Changing government policies and demographics drive trends
More brands interact on mobile devices
Mobile phone users totaled over 1.2 billion, 92.6 percent of China’s population, at the end of August 2014, according to China’s Ministry of Industry and Technology (MIIT).
And the China Internet Network Information Center (CNNIC) estimated that smart phone users would total 480 million in 2014.
In this connected country, brands rapidly increased their use of mobile to enhance product and services and communicate. Many brands developed mobile apps to interact with customers and some implemented mobile ad campaigns.
The travel brand Ctrip completed 80 percent of all transactions online or with mobile devices. Ctrip’s mobile app has been downloaded over 200 million times. A provider of after-school tutoring services, Xueersi added physical locations, but online enrollment grew at a faster pace. Xueersi integrated its educational PC and mobile sites under the name Jia Zhang Bang, Helping Parent Community.
Most banks offered some form of mobile banking, and many included mobile payment. Mobile transactions increased 126 percent, for the first half of 2014, at Bank of Communications. China Everbright Bank’s mobile initiatives included mobile banking and banking on WeChat, the social networking site. The total number of mobile login times in the first half of 2014 reached almost 274 million for China Merchants Bank, a year-on-year increase of over 182 percent.
Brands integrate physical and ecommerce presence
As brands expanded their ecommerce operations, they worked to integrate their O2O, online-to-offline, presence. The BAT brands – the search engine Baidu; Alibaba, the ecommerce giant; and Internet portal Tencent – drove much of this activity as they transitioned from their core businesses into integrated ecosystems to be constantly engaged with customers.
One of China’s earliest car brands, and known for its popular Haval SUV model, Great Wall launched Haval Mall, an online car-purchasing site. Suning advanced plans to strengthen its core appliance business with its physical stores while opening its online platform to more third-party collaboration.
New Oriental established an online education joint venture with Tencent. The venture potentially helps New Oriental reach a wider audience and integrate its physical classrooms with an expanded online offering. Insurer Ping An continued to integrate its online, mobile and traditional channels to create a seamless customer experience. All products are branded Ping An.
The food company Sanquan launched a new click and collect business called Sanquan Fresh, which integrates online ordering and offline delivery. Tong Ren Tang, the Chinese traditional medicine brand, launched an online medicine store selling Tong Ren Tang over-the-counter medicines and cosmetics.
Online grocer Yihaodian strengthened its distribution capabilities, placing package pick-up locations in major apartment developments and at over 300 FamilyMart stores in Shanghai. Reservations made on the Jin Jiang hotel website increased 86 percent during the first half of 2014. Jin Jiang also launched email direct marketing and an English language app.
Digital reshapes brand communication
Brands organized their media around the rapid rise of digital, the increased amount of time consumers spend online, particularly with mobile devices, and the dynamic integration of online and offline consumer behavior.
Chinese multiscreen users looked at a screen almost eight hours daily, with two-thirds of this time divided about evenly between smartphones and laptops. TV watching occupied about an hour-and-a-half daily, and tablets about an hour. Internet accounted for almost one-third of media spending in 2014. And TV comprised less than half of media spending for the first time.
As TV viewing declined, brands sought ways to use TV more strategically. Several brands advertised around popular reality shows. CR Sanjiu sponsored the first season of one of China’s popular reality shows, “Where are we going daddy?” The high-profile sponsorship was part of a larger focus on brand building in the competitive pharmaceutical category.
Prosperity influences new products and services
To meet the desires of newly prosperous consumers, brands across more categories introduced premium products or services. Chinese consumers believe that top Chinese brands can justify a premium, according to the BrandZ™ Premium metric, which assesses how consumers view the ability of a brand to charge more.
The premiumization trend was especially evident in the airlines category. Air China upgraded service for high-paying passengers as part of an effort to distinguish the brand from competitors. China Southern Airlines also upgraded service for premium passengers. Hainan Airlines introduced free private limo service for business class passengers in Seattle, Chicago and Boston.
