Consumer choice becomes wider and more complicated.
by Stephen Drummond
Chairman and Chief Strategy Officer
It’s important to fully understand the historical context to appreciate where we are today with regard to the foreign-local brand dynamic in China. Flashback more than 20 years to when there was a black and white distinction between “premium” foreign and local brands in most categories. In the 1970s and 80s low quality local products were the norm and Chinese consumers had to accept that reality, they literally had not much choice.
As foreign brands – usually everyday FMCG products – entered China in the 1980s, they initially had a kind of rarified status, with sexier packaging, exotic names, a promise of better quality and, of course, status. But these brands had a high price tag to match, becoming aspirational but out of reach. For example, 20 years ago there was high demand for Lux bar soap “grey” imports over the locally made version. While there was no real difference in the product, people were willing to pay for an imported premium. Colgate toothpaste was widely available and had extremely high preference ratings linked to its “foreignness” (it was fully imported), but at 13 renminbi, compared to the local price for toothpaste of around 2 renminbi, few consumers could justify the price gap.
Over the last two decades there have been many changes to this foreign-local dynamic. International brands have had to make themselves more relevant by making themselves more accessible in pricing and they have invested a lot in making themselves culturally appropriate. They have become more “local.” At the same time many Chinese brands have got their act together. What was once a gulf between foreign and local brands has become a grey area in terms of product quality and importantly consumer perception.
In the mid-90s Chinese department stores were full of bland boxes posing as TV sets or washing machines while the foreign brands positively dazzled next to them, in contrast. These days, however, you’d be hard pressed in a blind brand test of the actual products to tell the difference. The real difference remains in the price tag between a TCL and a Sony and, of course, the brand’s status, but the pragmatic Chinese consumer has largely woken up to that.
It’s important to note is that every category has its own unique story in the foreign-local dynamic. Luxury remains almost exclusively the domain of European brands – not unlike the rest of the world. There are now a dizzying array of configurations which have muddied the whole, once simple divide in the ‘foreign-local’ dynamic. In many categories Chinese consumers now have these “grey area” choices (Please see sidebar).
There’s another notable perspective on how Chinese consumer see foreign brands. Chinese consumers see the presence of foreign brands as a positive competitive force (even if they don’t buy them) because foreign brands drive improvements in Chinese brands. Many Chinese consumers support the presence of foreign brands, but not necessarily because they offer better status or (especially not) value, but because their competitive quality presence has actually pushed local brands into improving. In contrast to some western markets where foreign brands are often politically demonized for taking local jobs and compromising local brands and businesses, the Chinese see foreign brands as having an important role in improving life in China.
Brand provenance becomes complicated
Categorizing a brand as strictly Chinese or foreign has become complicated because of interrelationships that include the following variations:
Foreign brands – including prestige brands – that are now made locally
Most models from the “big three” German luxury brands, Audi, Mercedes and BMW are made in China. Consumers know this but it has not dented the prestige foreign association of the brand.
Foreign brands with unique Chinese characteristics
In the race for relevance, many foreign brands have adopted Chinese ingredients. Pantene (and others) use black sesame – a traditional Chinese essence believed to make black hair blacker.
Foreign brands launching locally competitive economy versions Colgate set the pace with the launch of a low price, anti-cavity toothpaste in the late 1990s, which made the brand directly competitive with local brands. Since then Nestle has introduced a snack wafer for 1 renminbi and P&G’s Tide launched a locally priced version to go head to head with improving local brands like Diao Pai.
Foreign Brands that have been bought by Chinese companies
Roewe is a vehicle marque created by the Chinese automaker SAIC Motor in 2006. Roewe vehicles were initially based on technology acquired from defunct British carmaker MG Rover. SAIC was unable to purchase the rights to the Rover brand name and created the Roewe marque as a replacement.
Chinese brands acquired and manufactured by international companies
Zhonghua Toothpaste, China’s national toothpaste brand, has been made under license by Unilever for decades. Unilever as a recognized brand in its own right in China has merchandised the fact that the brand is now made to International standards.
Chinese brands with internationally sourced ingredients This is relatively recent phenomenon driven heavily by recent food and safety scandals, particularly in milk, general dairy and infant formula. For example Biostime, a Chinese milk formula company sources all its products from France – and heavily promotes that fact. It also shows the financial power of many cash-rich Chinese companies as they seek brand credibility.
Chinese brands seeking international stature
Lin-Ning, a sportswear brand, endorses a number of athletes and teams, both in China and around the world. The brand’s many sponsorship deals, past and present, include basketball stars such as Shaquille O'Neal and José Calderón of the New York Knicks, and Glenn Robinson III of the Indiana Pacers. The appliance brand Haier, and Lenovo, the technology brand, leverage their global popularity to reinforce their credentials in China.