AdAgeChina: Are you optimistic about opportunities for Western marketers to build brands in China?
Tom Doctoroff: Yes...but there’s a big challenge, the downward pull of commoditization. China is an industrial landscape riddled with overcapacity, the lingering effects of a command economy. That results in downward pricing and margins going down, and people who aren’t interested in long term brand-building when their back is up against the wall.
Brand equity is the ability to attract loyal consumers who are willing to pay a price premium on an ongoing basis--the difference between a mouse and Mickey Mouse. On a microeconomic level, the environment is not brand-friendly. But on a macro-brand level, it’s very brand-friendly. Companies either grab the brass ring and sing the high notes or they crash and burn, there’s very little middle ground.
AdAgeChina:: Which marketer has been the most successful at grabbing that ring so far in China?
Mr. Doctoroff: There’s no question about that, it’s Procter & Gamble. In their first several years here, their strategy was just about being the Prince of Enlightenment in consistency. They did the basics right, they have defined each category’s benefits and then owned the high ground. Now they’re leading the market into the new frontier that will move their brands beyond gold standard niche positions, by extending brands downward. They’re lowering prices, particularly in commodity goods, and achieving much greater scale. I admire them so much.
AdAgeChina:: And who has crashed and burned?
Mr. Doctoroff: Kellogg’s did not optimize its market entry by committing some very fundamental mistakes, and is no longer in the market. Their pricing was too high, its products cost 140% of what consumers pay in the U.S., that was mostly a matter of an inefficient distribution system. Also, whenever you introduce a product in China, particularly food, you have to twist it to conform to Chinese tastes and a Chinese world view. Everything about a Chinese breakfast is non-cold cereal, it has to be warm and comforting.
Volkswagen also committed a big mistake, they came in low-end, as a car for taxis, and then tried to move up. That’s much more difficult than what General Motors did, which is come in high-end with Buick and then start expanding downward--create cachet, aspiration, value-added quality and apply all that to higher volume products like Chevrolet. VW is trying to climb up the ladder and that’s more difficult than sliding down.
AdAgeChina: When will China really start to develop a creative culture?
Mr. Doctoroff: Things have progressed dramatically in the past couple of years, but it’s going to be a challenge to develop a creative culture in the way that exists in Western countries. The first barrier is the overall conservatism of Confucian society, so challenges to society are unsettling. The kind of shocking or breakthrough advertising you associate with Cannes isn’t our challenge, it’s to push out the walls.
Also, the appropriateness of breakthrough advertising at this stage is questionable, because of the unformed brand landscape. This is primordial soup, things are being defined for the first time and that requires very simple messages. You have to lead consumers to the proposition quite directly. If there’s one mistake that Westerners make it’s not being simple enough. I don’t mean dumb or boring, just simple.
Creativity is based in individualism, when you have something that’s new and does not conform to a preset pattern, it takes a certain amount of individual courage and confidence in his or her power to push ideas, upstream if necessary, and Chinese are not individualistic, many view individualism as a threat to their basic security.
So on a deep cultural level and on a broader market level, China is not ready for a true creative culture, but it will get better. Look at Taiwan, it’s Chinese but has taken huge leaps in creative standards, so had Hong Kong before the bottom fell out of its economy.
AdAgeChina: What is the most significant thing that foreigners who hope to operate in China need to understand about this market?
Mr. Doctoroff: The Chinese people have a fundamentally different world view than Westerners and products have to be placed into that world view. If you think Chinese are becoming Western, you are sadly mistaken. They want to become modern and international but they do not want to become Western. The one thing that has unified them over thousands of years is a belief in the superiority of that Chinese world view. Culture here is spiritual cohesion. They’re not going to become American and respond to products in the same way that Americans respond to products.
That doesn’t mean that the same categories won’t grow as the economy develops, but their relationship with the category will be very different. Take the car category, autos here are all about status, they are viewed as a tool for success. No matter where a man is in his life--and autos are marketed exclusively to men at this point--the automobile is used not only to reflect his status, but to facilitate and advance it.
That’s why sports cars will be a tough sell here. Whereas in the West, masculinity in that category is reinforced through car purchase and sports cars are about the thrill of the ride, that’s a very secondary need here.