Added Value Edits: China still A-changing
16 Apr 2014|jhall
What’s the focus of the first edition of Added Value Edits? China. Many Chinese started the Year of the Horse off by watching the world’s most popular movie – about a monkey. Not just any old monkey, a Monkey King. In the space of a single year, China’s domestic movie industry went from being dominated by foreign productions to commanding 71% of box office revenue.
China continues to change at lightning speed. What we knew about China only a couple of years ago is now practically irrelevant. This month we explore how the Chinese market is unique, how brands are performing and what innovation looks like in the world’s most populous country.
Hitching the Horse
Economists and politicians have long complained about the anemic performance of Chinese consumption compared to the double digit growth of the economy overall. However, as GDP growth now remains resolutely in single digits, there is real hope that consumers will come to the rescue for three reasons. Click here to read the article written by Added Value’s Matthew Carr.
Top 5 ways to win in China
China is not an emerging market. It has already emerged. These were the words of Sir Martin Sorrell at BrandZ’s Top 100 Most Valuable Chinese Brands event at the House of Commons in London earlier this week. So how can brands harness the power of the world’s second largest economy? Click here to discover our China team’s thoughts on the top five ways to win.
The new consumer reality
McKinsey reckons that the Chinese consumer of 2020 will be more affluent with higher discretionary spending. According to HBR, Chinese people are “becoming more informed, more sophisticated, and more active”. Increased wealth and informed decisions are making it harder for foreign firms to break through: but brands like North Face and Johnnie Walker are making an impact.
What can brands teach us in China? This recent article for LinkedIn 5 Lessons From China’s Top 100 Brands, WPP’s Sorrel again delves into what works in this complex market. The big takeaway is that Tech rules and we are only seeing the beginning of their potential. In the 2014 BrandZ China Top 100 report, produced by our sister company MillwardBrown, the Healthcare and Food & Dairy categories – while small – are seeing strong growth. And what is the top foreign brand…? Kentucky Fried Chicken.
According to PricewaterhouseCoopers, “Traditionally Chinese companies were fast followers, but we are starting to see true innovation.” Growing investment in R&D, along with innovative companies like Haier, has fueled a rise in homegrown solutions. Haier’s radical CEO organized his company into 2,000 zi zhu jing ying ti (ZZJYTs), self-managed teams, in order to encourage open innovation.
Recent reports show that wealthy Chinese are cutting back spending. Not good news for luxury brands? At $35B, China is still set to become the second biggest luxury market in the world behind the US in 2014. Opportunities are evolving: local Chinese brand and product lines are emerging; and digital strategies continue to offer huge room for improvement.
Revlon and Garnier both recently exited a Chinese market in flux, where winners will demonstrate strong e-commerce presence, aspirational premium brands and the right pricing model in the mainstream segment. South Korea’s cosmetics brand Laneige has successfully navigated the Chinese cosmetic market by responding quickly to market trends with cheap products, while Estée Lauder has developed a brand just for China, catering to Asians’ unique beauty needs.
What, Nike struggling?
While Nike hits the reset button on its Chinese ventures, Adidas has stopped believing that one size fits all, and used that mentality to gain on Nike. By understanding each segment’s needs, Adidas saw an opportunity to target women, much like Lululemon in North America (but without insulting their customers!)
Everyone in Silicon Valley drives a Tesla, right? So it’s no surprise that a tech-dominated country would fall in love with Tesla too. Many luxury brands look to increase their prices in the Chinese market, but Tesla has decided to do things differently. Elon Musk “made a big point of saying that Tesla held down the price of the Model S to avoid ‘ripping off’ customers in China.” Worth keeping an eye on whether this strategy helps or hurts the Tesla brand.
Coca-Cola and PepsiCo step up
The rise of local brands has compelled both Coca-Cola and PepsiCo to step up innovation efforts. Both have leveraged the Chinese New Year to promote their brands: Coca-Cola launched the “Being Together” campaign and PepsiCo continued their “Bring Happiness Home” campaign.
A joint study by Bain & Company and Kantar Worldpanel
Bain & Company and Kantar Worldpanel explore the intensifying battle between foreign and local players for China’s shoppers in the context of China’s rapidly evolving market. This comprehensive study covers all Chinese city tiers, categories in different development stages and all shoppers’ life stages.
Get in touch if you’d like to hear how Added Value can help you.
Written by Jonathan Hall, President North America Consulting, Added Value.
Follow Jonathan on Twitter @HallCJonathan
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