How Counterfeiting Shapes Brand Creation in China

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Shoppers and others on Shanghai's Nanjing Road.
Shoppers and others on Shanghai's Nanjing Road. Credit: Nikada/iStock

Early on in its digital life, Chinese ecommerce liked to copy. It took digital business models from other, more mature companies, such as PayPal and eBay. More recently, however, Chinese ecommerce has been developing in radically new ways -- ways that are unique and invisible to brands without experience in the country. Examples include mobile malls, widespread micropayments and bridges between physical and digital commerce.

You might think that makes China a glimpse of the future for the rest of us, and to a degree it does, but not in the way you'd expect. That's because successful technology platforms tend to reflect the culture for which they were designed. American ecommerce companies, for example, struggle in Latin America, with its largely cash-based environment.

Counterfeiting's impact
One of the biggest shaping forces in Chinese commerce broadly is one we don't have in the West: rampant counterfeiting. It exists in almost every product category -- even automotive. As a result, brands operating in the country have to overcome a paradox: Chinese consumers seek out name-brand quality, but fear the cheap look-a-likes.

So brands must be built differently in China. Rather than blanketing consumers with upfront emotional messaging, they first aim for transparency in their supply chains, ensuring that the brand-name product you buy is legitimate. They then provide after-sales content and support to grow their value.

To understand Chinese innovation in commerce, we need to recognize its different goals and methods. Let's dig in to see how it works.

1. Ensuring traceability. After scandals involving tainted baby formula and mislabeled meat, brands in China developed ways to ensure that the product a customer receives is legitimate and contains what it says it does. For example, many companies digitally embed NFC or QR codes in their products. Consumers scan the codes to visit a webpage or mobile property, where they can register and update products, view purchasing histories, or access additional content.

2. The physical/digital connection. The NFC or QR systems also provide a way for brands to connect with consumers individually. Whenever a person verifies a purchase, brands can provide additional information or cross-market other products. Much of that content is educational, and for good reason. China's growing middle-class consumer is new to many types of products, and often purchases them through wholesalers, who don't explain their benefits or uses. So brands have a big opportunity to help consumers learn how to use a product and introduce them to others they might like.

3. Branded services. While China is becoming more affluent, it remains a price-first culture. Branded products are always discretionary purchases, especially in the CPG sector, where a consumer may not understand why one detergent is better than another. A brand like Suave may be an everyday purchase in the U.S., but it's definitely a luxury product in China. This changes the game. Not only do such brands have to use different marketing and content strategies, they also need to provide additional services, or risk losing market share. This can be a big leap for Western brands that are used to marketing in a simpler, more emotional way.

4. Following relationship. Although known for living under a one-child policy, Chinese people put family above all else -- and their definition of family is quite broad and extended (you can be as close to your cousin as to your sibling). As a result, social commerce is more about family bargain hunting than peer review. As a consequence, Chinese brands target these relationships.

So what does this mean for brands elsewhere?

First, getting into the market may require more forethought and content planning than elsewhere, with less emphasis on advertising and more on after-purchase nurturing. Given that only about half of the Chinese consumers are online, that it is already the largest ecommerce market by revenue, it's still worth a shot.

Yes, China also offers a fertile ground for innovation. But Western brands must look carefully at the methodologies used there, particularly the way local brands cross the physical/digital divide and confront consumer behavors that have emerged in the context of counterfeiting.

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