the secrets of successful brands in china

Cologne Shanghai Beijing Mumbai São Paulo Singapore Seoul

The secrets of successful brands in China

Na Tang & Philipp Dittes

International Marketing Conference 2014

Wuhan

July 2014

2

Agenda

• What you need to know about brand localization

• 10 strategies for successful brands in China

• A few words on globeone

3

Consumer’s view: a paradox?

Source: globeone BRIC branding survey

Local sentiments vs. Foreign leverage !

64%

think it is

important to buy

local products

60%

think owning

foreign brands is

important

4

Local versus foreign positioning – product category and product visibility matter

Source: globeone research

• Some product categories (e. g. food, liquor, medicine) are closer to local culture than other categories (e. g. cars, electronics, most B2B markets)

• It is important to know the foreign preference in your category

Status relevance

More traditional categories

More innovative categories

• Key question: How visible is the product and how relevant is it for displaying my status?

• Motivators for the use of foreign brands: Social Prestige (I can afford) & display of “Cosmopolitan Sophistication”

• Key goal: Better treatment by social reference groups

Product category

5

Consumer patriotism plays an important role – higher income level as precondition for frequent purchase


• Preference for foreign versus local brand depends on the degree of consumer patriotism

• There are certain segments in society that are more patriotic than others

• Pragmatism dominates: Even among patriotic consumers there usually is no very strict rejection of foreign brands

Consumer patriotism Income level

• The higher the degree of prosperity the higher also the preference for foreign brands across many categories

• The rapid growth of the urban middle classes in China is a key driver for the purchase of foreign brands

• Local governments sometimes dissatisfied with this tendency

6

Positioning as local, foreign or hybrid needs consideration of social class & consumption context

Status Level 1

Product 2

Patriotism 3

Income Level 4

High

Not bound to culture

Low / Medium

Affluent

Foreign

Medium / Low

Close to local culture

Medium / High

Middle Class / Mass Market

Local

Medium

Not close to local culture

Medium

Mass Affluent / Middle Class

Hybridized

Preference determining factors

Brand positioning


7

Agenda




8

10 strategies for successful brands in China

Leverage on country-of-origin (COO)

Use the middle market

opportunity

Build long-term relationships

Position on key consumption

motifs

Use educational approaches

Bet on social media

& open innovation

Bet on the right segments

Adapt products to market realities

Prepare for brand crisis & counter-action

Use the power of local beliefs

& myths

1 3 5

9 10 8

2 4

6 7

9




opportunity



motifs


Bet on social media

& open innovation





& myths

1 3 5

9 10 8

2 4

6 7

10

Partitioning of COO concept: Country-of-Manufacture (COM) and Country-of-Design (COD) do matter

• The country where the product is developed (generally the country with which the brand is associated)

• Trend: Globalisation of markets and increased outsourcing

• Many corporations manufacture in China and other foreign markets

• COO construct is decomposed in Country-of-Manufacture (COM) and Country-of Design (COD)

Country-of-Design (COD)

• The country in which the product is manufactured or assembled

Country-of-Manufacture (COM)

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

11

Analysis of German brands in China in our globeone BRIC branding survey

Note: Representative survey of urban population based on field research conducted by certified market research agencies in each country (2012)

Countries / Cities:

Brazil Russia India China

São Paulo Moscow Mumbai Shanghai

Rio de Janeiro St.Petersburg New Delhi Beijing

Porto Alegre Novosibirsk Bangalore Guangzhou

Recife Yekaterinburg Chennai Chengdu

Brasília Nizhny Novgorod Pune Wuhan

Method:

• 4,033 interviews with urban citizens

Objectives:

• Understand the perception of Germany as country-of-origin

• Analyze the performance of German brands

German brands

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

12

German image as asset – particularly large potential in the Chinese (upper) middle class

• The majority of the (upper) middle class has a positive attitude towards German brands

• Only a very small fraction (5% – 11%) in each group dislikes German brands

• Opportunity for an effective positioning utilizing the country-of-origin potential

