We asked four in-market experts for their take on the prospects for local versus global brands in China.
- Peter Petermann, chief strategy officer, MediaCom China
- Henry Shen, head of strategy, McCann Health Shanghai
- Helene Wei Huber, planner, McCann Worldwide Shanghai
- Bryce Whitwam, CEO, Wunderman China
How much growth opportunity is there still for international brands in China?
Petermann: In our ‘Beyond the Tiers’ study we have outlined a much more granular approach to growth opportunities across China than the traditional Tier approach. Using a highly differentiated approach based on a variety of factors such as population growth, digital infrastructure and economic development we were able to segment China's diverse markets into 11 different segments, five of which show enormous potential for short, mid and long-term brand growth.
Having said that, one of the segments we have identified as showing great potential is almost identical to the traditional Tier 1: we call this segment "Megacities". In our analysis, Megacities are highly attractive to urban dwellers – they offer a vibrant, dynamic, international flair with many opportunities for employment – and thus will grow significantly in terms of population (+32%), household income (+24%) and per capita consumption (+38%). So, yes, there still are a lot of growth opportunities for brands in these cities. However, there is also fierce competition from other brands and other categories in Megacities.
Therefore, we would advise brands looking for growth to explore other opportunities, for example in the what we call Boomtowns, in Peripheral Cities or in Modern Industrial Cities. In many ways, these segments are more dynamic and a lot less saturated. But as consumption patterns can vary significantly from segment to segment it is important to have a detailed look at the consumer landscape before making investment decisions.
Shen/Huber: Discerning tier-1 Chinese consumers are very familiar with global brands. Being a global brand no longer means you’re superior. However, brands that offer something new and exciting still have growth potential, provided they find a way to be relevant for local consumers’ tastes. With the relative strength of the Chinese economy, there is still room for ‘trading up’ and for capitalising on the world-leading e-commerce landscape.
Interestingly, 91% of Chinese think that global brands can make the world better – the highest out of the 29 countries surveyed in McCann’s “Truth About Global Brands” study and 70% of people polled in China trust global brands more than Chinese local brands. So there is still great opportunity if played right, it’s just not a given that a global brand will appeal because it is a global brand. As a global brand, you need to ask yourself, what can you do to renew your brand to appeal to the every-changing needs of Chinese consumers? What new products, new technologies, or unique selling points set you apart? Global brands needs listen to the needs of Chinese consumers and then find a way to communicate with them as a peer.
Whitwam: Yes, of course there are growth opportunities in Tier 1 cities but it depends upon the brand and category. Some product categories are completely saturated but others still have room to grow. I probably wouldn’t launch a new mid-sized car brand in Shanghai but I might consider an organic hot pot chain. According to the 2017 Kantar TNS Trend Report, Chinese consumers in big cities, having had their basic needs met, are not going to settle on something new that “common people” use, but something unique that sets him/her apart from the others. Niche brands are now gaining momentum, delivering to specific consumer needs to near perfection. After satisfying basic needs, urban Chinese are starting to look at satisfying themselves. Self-pampering is also big in tier 1 cities with fitness and healthy lifestyle alternatives that wouldn’t have existed in China a few years ago.
Drawing on your observations from the past year, how are international brands competing with local brands and are there any key rules/best practices for those trying to do so?
Petermann: We know one thing for sure: that there are no "5 Golden Rules" for local brands (or global brands, for that matter). Every brand is different and every brand – local or global – needs an individual strategy that is based on the brand's audience insights and its competitive set. What we do see, however, is that the younger generation – we call them Change Makers – are developing a new sense of pride in their country.
"Made in China" is evolving into a seal of approval and so if I were to make an off-the-cuff recommendation for local brands it would be this: know who you are! What is your heritage (as a Chinese brand) and how can you turn this heritage into a powerful and compelling story? Chinese consumers, especially the younger ones, are discovering their thirst for "real" stories. Storytelling is an ancient Chinese tradition but it has been lost in the noise of today's marketing clamor. A great example for this is the cross-border sports initiative from Harbin beer last year ("Happiness without borders"): very grass-roots, very authentic, great content.
Shen/Huber: Through a clear target audience and cut-through strategy, XiaoMi has done an excellent job of taking on Apple and Samsung in China, partly due to their tailor-made model for local users, which has driven strong loyalty. Depending on the product, local brands can also benefit by penetrating deep into lower tier cities, harnessing niche local insights and tapping into sheer numbers at the lower-cost end of the spectrum.
Whitwam: To me, conquering China is not really a battle between local and global brands but one between agility and sluggishness. The facts are that e-commerce has made China more of a global marketplace, overseas travel has exposed Chinese to new and exciting things, and supermarkets are full of imported products nowadays. Global brands that want to win in China have to keep up with the pace of the place. Apple scored big in China with the iPhone 6 but then it continued to launch similar products that lacked any notable new features, so local, more nimble brands such as Huawei and Vivo carved out market share from Apple in the premium phone sector. Chinese consumers aren’t buying Huawei because they’re patriotic; they’re buying because they’re the coolest, newest thing.
What can international brands learn from local competitors?
Petermann: That's a really interesting question, and not easy to answer. A few months ago, we were working on a brief for an international FMCG brand competing with several well-established local brands. When we analysed these competitive brands, we discovered the notion of "guanxi" (which is Chinese for "relationship" or "connection"). You could argue that "trust" is an issue for any brand in any market, but we found that in China this is even more important as a result of many scandals and the problems with "fake" brands. I think that in many cases local brands have done a really good job in building that "relationship" with their constituents.
It is very hard for "outside" brands to enter into this "circle of trust" and global brands are well advised, I think, to carefully analyze how to build "guanxi" through communications and other marketing initiatives. Another thing where we see local brand being able to outsmart some of their global competitors is in their responsiveness to change. As mentioned before, China is a very dynamic market. Government policies may change from one day to the next, new technology appears and disappears in a matter of months and we see that local companies are often much better suited to adapt to these changes. Many Chinese companies have a start-up mentality, they are "always in beta" and so it is much easier for them to respond to change and to capitalize on new opportunities.
Shen/Huber: We can give three suggestions here.
- Be close to the consumer and on social media. Local brands leverage social media well. Haier, an in-home and kitchen appliance brand, has become the social media equivalent of Wendy’s in China (without the roasting.) Haier’s social media accounts interact with fans directly in a funny and unique way that makes the brand seem down to earth and relatable. They’ve also become known for “hijacking” other brands’ posts by writing the first comment so their brand logo always shows on other brands’ pages. Simple, but effective.
- Respect differences between China’s provinces: Uniqlo, the Japanese fashion brand, is not just designing “wear for all” clothes, but also marketing to all, at least in China. It recently used six different dialects in its ultra-light down campaign to engage with people from different provinces.
- Leverage e-commerce to dive deep and address issues with distribution - taking advantage of ‘Village Taobao’, Alibaba’s ambitious attempt to go rural, Mondelez created an e-commerce campaign during CNY and built 10,000 virtual e-commerce shops to ensure representation on the list of Nian Huo (New Year goods).
Whitwam: Global brands know that they have to be flexible and agile in China but face the dilemma that they still are uncomfortable about relinquishing control to the local teams here. Brand consistency is important for globalisation but in China, there are times you’re going to have to let your hair down a bit, especially within Chinese social media. The same can be applied to marketing automation and CRM systems. While global companies mandate big, expensive marketing platforms, many of them don’t work within the Chinese media ecosystem while their local competitors are finding efficient workaround solutions and delivering a better customer experience.