’s essential for brands to choose the right media mix to target their audience. Chinese consumers, across generations, spend a lot of time on their mobile devices, more so than the global average. However, they watch other screens, too, including traditional TV and out-of-home media. As brand choice increases it becomes even more important to reach consumers at every important moment. Being present on multiple screens pays off. Our research showed that brand value increased twice as fast for BrandZ China Top 100 brands that continuously invested in cross media campaigns.

Creativity is also important. Even when the media mix is on target and the message is well crafted, making a lasting impression requires impactful and memorable advertising. The trifecta of the right mix, message, and memorable communication helps accelerates brand value growth. In fact, further analysis over five years of the BrandZ China Top 100 ranking shows that brands that communicate their innovation with great advertising increase their value by more than 27% year on year, compared to a value growth of 14% for innovation alone.

Chinese consumers’ needs and wants are constantly changing. They are more keen than most for new experiences. They expect convenience and quality in everything from meal delivery to financial services. The brands that facilitate the discovery and delivery of a better-quality life and continue to innovate with education programmes or technology products and services that leverage the digital connectivity that is deeply embedded into the daily lives of Chinese consumers, will be well positioned to succeed in the new era.

Elspeth Cheung is global BrandZ valuations director at Kantar Millward Brown.