If China’s economic opening had an unofficial slogan, it was huozhen jiashi, which translates roughly as "decent products, decent price." So long as the customers were foreign sourcing reps, it was all the marketing Chinese firms needed. For two decades, they contented themselves with plastering generic widgets on billboards outside airports and printing brochures touting vague certifications like "China Famous Brand."
Times have changed. The Chinese consumer is rising, and once self-effacing domestic firms are now boldly waging marketing war. According to Zenith Optimedia, Chinese advertising spending has been increasing by an average annual rate of 12% for the last decade, and is projected to hit US$31.1 billion by 2012.
The wave of spending is gravy for marketeers like Xie Jianjun, CEO and founder of Dongdao Design, China’s oldest and largest brand management and design firm. He said his firm is having a much easier time finding customers. "Before, Chinese companies didn’t care about branding … [but] nowadays they are willing to put more resources into it."
"This [trend] is a great tool for our growth," echoed Geng Yicheng, general manager of marketing agency Chengmei. Chengmei focuses on domestic clients, and has persuaded companies like JianZhong Pharmaceuticals (600750.SH) and both red-can and green-box variants of Wang Lao Ji herbal tea (owned respectively by Hong Kong’s JDB Group and Guangzhou Pharmaceutical (0874.HK, 600332.SH)) to spend more than US$8,000 a day on brand-positioning services.
The spending is driven by both commercial and political factors. On the policy side, many state-owned enterprises took Beijing’s order to increase domestic consumption as an order to advertise, even in relatively protected sectors like banking. And as for commercial considerations, when it comes to spending on public and media relations, it is now demonstrably difficult for even the best-connected domestic companies to suppress product quality scandals – there are simply too many channels through which bad news can escape. As companies experiment with a plethora of new advertising and communications options, the result is a growing media blitz.
As important is intensified competition in some sectors, both from domestic firms and from foreign companies increasingly able to compete at lower price points in lower-tier cities. Some of these sectors are surprisingly low on the value chain.
"For now, domestic companies have the advantage, while international brands are more successful in cosmetics and personal care products. But the gap is closing quickly," local detergent maker Liby told China Economic Review in an emailed response to questions.
Unfortunately for Chinese brands, their foreign competitors have a big advantage when it comes to both reputations and margins, thanks to regular revelations of product quality problems in almost every consumer product category.
"It is not that we do not want to use domestic products … only, how can we have faith in domestic brands?" complained a poster on an online forum.
The problems have forced the once infamously fickle Chinese consumer to pay more attention to the logo above the price sticker. They increasingly read ingredients on labels and go online to read product reviews. This is an opportunity for the enlightened product manager.
"Now is the time to be establishing brand loyalties," said John Solomon, co-founder and managing director of China-based marketing consultancy Enovate. "The reason firms complain that there isn’t a lot of loyalty is because they aren’t taking the trouble to create it."
But quality scandals force everyone to take loyalty seriously. Retaining customers in a distrustful market takes more than low price and presence, especially given that one firm’s troubles are another’s big opportunity.
"The nature of the Chinese entrepreneur is such that they are always being opportunistic," said Kunal Sinha, regional cultural insights director for Ogilvy & Mather Asia Pacific (owned by UK-based WPP Group, WPP.LSE). "Domestic companies look for opportunities where there is a blight in the market due to product safety."
It’s not just domestic companies that are looking for opportunities. Torsten Hoppe, group capability head at Coca Cola China (KO.NYSE), said that the milk scandal also encouraged his company to enter the market with a line of milk-based beverages that emphasize the milk’s New Zealand origin.
Such market entry usually provokes defensive spending from the existing players – and tends to retroactively justify prior investments once the dust settles. Jonathan Chajet, managing director for Interbrand China, pointed out that domestic brand Mengniu (2319.HK) managed to survive the melamine scandal of 2008 due to residual brand strength and strong PR campaigns. When it came down to it, he said, Mengniu’s media outreach, combined with prior image cultivation, successfully convinced Chinese consumers that it had not deliberately put melamine into its products.
Still, some opportunists managed to make the dairy industry’s troubles pay. One was industry outlier Joyoung (002242.SZ), which makes a popular line of soy milk makers. Joyoung started out in the lower-tier markets but started advertising in the first tier during the dairy crisis. It didn’t take much to convince many skeptical consumers that the best way to avoid quality problems is to switch to soy milk, and to make it yourself.
This is not to say that scandal enlightens everyone. Some firms continue to prefer the low road. "For some local brands, [PR] is more about using government guanxi to see if they can suppress press reports," said Debbie Cheung of Ogilvy PR, who has handled crisis response for multinationals and domestic brands in China.