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

Income distribution in RMB/month: Emerging middle class (2,700-8,100), Middle class (8,101-18,000), Lower affluent (18,001-36,000), Upper affluent (36,001 and above). Exchange rate: 1 RMB = 0.11 € (September 2011). Q.: Do you like German brands, products or services

8%

5%

1%

38%

48%

16%

34%

7%

2%

41%

33%

12%

0%

44%

11%

I do not like

German brands at

all

I do not really like

German brands

I do not have a

preference

I like German

brands

I like German

brands very much

57% and 77% associate positive image

Emerging middle class Middle class Lower affluent

13

Germany most famous for cars, home appliances, machinery and pharmaceuticals

– Industries/ categories most commonly associated with Germany – • Traditional industries like automotive and machinery lead the ranking

• Eco-friendly technology not yet strongly associated with Germany

• For consumer goods and services, German brands less likely to be associated with

11%

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

Q.: What categories do you think German brands are famous for? Total sample: 1,010 respondents from China

14

Germany most strongly associated with traditional values like quality and durability

– Perception of brand and product attributes of brands from different countries in China

based on respective countries –

Excellent quality

Good reliability

High durability

High performance

Outstanding design

High prestige

Sophisticated

Germany

US

Japan

China

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

Q.: We are interested in the important brand & product characteristics e.g. design, quality etc. Which countries are most strongly associated with these characteristics? Total sample: 1,010 respondents from China

15

German brands not seen as very innovative or exciting – but very trustworthy

Innovative & high-tech

Fashionable & exciting

Close to local customer needs

Good after-sales service

Good value for money

Trustworthy

Good corporate citizenship

Protecting environment & climate

Germany

US

Japan

China

– Perception of brand and product attributes of brands from different countries in China

based on respective countries –

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

Q.: We are interested in the important brand & product characteristics e.g. design, quality etc. Which countries are most strongly associated with these characteristics? Total sample: 1,010 respondents from China

16

A positive COO-Image is in many cases a key driver of brand performance

Source: globeone

• The COO-Image is particularly important in dynamically developing economies

• Perceived quality and a brand’s perceived prestige

• The potential depends on industry and product category

German image potential !

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

17




opportunity



motifs


Bet on social media

& open innovation





& myths

1 3 5

9 10 8

2 4

6 7

18

China’s social structure is undergoing rapid and significant changes

Source: McKinsey (2013); figures may not sum up to 100% because of rounding

Today’s market strategy needs to incorporate these dynamics

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

16% 5%

54%

14%

20%

56%

11% 25%

2012 2022

Affluent

Upper middle class

Mass middle class

Poor

Urban private consumption, %*

10,048 billion RMB 26,804 billion RMB

19

Most of them live in ‘Cities Unknown’

In 2025 China to have 220 cities with more than 1 million inhabitants

Harbin Shenyang

Jinan

Hefei

Nanjing Fuzhou Chongqing

Chengdu

Wuhan

Xi’an

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

20

Reaching a broad customer range with horizontal category flooding

Source: globeone

Examples: Coca Cola and Pepsi (China)

Traditional

consumers

Modern

consumers

Traditional

consumers

Modern

consumers

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

21




opportunity



motifs


Bet on social media

& open innovation





& myths

1 3 5

9 10 8

2 4

6 7

22

Crucial for success: proper market segmentation

Source: globeone

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

• How?

Dividing a broad target market into consumer groups with similar needs and preferences

Identification of crucial product criteria and emotional factors (key purchase drivers) for each group based on research

• Why?

Basis for the design & implementation of strategies which specifically address relevant consumers

Marketing tools (e. g. pricing, communication) can be applied in a more (cost) efficient way

Identification of “white spots”

Product innovation & portfolio

optimization

Targeted promotion

& advertising

Pricing strategies

Market segmentation

23




opportunity



motifs


Bet on social media

& open innovation





& myths

1 3 5

9 10 8

2

7

4

6

24

Adapting products to market realities

Source: Daxue Consulting

Starbucks

• Larger accommodation to provide space for socializing

• Starbucks as part of a “sophisticated lifestyle”

• Menu and products modified to fit local Chinese taste (e. g. moon cakes)

Examples: Starbucks & Häagen-Dazs 1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

