An article that appeared recently in AdAgeChina - 3 Golden Rules of Brand Management in China – caught our eye.  In it, Tom Doctoroff of JWT offers some advice for global brands looking to make it big in China.

Since we conduct a lot of branding research within China (as indeed we do across the rest of the world), we thought we would reproduced Tom’s article today on our blog. Of course, if you wish to find out more about how to establish yourself in China, why not read our white paper Marketing and Selling to Chinese Businesses, or email beijing@b2binternational.com for more information:   

To maximize relevance and trigger loyalty that results in a sustainable price premium, global brands need to be aligned with China’s cultural imperatives and operational realities.

At the risk of oversimplifying, here are three “golden rules” marketers must be sensitive to before landing in the mainland.

1. Maximize public consumption to justify price premiums.

In China, a Confucian society torn between stifling regimentation and 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 are consumed in public are able to command huge price premiums relative to goods used in private or within the house.

All leading mobile phone brands, for example, are international. Even in tier-five cities and the rural fringe, Nokia commands a 40% market share, despite significantly higher prices than local competitors.

Sony’s Handycam, a product brandished outside the home, is a brand leader. However, Sony television sets, although aspirational, struggle to be more than a niche product.The leading household appliance brands are, without exception, cheaply-priced domestic brands such as Haier,TCL and Changhong.

The “public display” imperative leads to fundamental positioning differences. As a general rule, benefits should be “externalized,” not “internalized.” Bath gels should not promote “sensorial indulgence” in the shower. They should “stimulate” the user to begin the day with a kick, ready to conquer the world. Beauty products must help a woman “move forward” and enhance her ability to “open doors” professionally or “control” her man. Mass market beauty brands should still help lower-income women be “admired” as a great mom or adored wife. 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.

Automobiles, now a middle-class “must buy,” should make a statement about a man on the way up. BMW, a winner, elegantly fuses its global “ultimate driving machine” with a Chinese declaration of ambition.

DeBeers achieved 80% penetration of engagement rings by morphing universal passion inherent in “A Diamond is Forever” into Confucian “proof” that “commitment will last a lifetime.”

The importance of public display is also critical in shaping business models. To conform to Chinese tastes, Starbucks, for example, broadened the sandwich menu, identified prime site-to-be-seen real estate, and made stores bigger. Starbucks has established itself as a public place where professional tribes gather to proclaim affiliation with the New Generation Elite. Likewise, both Pizza Hut and Haagen-Dazs have built mega-franchises rooted in out-of-home consumption.

2. Simplify communications and benefits to enhance comprehension.

Chinese are overwhelmed (yet excited) 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 $30 basic models to state-of-the-art smart phones. Making matters worse, China’s media landscape is cluttered. Television screens, most owned by Focus Media, are ubiquitous – in taxis,elevators, restaurants, building tops, locker rooms and bathroom stalls.

Complicated messages, therefore, are not easily digested, even amongst the most brand-literate. Consistent messages must be conveyed directly. Advertising must be ruthlessly single minded. Visualize the key benefit, leverage demos as creative ideas, slice of life formats revolving around  torture tests and so on. Select celebrities, usually Chinese, whose star attributes reinforce a core brand proposition.

For simplicity mandate, heavy mass media is essential. China’s untamed landscape requires forming brands from scratch; television fits this bill. Digital is increasingly critical to deepening engagement and loyalty but mass media will remain center-of-the-plate for years.

3. Extend brands downwards to generate scale, affordability and margin.

Multinational brands must need to profitable and have mass-market scale. Most multinational can charge a price premium because Chinese consumers prefer the reliability and “cool” of foreign   brands. The tough nut, however, is scale. Scale is critical in a reassurance-driven market such as China.

The only way to target a broad swathe of price-sensitive consumers is to extend premium-priced brands downwards across lower price tiers by reducing costs and simplifying benefits. At the same time, great care must be taken not to degrade quality perceptions, usually by advertising the most premium variants.

