President Trump’s proposed ban on US brands using messaging app WeChat and video-sharing app TikTok is likely to have a significant impact, not just on the millions of users who rely on them, but also on the brands themselves that use these platforms to grow their business in China.
Primarily for communications and messaging, the Tencent-owned WeChat is so much more than that. It provides a range of services that have become indispensable for consumers, including payments, booking cabs, ordering takeaways, buying tickets and much more. In China couples can even register for a divorce using the app. While these services are also available through other standalone or competitive apps like Alibaba’s AliPay, WeChat has the advantage and convenience of having everything in a seamless ecosystem and the power of social networks rooted in WeChat.
With other US apps like Facebook and Instagram blocked in China, brands have seen homegrown technology like WeChat and Weibo as a direct route into the Chinese market, one of the largest in the world, to engage with customers. WeChat’s Mini Program has also proven to be a powerful ecommerce revenue source for many US brands like Starbucks, KFC, McDonalds, Coca-Cola, Estee Lauder and Tesla. These brands could run their own apps of course, but an app cut off from the WeChat system is not convenient for growing your Chinese consumer base.
A ban by the US government will without doubt hurt US brands that rely on the technology to get traffic. But the bigger picture suggests that US and other international brands may be losing some of their power already among consumers in China.
According to the BrandZ Top 100 Most Valuable Global Brands ranking, US technology brands, for example, typically have an exposure of around 10% to 15% in China—in real terms that means 10% to 15% of their financial value derives from the Chinese mainland. Many US consumer goods brands, from fast food to shampoo, have a much higher exposure to China, representing around a quarter of global revenues, and for some it can be as high as 60%.
But in the last two years BrandZ data (graph below) has shown that US brands are losing brand equity in this market, particularly in sectors like cars, technology and personal care.
The most valuable technology brand in the world, Apple, has been losing brand power and becoming less trusted in China well ahead of the trade war with the US. Conversely, Chinese telecom giant Huawei, which has been at the centre of East-West tensions with the global rollout of 5G, has been increasing its brand power in its own market, and is seen by consumers as more trustworthy.
Foreign brands have had, and continue to have, success in China, and those that sustain a strong presence are fluid enough to reinvent themselves as quickly and as often as needed. Millions of new Chinese consumers enter the market each year, essentially redefining demand. Winning brands are rigorous in tracking the trends and responding.
But the market is evolving all the time. Chinese consumers are not just changing in terms of attitudes and preferences, but also in how they are shopping, which is becoming more uniquely Chinese. Brands like WeChat are ideally placed to help brands connect with the evolving Chinese market.
Chinese consumers increasingly want to buy Chinese products and services. At the same time, Chinese companies have raised their game when it comes to marketing and branding, making the concept of ‘buying local’ much more desirable to an increasingly wealthy and conscientious consumer. Our data (graph below) shows that the association of brands with ‘great advertising’ has increased from 14% to over 25% in the last few years.
Chinese consumers choose brands that connect on an emotional level, but also meet their needs and are seen as both dynamic and different. This importance of building an emotional connection with consumers should not be underestimated.
As the ban comes into effect, US businesses are putting pressure on the Trump administration to clarify the extent of it and review it altogether. At the same time China is doing its best to attract and welcome US companies, with Tesla probably one of the best examples right now. But if the trade tensions create yet more restrictions on US brands, they might find both current business and future growth prospects severely curtailed.
Graham Staplehurst is global strategy director for BrandZ at Kantar.