China’s extraordinary economic growth has been characterised by the production of high volume but relatively low value goods for export markets. This has allowed certain industries such as OEM’s (Original Equipment Manufacturers) to flourish but times are changing.
Increasing labour costs are eroding Chinese firms’ cost-based advantage and squeezing net profit margins. Conversely, China’s burgeoning middle classes have a healthy appetite for brands. These opposing forces create a new market dynamic where consumers’ decisions are increasingly being driven by prestige, conspicuous consumption and perceived quality as opposed to cost. This emerging dynamic creates huge opportunities for brands.
The business case for brands is strengthened by recent National Development and Reform Commission research. The NDRC found that on average manufacturing brands obtained 27% gross margin while non branded OEM manufacturers reported 19% gross margins. Brand’s ability to charge price premiums is the primary reason for this differential but why are people prepared to pay premiums for brands? The answer lies in humans’ tendency to make decisions based primarily on emotional grounds. The most successful brands understand and align with target customer’s emotions. Nike, Apple and even B2B brands like IBM and GE are masters of the trade.
So why is emotion so important? When humans’ make a decision the front of our brain (frontal lobes) accesses our memory which comprises of previous experiences. The process of accessing previous experiences goes through the part of our brain that deals with emotions (the limbic system). This means emotions are an integral part of humans’ decision making processes.
Unfortunately, most executives who embark on building brands fail to account for emotion. Instead they focus on the logo or other design elements. This is fatal mistake. Yes, design is seductive but if you take away the logo and so forth nothing is left. There is no brand. People don’t buy Apple products because they like the logo. They buy Apple for deep emotional reasons such as belonging, making personal statements about their creativity and so forth that resonate with them.
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Brand positioning, the image of the brand within the consumer's mind, is no longer a fixed, static concept. Instead, it is becoming increasingly dynamic and often varies across countries and cultures and according to specific consumer experiences.
Many brands enjoy a quite different image across cultures, even when the branded product and other marketing-mix elements are largely similar. China and the Chinese consumer provide a good example of this phenomenon, where many "medium quality" Western brands are perceived as "premium", "glamorous" or even "exclusive" and "luxury".
Examples that spring to mind are Starbucks, Apple, Holiday Inn and BMW, which are all associated with "prestige" and "elitism" by the new, affluent urban Chinese consumer, while across Europe and the US they are considered high-quality but, functional brands.
One obvious reason for this rush to purchase and visibly consume such "exclusive" brands lies behind the rapid economic and social development of certain parts of China. Chinese consumers in these areas, largely the first-tier cities and southeastern coastal provinces, suddenly find themselves for the first time in a position to enjoy such expensive luxuries. In consequence, Chinese consumers with lower purchasing power are also attracted to the relatively new, glamorous brands, such as clothes and cars, in order to combat any feelings of inferiority.
But why is the Chinese consumer's perception of Western brands so often associated with prestige and exclusivity when the very same branded product or service in the West is merely a value-for-money means to an end? To understand this further, it is necessary to move away from the traditional view of brand positioning, in which consumer brand perception starts with the branded product itself and remains fixed regardless of the experiences during which the brand is consumed.
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Almost 20 years ago, I first set foot in developing China, and into the early boom years of that country’s remarkable transformation. As the first Marketing Director for Procter & Gamble China, over the next 3 years I saw the incredible vibrancy, growth and opportunity of a developing market firsthand.
Since then, I’ve led organizations with businesses in virtually every major developing market around the world. While no two markets are precisely the same, they share many important features when it comes to Marketing success or lack thereof.
So, it’s natural to reflect: what have I learned as a Marketer from those experiences?
1. Walk the Street – When I arrived in China in 1994, it was like landing blindfolded in an emerging market. There were no TV ratings or market share data beyond Guangzhou, Beijing, and Shanghai—which collectively accounted for 5% of the Chinese population.
What to do?
Walk the street. Once a month, we would get on a plane and travel to a secondary provincial city and walk the streets, visiting 15-20 stores a day, talking to the merchants about what sold, what didn’t, and why.
Sometimes the best market research is simply getting out and talking to lots and lots of real people. That’s how we learned that sachets, or small 5-10g bags of detergent for once a week use, would never work like they did in shampoo.
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Someday, China will be the biggest consumer market in the world. No wonder marketers are increasingly interested in Chinese naming.
With his training in classical and modern Chinese literature plus an advanced American psychology degree in bilingual memory research, Andy Chuang (pictured) is the first in his family’s 1,500-year history to master not only Chinese, but also English.
His company, Good Characters Inc., founded in 2001 in Fresno, California, specializes in Chinese naming and linguistic and cultural evaluation.
We sat down with Andy to talk about the rationale and the process of Chinese naming.
Q: Americans have a set of basic assumptions about how they name things. Is it true that the Chinese have a completely different orientation towards naming?
Americans typically choose existing first names for their babies. For example, John, David, or Mary. However, the Chinese name their babies in the same manner you would name a company or a product. The Chinese pick some “good characters” and put them together to form a “good meaning.”
Consider the Chinese president, Hu Jintao, as an example. Hu is his family name. His first name, Jintao, is the combination of two characters, Jin and Tao. Jin is “brocade” or “bright and beautiful.” Tao is “big waves.” By putting these two together, Jin-tao means “enchanting waves” or, metaphorically, “splendid success” since brocade is associated with richness and success and big waves are strong and unstoppable.
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China is the “must win” market for global brands. The future potential offered by its vast population and strong economic growth has made China a magnet for multinational corporations. This potential has not gone unnoticed by the Chinese government and local brands. Competition that was once fierce has become white hot, and some of the things that risk getting burnt, are the brands themselves.
I have spent the last couple of weeks meeting with clients and colleagues in China. All have stated how difficult it is to create brand loyalty with consumers, many of who are relatively new to the concept of brands.
It is true that the Chinese consumer is on average more likely to be price driven than those in other countries, and often chooses between brands primarily on the basis of price. It is also true though that the Chinese consumer is less likely to be price driven than they were even five years ago. Instead, people are increasingly becoming repertoire shoppers, choosing between a set of acceptable brands. In this environment, the challenge to marketers is to ensure that their brand is the one chosen most frequently.
Creating loyalty of the sort seen in other countries requires a blend of two different disciplines: brand building and sales activation. The former requires the marketer to create a desire to buy the brand based on its functional and emotional benefits. The latter requires the marketer to make sure that pre-existing desire is fulfilled at the point-of-purchase. From what I have seen, far too many marketers here in China have become focused on activation to the exclusion of brand building.
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Branding Strategy Insider helps marketing oriented leaders and professionals build strong brands. We focus on sharing thought provoking expertise that promotes an elevated conversation on the discipline of branding and fosters community among marketers. BSI is a service of The Blake Project, a leading brand consultancy based in the United States.
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