What caught our eye in the build-up to this Chinese New Year is not the nearly-3 billion trips to be made via China’s transport system, not the thousands of ways to make pigs cuter including carving one into a watermelon, but the NBA’s pick for its Chinese New Year ambassador: 20 year old boy band member Cai Xukun from the group Nine Percent.
In a land where there has been much public debate and negative state media over the influence of ‘sissy boy’ role models, the decision caused the expected uproar online. On popular sports platform Hupu, known for its masculine user base, 82% – 39,363 voters – checked the option “I’d rather die” in a poll about Cai’s NBA mission.
On the surface the choice seems like an outrageous misalignment with the esteemed NBA brand. The NBA has some of the most athletically-impressive beings of the sporting world – poles apart from the effeminate 65kg pop idol. Yet the expensive decision is likely to bear fruit.
For a start, although the NBA already has an epic following in China including the largest social media fanbase of any sports league with 150 million followers, that only accounts for a small portion of China’s population. Like any business, they will be wanting to grow that base.
In choosing a target market, they will look to the Gen-Zs (those born in the mid-90s to early 2000s) as having a high propensity to support and spend on the game. Gen-Zs are an open-minded generation in a society that has never been so enthusiastic about sport, causing them to explore and embrace sports more than the generations before them. They’re also big spenders. Although most haven’t yet banked a single pay cheque, they account for 15% of household expenditure, versus just 4% in the USA and UK. As the only child/grandchild of six doting adults, and having never lived through tough times, they are free spending with seemingly few worries in the world.
You’ve probably guessed that many of Cai’s fans are Gen-Zs, and particularly females – another lucrative yet untapped sector by the NBA. Last year’s NBA All-Star Celebrity Game featured Chinese-Canadian singer Kris Wu, which reportedly increased female viewers by 30%.
There are plenty of examples where endorsements of effeminate pop-idols have bolstered sales for brands in China, albeit most are more closely-aligned to each other’s core values than the NBA and Cai. Yet the NBA’s China fans are so deeply rooted in the game, they are unlikely to stop supporting the game en masse due to a Chinese New Year endorser who doesn’t fit the league’s image. Most brands in China would struggle to pull that off.
There have never been more options for consumers to spend their money. Sport – like everything – has to find ways to boost the entertainment factor to stay relevant. Whilst there would be better ways to entertain their loyal fan base, they are likely to entertain a segment who may have never considered the NBA before. Although many of the NBA’s execs are unlikely to get down to Cai Xukun’s music, they are putting their own opinions aside to attract a new and wider pool of fans. Hats off to the league for embracing China’s countercultures – those who dare to rebel from entrenched traditional values – something brands are increasingly having to do to reach the younger, freer-thinking generations.
On that note, we’ll leave you to celebrate the coming of the Pig. Happy Chinese New Year, wishing you a prosperous and productive Zhūnián. We’ll be back after the break – enjoy this week’s Skinny. Go to Page 2 to see this week’s China news and highlights.
We have just passed the 200-day mark of the US-China trade war, and what a 200 days it has been! Whilst we are finally seeing some positive signs that an agreement could be imminent, there has been plenty of commentary about the beating that America’s reputation has taken in China.
There’s no discounting that the spat has sped up the rise of nationalism in China, and there are consumers who may have directed their spending away from American businesses, but the impact has been much less severe than it could have been.
If we look back to the row between China and Japan in 2012 over the Daioyu/Senkaku Islands, many Japanese brands were hammered and some even shuttered. Similarly, the South Korean fiasco over THAAD in 2017 was estimated to cost the Korean economy $6.8 billion that year. Apple has attributed its poor results to the trade war, and Ford and GM have had better years, nevertheless all-American brands like Coke have reported no impact, and Nike saw a stunning quarter last December. Even Tiffany & Co. saw a double digit rise in Mainland China sales during November and December of last year.
One of the key differences between the US-China trade war and the disputes with Japan and South Korea is that the propaganda machine has not yet ramped up criticism of the US. China also hasn’t introduced regulations such as it did banning tour groups to South Korea. Such plays wouldn’t be well timed during the already-precarious trade negotiations with the US.
