China's Herborist beauty brand uses natural ingredients such as mulberry bark and red peony as it taps into a desire for products inspired by traditional Chinese medicine. Today it's a hit, with 1,200 shops and counters in about 250 cities. But it took seven years to break into profit.
When Herborist launched at an event in Shanghai in 1998, business "was close to zero," recalled Wang Zhuo, who oversees the brand. "It would have been zero if Chairman Ge (Wenyao) didn't buy one product for himself."
But Herborist persevered, adjusted its products, modernized its sales counters and built its own shops when department stores weren't interested. Today the brand accounts for more than half the profits of Shanghai Jahwa United Co., one of China's biggest cosmetics companies.
Mr. Wang, exec VP of Shanghai Jahwa, said that 's a lesson for multinational marketers trying to break into Chinese markets beyond the biggest, most cosmopolitan cities.
"Insistence … few people talk about this in marketing," said Mr. Wang at the Market to Watch: Building Brands Beyond Tier One in China conference Sept. 5 in Shanghai, co-hosted by Ad Age and Thoughtful China. "But in our experience, it's such an important thing."
Here are other lessons from Herborist and consumer electronics marketer TCL Corp., two Chinese brands that have found lower-tier success:
Don't be such a snob.
Some multinationals "look at these lower-tier markets as kind of colonies," said Mr. Wang, whose brand focuses on lower-tier cities, with only 10% to 15% of its stores and sales in tier-one cities such as Shanghai and Beijing. He urged foreign marketers to get "your heart in sync with the hearts of consumers there."
And if you need to stay in 5-star hotels, get over it.
"If you work that way, there is no hope for you to conquer these lower tier markets," Mr. Wang said, suggesting staying in "no-star" hotels.
It's not just because you're foreign -- it's not easy being Chinese, either.
Herborist has broken into some first-tier department stores, but the chicest ones still aren't interested, he said. "They want some brands that are not made in China."
Meanwhile, Herborist is doing well in another tough beauty market: France.
Reveling in challenges, Mr. Wang wrote a poem that he read aloud: "Having gone through all the winds and rains/ Sunny smiles of our consumers are the best gains."
Understand why your consumer keeps the fridge unplugged.
More than half of the Chinese population still lives in rural areas. Liang Qi Chun, assistant president and general manager for branding at electronics company TCL, said companies should look closer at how those consumers use their products.
Take refrigerators: Consumers don't buy in bulk and don't need big fridges, often used just for leftovers. "Sometimes they unplug it if they're not using it," Mr. Liang said.
As for washing machines, rural consumers were once content to scrub their clothes in the river, but now "everybody's buying washing machines," said Mr. Liang. But there can be plumbing issues, and customers sometimes drag the machine outside to drain. That means the machines need sturdy wheels.
Speak the local language.
When customers call in to product helplines, TCL can switch their calls to an operator who speaks the local dialect, based on the area code of the incoming phone number.
Sometimes a little bling can't hurt.
Urban consumers want sleek TV sets with black edges that blend into the room. But rural consumers want big TVs with eye-catching speakers, and they don't want the edges to be black, Mr. Liang said. It's not just a TV -- it's a conversation piece.
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