Häagen-Dazs

• Adapted China-specific flavors, products (e. g. dessert style hotpot), promotions, and overall image

• Provides a 5-star / VIP luxurious dining experience

25




opportunity



motifs


Bet on social media

& open innovation





& myths

1 3 5

9 10 8

2 4

6 7

26

Using the power of local beliefs & myths…

• Flavors contribute to nutrition balance in the sense of hot and cool balance (Yin & Yang)

“Cool Cucumber”

“Lemon Tea”

“Sour Fish”

“Spicy Hotpot”

Example: Frito Lay Chips / Rejoice

• Toothpaste with green tea flavor fresh and clean

• Rejoice-Shampoo with ginseng and ginger ginger with healing effects on the body & hair

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

27




opportunity



motifs


Bet on social media

& open innovation





& myths

1 3 5

9 10 8

2 4

6 7

28

• Communication still needs to educate the inexperienced consumer

• For experienced consumers emotionalization becomes more relevant

Education is still needed – but not in all segments

Source: corporate website

• ‘

• Arrival’ of ca. 100 million people in the ‘Upper & lower affluent’ layer in the next 10 years new wave of unexperienced consumers

• Communication of strengths & relevant product information to build-up credibility

• Also high relevance for B2B companies & SMEs: Whereas in their home markets most potential customers know what they stand for, this is not necessarily the case in China

• Utilize the lack of buying experience of potential customers and consumers

30% of Chinese premium car buyers

are first-time buyers

Source: McKinsey, 2013

In the overall passenger car market are first-time buyers

70% 1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

Education as tool for B2C and B2B

29




opportunity



motifs


Bet on social media

& open innovation





& myths

1 3 5

9 10 8

2 4

6 7

30

A powerful cultural heritage influences purchase drivers…

Source: corporate website; 财经 magazine

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

Confucianism Collectivism National pride

• High relevance of status and social prestige (strong desire to show personal success

• Wish to be recognized as a driving force of China (“movers and shakers”)

• Strong perceived importance of family and children as well as pressure to meet expectations of parents/ancestors

Expression in

advertising

Related consumption

motifs

“Let other people see your commitment to the future”

31

…but the impact of “The new China” also needs to be considered

Source: corporate websites

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

Transformation into market economy Modernization Individualization

• Desire to “explore the world” and to experience exciting things (be part of the “global village”)

• Discovery of the individual ‘me’ and wish to select a brand that fits the own emotions and individual style

• Show cosmopolitan sophistication

Expression in

advertising

Related consumption

motifs

32




opportunity



motifs


Bet on social media

& open innovation





& myths

1 3 5

9 10 8

2 4

6 7

33

The retention challenge in China

Source: Goodstein & Partners, globe one; McKinsey; The Economist (2014)

• Readiness to experiment with new brands – ¾ of Chinese consumers are eager to try new brands*

• Post 90ies become mainstream consumers

• Online media with huge influence on purchase decisions

• Established brands face new local competition

• Strong desire of consumers to trade-up

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

"As consumers become more knowledgeable, they feel safer trying out lesser known brands." (McKinsey &

Company, 2012)

Challenges for established brands

Existing need to develop strategies to retain customers

From “good &

expensive” to

“outdated”?

34




opportunity



motifs


Bet on social media

& open innovation





& myths

1 3 5

9 10 8

2 4

6 7

35

• The internet is the most important source for learning about foreign brands

• Among the BRICs, social media enjoys highest commercial maturity in China

• Digital communication is a great way to reach the relevant crowd in a more cost efficient way – even for niche brands / products

• Social media can be a real booster for dCRM & sales

Great marketing potential in the world’s largest social-media market

Source: psfk, January 2012, CNNIC, Financial Times, Daxue consultant, EnfoDesk; Ipsos OTX

Sources of information to learn more about foreign brands 1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

Mobile payments grew 127% in 2013 –

alipay alone registered 2.78 billion mobile

payments in 2013

91% of the online

population in China has an account on a social media

site

66% of Chinese

social media users follow

brands

33% of Chinese users share things online frequently (US: 15%, Germany 9%)

36

Example McDonald’s McSpicy Wings – Igniting a buzz

Goal: Convert Chinese consumers to McSpicy wings (instead of KFC wings)

The campaign was announced on social media, which

included 5 videos that quickly became viral

10% sales rise in

chicken wings

3 million videos

were viewed

186,986 videos

were forwarded on to friends

500+ in the

press, online and TV

McDonald‘s invited consumers who had coupons for

chicken wings from any other restaurant in China,

including KFC, to use them to buy McSpicy Wings

- Results of the campaign -

1.

