Top managers at 50 of the largest state-owned firms see building brands overseas as more important long-term than increasing revenues or raising capital, a survey by ad and image giant Ogilvy found last year. Get the brand right and the profits should follow, goes the theory.
Ogilvy also discovered that Shanghainese will pay 70% more for a brand than a noname product. Where Shanghai leads, China usually follows.
For many China products, the sole attraction remains low price. There is little spark or charm to fire-up emotions that make higher prices palatable. Locked in low-cost production shoot-outs, many consumer companies have survived on cheap loans and state bailouts. Now that banks are becoming choosier, with government plans to end rescues by 2009, simply being cheap won't be an option for long.
Rising above the scrum requires branding. But that takes time, and lots of money. Borrowing a tried-and-tested strategy of Western firms, Chinese corporates are buying brands, often paying good money. "If you don't have a solid brand on home turf, how are you going to develop one elsewhere?" says Tom Doctoroff, J. Walter Thompson's Greater China chief executive in Shanghai. "In Europe and North America, not one [Chinese brand] is ready."
Buying brands delivers almost immediate results for things like orange juice or televisions, but for big-ticket items, the returns are questionable.
Computer-maker Legend, now Lenovo thanks to a rebranding exercise in 2004, just bought IBM PC, a big IT name but a falling star in commodity PCs. (The name rights actually expire after five years). Shanghai Automobile Industry Corp (SAIC) earns most of its money making foreign GM and VW brand cars, not selling its own – an area it hopes it can improve after absorbing South Korea's Ssangyong Motor as its own.
Fits and starts
Before Lenovo bought IBM's PC business, China's consumer electronics king TCL snapped up French television giant Thomson, another indication that China, though still moving in fits and starts, is hardly blind to the need for brands. "I am seeing a greater [interest] not just from the large Chinese OEM manufacturers and conglomerates, but also from the smaller private companies that are looking at new market entry for their products and are looking to protect their own domestic competitive positions," says Rupert Purser, chairman of consultancy Brand Finance in Hong Kong.
One television industry source says flatly that the Chinese just don't understand how to build brands – "which is why things haven't really moved beyond CCTV 1-15," he says. Until they do understand and start building strong ones, this source says regulators will keep holding back HBO, ESPN and other foreigners from doing very much out of fear they will dominate the market.
Once strong brands are established, of course, almost anything is possible – even leveraging products that stand at opposite ends of the spectrum. Coca-Cola is a prime example: Though slammed for the high sugar content of its base product, Coke's sports and other drinks are a huge hit. Why? Because the brand says Coke delivers exactly what the consumer wants.
This requires careful market research, image and message development, and China's product messages can sometimes border on the incoherent, industry people say. Sometimes messages hardly rise above crude propaganda, JWT's Doctoroff says, noting few marketers in China appreciate the gulf between brand awareness and brand equity. "Kuanpai soy sauce is just one example," citing a particularly irksome case. "Its message is conveyed in eardrum-stabbing copy that shrieks: 'Kuanpai! Kuanpai! Kuanpai! A great respected soy sauce and leading Chinese trademark! Kuanpai!'"
Branding clumsiness reflects China's development in other spheres. With intellectual property still poorly protected, investing time and money in costly brand building exercises can still be a hard sell, and not without reason: competitors can mimic the look and feel of promising brands, and grab sales on the back of the company making the brand investment.
In some cases, image makers complain, money may be available but marketing departments are so marginalized in some companies that none of their nifty ideas ever penetrates the executive floor.
But this isn't to write off China completely. Hainan Airlines, China Merchants Bank, TCL, Lenovo, Hisense and Beijing Hyundai were among China's top 10 brands in 2004, according to Sinomonitor International. Jostling with them were some of the world's best known – among them Nokia, Amway, KFC, and Proctor & Gamble.
Brand experts also tip their hats to companies like China Mobile, Sedrin (Xuejing) Brewery in Fuzhou, beer giant Tsingtao, pharmaceutical maker 999, and sports apparel maker Li Ning. "Li Ning is a very, very interesting brand to watch. It is insight driven [and] relevant to the masses," says Doctoroff. "It is carving out a distinct territory vis-?-vis Nike and Adidas."
And these efforts are starting to bear fruit: Ningbo Bird is forecast this year to sell more branded mobile phones in China than either Motorola or Nokia. "It enjoys an underlying understanding of its consumers and brand," says Brand Finance's Purser.
Financial services companies have to get cracking – given the 2007 WTO deadline for opening up fully to foreign competition. China Merchants Bank's newly minted strong image may just be a taste of things to come. Securities companies face a very tough branding job, given their reputations have sagged as badly as the markets. "I think the financial industry will be the next big area where branding will become more critical," says Michael Ip, brand consultancy Landor's Asia Pacific managing director in Shanghai.
Overseas, Haier and Lenovo are China's big contenders. "These are brands with huge potential. In addition, their top management has made it clear they are committed to building their brands," says Scott Kronick, Ogilvy's China managing director in Beijing.
China companies are starting to hire brand makers, although they don't always listen to their advice. Local accounts now comprise 35% of JWT's revenue. And Landor's Ip says his company has worked with many of the big local names. Chinese firms do not have much choice. China's advertising industry may run to 80,000 so-called agencies – against 2,000 in the US – but it is as embryonic as it is over-populated.
Better agencies are usually joint-ventures with established foreign players, though in entrepreneurial hothouse Guangdong, competent local firms are emerging.
Turning to seasoned foreign agencies makes sense, since they have brand experience and their better branded foreign competitors use them. "People are actively drawn to foreign brands, no question," says Doctoroff. "The implied quality is aspirational, though price can kill that."
Mars changed the image of chocolate, previously seen as an occasional indulgence, garnering soaring sales for its Dove chocolate. Thanks to careful research, Proctor & Gamble's Rejoice shampoo enjoys healthy sales. Colgate controls a fifth of the toothpaste market through pushing its almost unaffordable premium product – that campaign rubs off nicely on Colgate's mass market tubes.
Success enjoyed by some foreign firms that have done their homework and got their pricing right, is a warning to Chinese firms: they have to get serious now.