Brands can no longer rely on foreign allure to make waves in China’s market as buyers’ demands mature and respond to domestic trends, explains Ketchum’s Nick Wheeler
China’s cosmetics industry saw double-digit growth in 2013, but as 2014 began both Revlon and L’Oreal’s Garnier announced that they will be pulling out of the mainland market altogether due to low sales. The reasons for both of these decisions were similar: brand positioning.
Revlon was selling its products at both high-end makeup counters and mid-tier retailers, which led to a perception that it wasn’t of high quality, while similarly being passed over for more inexpensive brands. Garnier similarly was neither cheap enough nor luxury enough to gain traction with Chinese consumers. These companies both learned the hard way that Chinese consumers won’t buy just any foreign brand that appears on the shelves and they certainly are increasingly unwilling to pay a premium for a foreign brand unless it is demonstrably better.
Attitudes towards foreign brands in China are evolving as perceptions of Chinese brands improve. This can be attributed to increasing consumer sophistication, improved product design, functionality and marketing by Chinese brands, a tendency for Chinese media to play up product or service problems with foreign brands, as well as nationalism.
A survey conducted in 2013 by Global Times and QQ.com found that 42% of Chinese consumers’ impressions of foreign brand standards in China had worsened in the past year. Around half of those surveyed believe the problem is isolated to a small number of foreign brands, including Apple, Fonterra, KFC, Nike, and P&G, which have been singled out by the Government as not treating Chinese consumers well enough.
Brands at the frontline
While many Chinese people don’t fully trust the State-run media, it’s still human nature to be swayed by media surround sound. Even the microblogosphere is becoming crowded with 176,700 Government organs and official Weibo accounts, helping influence opinion in the social spheres.
Japanese brands know full-well the impact of politics on business as the territorial dispute with China over the Diaouyu Islands, called the Senkakus by Japan, continued throughout 2013. Japan’s share of China’s auto market in particular has crashed as a result of the dispute. But against this backdrop, Japanese clothing retailer Uniqlo has provided a template for success in China by adapting its products and marketing to appeal to the younger demographic. The company is pinning its hopes on consumers who are more confident, independently-minded and less influenced by Government propaganda than older generations.
This is less easy to achieve in the auto sector. Contrast Uniqlo’s approach with the Volkswagen Group which began construction on its 16th plant in China last year. Under pressure from the Government, VW also opened a relatively small plant in the far western corner of China where minority groups have complained about a lack of opportunity and unequal economic growth. Western carmakers have transferred a substantial amount of technology and knowledge to China and this has been instrumental to the rapid modernization and development of China’s auto sector, and the wider economy. By being visibly part of this process VW is building relationships with government and consumers along the way.
Quality takes the lead
The luxury sector is acutely aware of new behavioural trends and attitudes that are emerging in China. Chinese consumers are increasingly spending money on quality and style rather than wearing a logo as a status symbol. People are looking for interesting brands, not necessarily the ones at the top of the exclusivity list. Understanding Chinese culture also pays dividends. This is why Hermes created its Chinese brand ‘Shang Xia’, and why Louis Vuitton sends customized Chinese New Year cards.
Luxury, clothing and accessory brands are more sensitive to social identity and status. Value brands appeal to price-sensitive consumers in China, just as they do anywhere else in the world. Despite reports of frivolous consumerist lifestyles, thrift and saving persists. The diversity of China’s consumer markets and social groups means we should beware of any generalizations of consumer behaviour in China. Media displays of hedonistic values among the professional elites, corrupt officials and Generation Y urbanites should not be taken as representative of the values of the Chinese people, especially the 680 million people living in rural China.
China’s changing attitudes towards brands is not only about government rebalancing initiatives. It’s also about consumers rebalancing priorities: life and work; excess and moderation; material possessions and meaningful experiences. As Ketchum’s 2013 Leadership Communications Monitor showed, trust is a key driver, not price. Trust needs to be earned with actions that demonstrate transparency and a brand’s commitment to the welfare of its customers and wider society, not only to itself. In the food sector, for example, beyond price and taste consumers are also asking about nutrition and the sourcing of ingredients. For brands that answer positively and honestly, trust can be a powerful differentiator that will also keep consumers loyal.
Lessons learned abroad
Fonterra’s 2013 whey powder contamination scare was a case in point. Many Chinese took note of the transparent way New Zealand, the world’s largest exporter of dairy products, handled the contamination threat. This helped ameliorate the negative impact on the country’s reputation as a producer of safe food products.
Western brands still carry an enormous significance through their history and authenticity. This helps them to recover from Government campaigns that target malpractice. For any brand selling on a large scale, maintaining a presence in Beijing to keep an open dialog with the government is essential.
The demographic most likely to purchase Western goods and services is the urban upper-middle class. They currently make up 14% of China’s urban households, but this is growing fast: they are expected to account for 54% by 2022. The growth opportunities are clear to see but culturally relevant positioning and transparency will be ever important.
Nick Wheeler is General Manager, Ketchum Beijing