Peter Ter-Kulve, CEO of Wall's in
China, reflects on his company's experience in developing its ice cream brands across the
China with European systems and processes, yoti are heading
for trouble because your mechanisms are simply not fast enough. This pace of change
makes China very challenging. It can be handled, but you have to adapt. to build
understanding and capabilities.
These two elements of size and speed make
China particularly interesting. While there is plenty of competition. it is somewhat easier to
handle because most industries are young and have not yet consolidated. On the other
hand, the size of the market means that you don't know much about this competi-tion.
That's where the challenge lies. It is not like in Europe where I would have a profile on
each one of my competitors.
China is an extremely challenging
market for most multinationals. The key success measurement for any busi-ness, even
new entrants. should be profit. For sure. setting up in China is a strategic invest-ment but
this cannot be an exits for not making money. In such a rapidly changing envoi only tent. a
business plan that promises returns in five years time is not good enotigh. When you
cannot make money next year (at the latest). you really should consid-er whether you are
doing the right thing. Do you really have the right business model'?
been struggling for a long time to find the business model. We are not alone. though.
PepsiCo didn't make money in the beginning and after 20 years is still not making money.
McDouald's has a huge operation on the border of profitability and loss. There is
somethine about this market that makes ii difficult. but what exactly'?
For me there are two elements that make China
more complex than most other world markets. First. it is a huge and extremely diverse
comity. There is not 'one China', but a number of different markets. The differ-ences
between the north and south are as large as those between. say. Norway and Greece.
There is k)cal competition. local government. local trade structures. local eon-somers with
local preferences. all of which need to he analysed and understood. territory by territory.
How can a European who does not speak Mandarin expect to acquire inti-mate knowledge
of such a country?
In the food industry, there can be huge e regional differences in
what people prefer in terms of taste and flavour. Some years ago. we introduced a tarn-
flavoured product in Shanghai that was received very enthusiasti-cally. We brought it to
Guangzhou. where people thought it tasted awful and nothing like tarn, which is a sort of
Chinese sweet potato. Apparently the tarn in Guangzhou is completely different from the
tarn in Shang-hai. These are the type of small things that make all the difference in the
consumer business, and particularly the fond sector.
On top of all this. business
structures need to be organised over a very large territory in terms of supply lines, cost
structures, manu-facturing, buying and so on. Especially when starting out, you will have to
manage a rela-tively small business that is spread out over a continent larger than Europe.
And to cover this territory, you have to find. attract and retain high quality staff.
second element is that China is such a rapidly changing environment, especially to
Europeans who come from a very stable society. Ten years ago there were no brands.
supermarkets or hypermarkets in China. Now, hypermarkets constitute more than 30 per
cent of the retail scene in Shanghai after just three years.
In Europe you work with
innovation cycles of one to two years. In China. they last between three and six months. If
you come to
Brand positioning is Critical
Positioning a brand in China has
to be done very carefully. especially if you claim that the brand is about understanding local
culture and local food habits. One of the limitations will be whether you have the research
capa-bilities and knowledge to support your claim. For example if your food brand is
positioned as 'I'm the expert. I help the Chinese house-wife create fantastic dishes', you
will face an enormities challenge because you have to develop this expertise for at least 70
distinct regions. If you possess knowledge of Shangha cooking. this cannot be applied to
help sometime in Changsha. They have different needs and a different food
Wall's learnt this lesson the hard way. There was a period when the local
competi-tion started imitating our flavours and mixes and selling their ice creams at one-
third of our prices. We responded by making our brand more Chinese and saying that we
knew local flavours and culture. We also made the mistake of lowering our prices.
Consequent-ly, our differentiation from the competition disappeared. We ultimately realised
that we didn't have the depth to really be local and close to the consumer.
choose not to position ourselves that way because we know it is not credible. Our present
positioning strategy is as an international premium brand with a focus on innovative. higher-
quality products. Wall's is an international brand – that is one of our ereat assets. Modern
Chinese people are proud to bc Chinese. but they want to be con-nected to the rest of the
world in areas like music and film, and global brands give them an oppoilunity to connect at
low cost. In tact some of our larger local competitors now put their brand names in English
on their pack-aging to create a fake international image.
There is no one governing
principle to positioning your brand successfully in China. Let's consider some examples. II
in your industry, you are able to position your-self as the fashion forefront of Chinese youth
culture, it helps to be Shanghai-based, since what is cool there will definitely be cool in
Changsha. This is supported by the reality that Shanghai is a national centre for a range of
cultural areas, such as advertising fashion and night clubs. Products may aetnaily come
from Japan, Korea or Taipei, but Shanghai is where they start to become popular in China.
When you approach positioning in this way, you can create strength from your
Take Shiseido as an example: Japan's leading cosmetics company
doesn't pretend to be local in China. Adopting a positinaing that says 'the best of Japan
now also avail-able in China' is perfectly valid for the com-pany and is credible throughout
The people who are responsible for the President brand in China will tell
you some-thing completely different. The Thailand-based food company started its China
busi-ness in Shenyang and it was only after it became very knowledgeable about the city
that it moved to Beijing and only then, after becoming very intimate with that market, did it
enter Shanghai. President has a very mod-ular approach. It does not pretend to under-
stand Chinese food culture but it does claim to understand fond culture in Shanghai, Bei-
jing and so on.
The positioning of a brand that lits your overall business system
and strategy is key to its success in China. There is a role for both global and local brands.
