Observation 3: Ownership
Market-driven brands surpass SOEs in rate of value appreciation
But branding, not ownership, determines success
In his remarks to the 19th Party Congress, President Xi Jinping said that he expected State Owned Enterprises (SOEs) to become lean and more efficient. Analysis of the 2018 BrandZ™ China Top 100 confirms the importance of this reform to the future vitality of SOE brands.
In 2014, 45 SOE brands comprised 71 percent of the BrandZ™ China Top 100 value. In 2018, 42 SOE brands comprise just 40 percent of the ranking’s total value. Between 2014 and 2018, Chinese market driven brands, increased 271 percent in value, and SOEs increased 2 percent.
External forces, both domestic and international, impacted certain sectors dominated by strategic SOEs. Banks suffered because of an extensive problem with non-performing loans. The global weakness of crude oil prices depressed brand value in the oil and gas category. However, a fundamental contrast in brand characteristics between SOEs and market-driven brands also contributed to the shift in fortunes.
SOEs score lower than market-driven brands on at least three brand personality characteristic that make brands appealing to consumers. Consumers see SOEs as less playful, fun, and creative, according to BrandZ™ research. But consumers do not view all SOEs the same way, as indicated by the performance of the fast-growing SOEs in Value Growth.
The fast growing SOEs include four alcohol brands, which are consumer-facing by definition, one hotel brand and one insurance brand. Consumers see these brands as significantly more sexy, rebellious, and different than SOEs overall. Not every SOE will excel in these characteristics. But, across categories, all SOEs have an opportunity to improve in brand-relevant characteristics that help form a closer bond with consumers.
Many SOEs have become large and sluggish over time, and perhaps more responsive to government directives than to customers. That dynamic may have served the SOEs—and China—well during the former period when driving rapid economic growth was the overriding priority. That approach becomes less useful in a period of moderating economic growth when consumption replaces production as the key driver. SOEs need to adapt. And the good news is that change is possible. Ownership is an elements of brand identity, but it does not automatically determine brand destiny. As the evidence shows, SOE brands that embrace a consumer-focused mindset can make a positive impression on consumers. This kind of change normally does not happen overnight. But in China change needs to happen quickly, and speed will require deep insight into consumer attitudes and behavior.