I am fascinated by China’s consumer market, mostly because it is so damn unpredictable, at least by me. I have seen Western products go into China that I thought had zero chance of attaining success, only to see them succeed even beyond the crazy expectations of my client. I have two clients who make very different ultra high end and expensive products that I thought would be suited only for a few idle rich in New York or London sell the socks off their products in China by pricing them even higher there than here. Both of these companies have seen their China sales outstrip their U.S. sales within a year of entering China.
Now I know luxury goods have a definite place in China, but the products I am talking about above (especially one of them) are not even remotely show-off material.
Then I have seen other products go into China that made complete sense to me and flop horribly. You mean to tell me the Chinese consumer won’t spend an additional 10% to get a clearly better product?
At a China seminar at which I spoke earlier this week, IP lawyer, Skip Fisher, spoke on China trademarks. Skip talked of how it can make sense for American brands to register a Chinese version of their brand name. He then very briefly talked of how important it is to choose the right name and of how in choosing that name one might want to consider how it sounds in various regions throughout greater China. I could not agree more.
Creating a product or brand name for China is not for lawyers. Not even for lawyers completely fluent in Chinese. Why? Because creating a brand or product name in China is no different from creating a brand or product name in the United States and who would even think of using their lawyer for that?
I thought of all this today when I read the Enovate China post, “Is Your Global Brand Ready to Compete with Local Chinese Brands?” [link no longer exists]
The post starts out citing to a recent Harvard Business Review article, “From Made in China to Made For China,” by Max Magni and Yuval Atsmon, both of whom are with McKinsey & Company’s China consumer practice group. This HBR article highlighted how foreign brands are spending more to launch China only brands catering to China’s consumers.
The Enovate post states that “Chinese consumers love foreign brands and products a lot more than local ones” but posits that a shift towards locally made products is occurring. Interestingly, however, Chinese consumers are not well-versed regarding the country of origin of the products they buy.
McKinsey researchers were right to point out that the confusion among Chinese consumers about brand origin is at its peak. According to their research 90% of respondents believe Metersbonwe, the Chinese fast fashion company is foreign, while 70% of them think Danone is a local company.
So when local brands all bear an ambiguously foreign name, the name is not much of an edge any more. Consumers are more confused than ever and turn to the actual product themselves to try and discover its origin.
(Just as an aside, I not that long ago broke the hearts of some good friends by disabusing them of the notion that their ultra expensive LG Brand washer and dryer were Swedish)
China’s consumers traditionally associate foreign brands with “high quality” and, like consumers everywhere, China’s consumers prefer high quality when they can afford it. This has not changed, but what has changed is that the quality of products from Chinese brands is catching up fast and that the Chinese consumer is focusing on not just where the brand is from but where the product was actually made:
Chinese consumers are even more conscious about product origin than brand origin, as imported goods always bear a much higher price tag and are perceived as higher quality. But now it’s almost common knowledge that most of the foreign brands are manufactured in China as well. Therefore the association is weakened.
In a section entitled, “Local Knowledge is the New Differentiator,” the post goes on to emphasize the need for foreign companies selling in China to know the local market:
Local brands have a huge competitive edge with their deep knowledge of the market and local connections. Especially in the fashion industry, local brands are expanding much faster than foreign ones in tier 2-4 cities. They are not only catching up on product design and quality, but also on branding. Recently we have seen creative viral videos produced for local brands like “Semir” and “Metersbonwe”, both drawing in a strong youth interest.
Localized versions of foreign brands like “Shang Xia” [Hermes] and “Denizen” [Levi Strauss] are most likely to fill the gap between the low-end and luxury market. They will battle head-to-head with local brands targeting the same market segment. For foreign brands the immediate challenge is to internalize the knowledge of local market and to move more decision making responsibilities from HQ to the team on the ground here. For local brands, the challenge is to create an integrated branding message that’s cohesive from inside out. Whichever side is able to accomplish these two things first, will win this market.
In layman’s terms, China’s consumer market has arrived and to succeed in it requires expertise. For more on selling into China’s consumer market, check out the following:
- Chocolate Fortunes. China’s Consumer Market Writ Large And It Ain’t Easy….
- How To Win Over The Chinese Consumer. What Happens In The Store May Not Stay In The Store
- The Basics On China Retail — Creating Your Own Customers Is The Key
- China Marketing And Branding. Reading The Tea Leaves
- China: No Brands No Cry. What Does Peoria Say?
On a very related note, I just saw that China now has 833 million mobile phone users.
What does it take to sell in China?