Why do some brands from the West fail to make a big splash in the mainland Chinese market?
Shaun Rein, managing director of China Market Research Group (CMR), and Caroline Espey, director of MADE, shares some insights.
Rein will be speaking at the Business of Design Week (BODW) in Hong Kong this December on why China is no longer copying what other countries do but is rather beginning to innovate in its own way.
1. What works in the West cannot be applied directly to China
Multinational brands often take what works in the US and apply it directly to China, finding themselves unable to tweak advertising models and campaign styles to fit the local market.
“Brands which often top the charts globally, such as Gap, Walmart and Marks & Spencer often fail in China,” Rein said.
“For example, Walmart positions itself as an everyday brand with value-based pricing in the US. But Chinese consumers would see Walmart as a premium brand because similar goods are always cheaper in local stores and wet markets.”
2. The Hong Kong consumer is not a benchmark for the Chinese consumer
As consumer segments differ between Hong Kong and China, Rein believes it is not useful for Western brands to research Hong Kong consumers and extrapolate that knowledge to China, common for brands looking to use Hong Kong to springboard themselves into China.
“That’s taking the easy way out – people think because we’re all Chinese, it’s easy to apply knowledge of Hong Kong consumers to Chinese consumers. But the Chinese consumer is just different,” Rein said.
“For example, there is a customer segment of tai-tai‘s in Hong Kong but there is no exact same segment in mainland China.”
Instead, it is young professionals in their late twenties who have enormous purchasing power.
Adding to the discussion is Espey, whose clients are UK brands looking to break into Hong Kong, said although Hong Kong and Chinese consumers are different, brands tend to use Hong Kong for sense-checking.
“Hong Kong is more representative of Chinese consumers compared to markets in the West,” Espey said.
“Having a presence in Hong Kong, Macau, Taiwan and duty-free stores is also important to show Chinese consumers that the brand is going places before it enters China.”
3. Overseas brands face fierce competition from homegrown brands
For multinational brands, it is common for the CMO to make decisions and generate content from head office and simply translate marketing materials and creatives into Chinese in local offices.
This failure to take local consumer needs into consideration is exacberated in the context of fierce competition from homegrown Chinese brands.
As China is a big market, local brands are able to grow to a much larger scale, increasing their ability to take on multinational brands.
“Even though big brands such as Nestle dominate many industries in other countries, local Chinese competitors are best-of-breed and world-class brands in their own right,” Rein said.
“The Chinese government and private equity firms are also very supportive of domestic companies.”
This makes localisation of international brands a key part of the puzzle to staying ahead of local competition.
Rein believes China should account for a quarter of the business of FMCG companies and international brands should hire marketers based locally with an understanding of the Chinese market.
“The Chinese consumer market is changing much faster than Europe or the US, where consumer segments are fairly mature and segmented and easier to get to know,” he said.
“China is just getting wealthy and labour markets are changing fast. This puts marketers on their toes.”
4. The big brand is dead – instead, it is all about niche-branding
Espey believes there is a shift in China where upmarket Chinese consumers are increasingly looking for niche and bespoke items.
“Three years ago, everyone bought what everyone else had, whether it was an Omega or a Zegna. Today, these brands are facing serious headwinds because the Chinese consumer is becoming more individualistic and want to be different from others,” he said.
“Also with the crackdown on corruption, consumers are scared of flaunting goods from a brand that is too high-profile.”
Niche brands are low-profile while still retaining their exclusive touch.
Rein said it is getting harder for brands that used to dominate the market by building their entire image around themselves to maintain the same rate of growth as before.
To continue being a key player in the local market, brands need acquire or launch new niche brands.
“The name of the game is to get a niche brand and companies need to focus more on marketing them as catered to the individual. They have to accept that they can’t dominate the market anymore with just one big brand,” Rein said.
“It used to be that everyone wanted Gucci and brands like Michael Kors and Tory Burch wouldn’t get any traction. Today, people are trying to find a new sense of fulfillment through trying new brands.”
One example is the purchase of the Crystal Jade restaurant chain by LVMH.
5. The rise of niche brands see companies going for smaller, more innovative agencies
Rein said Western brands in China are preferring smaller agencies over big ones because of the innovative way in which they produce creatives and use digital in China.
“Brands really need to push themselves to take advantage of this new space created by niche brands,” Rein said.
“Newer and smaller agencies is where innovation happens – they are a little younger and started by entrepreneurs.”
He sees media buyers as some of the biggest barriers to innovation among agencies.
“A lot of the time, brands don’t understand digital and may allocate 5% of their ad spend to digital and ask media buyers to place those ads,” Rein said.
“Media buyers go where they can get the biggest commissions and kick-backs, often frequenting the easiest places.”
6. Not creating experiential, digital-focused campaigns
Campaigns for niche brands will be all about experience, said Rein.
“It is no longer the LV bag that gives prestige but showing off your exotic trips abroad on WeChat or Weibo,” Rein said.
Another must is social media campaigns.
Rein said, “Foreign companies only spend about 3-6% of their marketing budgets on digital in China, which is too little.”
“It may be sexier to do a TVC with a big Chinese star but that’s just about ego for the marketer. If spending on an in-store display or digital is more effective than doing a TVC or a sports event, then that’s where the money should go.”
Another problem is that creative work for digital is often divided between a marketing and a digital agency, when one agency is needed to integrate the work done by the two.
7. Celebrity endorsers take on a different meaning in China
“There are risks involved in using celebrity endorsers from the West because what they mean might be different. People might not know who Jude Law is, or while Iron Man might work well in China, Robert Downey Junior might not because of his alleged drug problems in the past,” Rein said.
“The Chinese personalise celebrities differently.”
Another example is the brands signing on Jacky Chan perhaps because he is one of the few celebrities they know of in China.
Rein said, “Executives from the West come into China and they know Jacky Chan, so they choose him. But when he’s selling everything you can imagine, it’s no longer believable.”