Tourism to the US was a sector that many commentators expected would take a hit as a result of the frosty relations, much like Japan’s visitors fell 34.3% in 2012, South Korea’s dropped 60% between March to October 2017, and numbers sunk at other ‘out-of-favour’ countries like the Philippines and Vietnam.
In late September, Ctrip reported that flight bookings to the US were down 42% for the October Golden Week holidays – one of the busiest weeks of the year for international travel. Other anecdotes have flooded in from travel agencies, echoing similar falls. So it will come as a surprise that Chinese tourist numbers to the US actually looked quite healthy in 2018. Although the national figures are yet to be published, Los Angeles reported a 6.9% increase in Chinese tourists last year to 1.2 million visitors. New York also hit record numbers last year, hosting 1.1 million Chinese visitors. It appeared Chinese tourism to the US took a hit in the early months of the trade war, but by November, the US Commerce department was projecting a 2% increase in Chinese tourists.
Like we’ve noted in previous Skinnies, tourism generally builds an affinity with the country, its cuisine, culture and lifestyles, which has a halo effect on preference towards many other product categories. In a world that seems to be more divided than it has been in a long time, China’s tourist growth to the US is refreshingly good news!
On the subject of tourism, China Skinny’s Mark Tanner will be sharing some insights at the beautiful Terranea Resort in Los Angeles for the Visit California Outlook Conference on February 12 & 13. Please pop by and say ni hao if you’re there. More information here. Go to Page 2 to see this week’s China news and highlights.
While you may be lamenting the need to constantly evolve your marketing mix to stay ahead in China, you can rest assured that even WeChat faces a similar challenge.
Although China’s super app hit 1.083 billion monthly active users in September last year, each sending any average of around 45 messages a day, WeChat faces headwinds to stay relevant to Chinese consumers. Readership for articles referred by friends on Moments has been dropping and Tencent’s share of screen time is being cannibalised by newer, easier-to-use and more entertaining alternatives such as short video platform Douyin.
That’s why all eyes were on WeChat’s founder Allen Zhang’s four hour speech at Tencent’s conference last week, about how he plans to reinvigorate the app to mitigate the risk of it becoming obsolete. Zhang got philosophical in acknowledging that WeChat has lost the veneer of authentic discovery that endeared it to users, because people were becoming too sensitive to their online personas on Moments.
Across the board, Chinese consumers are seeking more authenticity: from the way they travel, to the brands they buy, to how they project themselves on digital platforms. Women ‘beautification’ app Meipai discovered this as user numbers plunged 55% as Chinese women sought more natural and less formulaic portrayals of themselves. WeChat is hoping to evolve from photoshopped and choreographed Moments feeds, to a more real account of what people are really experiencing. To enable this, WeChat has launched a new video-streaming feature, not unlike Instagram’s feed, so people share their lives in real time, not through carefully curated photos and messages. Even the user interface aims to keep it real, with the typical ‘send’ button, replaced with ‘this will do’ to remind people their social feed doesn’t have to be airbrushed and polished.
Another area in which WeChat is pinning its hopes to counter the app’s saturation and encourage more engagement per user is Mini Programs. The WeChat-embedded ‘light apps’ are already hugely popular, but curiously, the majority of traffic isn’t coming from the famous mini programs you may have heard of, but rather the long-tail applications used by niches such as parent-teacher groups or your neighbourhood grocery store. Given WeChat is installed on virtually every smartphone in China, app developers are not concerned with having to create separate tools for Androids and iPhones, it is one simple app, seamlessly installed and launched from the comfort of WeChat. Tencent is thinking, if ‘there’s an app for it’ wouldn’t it make sense to make it a Mini Program?
Something that hasn’t received due airtime is the impact that the new ecommerce laws will have on WeChat. Commerce is one of the areas showing great promise on WeChat, with its transactional nature providing a logical way for the platform to grow revenue. Yet many of those stores have been run by smaller vendors and daigou, attracted by WeChat’s low barriers to entry. The new laws mean that it will be a lot more trouble to set up and maintain a simple WeChat store – or any online store – with the new taxation and reporting requirements. There are already signs of changes in the way smaller vendors promote their wares on WeChat as they try and skirt the laws, but for many, the effort won’t be worth the reward.
