Lo'real in China - Yue Sai - Individual Case Report -
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Session5MarketinginChinaSlides.pptxMarketing in China
Session 5
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Globalization/localization decision on the marketing mix
The characteristics of Chinese consumers
In developing a new marketing mix, how can the firm adapt its product and services to meet the requirements of the local market, while at the same time sustain the advantages that had worked in its own market?
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Characteristics of Chinese Consumers
A strong preference for novelty
Internet savvy and have embraced social and digital media.
They share product and brand information through social media. They buy things through internet and mobile devices and with mobile pay.
Lack emotional ties for brand loyalty.
Price sensitive but brand conscious
They want to interact with brands through social networks such as Weibo and WeChat to receive personalized information about news, offers, events and discounts.
They use social media to find out whether their friends like certain products.
They use retailing store as a showroom to find what they want and then buy online. Story: those who buy in the store with credit card are often mistresses of the rich and powerful.
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Examples
P&G
Consumer engagement – created 18 electronic billboards linked to a website where people can post romantic messages on Valentine’s Day in 2012
Special promotional prices leading to the valentine Day (associate Shampoo with love)
Use social media to create sharp spike in sales (354%)
Louis Vuitton create “A VIP experience” by closing selected stores for half a day and arrange private showings for customers who spend more than $32000.
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Luxury Goods
Chinese consumers account for 29% of luxury purchases worldwide in 2013.
Overseas luxury goods purchase grew 10% in 2015
The luxury buyers are younger in China
45% under 35, average millionaire in China age 37, compared with 57 in U.S.
Third tier cities will have more wealth and will be the main driver of growth – account for 60% of consumers
Strategies need to be changed with the new trends:
Try to lower the price in China to boost consumption in China
Ditch the flashy logo
Create social media account to connect with consumers
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Source: Quartz, April 20, 2016
Evolving Behavior of Chinese Consumers
2016 China Consumer Report from McKinsey.
The survey of 10,000 in-person interviews with people aged 18-56 across 44 cities.
The days of broad-based market growth are coming to an end.
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Evolving Behavior of Chinese Consumers
Consumers are more selective about where to spend money
From products to services
From mass to premium segments
Seeking more balanced life where health, family, and experiences take priorities.
A rising proportion of consumers focus on a few brands and less willing to switch to a brand outside their short list.
Consumers vary significantly across 22 city clusters.
35% of consumers in Shanghai city cluster have purchased apparel online in the past six months, while only 4% in the Chengdu city cluster.
Becoming part of the closed set of the few brands that ocnsumers consider is increasingly challenging. Fewer consumers are open to new brands.
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2/3 of Chinese consumers say that shopping is the best way to spend time with family, an increase of 21% compared with three years ago.
74% of consumers says travel helps them to better connect with family. Shopping is part of the travel experience. They buy watches, handbags, apparel and cosmetics.
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Segmentation/positioning
Who is your targeted segment?
Upper middle class may focus on more emotional dimension of products and services, while mass middle class focus on more functional benefits.
Young post-80s tend to be confident in income growth, more brand loyal, more adventurous in new products, and more willing to buy premium products
KFC has universal appeal in US but targeted children in China
Chinese consumers:
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Product
What kind of product(s) should be produced and sold in China?
Product extension/standardization
Product adaptation/localization – Difference in culture and economic development lead to different customer preferences
A combination of both: standardizing the core products while localize other products
KFC entered China in 1987 with Standardized menu as in the US but then start to introduce adapted products: e.g., Dragon twist
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Product and Brand
Product and brand adaptation
De Beers: they adapted people’s perception of its product (not product itself).
In the west, sold to men and romance related. In the Tiger economies, sold to women and attractiveness of stone is the key feature. Women buy diamonds to make themselves feel good and more desirable.
In China, a symbol of enduring relationship and harmony.
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Branding
Brands convey status and achievement
Their possession signals one’s place in one’s social group and community
Chinese cares more about these things.
Luxury goods
Wines
Watches
Cars
Handbags
Coffee, etc.