Colgate’s Total Oral Care, a premium toothpaste made largely of imported ingredients, costs   approximately 200% more than local brands and maintained a 3% share. Colgate Herbal and Colgate Strong, however, use cheaper local ingredients and are priced slightly higher than or at parity with local brands. The combined Colgate franchise controls a phenomenal 20% of the toothpaste market, one with hundreds of regional and national competitors. In recent years, Nestle and Procter & Gamble (with varying degrees of success) have adopted a similar strategy. So, too,   have higher involvement categories such as mobile phones.

The Chinese business battlefield is treacherous, rife with kamikaze commoditization. We have not covered issues such as avoiding censorship, in-store activation, product localization, the supremacy of the “single child” and safety issues. However, these three “golden rules” are essential to consider before finalizing a China strategy.

It seems that wherever you look articles and opinion on the world financial crisis abound, ranging from the position that we have note even seen the worst yet to “the green shoots ” view first expounded by Norman Lamont in the UK during the last major downturn to hit western economies. Being based in Beijing, the prevailing view of that we come across tends towards the optimistic. For example a recent China Daily article pointed to a survey of senior marketing managers suggesting that three quarters believed that China’s economy will recover faster than those in the west, and that a full turnaround was due within a year. Nothing particularly striking here, although it is definitely worth looking into what is being said in more local publications, and to look at what factors are causing this apparent relative optimism.

According to the People’s Daily earlier this week (see the following link in Chinese http://paper.people.com.cn/rmrb/html/2009-04/28/content_241737.htm企业业绩在回升（企稳回暖看亮点）《 人民日报 》2009年4月28日09版) there is evidence at a general level that many of China’s listed companies expect to see growth or increased profitability in their performance by the middle of this year. This improved performance is expected to be “concentrated” in construction, biomedicine, transportation, electrical, forestry, animal husbandry and fishery industries. It is almost certainly no coincidence that these industries are focused on domestic demand rather than exports and are also subject to promotional policies and the stimulus plans. These sectors are predominantly the preserve of domestic companies, including State Owned Enterprises, what then of markets with major foreign participation? Are there any reports backing some of the optimism we have heard about?

Let’s take the automotive industry, a business that by any standards is undergoing a tough time globally. The 2009 Shanghai International Auto Show that was held in April for example, featured debuts of 13 new types of car from international auto brands, a record over previous show. China’s “International Finance News” (http://finance.people.com.cn/GB/71364/9168265.html从上海车展看跨国车企“中国信心”–《国际金融报》 2009-04-21 第08版) commented that this indicates the continued strength of the Chinese auto market, currently the world’s largest.  Again, government policy received some of the credit for this dynamism, as “many senior managers have repeatedly emphasized the confidence in the Chinese market from the sound development of China’s macro-economic and macro-economic policies” as Shenyang Daily reports “我们对中国市场充满信心”《沈阳日报》2009年03月30日. Similar sentiments are found in other industries, for example Haitian, a leading plastics manufacture quoted on the specialist plastic chemicals website plaschem99 report that domestic demand has passed its trough, again stimulated by government measures. They do however point out that as around 40% of their sales are exports, the future there is hard to predict. (http://plas.chem99.com/news/545575.html –海天08年业绩衰退 但对中国市场信心满满 卓创资讯 2009-4-14 9:10:59). 

Two news articles about the Chinese automotive industry have been circulating this past week.  First is the news that in January, China overtook the United States in monthly vehicle sales for the first time, according to figures from the China Association of Automobile Manufacturers.

If the trend continues throughout the rest of 2009, China will become the world’s largest vehicle market, having already overtaken Japan in 2006 to become the second-biggest auto market.

While car sales have slowed in China over recent months, the slowdown has been even greater in America, and car manufacturers are all looking at new ways to encourage sales - new advertising campaigns, sales promotions and pricing discounts, improved customer service and warranties, etc.

On the back of this comes news that China’s largest independent car manufacturer, Chery, which is known for its small cars, is hoping to introduce a Chinese luxury car line.

Still in the early stages, neither the launch date nor the name of the new luxury brand has been announced.

In the past, Chery has been criticized by some for developing more projects than it can manage successfully.  However, its new company philosophy is to concentrate more resources on a smaller number of tasks.

By announcing its intentions to enter a new market, we assume that the company intends to focus considerable efforts on serving this new segment, and we presume that it has carried out a thorough market assessment study to establish that there is an opportunity for its specific new offering.