Regardless of its challenges, WeChat remains China’s super app with no other app being better positioned to evolve and stay relevant to Chinese consumers. To Allen Zhang’s and Tencent’s credit, they have recognised that they need to do this. There are some good lessons for any brand in China – you may be ‘killing it’ in China today, but you need to constantly review your position to stay that way. China Skinny can assist you with just that. Go to Page 2 to see this week’s China news and highlights.
Over the past few years, one of the fastest growing trends in China has been sports and fitness. This has led to the growth of sporting products and services, as well as consequential purchases spanning categories as diverse as vitamins and tourism. The trend is being driven by both the Government who realises the health, social, economic and patriotic benefits of sports participation, and consumers who appreciate the upside in health, and are often seeking more from life.
China’s tech giants have been flirting with the craze for some time, but of late, more are utilising their pools of cash and the ever-increasing capabilities of their apps and algorithms to take things up a notch.
Last week Ctrip announced that they would be subsidising skiing-related activities by ¥100 million ($14.5 million). This follows Beijing’s push leading up to the 2022 Winter Olympics and undoubtedly user data is pointing to a spike in skiing-relating traveller activity.
In late-November the current cool kid on China’s tech block, ByteDance, announced a partnership with the NBA. This will see the league take advantage of China’s short video craze by offering bite-sized content on its Douyin, Toutiao and Xigua platforms. Unlike previous content deals between Chinese tech giants and the NBA, the content will be much more personalised to users’ needs, served directly to them using ByteDance’s clever AI algorithms.
The most interesting recent initiative in China’s sports world was last week’s announcement that Alibaba is offering a ‘Money Ball’ approach to individual sports. Just as professional teams use reams of data to maximise performance, Alibaba is hoping to use analytics to help individuals improve their performance, change the way sports events are managed and – obviously – influencing the related goods and services they buy.
There is unlikely to be another company globally who is better placed to serve and profit from athletes than Alibaba. Alibaba will be able to leverage its far-reaching data sources and customer connection across many of its platforms. These include Tmall and Taobao to sell sporting accessories and nutrition, Fliggy for sports event travel, AliHealth for aching joints and everything else that can go wrong in training, Focus Media for targeted sports-related advertising to users, its New Retail stores and partners such as Intersport, Ele.me for delivery of sports-related stuff for training and events, Youku for paid sports-related content and tipping, the list goes on…
One of the key takeouts from each of the tech giant’s initiatives is the extra user data that they’ll glean, allowing them to better personalise to individual’s needs and behaviours. A survey this month by China Skinny found sport and fitness is the category consumers most seek personalisation – with 44.8% of respondents finding it appealing. Brands should take note of the rise of sports and related categories, and how fans and athletes are participating in the digitally-integrated China. These realities should be integrated into many China marketing strategies – something China Skinny can assist with. Go to Page 2 to see this week’s China news and highlights.
If you’re already exporting to China, we’re guessing you’re probably also selling to a host of other countries – markets like Dubai and the other six emirates could be on the list. In the UAE, there’s a good chance you’ve engaged some localisation for the country – culturally sensitive and resonant branding & communications, legal & regulatory allowances, logistics & distribution, and possibly even some new product development and packaging. In China, it’s probable that you’ve also localised the mix. But how local is your localisation?
Few people come to China without hearing that the country is like Europe; made up of varied and diverse regions. Yet in the same moment of acknowledgement, many will turn around and ‘localise for China’ with a homogenous strategy that they hope will win the hearts of consumers spanning the country.
China Skinny does a lot of research across different cities and provinces in China, and we usually find notable variances between the regions. There are the obvious differences in food tastes, climates, lifestyles, pollution and even body size, but it is the emotional cues that are often the most pronounced. We only need to look at one of the most common themes in Chinese advertising – families. Even in Guangzhou and Shenzhen – two tier 1 cities just 30 minutes apart on the fast train, the reality for families can be quite different: a large share of millennials in Guangzhou live with their parents and see them most days. In Shenzhen – a city built by domestic migrants – many millennials may only see their parents every few months, or just once a year during the Spring Festival.