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Pricing
Pricing should be determined by the brand’s strategic positioning and consumer empathy
Starbucks
Haagen-Dazs
Three strategies
Indiscriminate pricing: setting the same price for all countries (Apple used to be more expensive in China but now similar price is charged in China and U.S.)
Discriminate pricing (Starbucks; Haagen-Dazs)
Predatory pricing: to use pricing as a competitive weapon to drive weak competitors out of a national market (e.g., Matsushita)
May violate antidumping regulation
Indiscriminate pricing: work well when the competition from indigenous companies are not fierce: 1980s – early 1990s.
Example: Consumer electronics (See Xiaowen Tian’s Chapter)
Discriminate pricing: competition is firece from indigenous competitors
Predatory pricing Competition is intense. The firm has to have profitable markets elsewhere. Matsushita
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Promotion and Advertising
Respect for Chinese customs and feelings
Value differences: the Ad that shows the children disobey parents won’t receive well in China
National pride (e.g., 2004 Nike commercial)
Associate a product with a right “hero” – local heroes might be more effective (e.g., Yao Ming).
Chinese consumers like to try new brands and price sensitive too.
Service Centers, point-of-purchase displays and demonstrations (e.g., McCormick)
Promote a good public image
2004 Nike commercial: In Nov 2004, Nike ran an ad on the CCTV Sports Channel in China, showing an American NBA basketball star knocking down, with a basketball, an old Chinese man who looks like a master of Chinese martial arts. The ad aroused such strong resentment among Chinese that the Central Broadcasting and TV Administration of China had to order CCTV to remove it from its programming.
In June 2005, McDonald’s launched a promotion campaign in Xi’an in a TV ad that was shown both on city buses and in McDonald’s outlets, a chinese customer falls to his knees to beg for a special offer. Many Chinese people thought that was an insult to Chinese customers, and the city authorities order McDonald’s to stop showing it.
Hero: The International Advertising Magazine carried out a survey several years ago in five large Chinese cities and asked Chinese consumers to rank their favorite celebrities. The top 20 celebrities were all Chinese. The top five were Liu Dehua, Gong Li, Guo You, Liu Shaoqing and Wang Chen. Some western celebrities such as Michael Jordan failed to make top 20.
The US Spice company McCormick entered China in 1988 by a JV in Shanghai (Shanghai McCormick Foods) to produce and sell spices. Originally planning to export the spices produced in China elsewhere, but soon shifted focus to produce and sell in China. They developed localized products such as “Four Seasoning Mix”, “Sichuan Pepper Salt”, etc. but Chinese consumers were reluctant to try them. To overcome the hurdle, the firm launched in-store demos with free samples of mapo tofu and hot and sour soups prepared from the spices. It also used flyers in local newspapers inviting customers to mail in tickets for free prizes and provide bonus packs with the sale of the products. These methods worked well.
Public image: In March 1999, two American consumers sued Toshiba for quality problems in some Toshiba laptops they had bought, and a year later, Toshiba paid $443 for each of the 500,000 American Toshiba latpop users as compensation. However, 200,000 Chinese users got nothing. The Chinese users felt they were being treated unequally and complained to Toshiba. Toshiba didn’t handle the complaints well. It id not produce a Chinese version of explanation for the problem on the their website until six months after the English version has been published online. It didn’t have public relation department to handle customer complaints. At a Beijing press conference, it failed to provide a satisfactory explanation. The event reminded the Chiense of the history between two countries: they felt the national pride was insulted again. The results are the sharp decline of Toshiba sales in China.
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Distribution
Ideally, the shorter the distribution channel, the better (eliminating middlemen)
However, shorter distribution channels are restricted
Regulatory restriction (direct selling banned during 1998 – 2005; pyramid-selling still is banned)
The fragmented retail sector – not economical for firms to deal with many small retailers
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Distribution
Two main strategies
Establish own retail networks (Apple Stores)
Diversify distribution channels (e.g., Coca-Cola)
Coca-Cola sells its product primarily through Chinese wholesales
Coco-Cola also sells a small portion of its products directly to large retailers with wholly owned sales centers
