Chinese brands benefit from improved quality and sharp pricing

Chinese brands are competing more effectively.

Several factors drive this competitiveness. First, Chinese consumers have become more sophisticated about brands. Second, Chinese brands have improved in quality, leveraged their deep market knowledge and maintained a price advantage.

The growing strength of Chinese brands is especially apparent in categories where consumers discern no functional differences between the multi-national and Chinese offerings, and the Chinese brand is cheaper. Some multi-national brands have operated in China for so long they’re well accepted. But longevity is no longer an adequate advantage.

Critically, these changes are happening as the focus of brand expansion shifts to China’s interior cities and villages where consumer values—the preference for price and functionality over status appeal—favors Chinese brands. Having improved functionality, Chinese brands face the challenge of improving emotional appeal.

Even Chinese financial institutions and other large State Owned Enterprises (SOEs) now take branding more seriously as they compete against each other and expand abroad to markets where they are relatively unknown. This year, 13 Chinese brands are included in the BrandZ™ Top 100 Most Valuable Global Brands, more brands than the other BRIC countries combined and a sharp increase since 2006 when only two Chinese brands appeared. New to the ranking are Sinopec, the oil and gas giant, and Moutai, an alcoholic drink.

Growing functional and emotional appeal

The beer and spirits category illustrates the ability of Chinese brands to cultivate emotional appeal. Moutai enjoys an emotional bond with Chinese consumers based on heritage. Moutai is a brand of baijiu, the traditional Chinese alcoholic drink distilled from sorghum and produced in China for at least 2,000 years.

Similarly, the Chinese beer Snow distinguished itself in a category where real differentiation is difficult. Although little known outside of China, Snow is one of the world’s most-consumed beers. Several years ago, the brand launched a marketing campaign around the idea of adventure with a campaign called Globe Trekker.

As part of the campaign, selected volunteers have explored exotic locations such as Tibet’s Brahmaputra Canyon. In the summer of 2001, Snow produced one of the largest digital campaigns in China. Global brewer SABMiller produces Snow in a joint venture with a local company, China Resource Enterprises.

The Chinese dairy brand Yili communicates emotionally by emphasizing health and nutrition and employing celebrities to differentiate itself from Mengniu, its chief competitor. In contrast, the detergent brand Blue Moon exemplifies the triumph of functionality and price. It effectively challenges multi-national brands in China, because it works and costs approximately 30 percent less. Building on this reputation, the company is expanding its product line to include sanitizer and other products.

Brand building crosses borders

Chinese brands are slowly growing their export sales. In the initial stages of establishing brands for export, brands with Chinese heritage enjoyed the greatest success as they connected with communities of Chinese people living outside of China. Moutai, for example, enjoys success outside of China.

Along with beer and spirits brands, traditional Chinese medicines also have reached overseas consumers, primarily in Chinese ex-pat communities but increasingly among the general population interested in wellness and herbal remedies. Among the betterknown brands is Tong Ren Tang, which was established in 1669, at the beginning of the Qing Dynasty.

Many Chinese technology companies have prospered as OEMs (Original Equipment Manufacturers), creating products for major brand marketers from the West. Some of these companies now attempt to leverage their vast knowledge to market their own brands and enjoy higher margins. A few technology brands, such as Lenovo, already have achieved high brand recognition outside of China. Established as a small electronics supplier, called Legend Group Holdings in 1984, Lenovo today is one of the world’s largest producers of PCs. It launched the Lenovo brand in 2003, and two years later acquired IBM’s Personal Computing Division.

Haier, one of China’s largest home appliance brands, is a world leader in white goods. Established as a refrigerator manufacturer in 1984, the brand now sells its refrigerators, washing machines, air conditioners and other products through leading mass merchants in the US and Europe. Midea also manufactures air conditioners and household appliances that it markets worldwide. Rival Gree specializes in air conditioners and markets globally.

The sports apparel brand Li-Ning experienced difficulty in the domestic market last year but, determined to build the brand overseas, Li-Ning signed a deal with the Finnish L-Fashion Group to establish the brand in Europe and it launched a website in the US to aggressively market the brand using e-commerce.

SOEs build brands

Even the large SOEs are engaging in brand building to facilitate increased overseas expansion. Until recently, these enterprises placed less attention on brand because they enjoyed monopolistic dominance. But as China’s economy changes, many of these banks, insurance companies, telecoms, and oil and gas giants compete against each other and also seek growth outside of China.

In May 2011, ICBC (Industrial and Commercial Bank of China) received a license to open a branch in Mumbai, and it recently established a presence in Karachi, Islamabad and Canada and also aspires to grow in Russia, the Middle East and Latin America. ICBC is the world’s most valuable financial brand, ranking 13 in the BrandZ™ Top 100.

China’s major oil and gas companies— Sinopec and PetroChina—engage in brand building to help establish important relationships as they expand abroad and also to build credibility domestically. Sinopec, which operates China’s largest network of gas stations, sponsors major events including Formula One racing.

For COFCO, a large, multi-brand food conglomerate, domestic marketing is important, not to raise the corporate profile, but to promote its brands, which include category leaders such as Fulinmen, a producer of cooking oil and rice, and Great Wall wine.

Western brands dominate some categories

In some categories, such as cars, Chinese consumers view local brands as lower quality than the Western brands. While the Chinese government initially supported production of Chinese auto brands at the entry level, Chinese auto buyers typically want to trade up.

Multinational carmakers, such as Audi, GM, Ford and VW enjoy prominence in China through their joint venture partnerships with Chinese manufacturers. Because most of the production for these Western brands happens in China, many Chinese consumers view these cars as Chinese. VW became familiar because of its use as taxis. Audi comprises a large share of government official vehicle fleets.

Fundamentals for brand building in China

  1. Expect sophisticated consumers
    Educated by their increased exposure to both overseas and domestic brands, Chinese consumers, especially in the large coastal cities, are becoming more demanding and discerning in their brand expectations.
  2. Emphasize trust
    Consumers are looking for brands that combine innovation and trust, qualities increasingly found in Chinese products as the country begins to market as well as manufacture brands.
  3. Understand the nuances of the youth market
    China’s young people are avid consumers and eager to obtain greater material success than their parent’s generation. But they’re not a monolithic purely materialistic group. With growing affluence many feel a greater sense of social responsibility.
  4. Find customers using social media
    China’s Internet is more fragmented than in most countries. Where Facebook or Twitter may dominate their sectors in certain countries, in China several different brands will offer the equivalent services. Reaching consumers requires knowing they can be found in many places.
  5. Use a media mix
    Mobile is quickly becoming the preferred way many Chinese people, particularly the young, access information especially with the growing popularity of 3G smart phones. But people still spend a lot of time with traditional media, such as TV, which can’t be ignored.

BrandZ Top 100 2012

BrandZ Global 2012 Report Top 100 Report

Top 100 Chart

Methodology and valuation by Kantar Millward Brown

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