Whilst some overarching localisation should be implemented across China, there is often a case to get city-specific with marketing and other initiatives. Take Shanghai, it has population greater than Australia, and a 13% larger GDP than the UAE, yet unlike the UAE-specific localisation, many brands will roll out the same strategy for Beijing, Guangzhou, Shenzhen and many other cities across China.
China’s metropolises are of a scale and affluence that they justify an element of localisation. The hyper-competitive nature of marketing in Chinese cities is finding it increasingly harder to connect with consumers without it. That means localising messaging, and even sometimes the digital platforms you use to share it. In certain demographics in some cities, digital channels aren’t always the best option to reach Chinese consumers, highlighting the need to have regionally-specific plans.
Over the past few years, brands have become increasingly focused on cities beyond tier 1, and even tier 2, with good reason. These ‘smaller’ cities are often much less contested and less apathetic to interesting, new foreign products. Half of the 50 million Chinese households entering the middle to affluent classes between 2016-2020 are expected to reign from cities outside of the top-100 cities according to BCG. They’re buying more imported products, and travelling abroad more which influences more purchases. The number of direct flights between cities in China and Thailand grew from 69 to 148 over the past three years for example. Yet with such variances between lower tier cities, brands would be wise to do their due diligence before entering and localising for them.
On the subject of cities, China Skinny has launched a new tool on our site to help you make sense of it all. We’re often getting questions about which cities fall into which tier, so we have created out City Tier Calculator which provides detailed information about which tier Chinese cities are, some of the key indicators, their rankings in that tier, and even how many Starbucks they have. Use the tool here. The tool is part of an overall redesign of chinaskinny.com, which is long overdue – we’d suggest you take a look. Go to Page 2 to see this week’s China news and highlights.
You’ve got to give it to China: This week’s inaugural China International Import Expo (CIIE) in Shanghai – the ‘Canton Fair for exporters’ – has attracted representatives from 85% of the countries that the Olympics attracts, all hoping to sell their wares to China.
President Xi Jinping officially opened the expo speaking to political and business leaders from 172 countries. Xi pledged to increase goods imports to $30 trillion over the next 15 years, and services to $10 trillion. The goods figures were $6 trillion higher than the existing target of $24 trillion that the Ministry of Commerce had re-stated just hours before. However the figures are parallel with – actually below – how China has been tracking. China’s goods imports grew 16% last year to $1.84 trillion in 2017. The $30 trillion target averages $2 trillion a year indicating a very unambitious official growth target as Caixin pointed out. Comparing the import growth targets to the rise in GDP is even more underwhelming as illustrated in this graph, posted on Twitter by Economist journalist Simon Rabinovitch.
Among other announcements, Xi vowed to “firmly punish behaviour that encroaches on the lawful rights and interests of foreign companies, particularly IP infringements.” He promised looser restrictions on foreign ownership in the education and health care sectors, expansion of the Shanghai Free Trade Zone to another area, stepping up of cross-border e-commerce, along with reduced tariffs and lower “institutional costs” of imports.
Although many details of the expo have been shrouded in mystery until opening day, the show floor attracted over 3,000 businesses sparing no expense, exhibiting everything from flying cars to Maori food to an estimated 150,000 buyers from across China. To signify China’s importance for global trade, 130 countries are represented in the enormous four leafed clover-shaped exhibition centre, just shy of the 132 who have signed up for Dubai’s World Expo in 2020.
Attending the opening day were around a dozen prime ministers and presidents from countries like Russia, Vietnam, Egypt, Hungary, the Dominican Republic, Pakistan, the Czech Republic, El Salvador, Kenya and Laos, the President of the World Bank, Director-General of the WTO, MD of the IMF, Jack Ma and Bill Gates and Australia’s trade commissioner in the country’s first high-level ministerial trip in over a year.
Like any big show in China, there is the obligatory mascot – Jinbao the panda, commemorative stamps, countless convoys disrupting traffic, and numerous deals announced such as Alibaba’s pledge to bring ¥200 billion ($28.8 billion) of imports over five years and JD.com’s ¥100 billion ($14.4 billion). It is anyone’s guess as to how many of the deals signed this week come to fruition, but the expo is an unquestionably positive step in promoting imports and potentially spreading their presence deeper into the hinterland. See photos of the expo here. All the best to our readers who are at the expo. Go to Page 2 to see this week’s China news and highlights.
