MARKETING FOCUS: Brand attack on China - The first TGI analysis on China makes sense of a market with a growing appetite for western products, writes Harriot Lane Fox

With a population of 1.2 billion, one of the fastest rates of growth in the world and, so far at least, immunity from Asia’s economic crisis, China is a mouth-watering prospect for western marketers.

With a population of 1.2 billion, one of the fastest rates of

growth in the world and, so far at least, immunity from Asia’s economic

crisis, China is a mouth-watering prospect for western marketers.



Some are already making lucrative inroads but it’s early days, and those

hoping to penetrate China lack the kind of market intelligence they are

used to in the West. This makes many brand owners cautious, such as

Heinz, which is launching its baked beans into China: in its first year,

it will export 100,000 cases - equivalent to just one day’s UK

production.



’The country is changing very fast. But it doesn’t have good databases

and there isn’t much IT,’ says Derck van Karnebeek, Heineken’s field

marketing manager for China. ’So there is little dependable information

available.’ Not surprisingly, the research industry is booming, up 25% a

year for the past five years, but marketers are bombarded by excessive

and inconsistent data.



Local difficulties



Another problem is the difference in laws and regulations between the

regions - as Carlsberg found when it tried to produce promotional beer

mugs centrally. By law, the mugs had to have the volume marked on them,

but each region wanted it measured in a different way.



Distribution channels are also fragmented. Edward Tse, vice-president of

management consultancy Booz Allen Hamilton China, says the skill levels

of distributors have been poor and western brands have suffered as a

result.



Further down the chain, 77% of retail outlets have less than 20m2 of

space. Tse says most cities have tens of major department stores,

hundreds of supermarkets, thousands of grocery stores and tens of

thousands of ’mom-and-pop’ stores. But neither the mix nor the

participants are ever the same.



All this creates huge problems for marketers, who need to amass the

market knowledge to enable them to target and conquer each region

individually, while building a nationwide brand.



International research giant BMRB thinks it has come up with a tool to

help: last month it launched the first TGI data on the Chinese market.

The report, called ’China Marketing and Media Survey’, was carried out

in partnership with Sino Monitor, a private enterprise spun off from the

State Statistics Bureau.



Responses were compiled from a sample of 50,000 people aged between 15

and 59 across the 12 largest cities. BMRB believes this is the largest

piece of integrated research ever into the Chinese market, giving an

insight into the spending habits of 24 million city-dwellers.



The TGI data breaks down geographically. It explains, for example, the

lure of Guangzhou, the city in which Cadbury Schweppes Beverages is

setting up a dollars 20m (pounds 12m) joint venture. The company

launched into the market with fruit drink Oasis last month.



In fact, the soft drink market is set for a very western battle royal:

later this year, Coca-Cola is introducing tea in cans under its local

brand Tian Yu Di, which was launched as fruit juices in 1996.



Guangzhou has the highest average personal and household income of the

12 cities and the fourth biggest monthly combined spend on grocery and

household goods. TV is the most popular advertising media in China, with

spend topping dollars 5bn (pounds 3bn) in 1996. It is now the ninth

biggest market in the world.



Second in terms of wealth is Shanghai, China’s most cut-throat market

because so many brands are tested there. Next richest are Beijing and

Fuzhou. Guangzhou is the closest geographically and culturally to Hong

Kong so, not surprisingly, it is one of the cities to show a strong bias

toward foreign goods and western lifestyles.



Domestic vs foreign



The data also highlights a distinct segmentation among consumers, which

corresponds to three different types of products: traditionalists buy

local brands; young, fashionable consumers are attracted to western

brands and lifestyles; and those in between, who have aspirations but

not the income to support them. The latter category chooses either

competitive local products, built up as brands in a western way, or

foreign brands that have been around for so long to have become almost

’naturalised’.



Adidas and Carlsberg are both ’naturalised’ brands. The former, which is

number four in the mature sports-shoe market, has supported Chinese

national sport since 1979, 12 years before Nike got into

sponsorship.



Carlsberg advertises on TV, while its rival, Heineken, which is imported

from Holland, relies on point-of-sale material, and appeals to the top,

smaller, consumer segment. The beer market is crowded, with every major

foreign brewer up against locals in every market.



According to the data, the carbonates sector is also becoming more and

more competitive: 75% of Chinese consume fizzy drinks. Coca-Cola has

employed all its customary western-style marketing clout - its media

budget is rumoured to be dollars 24m (pounds 14m) this year - as well as

nurturing official contacts.



It persuaded members of both the Shanghai neighbourhood committees and

the unemployed from reformed state enterprises to distribute its

product.



The core brand duly takes the top slot. Coca-Cola-owned Sprite is number

two, with less than half the brand share, followed by Pepsi. But fourth

on the list, ahead of both Fanta and 7-Up, is a Chinese brand, Jian Li

Bao.



Western brands may create new categories, as Coca-Cola has with years of

technology transfer to its bottlers, but its per capita consumption is

only about a seventh of what it is in Hong Kong and locals rivals are

eyeing the slack.



Mobile mania



Lack of consumer confidence in home-grown high-tech products has created

opportunities for western brands. Penetration of mobile phones is 13.5%,

similar to that of the UK, and another 9.3% are considering buying one

this year. But all the top ten brands are foreign. According to BMRB,

Ericsson is number two, with a market share two-thirds the size of

Motorola’s, even though it carries a significant price premium over

every other brand except Philips.



But this is not about yuppies going western for the sake of it:

consumers did not fall into neat categories through attitude statements.

