Josh Gallagher
Feb 3, 2016

What a faltering Chinese economy means for brands

As the Chinese stock market continues to show signs of weakness in 2016, Josh Gallagher of Havas Media explores what impact the slowing economy will have on brands inside China and across APAC.

Josh Gallagher
Josh Gallagher

The fast rise of shares actually did little to boost consumption, and the immediate decline will do little to change the way Chinese spend their disposable income. Consumer confidence has not been impacted significantly. 

During times of downturn, the instinct to preserve status is the most overwhelming. As Chinese consumers pull back overall spending, brands may be able to maintain their importance, but they also run the risk of becoming commoditised. As our 'Meaningful Brands' research has shown with a weakened Japanese economy, people continue to look to companies to provide positive social and community benefits, but are less attached to how individual brands contribute to life, becoming increasingly more ‘brand agnostic’. Will this happen in China?

Icons of improved living standards

China’s love affair with global brands has grown out of certainty and the trust. Here are some reasons why:

  • The certainty of quality products: The globalisation of consumer goods and increased competition has seen an increase in ‘checks and balances’. The benefit for consumers is that the media and government now question unsatisfactory products. In recent times we have seen everyone from fast-food companies like McDonalds to tire brands like Kumho questioned over safety practices.
  • An expectation of a great experience: Branded goods are desired more as an investment than for their inherent beauty or craftsmanship. ‘Luxuries’ like Starbucks are successful because they are consumed outside of the home; Chinese people may not drink coffee at home but they will ‘congregate’ at a store or ‘carry’ a coffee in public.
  • Maintaining status: A lot has been written about Chinese consumers need for products to drive status. Indeed, they expect brands to do so. Our Meaningful Brands research in China reveals that 71 percent “think that companies and brands should play a role in improving our quality of life”. Technology goods are currently driving status with brands like Haier, Lenovo, Intel and JD.com featuring in the five 'most meaningful' brands.

Those that will win will be able to continually demonstrate that they are ‘trusted’, as 64 percent of people trust brands in China.

Impact across the rest of APAC

A weak China has arguably more impact across the region. Slow growth in many places across the world, which are heavily reliant on the import of resources to China, will impact consumer sentiment.

Developed APAC markets like Australia and Singapore already operate on strong functional outputs, where price and product quality are important factors in driving purchase. Here, 75 percent of consumers declare that they look for the best deals/special offers, while more than half strongly agree that they give little attention to the brand name of the product.

No wonder that across both markets Hypermarkets, like Coles and Woolworths in Australia and NTUC FairPrice and Giant in Singapore, feature highly among the most meaningful brands.

Even in developing Asia, Indonesia and India, the effect of China will see a cooling of commodity prices. This hit to GDP sees communities pull together in developing markets. Local ‘pride’ is common among the most meaningful brands in these markets. As many as seven local brands appear in the top 10 in Indonesia, while people would care about the disappearance of an incredible 75 percent of brands in India—double the global percentage.

As the economy becomes more uncertain, local brands in particular have the opportunity to deepen attachment with consumers.

What can brands do to stay more relevant?

For those that cannot compete on price or rely on ubiquity, it is important not only to discover what equity your brand drives out of its product but also to determine what effect the marketplace has, what personal benefits become important and the pull of the community in uncertain times.

Brands must make every connection count to gain trust as economic conditions throw up more functional challenges. While 68 percent of those in the Meaningful Brands survey want rewards and incentives, 57 percent want educational experiences and 53 percent want tools, services or apps that give them solutions.

To conclude, the reward for brands will be business outcomes. As the research indicates, more trusted brands receive a higher share of wallet.

Josh Gallagher is head of strategy in APAC for Havas Media

 

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