The last few weeks have been abuzz with tech chatter in China. You’re probably thinking that’s nothing new, but the significant change in tone has piqued our interest. IPOs for Xiaomi and Tencent Music and the expansive 2018 China Internet Report have been grabbing headlines, but beneath all that many experts are starting to ask the question: has China taken the mantle from Silicon Valley as the leader in tech?
In the blink of an eye China has done the unthinkable and transformed its cheap, copycat perception into that of a world leader in innovation. And this trend is contagious amongst China’s brands both in and outside of the tech sector; in 2018 consumers view 82 of China’s biggest 100 brands as highly or moderately innovative.
Leading the pack the stories of Xiaomi and JD are representative of how brands here are tracking. Xiaomi’s founder Lei Jun proclaims his company “a new species”, blending internet services within its product ecosystem and shrugging off any classification as a hardware company. JD notes they’ve now spent 12 years as a retailer and want “the next 12 years to be as a technology company”. We even just looked at Luckin Coffee creating an innovative New Retail-type model to combat one of the last truly unchallenged foreign mega-brands.
As the world begins to note what this host of dynamic Chinese brands is doing, it pays to keep in mind what this has meant for the average Chinese consumer and what they expect from brands across all aspects of consumer engagement. A few examples:
We have seen a dramatic rise in gaming, VR, animation and development within accounts to try stand apart on social media. The boom in mini-programmes has only exaggerated this and many foreign brands are in dire need of rethinking their WeChat approach.
Retail is constantly in flux, with opportunities and pitfalls abundant for brands who aren’t diligent. In China’s uber-competitive space, pop-ups can bring the oomph today’s shoppers are looking for as they increasingly crave an experience.
- Advertising: China in 2018 is a different animal, and misaligned messages are throwing good money after bad.
Tired or uninformed advertising has seen many a brand fall short in China, yet some well-considered research and understanding can see a brand ride the wave. Last month through a challenging but well-embraced campaign, Nike captured the end of the mollycoddling one-child policy, a huge national push to get children into sports & activity, and the competitive and individualistic millennials ascending into parenthood.
As everyone in China knows, the market moves faster here than anywhere, and for that reason many brands will fall in the wake of its constant innovation. China Skinny ensures our clients are on top of and ahead of market trends. If you want to be in the best position to tackle China, drop us a line. Go to Page 2 to see this week’s China news and highlights.
There’s no shortage of coverage about China’s New Retail revolution, its mouthwatering rise of shared bikes and its 227 million active users, along with WeChat, ecommerce, mobile payments and other uniquely China trends such as cream cheese tea and face-kinis. Yet there are many other phenomenons happening in China that attract less attention but are also impacting consumers at a level that brands should take notice of. Here are three trends that Skinny readers are likely to be aware of, but maybe less familiar with the full scale and speed of their rise:
1. Consumer Credit
Consumption has been the most robust sector of China’s economy in recent years, with growth trucking along at double digits as long as most can remember. While other factors such as manufacturing, investment and house prices haven’t maintained the same momentum, three contributors have allowed Chinese consumers to defy the odds and keep spending more and more: record consumer optimism, soaring wage growth (with China’s hourly incomes now exceeding every Latin American country except Chile) and rising consumer credit.
Although China is well known for its high saving rates, these figures are skewed by older folk. The younger generation haven’t lived through the same periods of austerity and feel much less need to save for a rainy day. They’ve seen their wages grow every year, their parent’s real estate assets soar, and have been lured by the bright lights of consumerism – often calling on easy credit to spend more than they earn. Between 2015 and 2017 consumer credit grew fivefold, with those aged 24-35 making up more than 70% of consumer borrowers in China.
2. ByteDance’s Douyin
At a much more micro level, some brands looking for ‘the next WeChat’ could be heartened by the remarkable rise of Douyin and the overall ascent of short video. Launched less than two years ago, Douyin’s user numbers have quadrupled since January to boast more than 150 million daily active users watching an average of 82 short videos a day. The 15 second videos serve Chinese millennials’ craving of instant gratification, to fill any down-moment with cheap entertainment. Douyin’s growth has been so drastic that even Tencent has felt threatened and banned the service on WeChat last month. Douyin’s popularity and rapid rise has enabled fast-moving brands to use the platform to build awareness and preference with those indebted young consumers at a fraction of the cost of the more crowded and mature platforms like WeChat, Tmall and Weibo.