2.

6.

7.

8.

9.

3.

4.

10.

5.

One of the

years‘s most buzzed campaigns

37




opportunity



motifs


Bet on social media

& open innovation





& myths

1 3 5

9 10 8

2

7

4

6

38

• Powerful state government with control over most media

• Internal wish to boost domestic companies in identified key factors

• Large and very active social media community with the ability to form strong opinions

• Companies must learn the rules of the game in social media and engage consumers accordingly

• It is important to build relationships and engage with key opinion leaders before a crisis hits

“Shitstorms” – a special danger in China

Source: globeone

1.

2.

6.

7.

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9.

3.

4.

10.

5.

39

Examples of “shitstorms” in China

Source: weber shan

McDonald’s targeted at the Consumers Rights Day (March 15)

Mislabeled and sold ordinary chickens as premium at higher prices

Annual TV show to target companies which supposedly abuse consumer trust 2013 show with interesting line-up

Sold chicken wings past their sell-by period

Accused of distributing spam messages to customers, leaking personal information

• Very fast response: Draft of official statement, legal approval, interview, Weibo message under 1 hour

• Next steps: launched self-investigation, meetings with official departments and ongoing communication with consumers

• Hash tag #I want to support McDonald’s with more than 500,000 posts

• Weibo statement received more than 11 Million views within 3 days

McDonald’s with immediate response

1.

2.

6.

7.

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9.

3.

4.

10.

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40

Agenda




41

We deliver a global service portfolio out of our regional hubs

42

Global strategy meets local opportunity

43

We accompany mandates throughout implementation, helping our partners reach long term goals.

We position brands, organizations and other entities in markets with relevant target groups.

Market-Driven Positioning

Market-Driven Positioning – the core of what we do

We work based on market research and insights from consumers, customers, stakeholders.

We craft strategies for growth: market entry, market expansion, re-positioning, organizational transformation.

44

Brand Performance Monitor

Market Structure Analysis

Customer Insight Generation

Definition of Market Drivers & Segmentation

Competitor Bench-marking/COM Analysis

Growth Area Mapping

Digital Excellence

Transformation Road-mapping

Integrated Marketing & COM Planning

Strategic Positioning Initiatives

Integrated Campaign Development

Lead Generation Processes (CRM/dCRM)

Agency Selection & Steering

Performance Measurement

Insight Transfer Strategy Planning Roll-out

Internal COM Screen

Growth & Expansion Plan

Stakeholder Alignment

Project Management Support

Market-Driven Positioning – our services

Market-Driven Positioning

45

globeone is a recognized thought leader featured in leading global business press

46

Survey among German consumers: Perception of Chinese brands and Chinese products in general

Visit us on www.globe-one.com to receive the survey and more insights!

Tatjana Martens-Pearce Managing Director globeone Shanghai phone: +86 138 1654 4122 [email protected]

Na Tang Senior Manager globeone Shanghai phone: +86 138 1878 7060 [email protected]

Want to know more?

Tatjana Martens-Pearce has gained nearly a decade of experience in advising worldwide leading industrial companies in the development and implementation of marketing and communication strategies in China. Before joining globeone, Ms. Martens-Pearce worked for international firms in the advertising and marketing industry in both Germany and China.

We’re looking forward to hearing from you! Or visit us at www.globe-one.com

Having worked with leading brands in China, Italy and the UK, Na Tang has extensive experience across countries and industries. Her unique expertise in marketing, finance and management makes Na Tang a powerful and versatile consultant for brands developing the Chinese market.

Cologne Shanghai Beijing Mumbai São Paulo Singapore Seoul

Thank you!

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the secrets of successful brands in china

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