Study urges more focused branding

A new study has highlighted the growing need for Chinese companies to better identify the branding strategies they are planning to use in the particular regions of the country they are selling their goods and services.

The report, produced by the American Chamber of Commerce in Shanghai and leading global management consulting firm Booz & Company, says an increasing number of Chinese consumers in top-tier cities demand high quality products and are willing to pay a premium price.

But in smaller cities and rural areas, brand loyalty is more important than price.

The second annual China Consumer Market Strategies report was based on interviews with more than 150 Chinese and multinational companies.

Industries covered included automobiles, consumer goods and pharmaceuticals, but the report suggested that many companies weren't considering carefully enough which strategy they were choosing for particular areas of the country.

Among the nine most disruptive consumer trends identified by the chamber, both Chinese and multinationals chose "value" as the most important condition affecting their business in China.

The term now covers both product quality and value-for-money, and represents a significant evolution from what has been for so long a purely price-driven market.

More than 83 percent of respondents said they expect the trend for value to drive brand loyalty among consumers in the future, and 87 percent expect to see an increase in willingness to pay more for quality products and services.

The study paints the typical value consumer as a young to early middle age (from 21 to 40), middle income (between 10,000 yuan, or $1,569, and 50,000 yuan) man or woman who lives in cities like Beijing, Shanghai and Guangzhou.

They are knowledgeable about brands and tend to research before buying.

Some 81 percent surveyed said they would find out about the best features and study comparative products before making a final decision.

And they also value the overall "shopping experience" as influencing their decision on what to buy.

More than half of the companies surveyed said they believe consumers want to be treated "well" while shopping.

However, price does remain a key driver in buying decisions in third- and fourth-tier cities like Ningbo and Dongguan, where the choice of available products has also dramatically increased.

With growing choice, the purchasing channels provided by companies have also become a major issue for many firms, as they battle to win over the more fickle shoppers.

E-commerce has become the more favored route for price-sensitive shoppers, quite simply because of the ease in being able to compare prices online.

Zhang Jingfei, a recent graduate in Central China's Henan province, said her Friday evenings were mostly spent shopping for cosmetics and facial masks on Taobao.com, the popular customer-to-customer site.

"I never buy them in big stores, or even chain stores. You can only find cheap products online," she said. "How different can a top brand mask be? It's just water and fabrics."

Within just this context, branding strategies can be highly contradictory, said Brenda Foster, president of AmCham Shanghai.

"On the one hand, Chinese consumers frequently show minimal loyalty, freely jumping from one brand to another. On the other, strong brands tend to influence purchasing power, with category champions enjoying pre-eminent position in some consumers' minds."

But the survey suggested that more Chinese companies are now focusing on original product innovation than their foreign counterparts.

Three-quarters of the Chinese companies polled said they now had research and development facilities in the country dedicated to helping develop products for domestic consumers, whereas only about half of the multinationals surveyed said they had.

The trend appears to be borne out in the survey, which reported that 20 percent of Chinese respondents reported that more than 60 percent of their sales come from new products launched in the past three years, as compared to only 5 percent for multinational brands.

However, multinationals do seem to outperform Chinese firms in their branding capabilities, said Adam Xu, a Booz & Company principal based in Shanghai, focusing on consumer and retail

He said that more than a third of multinationals said they are poised to respond to the evolving consumer preference on quality, while only 19 percent Chinese counterparts said they are fully prepared.

Meanwhile, in a separate study by Hurun Report, a research unit and publishing group, Louis Vuitton, Cartier and Hermes have been revealed as the most popular luxury labels that wealthy Chinese reach for when giving gifts to friends and business contacts, with the Chinese liquor Moutai the only domestic brand among the top 10.

Guan Hongsheng, 44, who owns a trading company in Wenzhou, Zhejiang province, spent more than 1 million yuan last year on giving gifts to business contacts.

"Price is no problem if the label is right," said Guan, mentioning items from Apple to Cartier jewelry as his main buys. "Domestic brands are still not well-known enough for my friends."

Many Chinese companies are succeeding in shattering the poor image of some Chinese gift items, according to Jonathan Chajet, chief executive officer of Dragon Rouge's China operation, a French design and innovation consultancy. "If you talk to Chinese CEOs, many are highly conscious of the negative perception of 'made in China' and they want to be the company that changes that image," he said.