Agency: Fallon London
By Patrick Brzeski, marketingmagazine.co.uk, Tuesday, 02 August 2011 08:30AM
Diageo's acquisition of one of China's best-known drinks manufacturers in June was a landmark deal. The drinks manufacturer took a controlling stake in ShuiJingFang, a famous brand of baijui, a spirit that dates back to the 14th century. The deal marks the first time a foreign company has gained control of a major Chinese brand. It also underlines the increasing importance of the Chinese market to British brands.
Standout successes such as that of Land Rover and many other brands that are British or perceived to be - Burberry, Tesco, Mothercare, Penguin Books, Marks & Spencer and others - can lead to the assumption that the streets of Shanghai are paved with gold.
Not so, says David Wolf, founder of Wolf Group Asia, a strategic communications and marketing consulting firm which specialises in the Chinese market. 'As tempting as it is to look at this market as an open pasture, it's actually the most hyper-competitive market in the world,' he says.
While the rewards for those who manage to crack China can be colossal, Wolf contends that the market is far more complex than it was just a decade ago. 'By now, every one of your global competitors will be in or on its way to China; and if you manage to be successful, two or three dozen Chinese clones will pop up overnight to compete with you,' he says. Most ominous, perhaps, is a budding Chinese market nationalism that places the burden of proof on the aspiring market entrant.
'Incoming foreign brands now have to prove, to the government and the market, why they should even be here in the first place,' explains Wolf. 'Amazing opportunities remain, but you have to aggressively define your distinctiveness and build your walls high.'
In the autumn of 2009, Bryce Whitwam had just been hired as general manager of the Wunderman Shanghai agency, to oversee the company's Land Rover account, when he attended one of the brand's dealer conferences in Europe. He remembers it as a dismal affair. 'This was during some of the ugliest days of the financial crisis,' he recalls. 'People were not positive.'
The crisis was hammering sales across the automotive sector in the European, UK and US markets, and there was a growing consensus that SUVs were definitively not the car-class of the future. The one bright spot on the map for Land Rover was Whitwam's area: China. A late starter in the country, in 2008, the brand had begun to see modest growth in China, selling 7000 vehicles - a small piece of its business, but promising, given the dire economic climate elsewhere. Fast-forward just two years, and the company is now on track to sell 42,000 SUVs in China in 2011.
'It's a fully-fledged segment of the business,' says Whitwam. 'China is our number-three market in the world now.
If they can keep the stock coming, we might hit number two, or even overtake the US as Land Rover's number-one market.'
At some point in or around 2008, Land Rover marketers realised that the Chinese consumers who were willing to spend even the lowest entry-point amount for an SUV, were coming to the brand for luxury. In the US and UK, Land Rover's Range Rover marque is its high-class product, with the less-expensive models tending to be marketed to consumers who are interested in performance and adventure.
In China, potential Land Rover buyers were looking for a prestige product. 'We realised the market was looking for automobiles that screamed luxury,' says Whitwam.
The company and its advertiser adapted. By 2010, Land Rover had a focused luxury SUV message, from top to bottom of its product line. 'The dealers could hardly keep up with demand,' adds Whitwam.
Indeed, one strategy that unites many of the British brand successes in China is a marketing approach that explicitly trades on the perceived sophistication of 'Britishness' - particularly in luxury goods. While the nouveau riche continue to be eager to display their material wealth, Wolf argues that many Chinese consumers are increasingly aware that glitziness doesn't necessarily equate to style. 'There is something about British luxury that signifies not just wealth, but refinement,' he says. 'When they want to move beyond flash, they are reaching toward British brands, because they exude sophistication, but are also very accessible to this aspiring luxury class.'
He adds: 'If there's a first lesson, it's to understand what it is that the Chinese love about Britain, associate your brand with those attributes in a logical way, and let things roll. Burberry and Rolls-Royce have done very well by this strategy.'
Eventually, of course, the Chinese market will evolve and mature to an extent that a British-as-refinement approach across the board will seem a cliche, as it does in the US today, but, as Wolf suggests, for British luxury brands facing a broad market, there is probably no safer strategy for gaining initial traction.
Regardless of the product, service or sector, Chinese consultants are unanimous in their advocacy of exhaustive pre-launch research. 'Often the seemingly universal USPs you might emphasise in the UK or the US will be ineffective in the Chinese market,' explains Nick Thomas, executive director of the China-Britain Business Council (CBBC). 'It sounds obvious, but you would be surprised how many companies neglect this - to their detriment.'