And, in any case, Ericsson has begun to localise its products with

market- specific software and Chinese characters. The company has won

itself exactly the positioning it has been trying to achieve all over

the world: the price reward for being a’leader in high-quality

high-tech’.



’If you’d asked the question six-to-12 months ago about how far

consumers in China understand changes and development in, say, packaging

and future marketing directions, I would have said they were behind,’

says Alan Nicholas, Ericsson’s marketing director for Asia.



Now Nicholas claims Chinese consumers are so aware of technological

developments that he can spend less on advertising than in other

territories.



Over the next two to three years, Ericsson will launch models with data

capabilities, which have yet to make it big in Asia.



’Our research suggests the Chinese have actually been changing quicker

than the rest of the world. They have picked up our values. Everything

used to have to be black and gold to turn the Chinese on, now they are

becoming interested in lifestyle images rather than the perception of

power.’



Getting a headstart



Procter & Gamble has been strong in China for long enough to have

dropped its ’western’ image back in the early 90s. Now it dominates the

haircare market, producing the three most popular products: 63% of

consumers who had used a shampoo in the past year expressed a preference

for either Rejoice, Pantene or Head & Shoulders (BMRB).



With Head & Shoulders, P&G marketing created the perception of dandruff

- not as important an issue in China - as being a social stigma. The

shampoo was then advertised as being able to deliver a health benefit.

This was reminiscent of packaged goods’ advertising in the UK in the

50s.



Rejoice is the Chinese brand name for Wash & Go. P&G changed the

original’s selling point of convenience, which didn’t suit Chinese

cultural attitudes to hair. Sales of Rejoice exceed those of Wash & Go

in the US.



Dennis Fong, managing director of Leo Burnett in China, says: ’P&G

established it as the brand which represents the most beautiful hair.

They spent a lot of money and homed in on one platform: the quality

perception is much higher than the price premium commands.’



P&G also dominates the soap-powder market with Ariel, has obtained state

endorsement for Crest, and will launch more new products this year,

helped by Saatchi & Saatchi in China.



Marketers used to complain that because Chinese has no word for brand,

people had no grasp of the concept. Now both advertising agencies and

other market researchers report that one of the key preoccupations among

their clients is trying to understand their brand equity and how to

leverage it.



Indeed, AC Nielsen launched a new brand equity management tool, Winning

Brands, this month in China, to be integrated into other media and

retail measurements.



If properly understood, the opportunities are enormous. Current

deregulation designed to increase home ownership is likely to give a

fillip to both household products and home furnishings.



The Chinese spending spree on white goods is probably falling off now,

but refrigerator penetration - fridges are often put in the living room,

which is why Electrolux markets its version as the quietest one around -

may generate interest in prepared foods.



This also presents opportunities for western retail entrants, such as

Wal-mart, Dutch supermarket groups Ahold and Metro, as well as chains

from Hong Kong.



Currently, China is the biggest recipient of foreign investment out of

all the developing nations. If investors continue to take a long-term

view, it will remain so. And with better planning tools at their

disposal, the prospects for western marketers are looking better than

ever.





BRAND SHARE CHINESE MARKET

% SHARE BEERS

Brand (manufacturer)                                       %

1 Yanjiing (Yanjiing)                                     12

2 Tsing Tao (Tsing Tao)                                 10.3

3 Blue Ribbon (Zhoaquin Blue Ribbon)                     7.6

4 Reeb (Shanghai Mila)                                   6.6

5 Five Star (Beijing Shuangheshenj Five Star)            5.7

6 Budweiser (Anheuser-Busch)                             4.8

7 Becks (Scottish & Newcastle)                           4.3

8 San Miguel (San Miguel)                                4.1

9 Zhu Jiang (Zhu Jiang)                                  2.7

10 Carlsberg (Carlsberg-Tetley)                          2.3

11 Hao Men (Tangshan Ou Lian Hao Men)                    2.1

12 Heineken (Heineken)                                     1

13 Blue Girl (n/a)                                       0.9

14 Guinness (Guinness)                                   0.7

15 Tiger (Asia Pacific)                                  0.6

16 Foster’s (Scottish Courage)                           0.6

% SHARE MOBILE PHONES

Brand                                                      %

1 Motorola                                              35.3

2 Ericsson                                              21.2

3 Nokia                                                 10.4

4 Siemens                                                7.1

5 Panasonic                                              3.3

% SHARE FIZZY DRINKS

Brand (manufacturer)                                       %

1 Coca-Cola (Coca-Cola)                                 47.3

2 Sprite (Coca-Cola)                                    18.6

3 Pepsi (Pepsico)                                       12.5

4 Jian Li Bao (n/a)                                      6.4

5 7-Up (Pepsico)                                         5.4

6 Fanta (Coca-Cola)                                      5.2

7 Chivalry -                                             3.4

8 Mirinda (Pepsico)                                      3.2

9 Asia (n/a)                                             1.4

10 Red Bull (Red Bull)                                   1.1

% SHARE SHAMPOOS

Brand (manufacturer)                                       %

1 Rejoice (Procter & Gamble)                              32

2 Pantene (Procter & Gamble)                            16.4

3 Head & Shoulders (Procter & Gamble)                   14.7

4 Lux (Elida Faberge)                                   10.2

5 Kao (Unilever)                                         4.3

% SHARE DETERGENTS

Brand (manufacturer)                                       %

1 Ariel (Procter & Gamble)                              22.7

2 Omo (Unilever)                                        16.6

3 Tide (Procter & Gamble)                                9.9

4 Jia Mely (n/a)                                         8.6

5 White Cat (Shanghai White Cat)                         8.3

Source: China Marketing and Media Survey 1998 (BMRB/TGI).



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