To maximize relevance and trigger loyalty that results in a sustainable price premium, global brands need to be brought into alignment with Chinese cultural imperatives and operational realities. At the risk of dramatic oversimplification, there are three "golden rules" marketers must be sensitive to:
Maximize public consumption. In China, a Confucian society torn between stifling regimentation and trenchant ambition, consumers regard brands as tools for success. "Face," the primary currency of upward mobility, is rooted in status projection. This is why brands that, directly or indirectly, are publicly consumed are able to command huge price premiums relative to goods used at home or in private.
All leading mobile phone brands, for example, are international. In tier-five cities Nokia commands a 40% market share, despite higher retail prices relative to local competitors. Sony’s Handycam, a product brandished outside the home, is a brand leader, but its televisions struggle against cheaply-priced domestic brands such as Haier and TCL.
The public display imperative leads to fundamental positioning differences. As a general rule, benefits should be externalized: Bath gels must "stimulate" the user to begin the day with a kick; beauty products should help a woman move forward, enhancing her ability to "open doors" professionally.
Even beer must deliver something. In Western countries, "letting good times roll" is enough. In China, Pilsner must bring people together, reinforce trust and optimize opportunity for mutual (financial) gain.
The importance of public display is also a critical consideration in shaping business models. To conform to Chinese tastes, Starbucks broadened its sandwich menu, identified prime site-to-be-seen real estate, and expanded average store size. It has successfully established itself as a public place in which professional tribes gather to proclaim affiliation with the new generation elite.
Simplify, simplify, simplify. Chinese are overwhelmed by the explosion of brands. Twenty years ago, the public phone was the only way to make a telephone call; today, there are over 300 different mobile devices, from US$30 basic models to state-of-the-art smart phones.
In a cluttered media landscape – television screens are ubiquitous, in taxis, elevators, restaurants, building tops, locker rooms and bathroom stalls – complicated messages are not easily digested. Consistent messages must therefore be conveyed directly: visualization of the key benefits, leveraging demos as creative ideas, slice-of-life formats revolving around torture tests and so on. Celebrities must be carefully selected so that their star attributes reinforce a core brand proposition.
Margin and scale. Multinational brands must boast both profit and mass-market scale. Regarding the former, most multinationals have little problem charging a price premium because Chinese consumers like the reliability and cachet of foreign brands. The tough nut is scale. As the most potent signal of performance reliability, scale is critical in a reassurance-driven market such as China. It also exerts gravitational pull throughout distribution channels and the sales force.
The only way to target a broad swathe of price-sensitive consumers is to extend premium-priced brands downward across lower price tiers. At the same time, great care must be taken to avoid degraded quality perceptions, usually by advertising the most premium variants.
Colgate controls a phenomenal 20%-plus of China’s toothpaste market thanks to a combination of Colgate Total Oral Care – a premium toothpaste comprising largely imported ingredients, which costs about 200% more than local brands and has a 3% market share – and Colgate Herbal and Colgate Strong, which use local ingredients, cost less to produce and are priced about the same as local brands.
In recent years, Nestle, Crest, as well as other P&G brands – the latter with varying degrees of success – have adopted a similar approach.
The China business battlefield is treacherous, rife with kamikaze commoditization, and marketing strategies must take into account issues ranging from in-store activation to the supremacy of the "single child." But the three golden rules – maximize public consumption, simplify communication, pursue margin as well as scale – should nevertheless underpin any approach.