"All brands are under threat in China, and not only from their competitors," said Christopher Millward, CEO of Firebrands, a Beijing-based consulting company. "Chinese consumers have discovered the power of their pocketbooks and the media and they are holding brands accountable."
P&G fined $24,000 for false ads
Earlier this year, for example, the country's largest advertiser, P&G, made headlines when it agreed to pay a $24,000 fine to a watchdog bureau in China's Jiangxi Province. The fine stemmed from an ongoing lawsuit filed by a female customer, Lu Ping, who claimed its ultra-pricey SK-II anti-aging De-Wrinkle Essence failed to live up to advertised claims.
The product is marketed in ads by Publicis Groupe's Leo Burnett agency as a "miracle water" that can make skin look up to 12 years younger in just 28 days. The lawsuit, which could still develop into a larger class action case, also names the department store where she bought the product and SK-II's spokeswoman, the Hong Kong film star Carina Lau.
The case has turned into a legal and PR headache for P&G, but it has plenty of company as a defendant.
Last year, Volkswagen was hit by a lawsuit filed by one of China's first Bentley owners over an alleged parts malfunction that generated unwanted attention in local media.
"This is an interesting moment in time for China, it's a tipping point, as several factors come together," said Scott Kronick, Beijing-based president of WPP Group's Ogilvy PR division in China. He cited high expectations of expensive foreign brands, rising competition, the expanding role of China's media, rapid growth of the Internet in China, nationalism and a heritage of repression.
"Chinese people have been repressed historically and they are displaying this frustration through their consumer rights. Since expectations of multinationals are higher [than for local companies], if their brands fail to live up to expectations, Chinese are not afraid to act on it," said Mr. Kronick.
Media fuels consumer complaints
"But there are no processes to deal with those desires, there is no historical behavior to call up a company and complain. Instead, they end up calling a press conference," he said, highlighting the power of the media in China.
Bringing in local media is especially damaging because of its powerful position in China's society, particularly TV programs like "Jiao Dian Fang Tan," a daily TV program a bit like "60 Minutes." One of the most popular programs on China's national network CCTV, it tries to correct injustices ignored by an overwhelmed legal system.
"Until recently, Chinese media was an organ of the government. It was used to float policies and became more powerful than the courts," said Larry Rinaldi. Mr. Rinaldi, a longtime resident of Beijing and managing director of his own agency, Section Eight, previously was chief marketing officer for Motorola's personal communications sector in Asia/Pacific.
"Now, the media has been commercialized, but it is still powerful. Even though there's a profit motive in most of these lawsuits, Chinese people always go to the press first to get their point of view across," he said.
Greed is undoubtedly one of the leading incentives behind attacks on Western multinationals, which are viewed by some cash-strapped local consumers as wealthy, easy targets.
But Chinese nationalism has also flared up as a catalyst for consumer action. A print campaign for Toyota Motor Corp.'s Land Cruiser SUV line in late 2003, for example, stirred up painful animosities and sparked public protests. In one of the two controversial ads created by Publicis' Saatchi & Saatchi, two stone lions, Chinese symbols of authority, saluted as a Land Cruiser Prado passes by.
The other showed a Land Cruiser towing what appeared to be a Chinese military vehicle. Some consumers interpreted the ads as references to Japan's occupation of China during World War II, still a sensitive subject. The head of Toyota's China operation made an embarrassed, televised apology.
Chinese not nationalistic about brands
Surprisingly, given the rise in boycotts in Europe and Latin America aimed at U.S. companies to protest the Iraq war, sporadic calls for boycotts against Japanese and American brands seldom pick up speed in China. Consumers are still too eager to pick up Western brands for their quality and Western-style customer service or as a status symbol.
"We have done a lot of research on nationalism and while Chinese consumers are very patriotic, this does not always transfer into brand loyalty," said Mr. Kronick.
Although most major foreign companies are well-versed in crisis management techniques and have an army of lawyers to handle litigation, that often isn't enough in China. For one thing, companies tend to underestimate Chinese consumers. Also, China's press has more influence over the courts here.
"It's a watchdog and demagogue at the same time, so having media on your side is more important to winning a legal case than having a good lawyer, because press coverage has the ability to affect legal rulings. In a sense, China's media is the country's most authoritative court, and for multinationals, that can be a dangerous situation," said Mr. Rinaldi.
Nestle, for example, successfully leveraged its relationship with local media last year amid a powdered milk scandal in which hundreds of Chinese infants died or were hospitalized for malnutrition. The government blamed the tragedy on substandard products sold by dozens of local companies in second-tier Chinese cities and villages.
Although Nestle was not involved in the scandal, consumer mistrust of the entire category led the Swiss company to organize a press conference with the China Dairy Association and other major milk powder manufacturers, to reinforce their commitment to quality and nutrition.