selling to the chinese consumers
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TRANSCRIPT
Franklin Yao, CEOOctober 13, 2010
Selling to the Chinese Consumer
As Presented to:
Agenda
1. China: Land of Opportunities
2. The China Market is Different, Differentiated, and Complex
3. Form an Effective Insight‐Driven Strategy
4. Overall Thoughts / Q&A
1
China versus Denmark
By 2025, China will have 219 cities with more than one million inhabitants – 219 Copenhagens!
and 24 cities with more than five million people – 24 Denmarks!
Copenhagen
ShanghaiChina Denmark
2Source: McKinsey Global Institute: Preparing for China’s urban billion
8.3%
6.3%
3.8%
2.3% 2.2% 1.9%1.5% 1.5% 1.3% 1.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
China India Brazil Mexico US Canada UK France Japan Germany
CAGR of Domestic Consumption per Person%, 2007‐2020
China will be Consuming More and More
Source: Global Insight, February 2009; McKinsey Global Institute China model, in February 2009; McKinsey Global Institute analysis
3
4
Chinese Consumer Prefer Global Brands
Source: 2009 Report on China Consumer Goods Markets Monitoring and Analysis; Sinomonitor.com1Definition of brand loyalty: (# of consumers who will choose Brand X next time / # of current Brand X users) * 100%
Chinese Cosmetics Market Share By Sales2008
Foreign & Joint Venture Brands
80%
Chinese Brands20%
20.27
8.04
7.93
6.94
4.46
3.02
2.70
2.47
77.63
64.22
64.23
51.77
62.08
47.6
57.95
48.85
Maybelline
Avon
Shiseido
MaryKay
L’Oreal
Olay
Aupres
Yuesai
Top Cosmetics Brands in China2008
Brand Loyalty1 Market Share%
All foreign brands!
You Can Influence Chinese Consumers
5
1980 1987
Whisky was imported to China.
The first KFC restaurant opened
The first PizzaHutrestaurant opened
1990 1999
The first Starbucks opened
Danoneintroduced yogurt
• China is becoming the biggest Whisky import country.
• KFC opened 3,000 restaurants and created a huge western fast foodmarket in China.
• Pizza Hut is one of the most common dating restaurant in China.
• Starbucks has successfully helped increase the consumption of coffee among Chinese consumers.
• Yogurt accounted for 11.7% of China’s dairy industry in 2008.
2010
Source: SmithStreet Research
Agenda
1. China: Land of Opportunities
2. The China Market is Different, Differentiated, and Complex
3. Form an Effective Insight‐Driven Strategy
4. Overall Thoughts / Q&A
6
Chinese Consumers Like White Skin
7
Asian Models Western Models
Source: SmithStreet Research
Breakfast in South China
China is not one Market
8
Common Breakfasts
Porridge(Zhou/Congee)
Ingredients: Rice, meats, preserved eggs and vegetablesThe northeast prefers adding salted vegetables whereas the south prefers have preserved eggs. The southern version also has more water in it.
Fried dough& soy milk
Ingredients: Wheat flour, soybeans
Some Chinese like to dip the fried bread sticks into soy milk.
Steamed bun (Baozi)Ingredients: Wheat flour, meat (pork) , vegetables, bean paste, mushroom, are all common fillings
Steamed buns (Mantou)Ingredients: Wheat flourNortherners prefer a steamed bun without any filling while the south prefers minced pork or vegetables fillings.
Chinese pancakesIngredients: Wheat flour, and variations of egg, green onion, sweet/spicy sauce, fried bread.
Guilin’s rice noodlesIngredients: Rice noodles, green onion, meat (pork, beef, or lamb)
Breakfast in North China
Starchy rice dumpling wrapped in reed leavesIngredients: Sticky rice, meat (pork or beef), egg and/or bean paste
Source: SmithStreet Interview and Analysis, photo (bbs.tom.com; China Commercial Online Tourism Services; www.hljcyw.com, mm616.com)
9
Shanghai in itself also can not be treated as a single market. There are many different classes of Shanghai residents. These include local Shanghainese, immigrants from other cities in China, migrant workers and expats.
