China Law Blog

I have always been a big fan of Shaun Rein and his company, China Market Research Group, because Shaun is constantly calling for doing China business the right way, which way is surprisingly similar to doing business everywhere else. China Market Research Group is a small outfit that does big things in market research and strategizing. I met up with Shaun in Shanghai this last trip and he told me of having just beat out a couple of the big consulting firms for a Fortune 50 client. Shaun said his company won out on this project by knowing more about China and by offering more personalized service. I believe it.

Shaun is ridiculously young for all he has achieved and he looks ridiculously even younger. He looks as though he just graduated college and is getting ready to embark on a Masters Degree in Economics from Harvard, even though he has had that degree for many years now. Before forming China Market Research Group, Shaun was Chief of Research for venture capital firm Inter-Asia Venture Management and the Managing Director for e-learning software company WebCT where he headed up its China, Taiwan and South Korean operations.

Shaun is a regular contributor to Business Week and his China marketing articles there are not to be missed. I particularly enjoyed his most recent article entitled, "The Key To Successful Branding in China" because it was on a product I know well just by having grown up in Michigan: cars.

Rein's article outlines mistakes General Motors has been making in China with its Buick brand. The article begins by pointing out how Chinese consumers are not all that different from those in the West:

While there is some truth to the complaint that Chinese consumers switch brands frequently, it is not a function of Chinese culture, as some may suppose. Rather, Chinese consumers remain fickle because China is in a phase of its development where companies bombard consumers with vastly more choices than they had even a decade ago. Another problem is that multinational companies have not always done an adequate job of identifying and understanding their core markets in order to target them effectively.

Actually, Chinese consumers are fiercely loyal to brands that suit their needs. New Chinese brands such as Tencent Holdings' QQ instant message service, Belle International's Belle shoes, and Alibaba's Taobao consumer-to-consumer e-commerce service are incredibly successful because they know how to relate to Chinese consumers. Domestic firms that survived the post-1978 reforms, like White Cat detergent and White Rabbit candy, have built trust with Chinese consumers and thrive because of it, much as Tide and Mars have done in the U.S.

Rein goes on to point out how multinationals like Yum Brands (with its 2,200 KFC outlets in China) and Omega (with 70% of China's luxury men's watch market) have engendered "trust and brand loyalty with Chinese consumers." Rein then lists what companies must do to "foster brand loyalty in China:"

To foster brand loyalty in China, companies need to learn from these successful examples and focus on three critical points: Define their brand position, understand and relate to their consumer base, and target China's younger generation, which has the product sophistication and disposable income to be tomorrow's loyalty leaders. If multinationals do not position themselves strategically over both the short and long term and understand the changing needs of Chinese consumers, they will lose China to more market-savvy companies.

Sounds like a good strategy anywhere.

Rein then analyses how General Motors has diluted its Buick brand in China. When GM reintroduced its Buck brand to china a few years ago, it positioned it as a high end car "for senior executives and other elites." "Marketers tried to show that China's last emperor, Pu Yi, had a Buick in the 1920s as did the Chinese leaders like Sun Yat-sen and Zhou Enlai. Some of the models boasted sticker-prices topping those of Mercedes and BMW and were an instant hit. GM quickly sold more Buicks in China than in the U.S., topping 665,000 about five years after the first Buick assembly plant in China opened in the late 1990s." Many of the international lawyers with whom I work in China very proudly drive Buicks.

But then, in an effort to take advantage of the growing numbers of Chinese who can afford to buy a car, Buick started selling lower-end models for around $12,000. As one would expect, sales initially boomed as Chinese baby boomers snapped up these cheaper Buicks, thinking they were getting a car very much along the same lines as the Buicks they had always coveted. Once it became clear Buick had proven them wrong, Buick's market share plummeted. Rein dissects Buick's mistake:

Buick's mistake is obvious, and the remedy has nothing to do with price. Business titans do not want to drive the same car that middle-class, first-time buyers are driving. And middle-class buyers are upset because they thought they were buying into the Buick brand and Buick quality but instead received a watered-down car that did not meet their expectations. As one recent buyer of a low-end Buick said to my firm, the China Market Research Group (CMR), in an interview: "I bought Buick for the luxury associated with the brand as all these business leaders have chauffeured Buicks, but the quality is terrible. I am very disappointed."

Rein concludes his article by nicely summarizing what consumer companies seeking to sell in China must do:

To develop a brand successfully in China, it is not enough to take a short-term outlook and try to sell into every available market. This risks eroding long-term prospects. It is better to first define what your brand is supposed to embody and then work to support that image. Multinationals must understand that Chinese consumers in the first-tier cities of Shanghai, Beijing, and Guangzhou will soon be as brand savvy as any in New York, London, or Paris. And consumers in the second- and third-tier cities like Chengdu and Dalian will move with lightning speed to catch up with international trends.

What I find so fascinating about GM's mistake with its Buicks in China is how closely it tracks how GM nearly drove its Cadillac division into bankruptcy in the 1980s with its Cimarron car. The Cimarron was Cadillac's attempt at making a small car but it was really little more than a Chevrolet Cavalier with leather seats. Once consumers realized this, Cadillac's brand name was diminished across the full spectrum of its product line. Here are some listener quotes on the Cimarron over at NPR's Car Talk describe the Cimarron, where it was voted the eighth worst car in history:

"GM thought they could take a Chevy Cavalier, slap some Cadillac stuff on it, add an extra $5,000.00 and sell a bundle. Tragically enough, they pulled it off-for a while."

"Hands down, worst car for the money spent. Yugos were junk, but at least they were cheap. This heap had a Caddy price tag!"

"A stupid marketing ploy. Nothing more than a Chevrolet Cavalier, which Roger Smith gussied up and called a Cadillac."

I suspect it would not be too difficult to pull similar quotes from Chinese owners on the low end Buicks.