China: making the right strategic choices
02 Dec 2009|Added Value
As anyone who has set foot in the world’s largest potential market knows – it’s a land of great contrasts. And many contradictions. The complexity of just about everything can be overwhelming. Especially when it comes to making the difficult decisions that are so important to creating and implementing great strategy. Choosing your big bets and deciding where to focus your investments can be daunting.
And standard research doesn’t always help. Marketing Directors and CEO’s continue to puzzle over the retail audit and brand data that just don’t tie up with the last round of focus groups and monthly sales performance figures. Things move quickly in the world’s fastest growing economy but surely not that fast!
At Oracle Added Value we recently conducted a proprietary study which looks at brand behaviour across 10 brand categories, linked to trends and consumer typologies. It has depth, going down from 1st to 4th tier cities, across all geographic areas and with a 20 city spread. And its conclusions help to provide the missing link in making the right strategic choices.
It’s clear that ‘how’ and ‘what’ people buy differs a lot across the country. The key question is why? So many models have tried to explain this by focusing on simple explanations like city tier or regionality. More recent models suggest that there are clusters of cities which reflect different buying behaviour across the country.
From a marketing point of view, it is easy to forget how young the Chinese consumer market really is. 20 years ago there was no effective national distribution network and local products were the only ones available. Even if these products were advertised on TV, they didn’t have personalities – they weren’t really brands. They stressed their functional properties and were somewhat commoditized. Every market sector had multiple players each of whom had local strongholds across China’s many regions. Hardly any brands had national presence.
The first real “branded” players to arrive in each sector were invariably multinationals hungry for the opportunity to cash in on the world’s most populous market. They advertised heavily when TVR’s were cheap and CCTV coverage was dominant. Few cities or regions had their own TV channels. Local brands soon responded both with product innovations and their own distinctive positionings.
Depending on which brands were doing what – and where – consumers in different regions had different understanding of what was good, what was new and what was “out”. This has helped build the differences in consumer brand buying behaviour we see today across the country.
We believe that it’s easy to over claim the amount of differences that have been caused by the above and underplay the timeless Chinese consumer truths that brands can tap into. Regionality is important as it paints the competitive context. What brands have been available, what communications on pack and advertising have “taught” consumers about the category, and what brands and formats the retail trade structure has favoured. The difference in the relative wealth of different regions across China should also not be overlooked.
City tiers also play a role as attitudes vary widely between them across many factors. The current state of urban development & investment, positive momentum, incomes and job opportunities all help shape these crucial differences. However in a given region across the city tiers Chinese Techtonics predicts that in time these changes will lessen. This is driven primarily by 2 factors: the power of the internet to create more homogeneity across the tiers (which statistically is proven in the 15-24 yr old audience); and the increasing wealth and changing economic performance as the lower tiers play catch up.
In most markets brands need to distribute their brands and communicate their consumer promises across a physical geography. For different brands in different sectors the way you look at your “map of the market” should take into account all the issues raised above. Where there is more added value than cost in making a change in the marketing strategy, modifying positioning, running different TV ads, having a different product mix – they should be made!
We believe that over time the market will stabilize. Lowering distribution costs, maturing markets and the ability of the leaders in each segment to capitalize on their natural advantages will see consolidation within categories.
So where should you focus your brand investments to maximize your returns today? Think hard about what you are doing across a region or cluster of cities – how you can maximize the effectiveness of your communications across not only the Tier 1&2 cities but also the rapidly growing tier 3 & 4 cities. Look for the commonalities in attitudes and behaviours that effect consumers’ behaviour and drives engagement in your category and for your brand (at the expense of your competition).
Success we believe will come to those who:
- understand the core underlying Chinese consumer truths in their category (focus on the deep commonalities not the “easy to get to” differences)
- have a clear picture of what has contributed to different perceptions in different regions and city tiers caused by how brands and the market have developed that category in that region.
- have the confidence to take risks and modify their strategies to different target audiences (geographic, demographic and psychographic) where the cost of so doing is less than the benefit that can be attained