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Getting it right for the China market
March 30, 2011, Wednesday
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HOW times have changed.
There was a time when any Western product was a novelty in Asia, and so marketing strategies needed to do little to grab.
Today in China, for example, with local products improving in leaps and bounds and a mushrooming of the number of foreign brands penetrating the market, it has become difficult for consumers to know where a brand originates.
Nielsen's Mitch Barns said the firm often runs tests asking consumers whether a brand is local or foreign, and the answers are often wrong: More than 68 percent of Chinese consumers it polled, for instance, said Colgate toothpaste is a Chinese brand.
Part of the reason for the blurring of brand recognition is that domestic competitors in Asia are giving foreign brands a run for their money.
Long known for copying ideas from abroad, Chinese companies are beginning to create their own innovative products, Barns noted. "We've seen a rapidly growing number of product ideas originating in China becoming huge successes," he said. "Product innovation is hugely important for growth."
A big learning curve for foreign companies, meanwhile, has been to understand how best to adapt a product or business model to the Asian market.
In the past, companies that haven't modified a product or service enough to local tastes have failed to win Asian customers, while other companies that have made radical changes to their products and services have risked straying too far from their traditional strengths, often to the detriment of their brand's reputations.
"You could fail by both routes," Kris Knutsen, senior manager of the Chinese services group at Deloitte, pointed out. "Every company needs to find a balance."
One multinational that seems to have found that balance is Wal-Mart, the US retailer, which earned nearly one-fourth of its US$405 billion in fiscal 2010 from international markets, including China.
Its 279 stores in China are largely similar to those in the US in terms of branding and shop design. But there are some notable differences.
Wal-Mart wisdom
For example, many Wal-Marts in China have a large food section. And because many Chinese consumers don't have cars, some of its Chinese stores provide a shuttle bus service. "It's keeping some things and adjusting some things," Knutsen noted.
L'Oreal is another multinational that has made some smart changes to appeal to Chinese consumers, added Nielsen's Barns. Barns said: "A Chinese woman can buy the famous L'Oreal brand name but also know that it's been customized to her particular needs. It's a very smart approach that they have taken," and one that is paying off handsomely.
When announcing the firm's enviably strong annual results recently, CEO Jean-Paul Agon noted, "In 2010, L'Oreal China became the group's number three cosmetics subsidiary, with sales of more than one billion euros."
Once the product sells, the next challenge may be more daunting: keeping up with a rapidly growing market. According to Deloitte, China has 655 cities with more than 100,000 people, and 120 with populations exceeding one million. Yet China's top 100 retailers account for only 11 percent of its retail sales.
"You're looking at a very fragmented marketplace," said Knutsen. As the purchasing power of China's consumers increases, companies are now back to the drawing board to figure out where, when and how to expand, he noted.
He said even multinationals that are currently reaping the rewards of their work in China need to be ready to overhaul strategies in a snap of a finger. They might be growing today, he said, but "are they getting the coverage and scale right? Are they doing what they need to do to position themselves to remain competitive?"
(This is the second and last part of an analysis excerpted from an article on China Knowledge@Wharton, http://www.knowledgeatwharton.com. To read the full, original article, please visit: http://xpo.sh/1nj)
There was a time when any Western product was a novelty in Asia, and so marketing strategies needed to do little to grab.
Today in China, for example, with local products improving in leaps and bounds and a mushrooming of the number of foreign brands penetrating the market, it has become difficult for consumers to know where a brand originates.
Nielsen's Mitch Barns said the firm often runs tests asking consumers whether a brand is local or foreign, and the answers are often wrong: More than 68 percent of Chinese consumers it polled, for instance, said Colgate toothpaste is a Chinese brand.
Part of the reason for the blurring of brand recognition is that domestic competitors in Asia are giving foreign brands a run for their money.
Long known for copying ideas from abroad, Chinese companies are beginning to create their own innovative products, Barns noted. "We've seen a rapidly growing number of product ideas originating in China becoming huge successes," he said. "Product innovation is hugely important for growth."
A big learning curve for foreign companies, meanwhile, has been to understand how best to adapt a product or business model to the Asian market.
In the past, companies that haven't modified a product or service enough to local tastes have failed to win Asian customers, while other companies that have made radical changes to their products and services have risked straying too far from their traditional strengths, often to the detriment of their brand's reputations.
"You could fail by both routes," Kris Knutsen, senior manager of the Chinese services group at Deloitte, pointed out. "Every company needs to find a balance."
One multinational that seems to have found that balance is Wal-Mart, the US retailer, which earned nearly one-fourth of its US$405 billion in fiscal 2010 from international markets, including China.
Its 279 stores in China are largely similar to those in the US in terms of branding and shop design. But there are some notable differences.
Wal-Mart wisdom
For example, many Wal-Marts in China have a large food section. And because many Chinese consumers don't have cars, some of its Chinese stores provide a shuttle bus service. "It's keeping some things and adjusting some things," Knutsen noted.
L'Oreal is another multinational that has made some smart changes to appeal to Chinese consumers, added Nielsen's Barns. Barns said: "A Chinese woman can buy the famous L'Oreal brand name but also know that it's been customized to her particular needs. It's a very smart approach that they have taken," and one that is paying off handsomely.
When announcing the firm's enviably strong annual results recently, CEO Jean-Paul Agon noted, "In 2010, L'Oreal China became the group's number three cosmetics subsidiary, with sales of more than one billion euros."
Once the product sells, the next challenge may be more daunting: keeping up with a rapidly growing market. According to Deloitte, China has 655 cities with more than 100,000 people, and 120 with populations exceeding one million. Yet China's top 100 retailers account for only 11 percent of its retail sales.
"You're looking at a very fragmented marketplace," said Knutsen. As the purchasing power of China's consumers increases, companies are now back to the drawing board to figure out where, when and how to expand, he noted.
He said even multinationals that are currently reaping the rewards of their work in China need to be ready to overhaul strategies in a snap of a finger. They might be growing today, he said, but "are they getting the coverage and scale right? Are they doing what they need to do to position themselves to remain competitive?"
(This is the second and last part of an analysis excerpted from an article on China Knowledge@Wharton, http://www.knowledgeatwharton.com. To read the full, original article, please visit: http://xpo.sh/1nj)
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