What makes Douyin, and its sister app Musical.ly, special is that they are two of the few Chinese apps that have been able to crack the elusive Western markets. Douyin, known as Tik Tok outside of China, was the most downloaded iPhone app in the world in Q1 of this year. Any concerns in the US about the Chinese Government monitoring your every move, something which has plagued brands such as Huawei and even WeChat, seems to be irrelevant for the Western millennials shooting and watching short videos on Tik Tok.
3. DJI Drones
Drones, while not on the same scale as consumer finance or Douyin, are making an impact across many sectors in China. One company leading the way – DJI – has beaten out formidable American competitors such as GoPro and 3DR and now owns 70% of the world’s drone market. DJI’s confidence is represented by their new HQ being built in Shenzhen complete with a skybridge for testing drones and rings for fighting robots.
DJI is creating efficiencies in industries as diverse as agriculture and food delivery, which will have a downstream impact on supply and consumption in China. It is representative of increasing automation modernising China’s supply chain and logistics, particularly in the online-to-offline categories. DJI is symbolic of the rise of China’s ambitious mega-businesses who are investing real money in R&D, while remaining nimble and long term-focused to lead their category. Expect more to come.
Those are just three of the numerous developments coming from China daily, many which are likely to be relevant to your brand, or how you market it. Agencies such as China Skinny will ensure you keep up with those trends and develop a plan how to make the most of the opportunities they bring.
Speaking of trends, China Skinny’s Mark Tanner will be sharing more in Brisbane next Thursday July 5 speaking at the ACBC-Brisbane Airport Welcome for the Air China Direct Flights Between Beijing and Brisbane. If you’re at the event, please pop over and say ni hao. More information here. Go to Page 2 to see this week’s China news and highlights.
Just as live sports are helping prop up the old world of television advertising, they can also be a potent force in international relations and trade. We saw it with the ping pong diplomacy of the early 70s, and as sport becomes an important part of life in China, it will be an increasingly significant driver for geopolitical relations and the goods and services trade. FIFA, the NBA, snow sports and other physical activities are taking advantage of this. As proud supporters of rugby in Asia, China Skinny would be grateful to start seeing some real rugby love in the Middle Kingdom.
With the FIFA World Cup kicking off in Russia tomorrow, the trend is looking positive. During the month-long football festival there may be times visitors feel like they’re at a Guangzhou Evergrande Taobao match. Although China hasn’t played in a World Cup Finals since 2002, an estimated 100,000 Chinese are expected to visit Russia for the Cup, dwarfing the 10,000 football-mad English expected to be there – and their team qualified! On top of that, Chinese brands Hisense, Mengniu, Vivo, electric bike maker Yadea and Dalian Wanda are joining the party to plug the World Cup sponsorship gap.
Like many things in China, Xi Jinping’s passions and policy are helping drive China’s enthusiasm for the beautiful game. The avid football fan Xi hinted last year that China will be bidding to host a World Cup in 2030 or 2034 and will be a “world football superpower” by 2050. Feeding into the grand plan, Xi has announced that the number of football fields in China will grow from less than 11,000 in 2015 to 70,000 by 2020. China will have 50 million regular football players including 30 million students by then, and 50,000 schools will have a strong emphasis on football by 2025 – up from just 5,000 in 2015.
The 100,000 visitors are a sign of changing times in China. They illustrate how Chinese are increasingly able and prepared to spend big bucks on their leisure pursuits. Back in 2002 – when consumers were much less affluent than they are today – no more than 50,000 Chinese went to the World Cup Finals in South Korea and Japan when China was actually on the field.
The swathe of Chinese visitors ascending on Russia will have been further tempted by visa-free travel to its northern neighbour. On top of that, China’s blossoming relationship with Russia will also drive preference – as geopolitical circumstances usually do with Chinese travel trends. Russia seems to be the flavour of the month with Beijing as they look to provide a scalable alternative to Western ideologies. The friendship comes at a good time for China as its dog box is marred with imprints of South Korea’s THAAD, ASEAN-contested island building and river damming, Japanese-disputed islands and historic invasions, the encircling of India and territory skirmishes, undermining of Australian sovereignty, Europe’s wariness of Chinese investment, lack of reciprocal access and sporadic trade disputes, and Trump.