As bad is an alternative strategy: Some firms do nothing and wait for the inevitable next scandal to overshadow the present one. When the media spotlight moves on, they continue with their old communications strategy – or lack thereof. "To me, this is wrong. [The firms] have not addressed the confidence issue or restored consumer trust," Cheung said.
A better way
Such strategies, however, are increasingly unlikely to pay off even in the short term. And there is an obvious better model to hand: Mengniu’s and Joyoung’s success shows that the best ad campaigns are proactive and positive. After all, taking advantage of a competitor’s product safety problems is more difficult than it seems.
"Using a safety message raises the question of ‘Oh, is this product not safe?’," said Chajet of Interbrand. "You would never get on an airline that said, ‘Our safety record is 98.7%.’ People don’t want to hear that."
Most Chinese firms do understand this last point. Those that want to emphasize safety tend to emphasize quality control or "green" values, which have strong safety connotations here. However, companies still have a long way to go when it comes to image building.
Take, for example, Chinese marketing managers’ predilection for celebrity endorsements: Jay Chou, Jackie Chan and other movie and music stars are regularly deployed to endorse everything from fruit juice to hair tonic.
These tactics can work with new personalities whose identity conforms to the brand. Online clothing brand Vancl recently launched a popular campaign featuring an endorsement by star blogger Han Han. Designed to be easily edited, it quickly went viral, with amateur designers morphing it into dozens of variations using other celebrities and slogans – but leaving the Vancl logo in place.
The campaign worked by playing off Han Han’s online popularity to promote an online store. More importantly, Han Han has never been in an advertisement before, so at present he is only associated with Vancl.
However, few other Chinese celebrities have anything like an exclusive relationship with a brand. Nor are they too proud to associate themselves with pedestrian product lines. "Jackie Chan will endorse anything," groused an executive of one multinational brand that has used Chan as a sponsor in the past.
Furthermore, some celebrities are counter-productive. A joint survey by Ogilvy and market research firm Matrix showed that Chinese consumers were put off by Peng Hua Fund Management’s decision to use a pop star to endorse one of its mutual funds.
"Celebrities have a below-average ability to win over consumers, because people assume they are being paid," said Matthew Harrison, marketing executive at market research firm Ipsos (IPS.FR) China. "Worse, sometimes people remember the celebrity more than the product."
A notorious recent example was local video game maker 9you’s decision to use Japanese porn star Sora Aoi as a sponsor. The main beneficiary was internet proxy companies: Around 30,000 Chinese netizens broke through China’s internet blocks to follow her Twitter account.
A similar tactic, with similarly equivocal results, is sponsorship of high-profile events. An Ipsos consumer survey of reactions to Expo sponsorship revealed that while sponsorship improved brand recognition, it had little effect on stimulating consumer purchasing decisions.
There are exceptions. Recent Ipsos surveys showed that Harbin beer’s World Cup sponsorship paid off. "For the last few years Budweiser and foreign beers have taken the spotlight exclusively, but this year China and Harbin Beer broke into the spotlight," said Harrison. Our data shows that their sponsorship really enhanced consumer purchase tendency in China." But this is no credit to domestic brand marketing skills: Harbin and Budweiser are both now part of AB InBev (BUD.NYSE, ABI.Euronext).
The traditional approach
2010-8-27More effective are domestic marketing campaigns that advertise their superior connection with the Chinese consumer due to their domestic origin. While foreign brands in scandalized sectors can compete on higher quality standards alone, this advantage does not apply in other areas. Chinese tastes are particular, and the domestic worldview of health and body function is also still rooted in traditional ideas. In many areas, Chinese brands exploit their understanding of traditional Chinese medicine (TCM) or more abstract associations with national identity to resist foreign incursion.
Chajet of Interbrand cited Herborist, owned by Shanghai Jahwa (600315.SH), as a Chinese cosmetic brand successfully using TCM messaging to compete with international players. Herborist’s slogan is "Integrating Traditional Chinese Medicine into the latest fruits of modern biotechnology;" one of its products is called "Tai Chi Mud."
The strategy can work with almost any product used on or in the body. For example, Chengmei’s campaign for the red-can version of Wang Lao Ji repositioned the beverage as a soda drink with TCM properties that "reduces heat" and fights carbuncles. Geng of Chengmei said the campaign increased Wang Lao Ji’s sales from 100 million to 10 billion cans per year in less than five years.
The strategy is good business for certain product lines, but for economic nationalists, it has a weak point. As the Harbin case illustrates, once a local brand takes off, it becomes an acquisition target.
"Take the cosmetics sector," said Sinha of Ogilvy. "All the strong local brands – Yuesai, Dabao – have been bought by the multinationals. I’m not sure whether Chinese consumers even realize these brands have been acquired."
Consumer brand loyalty aside, Chinese business owners seem to have little loyalty to their own brands, he said. A businessman who spends 15 years developing a product will sell the brand without sentiment if the price is right.
