Had a fascinating conversation recently with a large domestic consumer product company that had been contemplating going into China. Very well run, very sophisticated, very successful U.S company viewed as a very solid line of mid-level priced consumer products. Generally, Americans view this company as having “good products at a good value.”
After an extensive marketing survey in China, this company has decided it will not be going into China. At least not yet. Let me explain.
Their survey (which they have given me permission to reveal so long as I keep it pretty generic):
1. Chinese consumers view foreign consumer goods as better and more expensive.
2. Chinese consumers are skeptical of foreign consumer goods that are less expensive or priced similarly to Chinese goods. They tend to assume these goods are not as good as Chinese goods because too much of the costs that went into these goods went to high foreign salaries, not to the product itself. A really big name like, for instance, H&M, can maybe overcome this, because with H&M the consumer is buying into the foreign trend, which trend itself distinguishes it from their Chinese competitors.
3. There was a time when a foreign low or mid-level brand could go to China and reinvent itself there as a higher level brand. Pizza Hut is a classic example of this. Thanks to the internet, those times may be over. The Chinese consumer is going to be reluctant to pay high end prices for a foreign brand that is low end outside China.
3. It’s tough out there in China for the mid- to low-level foreign consumer products company or retailer.
I thought of this client after reading a Forbes article, entitled, “What’s Next For China’s Fashion Retailers?“ The Forbes article was an interview with Paul French, “of Shanghai-based market research firm Access Asia, and in that article, French expressed skepticism about Gap succeeding in China. French doesn’t go too much into it, but I wonder the same thing. I assume Gap clothes will cost at least 5-10% more than comparable clothes in local China stores and I am just not sure the Gap name is going to be prestigious enough to cause the Chinese consumer to spend that much more for their clothes. That was the problem faced by my client; those in China who knew their brand respected it, but not enough to pay a sufficient price premium to make it worth their while to go into China, especially since their Chinese competitors were content with what my client called “shockingly low margins.”
So my client made the decision to table China and look at it again in a few more years.
For more on the issue of foreign companies being unable to get their prices low enough to compete in China, check out the following:
- Competing With Chinese Companies On Price. In Your Dreams.
- China Business. Which Comes First The Wealth Or The Low End?
- Ignore China’s Low End Market At Your Peril. Oh, And Don’t Forget The High End Either.
For more on the need for foreign companies to have a consistent image worldwide, check out the following:
- China, Glocalization, And The Specter Of Product Liability And More.
- Toyota And China. It’s A Small World After All.
Will Gap succeed in China? Should we view its success or failure as any sort of retail bellwether? What do you think?
11-18-2010 UPDATE: A Modern Lei Feng just came out with a very interesting post, entitled, “Gap Gets it Right in China,” in which he notes how Gap has localized both some of its looks and some of its prices for China and in doing so, has gotten “it right.”
