SHANGHAI (AdAgeChina.com) -- To maximize relevance and trigger loyalty that results in a sustainable price premium, global brands need to be aligned with China's cultural imperatives and operational realities.
At the risk of oversimplifying, here are three "golden rules" marketers must be sensitive to before landing in the mainland.
1. Maximize public consumption to justify price premiums.
In China, a Confucian society torn between stifling regimentation and ambition, consumers regard brands as tools for success. "Face," the primary currency of upward mobility, is rooted in status projection. This is why brands that are consumed in public are able to command huge price premiums relative to goods used in private or within the house.
All leading mobile phone brands, for example, are international. Even in tier-five cities and the rural fringe, Nokia commands a 40% market share, despite significantly higher prices than local competitors.
Sony's Handycam, a product brandished outside the home, is a brand leader. However, Sony television sets, although aspirational, struggle to be more than a niche product. The leading household appliance brands are, without exception, cheaply-priced domestic brands such as Haier, TCL and Changhong.
The "public display" imperative leads to fundamental positioning differences. As a general rule, benefits should be "externalized," not "internalized." Bath gels should not promote "sensorial indulgence" in the shower. They should "stimulate" the user to begin the day with a kick, ready to conquer the world. Beauty products must help a woman "move forward" and enhance her ability to "open doors" professionally or "control" her man. Mass market beauty brands should still help lower-income women be "admired" as a great mom or adored wife. Even beer must deliver something. In Western countries, "letting good times roll" is enough. In China, pilsner must bring people together, reinforce trust and optimize opportunity for mutual (financial) gain.
Automobiles, now a middle-class "must buy," should make a statement about a man on the way up. BMW, a winner, elegantly fuses its global "ultimate driving machine" with a Chinese declaration of ambition.
DeBeers achieved 80% penetration of engagement rings by morphing universal passion inherent in "A Diamond is Forever" into Confucian "proof" that "commitment will last a lifetime."
The importance of public display is also critical in shaping business models. To conform to Chinese tastes, Starbucks, for example, broadened the sandwich menu, identified prime site-to-be-seen real estate, and made stores bigger. Starbucks has established itself as a public place where professional tribes gather to proclaim affiliation with the New Generation Elite. Likewise, both Pizza Hut and Haagen-Dazs have built mega-franchises rooted in out-of-home consumption.
2. Simplify communications and benefits to enhance comprehension.
Chinese are overwhelmed (yet excited) by the explosion of brands. Twenty years ago, the public phone was the only way to make a telephone call; today, there are over 300 different mobile devices, from $30 basic models to state-of-the-art smart phones. Making matters worse, China's media landscape is cluttered. Television screens, most owned by Focus Media, are ubiquitous – in taxis, elevators, restaurants, building tops, locker rooms and bathroom stalls.
Complicated messages, therefore, are not easily digested, even amongst the most brand-literate. Consistent messages must be conveyed directly. Advertising must be ruthlessly single minded. Visualize the key benefit, leverage demos as creative ideas, slice of life formats revolving around torture tests and so on. Select celebrities, usually Chinese, whose star attributes reinforce a core brand proposition.
For simplicity mandate, heavy mass media is essential. China's untamed landscape requires forming brands from scratch; television fits this bill. Digital is increasingly critical to deepening engagement and loyalty but mass media will remain center-of-the-plate for years.
3. Extend brands downwards to generate scale, affordability and margin.
Multinational brands must need to profitable and have mass-market scale. Most multinational can charge a price premium because Chinese consumers prefer the reliability and "cool" of foreign brands. The tough nut, however, is scale. Scale is critical in a reassurance-driven market such as China.
The only way to target a broad swathe of price-sensitive consumers is to extend premium-priced brands downwards across lower price tiers by reducing costs and simplifying benefits. At the same time, great care must be taken not to degrade quality perceptions, usually by advertising the most premium variants.
Colgate's Total Oral Care, a premium toothpaste made largely of imported ingredients, costs approximately 200% more than local brands and maintained a 3% share. Colgate Herbal and Colgate Strong, however, use cheaper local ingredients and are priced slightly higher than or at parity with local brands. The combined Colgate franchise controls a phenomenal 20% of the toothpaste market, one with hundreds of regional and national competitors. In recent years, Nestle and Procter & Gamble (with varying degrees of success) have adopted a similar strategy. So, too, have higher involvement categories such as mobile phones.
The Chinese business battlefield is treacherous, rife with kamikaze commoditization. We have not covered issues such as avoiding censorship, in-store activation, product localization, the supremacy of the "single child" and safety issues. However, these three "golden rules" are essential to consider before finalizing a China strategy.
Tom Doctoroff is JWT's CEO, China and area director, North Asia, based in Shanghai.
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