As a symbol of their bond, Vladimir Putin was presented China’s first ever “friendship medal” by President Xi at a lavish event broadcast live from the Great Hall of the People. Since becoming president, Xi has visited Moscow more than any other capital city and Putin said that Xi Jinping was the only world leader who celebrated his birthday. Putin was in China last week for the enlarged Russia-China led Eurasian SCO bloc meeting as the G7 floundered. Russia, which is managing its own diplomatic challenges elsewhere has recently signed a series of deals with China who announced relations between two countries were at “the best level in history.”
In short, this year’s World Cup couldn’t have been better timed for Russia to tap into the opportunity that China presents. For the Russian businesses that stand to benefit from an influx of Chinese visitors – let’s hope you make them welcome. Mobile payments and the slew of other China-ready initiatives will ensure they have a better time, spend more and advocate Russia to the masses at home. And good luck to the 32 nations who made it to the finals! Go to Page 2 to see this week’s China news and highlights.
Foreign brands scanning the news over the past week may have been sent on an emotional roller coaster. Although China Bears have been doom-talking about the economy for years, the World Bank’s latest update points to China’s GDP continuing to grow at a healthy 6.9% last year and 6.8% in Q1 this year. Consumption remains China’s growth driver, which is likely to continue given consumer confidence reached a 10-year high in the first quarter of 2018.
But on the flip-side, an FT article about increasingly wealthy Chinese consumers trading up referred to McKinsey research illustrating a pronounced consumer preference for local brands. Across 17 categories, infant formula and wine were the only two segments where foreign brands were preferred over domestic – and only by a whisker.
This is contrary to what China Skinny is seeing in the market. Consumers are often more familiar with domestic brands and their perceptions have become more positive – but we’re still seeing more favourable views for foreign products overall. Based on the feedback we’ve had from our extensive industry networks in China, we’re sure many foreign brands on the ground are seeing similar sentiment.
China Skinny has done deep, intimate and personal research and analysis with thousands of consumers across China. The numerous projects spanning many categories has found Chinese consumers virtually always still believe foreign brands are better – higher quality, more stylish, safer, healthier, etc.
In reality there is a disconnect. Whilst Chinese consumers usually favour foreign products, those brands aren’t servicing their needs well enough and aren’t where they want them to be. As Bain pointed out in the FMCG category, domestic brands grew 8% versus 1.5% for foreign brands in 2016. This result is not so much that they are seeking local products over foreign, but more reflective of nimbler Chinese brands who are reading the market better and acting more swiftly, coupled with stronger distribution networks and more resonant marketing.
As we highlighted in this infographic 18 months ago, dairy is a classic example of foreign brands not meeting needs. While the wounds of the 2008 melamine scandal may still cast a cloud over Chinese milk, domestic dairy commands a 38% premium per litre over imported. This is due to more appropriate format sizes, better-suited value-added products, more specific segmentation and more targeted marketing. China Skinny analysis has found similar results across many other categories.
Research by China’s Ministry of Commerce found 31% of surveyed consumers expect to spend more on imported products in the next six months and over 20% claim imported products account for at least 30% of their total consumption. Similarly, Chinese retailers plan to increase imports of over a third of 92 products surveyed. Although the results could be somewhat glossy due to current US-China trade negotiations and November’s massive China International Import Expo, they do reflect the general sentiment that Chinese consumers still relish imported products. It’s why Alibaba and JD with all of their data are busy opening up offices globally to source foreign products.
So with the good news from GDP growth to positive consumer sentiment, foreign brands are still well placed to tap into it if they ensure they interpret the market well and act quickly from it. Agencies like China Skinny can assist with the market interpretation stage, and help guide the resulting actions. Please contact us to find out more. Go to Page 2 to see this week’s China news and highlights.
2011-2013 felt like bad years for fakes in China. When writing the Skinny it seemed like there was a new exposé every week to include, whether it be rat meat dressed up as lamb, fake Apple stores that even fooled the staff or even fake chicken eggs.