Shanghai is more Diverse than Most Countries
The Chinese Consumer is Changing Rapidly
10Source: SmithStreet Research
Fashion & StylePriorities
Life
Maintain Family
Apartment & Car Loan
Material Goods
Running out of Time
Lost at the Crossroads
Internet Dominated
Dolled UpDon’t Care Much
Natural Beauty
China has its own Forms of Creativity
11Source: SmithStreet Research
“This bag is pretty!”Post on online forums
“This bag is not sold in China.”
Get responses
User Responses
“I know a factory that can make it. Who wants to buy it?”
Reply
“Count me in!”
Contact the factory
Factory makes a sampleFactory sends
sample
Send sample back for improvements
Deliver bags to users
Pay deposit
Users check and critique sample quality
Product delivery
Users receive product
Comment online
“Great bag!”
Social Media has a Huge Influence on Brand
P&G’s “Homework” for Primary School Students
2008.12.28
2008.12.29
2008.12.30
P&G distributed a market research questionnaire disguised as homework assignment to Hangzhou primary school students which required them to use P&G tooth paste.
The education department of Zhejiang Province announced that it would cease cooperation with P&G effective immediately.
A parent’s blog + a local community forum
600 comments within 3 hours
Journalists conduct interviews
P&G denies involvment
Chinese netizens showed strong disapproval
12Source: q.sohu.com
Agenda
1. China: Land of Opportunities
2. The China Market is Different, Differentiated, and Complex
3. Form an Effective Insight‐Driven Strategy
4. Overall Thoughts / Q&A
13
Define your Brand or the Market will do it for You
Brand AMillions
There is a lack of understanding of the fashion company’s brands and the differences between product
lines
Differentiation between the first line and the second line is very low
Most people search only for the name of the first line
However, search items skew heavily towards Chinese Name F. 7 out of every 10 results are Chinese Name F related products or news.
1,686,805
559,403
129,446 40,356 22,7800.0
0.5
1.0
1.5
2.0 Google sina blog BaiduTaobao Total
Brand B
Chinese Name A Chinese Name B Chinese Name C Chinese name D Chinese Name E
172,852
7,261 1,369 614 210
50,000
100,000
150,000
200,000 Google sina blog Baidu
Most people will search for Chinese Name A for both the first and second
line of products
Search results for Brand B in Chinese on major search engines and portals is only 9.3% of total searches for
the brand in China.
Source: Google; Baidu; Sina; Taobao; SmithStreet Primary Research 14
Chinese Name F Chinese Name G Chinese Name H Chinese name I Chinese Name J
Brand A and Brand B are the first line and second line brands of a global fashion company, respectively.
18
5
3
7
15
Overall quality
Colleagues’ recommendations
Relationship with supplier
After‐sale service
Price
328
2,246
474 722
3,662
2,610
‐
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Grade III Grade II Grade I
1st Class
2nd Class
3rd Class
Rated China Hospital System
15Source: China Ministry of Health
Understand the Market at a Deep Level
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 1 2 3 4 5 6 7
Mar
ket S
hare
of F
orei
gn B
rand
Price Multiple (Price of Foreign Brand/Price of Local Brand)
Device ADevice B
Device C
Device D Device E
Price Multiple (Price of Foreign Brand/Price of Local Brand)
Market S
hare of F
oreign Brand
Pricing Analysis
Purchasing Decisions Nominated by Doctors
• More Channels• More Aged Care• More Professionals
Governments often Determine the Size of the Market
Market of Disease X in
China
Rising Governmental Awareness at National
and Local LevelsOriginal Market of Disease X in
China
• Public Education• Professional Education
New Market of
Disease X in China
Beijing, Shanghai and the Chinese Government all pay attention to nursing care and disease control for Disease X.
16Source: SmithStreet Research
The Story of 85°C
17
Franchise or
Owned?
Agenda
1. China: Land of Opportunities
2. The China Market is Different, Differentiated, and Complex
3. Form an Effective Insight‐Driven Strategy
4. Overall Thoughts / Q&A
18
Sun Tzu Said:
19
zhī jǐ zhī bǐ bǎi zhàn bú dài
Carl von Clausewitz Said:
20
21
China is a Freeway…
New York, USA521 Fifth Avenue, 17th Floor
New York, NY 10175+1 (212) 292 4420
www.smithstreetsolutions.com
Shanghai, China20 Jinchuang Road, 10th Floor
Yangpu, Shanghai 200433+86 (21) 6565 6533