Hitching the Horse

27 Feb 2014|Added Value

…with the obligatory reference to Chinese New Year out of the way, let’s focus on the forces brands should hitch their wagon to for driving growth in China this year and beyond.
Economists and politicians have long complained about the anemic performance of Chinese consumption compared to the double digit growth of the economy overall. However, as GDP growth now remains resolutely in single digits, there is real hope that consumers will come to the rescue for three reasons:

  • Government: Driving domestic consumption is now a stated government policy. Greater state investment in public healthcare should persuade consumers they need to save less for their healthcare and can spend more
  • Urbanisation: Central to the long term plans for China, this continues apace – giving more access to modern retail for more Chinese. Mall developers have also learned from the past that “build it and they will come” doesn’t work – retail mix, location and infrastructure have much improved on past efforts. Leading retailers invest heavily in constructing aspirational retail experiences – malls are now much better at meeting their requirements.
  • Online access + delivery: January’s CNNIC data tell us there are 618m Chinese online and 500m of these access via mobile (up 19% vs last year). Big investments are being made in delivery logistics to bring products to those in smaller towns and villages. Haier (domestic appliances) and Alibaba (internet retailer) recently announced a US$364m deal which will see the two using Haier’s service and distribution networks, covering more than 2,800 cities and villages through 17,000 service stations.

One of the key ways brands are tapping into this latent consumer opportunity is by premiumising their offer, trading consumers up across a range of categories from foodstuffs to fridges.

Don’t Spook the Horse
So, if consumers are now more open to spending a little bit more, why are brands like Revlon and Garnier – once the core of the upper-mainstream offering in most drugstores – pulling out of China ?

Garnier_1

 

 

The simple answer is these brands demanded a price premium without a premium promise and Chinese consumers deserted them. Previously, international trumped local for quality and Chinese brands won share with lower priced “me-too” products and superior distribution. These same brands realize this is not sustainable and are raising their game by investing in differentiated, locally resonant positioning and product innovation. International brands can defend their position in several ways– not least by accurately leveraging Chinese culture to renew or reinforce an essential brand truth, ensuring they are culturally relevant whilst maintaining a clear point of difference.
It is not enough to simply replace last year’s Snake with this year’s Horse on your packaging…Chinese consumers see through this. Online access not only opens up consumers to your brand…it opens up your brand to consumers – brand perceptions are shaped not only by your online presence in China –but also by your online presence elsewhere. An increasingly influential army of bloggers and travelers are only too happy to complain at being short-changed in China by brands whose China experience (and sometimes pricing) doesn’t match their delivery elsewhere. There is no escaping the need for perfect execution to deliver a consistent brand promise in China.
Two recent examples spring to mind which may have contributed to the withdrawal of Revlon and Garnier:

Herborist
Herborist, the Chinese skincare brand owned by Jahwa encapsulates the ‘from made in China to created in China’ philosophy. Their fusion of the traditional wisdom of Chinese Medicine with the effectiveness of modern technology creates products that capture the best of both worlds: Yin & Yang , Past & Future, Physical and Spiritual and Nature & Technology.

herborist

Shanghai Vive
In the same category, local brand Shanghai Vive taps into retro culture & femininity by drawing on the cues of 1920’s Shanghai and leveraging cultural pride.

shanghai vive 3

For both brands, their comms, packaging and retail experience build an image that stands a mile apart from other local brands, beautifully express the brand promise and compete effortlessly with Western counterparts.
The prospects for consumption growth in China are high – and so are consumer expectations. Across a growing number of categories, premiumisation in China is here to stay and no longer the preserve of international brands.

Written by Matthew Carr, Managing Director, Added Value Hong Kong.

Image credits: Shanghai Vive, L’Oréal Garnier, Herborist.

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