Wall's business is firmly rooted in China and will be run eventually by Chinese
management, but our brand positioning will stay international. Why would we want to be a
local hero? There are already so many of them.
In the ice cream industry, local
companies are still fixated on cost, price and brand awareness, What they understand and
describe as marketing or branding is limited to building brand or product awareness
through advertising. Very few local compa-nies think seriously about brand positioning or
about creating a more rounded 3600 brand experience in the way we do at Wall's. For
instance, we have recently started to open our own branded ice cream shops in China, The
objective is to develop a profitable sales chan-nel and, even more important, to get closer
to the consumer and create a more intense and rich brand experience for
Lack of consumer insight
But while international
companies may understand branding theory, they have an enormous problem with
implementation because of a lack of consumer understanding and insight. Most foreign
companies are run by foreigners who, like me, don't have a clue how the Chinese think
and act. And that is because they don't speak Mandarin and they don't always have quality
marketing resources within their own businesses. Some advertising agencies are full of
Hong Kongese and Taiwanese who often don't have a clue either about the hopes and
aspi-rations of mainland consumers.
Without decent market research and staff,
international companies are handicapped. We try to limit this handicap by fully localis-mg
and empowering our marketing and sales staff. Additionally, we have based our mar-keting
departments in the main cultural cen-tres of the country: Shanghai, Beijing and Hong Kong.
We could have saved money by basing them in Inner Mongolia or Yunnan, but we would
have been further removed from the development curve of Chinese youth and urban
Although local companies are not very refined or systematic in their
thinking about marketing issues and brand positioning, they still have the advantage of
better local insights over international companies. And they are often able to combine these
good insights, even if crudely executed. with supe-nor cost management. This. I think.
explains why a huge number of local companies have emerged over the last couple of
years in many FMCG categories.
The value of local insight should never be
underestimated, even for internationally successful brands. When developing the
advertising for Viennetta in China. we realised that our standard advertising approach
would not work. Since the Chinese do not eat desserts, we positioned Viennetta as a
snack, the kind of treat you might share with friends. We set the scene in an aspiratinnal
apartment, dressed with IKEA-style furniture and a more traditional Chinese-style round
table with a lazy Susan. The cast is very aspira-tional – good-looking, successful, urban,
white-collar Chinese. The drama is created around the question of which one of the friends
seated round the table will get to eat that last slice of Viennetta.
The insight in this
advertising that really enabled us to connect at a deeper level with our consumers in China
and helped trans-form their perceptions of this brand was the idea of socialising with
friends at home as the new expression of success in life.
It is in order to harness
such local insights within Wall's that I hope my successor will be Chinese. I believe that
one of the success foctors for our business is having local lead-ership and a local
management team. China is ton culturally complex and diverse to be managed by
I have already replaced every expatriate in my company with a local
Chinese person. This means that there are young members of the company promoted to
the board with seven or eight years' work experience instead of the normal 14-15 years.
They may have skill gaps but what I get back in return is a reality cheek and those local
insights. If it were a choice between insight and skill, I would, in the fast-moving consumer
busi-ness. choose insight. Without insight on your target group you will never find the
founda-tions on which to build your brands, And only a brand can help you differentiate and
avoid the price wars that are prevalent in most product categories in China.
is a premium international brand whose core target group in China is the urban middle-
class. When we need to develop sales strategies. advertising or new products, it needs to
be done by people who have an inti-mate understanding of the target group. And what
better way to make sure of this than to have these very same urban, middle-class Chinese
creating your brand portfolio and business strategy?
And if we stretch this thinking
a little, then it becomes obvious that we also need to recruit people who have the potential
to live and breathe the brand. I think that is extreme-ly important because, ultimately, the
people within the business need to identify them-selves with the brand in order to grow it
suc-cessfully. And the outside world needs to identify these people with the brand in order
to believe in the brand.
Two waves have so far hit the Chinese
initial surge comprised foreign EMCG companies, driven by the demands of curious
Chinese consumers who wanted to find out what these companies offered. The second
wave was the rise of local companies that copied most of the marketing approaches
(packaging, reliable quality, advertising, dis-tribution) of the international players at much
lower cost structures and started selling at lower price levels.
This dealt a
considerable blow to the international FMCG players but, in the end, the good ones
adjusted to the new competi-tive environment and also adjusted their cost structures. What
we will see now is the last wave those who will survive the branding battle. This battlefield
will be a huge chal-lenge to local companies because they are used to selling products on
the basis of price only. This is no longer going to be good enough.
We have made
that mistake in the past, believing that the main drivers for success in China were
distribution and price. But now we know that, in the end, all decent compa-nies (whether
foreign or local) are able to
manage cost and build up distribution chan-nels. In the
real battle of branding, it will be about how you can sharply position your brand and build up
enough magic around it to make it stand out. At Wall's, our brand determines where we are
going to sell our products in terms of territories and channels. It drives our innovation and
advertising -strategies. It steers our supply chain strate-gies and
Wall's exists and prospers in China because of its brand. When this
is clear, it also becomes clear that every decision we make in our business is a question of
whether we will ultimately create a richer and more satisfying brand experience for our
This is an edited extract from Brand Warriors China, written by Fiona Gilmore, founding partner of Acanchi, and Serge Dumont. CER readers can buy the book at the discounted rate of ï¿½11.99, or US$25 outside the UK, inc. postage by calling Profile Books on +44 (20) 7421 6182 or emailing firstname.lastname@example.org and quoting reference CER.