Thomas cites the vacuum cleaner market as an example. 'In the UK, vacuum cleaners might be all about efficiency and raw suction power; whereas in China, safety is the best selling point, because with the one-child policy, Chinese parents are almost obsessively concerned about the safety and wellbeing of their only child.'
As Wolf puts it: 'You should brand globally, but market locally. You have to have an instinctive understanding of that local market to succeed in the long term - it's what the great German military strategist, Carl von Clausewitz called "fingerspitzengefuhl", meaning "fingertip feel".'
As an initial, pre-market-entry task, Thomas recommends investigating the status of a brand's products on China's hugely popular online shopping portal, Taobao, which hosts nearly 1bn sales listings. 'Products from all over the world that aren't available in Chinese stores will be on sale on Taobao,' he says. 'Exploring this marketplace can yield invaluable information about the status and perceptions of your brand in China so far.'
It's also essential to bring the brand's team to experience China first-hand, to cultivate a sense of commitment and get a feel for the place. 'Don't just confine yourself to Shanghai and Beijing; go out and get a look at some of the other secondand third-tier cities as well,' adds Thomas.
China has experienced uneven rates of consumer evolution. The country's sheer scale, multifarious regional sub-cultures, and variable rates of development, mean that cultural factors and consumer interests often differ from province to province.
A marketing strategy that has proved effective in Shanghai will often cause confusion in other areas of the country.
Because of this, the CBBC generally advocates a regional approach, says Thomas. 'You'll often find that a business partner who can be very effective in Shanghai and East China, may not be able to deliver good results in the north, south and west, simply because they're unlikely to have the capacity to manage a network of that size.'
The most common approach is to launch in Shanghai, expand to Beijing and then north and south-west into the regional cities beyond the main hubs, which is where the fastest growth in China is taking place.
Costa Coffee is a good example of a British brand that doesn't market itself as explicitly so. 'I would guess most Chinese consumers think Costa is Italian,' says Thomas. Nonetheless, the coffee chain has experienced tumescent growth by engaging different joint-venture partners in China's various regions. Costa is now the second-biggest coffee chain in China, behind Starbucks, and is closing the gap.
The cost of building a brand and setting up distribution networks in China is far higher than it once was. 'This is not a market that you can dabble in,' explains Wolf. 'You have to be committed and prepared to struggle, and to turn initial failures into institutional knowledge.'
'Our experience at the CBBC is that persistence pays off,' Thomas says in conclusion. 'If you do your research and keep committed, you'll have every chance of success.'
- There are significant differences between Chinese luxury-goods consumers and their European counterparts. The luxury market in China is mostly male-dominated, though experts predict this will change over the next decade.
- In 2010, China counted 960,000 individuals with a personal wealth of $1.5m, up 9.7% from the year before.
- Chinese millionaires are 15 years younger on average than their overseas peers.
- Success, wealth and social standing are highly regarded in Chinese culture and displaying this through watches, jewellery, cars and wine garners respect.
- Chinese consumers will pay a premium. Fine-wine prices increased 40% during 2010.
- Chinese consumers tend to appreciate craftsmanship. Foreign luxury brands are particularly desirable.
Source: 'Asia Hurun Wealth Report 2011', Credit Lyonnais Securities
- Prada announced plans in February this year for an IPO and listing in Hong Kong, recognising the increasing importance of the Eastern market to European brands. It is only the second company from Western Europe to list in the Chinese country, after French skincare giant L'Occitane International. According to documents filed at the Hong Kong Stock Exchange, the brand plans to open 70 more stores in Asia by 2014, of which 30 will be in China.
- Burberry, which has 57 stores in China, plans to open about 100 stores in the next five years. The 155-year-old clothing brand also hosted a fashion show in Beijing in April which underlined its commitment to the Chinese market.
- These brands are likely to be the first of many European companies setting their sights on expansion in Eastern markets. A report earlier this year from CLSA, the Asian investment group, says that over the next decade, China will become the world's biggest market for luxury goods.
- The report, entitled 'Dipped in Gold: Luxury Lifestyles in China and Hong Kong', said that demand for luxury goods and travel will account for 44% of global sales by 2020, up from 15% today. With an estimated annual growth rate of 23%, China's domestic market for luxury goods will grow to 0.6% of the country's total GDP over the next decade.
- According to the report, Louis Vuitton's biggest customers are Chinese, while Greater China represents 28% of sales for Swatch, 22% for Richemont, 18% for Gucci, 14% for Bulgari and 11% for Hermes.
This article was first published on marketingmagazine.co.uk