Paradoxically, while associations with TCM and Chinese tradition appear to pay off, it seems that few consumers worry much about the nationality of the holding company that owns a Chinese brand. "Chinese consumers don’t care," said Xie of Dongdao, although he allowed for some exceptions in the case of the largest traditional brands.
The flip side of this strategy is Chinese acquisitions of famous foreign consumer brands like China Dongxiang (3818.HK) picking up the China trademark for Kappa, and Lenovo’s (0992.HK) purchase of IBM’s (IBM.NYSE) personal computing division. Although rare, such face-gaining moves do appear to get local consumers excited. A brand confident enough to move abroad engenders confidence at home. Sinha pointed to Li-Ning’s decision to start opening stores in the US this year. "Li-Ning is absolutely aware that those stores are not going to be very commercially successful … but that move sends a signal to its domestic consumers that here is a brand that has the confidence to stand up to foreign competitors. That is very strategic and forward-thinking."
Tom Doctoroff, North Asia CEO of JWT, believes that such forward thinking is the missing ingredient for many Chinese companies. "Marketing balances the long term against the short term. But most marketing in Chinese companies is very sales-driven; they aren’t into long-term equity building," he said.
Part of the reason, Doctoroff said, is a corporate governance conundrum: Good relations with the state are more important than the higher price-to-earnings ratios that strong brands command. This is why Chinese businesses continue to list government endorsements: They are a sign of support and an implicit guarantee of longevity. On the other hand, support can be fickle, and a withdrawal of state backing can be a death knell.
Official corruption also cannibalizes marketing budgets: A survey conducted by Nottingham University Business School’s Globalisation and Economic Policy Centre found that Chinese small and medium-sized enterprises spend an average of 7% of their budgets wining and dining officials.
But the state is of course a valuable customer as well. Of Dongdao Design’s recent projects, more than half are logos for government ministries or state-owned enterprises.
While the government will remain a major factor for domestic companies, market forces are playing an increasingly central role as competition intensifies. To hold off foreign and compatriot competitors, domestic brands will need expert help.
The big winners should be local marketing and PR firms, which understand their clients and their market better than multinational consultancies. Unfortunately, the domestic marketing sector hasn’t been able to leverage this singular advantage.
Crafting true brand equity requires implementing media, government relations and advertising campaigns in concert to deliver a single message. Given most Chinese firms’ lack of experience in building brands, and the complex interlocking nature of state, market and media, there is a stronger need for one-stop-shop agencies that can handle everything from crisis management to packaging. At present, no such domestic agency exists.
The typical Chinese marketing firm is small and specialized: One firm does logos, another does web pages, a third does television ads and yet another provides PR. For Xie of Dongdao, which has a staff of 400, this is as it should be: "I think we should stick to our expertise. Public relations should be done by PR companies, advertisements should be done by advertising companies." But when food conglomerate COFCO (600737.SH) undertook a massive rebranding campaign, it had to turn to JWT, a foreign company, to handle it.
The structure of the local marketing industry persists for several reasons: In part it reflects their clients’ organizations, where departments charged with different aspects of image management operate without coordination. But more fundamentally, the lack of demand for integrated brand development expresses Chinese managers’ lack of confidence in the system.
Companies that believe their future is controlled by policy, not product, have little reason to invest in a durable corporate image. It is far safer to react, to copycat and to sell out when the selling is good. Thus, even after 10 years of increased spending on image development, domestic brands still have to compete on price.
"Until [domestic firms] restructure themselves, are more open in their communications, less hierarchical, and less fear-based, I don’t see anything changing," said JWT’s Doctoroff.
Until they do, domestic brands will be reducible to logos, and "China Famous Brand" will remain a government-sponsored wish.
Keep it simple: Ad slogans for mainland products
China Mobile, M-Zone:
“My crib, my way”
[The ad uses a word for “place” popularized by Chinese gangsters]
“Not all milk can be called Telunsu”
JDB Group, Wang Lao Ji “red can”
“Afraid of increased inner heat? Drink Wang Lao Ji”
Midea product line (air conditioners, electric kettles):
“Life can be beautiful”
[Meide, pun on company name]
Joyoung product line (soy milk makers):
“Health, Happiness, Life”
Minsheng Royal Fund Management:
“Maintain daily stability, grow little by little”
“Luxuriant black hair nurtured by traditional Chinese medicine”
Herborist skin products:
“Nurture your body with nature’s selection”
“Sweet or sour, I decide”
Nongfu Spring bottled water:
“Nongfu Spring tastes a little bit sweet”
“Inner power, outer beauty”
Shanghai Goldpartner Biotech, Naobaijin digestion and sleeping aid pills:
“This New Year, no one gets any gift but Naobaijin!”