When you are considering any investment by your company into
the Chinese market the following considerations are worth
considering.
The consumer tends to seriously browse as this is seen as
a treat and not a chore. Most households find new products
more interesting than the cinema, so you have a greater opportunity
than 3 seconds to attract the consumer. GUO QING or 'special
needs of the Chinese' are the key to buying impulses.
Shelf space and glossy free-standing still have less effect
than advertising in media such as radio, newspapers, and television
and indeed promotional advertising by major actors works quite
well. The media remains a significant way to promote acceptance
in the eyes of the public. Consumers believe what the newspapers,
radio and TV tell them, being state controlled, they also
believe
that advertiselment is validated and authorised by the State.
Provide Complete Information.
They want complete information and even specification
details about it. They are known to read this information
to improve their knowledge and pass it on to help their community.
If in a prominent space consumers tend to wonder what is wrong
with it. If they heard of it, they will look for it so bottom
shelf is equally as good as eye level. Promotion cheapens
the product and gives an indication of low quality, as they
believe cheap products are no good.
Suspicion of something for nothing dates back to the 14th
century when the Hans launched a rebellion against the Mongolian
Yuans by giving away special cakes, inside of which were slips
of paper carrying messages to the Hans about the planned rebellion.
Value and not Bargain Hunters at Heart.
Many of the people who are in the stores are not necessarily
buyers, 'Never make a purchase until you have visited 3 shops'
is an extract from a Chinese proverb so footfall is not always
a good indication of buying capability within a store. There
is a high regard for foreign quality and technology that is
appealing, as they are wary of low-quality home grown products.
Who Controls the Purse Strings?
Chinese marriages are sometimes made up of a State Worker
and a Private Sector worker and the State Worker is the one
who shops. This affords certain subsidies for the household
from the State Worker. The Private Sector worker earns more
and it is not always the male.
Statistics.
There are 5 cities that have greater than 10 million people
in each (Shanghai has 13 million) and about 15-20 cities that
have 5 million and above, so regions are worth exploring rather
than every outlet.
The average consumer spends less than $500 USD per year, so
the 1.2 billion population is an aspiration and not an immediate
target.
The ratio of premium products in some cities supermarkets
like Guandong and Shenzhen account for 50:50 and 60:40 respectively.
As an example of how the population demographics pan out.
One food product in 19 key cities, accounting for 15% of the
total population and 22% of GNP, had 40% of unit product sales
and 90% of the potential profit pool.
Choice of Presence.
It is possible to be a 'Wholly Owned Foreign Entity'.
'Equity Joint Ventures' are dropping off, but if your partner
has a good level of distribution nationwide they may worth
considering. Chinese EJV's tend to look for short term profits,
so you should also be seen to focus on short term returns
on your Chinese venture or you are likely to be met by levels
of discontent with your local partner who wants to see returns
and not long term growth.
The idea that the Chinese market is so big and growing so
fast that it is worth the short term loss to break the market
is not a viable consideration. Coca-Cola didn't have to, but
Pepsi-Cola are still a long way behind. Pepsi still seem to
have a second class citizen about their attitude. Volkswagon
made a great profit and control the market, but Peugeot pulled
out after 12 years of making a loss. Fuji film made the entrance
first but Kodak learned quickly and now dominate the film
and photo-lab market.
Sometimes it is just bad local knowledge and distribution.
Look at what and how Coke did it from the outset.
Branding in China.
Find out what the sound of your brand means in Chinese. You
might find that the pronunciation may be insulting and needs
to be adjust to sound positive. The original sound of Coca-Cola
was kou-ke-kou-la which meant 'a thirsty mouth and a mouth
of candle wax' .It was changed to sound like ke-kou-ke-le
which means 'a joyful taste and happiness' which amounted
to a subtle change in promotion and significant alteration
of consumption in volumes.
Chinese are not renowned as pioneers and word of mouth in
China are by far the greatest means of selling. For instance
Coke only recently made it 50:50 Sprite:Coke, as the black
liquid was not very well received and did not look as good
as Sprite...
In personal care and clothing only soaps in foreign brands
have succeeded along with shampoos and shoes. In food only
Coke and Pepsi have achieved a strong position. All the rest
of the food brands are domestic. Toothpaste for instance is
dominated by domestic brands cosmetics foreign brands account
for about 25%.
Health Drinks are purely Domestic Brands.
Gerard Brandon is editor of Guru
Manager Entrepreneurs' Toolkit Founder and former CEO
of Alltracel Pharmaceuticals Plc, with multiple partners and
suppliers in China. Guru Manager provides Entrepreneurs interactive
tools for building their global business. http://www.gurumanager.com/