In part to reassure customers about the safety of its dairy products, Yashili promoted what it called ultra high-end imported milk products. Agricultural Bank of China, traditionally more focused on rural customers, was among the many banks creating wealth management products for affluent city dwellers. A leading cookware manufacturer, Supor recently built facilities for producing stainless steel and ceramic faucets, as part of a plan to become a supplier of premium bathroom fixtures.
The shift to the premium end of the market could help Chinese brands improve in the one component of brand equity in which they continue to lag – being seen as meaningfully different from the competition. But brands made progress.
In a related and parallel strategy to provide value-added services, appliance maker TCL entered joint ventures to create home entertainment devices and content. Appliance makers, such as Haier, shifted away from competing on price to marketing the product advantages of smart appliances. Several beers, including Snow Beer and Tsingtao Beer, promoted premium labels.
BIG DATA AND ANALYTICS
Brands seek consumer insight in market-driven economy
To enhance growth as the China’s economic engine shifts from production to consumption, brands sought consumer behavior insights by collecting and analyzing big data.
Major Internet brands, such as Tencent and Baidu, gathered enormous amounts of user data to understand their customers, improve existing products and services and develop new ones. These Internet leaders also make data available to brand partners with which they work collaboratively to develop new offerings across categories.
Baidu opened a research center in Silicon Valley, in May 2014, and appointed a former Google head of Deep Learning as chief scientist. Deep Learning is the ability of machines to replicate the processes of the human brain, which is relevant for big data analytics.
Many brands individually have become more active collecting and analyzing data. With the launch of its mobile myStore app for shopping, Yonghui Superstores began to gather shopper data that it will integrate with the rest of its resource and logistical planning. The food and dairy brand Yashili introduced a membership program designed to learn more about customer needs, build loyalty and embrace shopper marketing. Around 400,000 consumers had joined the program by the end of June 2014.
The China Lodging Group, owner of the Hanting brand, operated 1,669 hotels in 270 cities at end of the first half of 2014, and over 90 percent of the bookings came from the company’s 20 million loyalty program members. Gemdale Property studied customer desires and market trends and created home designs based on that research. China Unicom, the telecom provider, tracked the online behavior of new 3G customers to understand their habits and usage and supply customized products and services.
Category rationalization follows rapid growth
As the Chinese economy rebalances to the “new normal” after 30 years of intense economic expansion, some categories are experiencing a period of rationalization, driven in part by regulatory change aimed at fostering greater competition.
Until recently, for example, government urbanization policy drove intense real estate development. Real estate growth has slowed because of higher interest rates intended to moderate demand, reduce development and limit excess inventory. Greentown China planned to sell a minority stake of about 24 percent to Sunac China, a real estate developer that, like Greentown, is focused on up-scale projects. Wharf Holdings, another developer, purchased around 24 percent of Greentown in 2012.
As the food and dairy category consolidates, brands gain the scale necessary for facing global competitors. Mengniu acquired a stake in China Shengmu Organic Milk Ltd. It also entered into a joint venture with WhiteWave Foods, a US company, to operate Yashili, the Chinese food and dairy brand that Mengniu purchased in 2013.
Consolidation is also occurring in apparel, as a category with too many stores responds to a slowdown in demand and an increase in foreign competitors offering a value proposition that appeals to today’s more informed Chinese consumer. Similarly, alcohol brands are adjusting to new market conditions because government restrictions on elaborate official entertaining and gift giving impact consumption.
New products aim at older citizens
China is an aging society. The median age in China is almost 10 years older than the median age in India, 36.7 compared with 27.0. Brands in several categories are beginning to respond to this demographic reality. In banking, China Everbright Bank offered more pension products. Health Care brand CR Sanjiu planned to introduce more over-the-counter remedies. Real estate developers planned retirement communities. Insurance brands offered wealth management products.