These days there is an occasional headline about a police bust of counterfeit condoms or infant formula, yet the constant bombardment of media about fakes has subsided. There has been a genuine increase in public and private resources and direction, coupled with more positive court rulings. Beijing’s clampdown on corruption and the growing number of Chinese brands with their own IP to protect has increased the focus on fighting fakes. But don’t be fooled – just because we’re not often hearing about counterfeits, the dark underbelly of fake products remains rampant in China.
Just this month four separate gangs were arrested in Guangdong with millions of dollars’ worth of fakes from wine to health supplements. This is just a drop in the ocean of the wholesale counterfeiting happening in China, noted in a 2016 US Chamber of Commerce report that Mainland China was the source of 72% of global physical trade-related counterfeiting. Add Hong Kong to the mix and you’re up at 86% – an estimated $397 billion. 12.5% of China’s 2016 exports were calculated to be fakes. Whereas some Chinese consumers are attracted to cheap rip-offs, many are duped unwillingly. As recently as Singles’ Day last November, 40% of cosmetics purchased from cross border platforms were fake.
China’s fake endemic spans far beyond products. The latest wave to sweep ecommerce sites is fake advertising using stock images of weathered old men, praying on consumers’ empathy to ‘help poor rural farmers’ selling fruit.
For brands, there are a host of steps businesses can take to minimise the risk of fakes. The first and most obvious is ensuring you’ve done all necessary trademarking in the relevant classes. Here are seven other ways businesses can fight counterfeits in China from Harvard Business Review.
One of the recommended steps is to join forces with ecommerce firms, the most obvious being Alibaba. Alibaba has long been labelled a villain in the counterfeiting world – the enabler for vendors to get their fake products to the market. While many argue Alibaba could be using more of its immense technology resources to rid its platform of fakes, listing on the NYSE in 2014 and then being booted out of the prestigious International AntiCounterfeiting Coalition in 2016 were catalysts to up its game. The company now uses algorithms to scan the 1.8 billion listings on its platforms, runs test-buying programs that seek out fakes, and assesses reports from brands and rights holders. Members of its AACA (Alibaba Anti-Counterfeiting Alliance) receive priority treatment, which has helped increase its membership from 30 last January to 105 today.
Beyond the Harvard Business Review recommendations, there are numerous smart marketing and channel initiatives to reinforce your products’ authenticity with consumers. Agencies such as China Skinny can assist with this.
On another topic, for our Shanghai-based readers in the food & beverage/FMCG categories, next Wednesday 23 May China Skinny’s Mark Tanner will joining speakers from Mondelez, Coca-Cola, Starbucks, Hema, Meituan-Dianping, Wahaha, Bain, Zespri and Yum at AmCham’s A Taste of Tomorrow: Innovation in Changing Market discussing the exciting opportunities presented by China evolution into New Retail. More information here. We hope to see you there. Go to Page 2 to see this week’s China news and highlights.
When an estimated 500 new products and services launch in China every day, separating your brand from the rest can be an endless struggle. Of course an informed and intelligent approach to the market is vital in driving success, but recent times have seen high-performing brands begin to move towards more collaborative methods to open up opportunities.
Some of China Skinny’s clients and other aspirational brands are increasingly opting not to tackle China alone. New trends, business models and changing influences and touch points are constantly emerging, giving rise to the effectiveness of partnerships. They have allowed brands to more easily build meaningful and emotional connections with their target markets by engaging and accessing new channels previously out of reach for them.
Many of the highest profile b2b partnerships include China’s big tech companies. It seems there are almost daily announcements of an FMCG brand, car brand or retailer signing a partnership deal with Alibaba or Tencent. The Ford-Alibaba car vending machine is a novel example which captured imaginations across China and the world. Similarly, Tencent recently teamed up with Lego to develop games, videos and a social network for Chinese children.
Beyond the well-publicised and more obvious partnerships, there are many lesser-known collaborations that are sure to surprise those both in and out of China. With China’s sought-after millennials constantly looking for more ways to express themselves, fashion and music are at the heart of the most popular cross-industry collaborations. Unexpected partnerships have blossomed, including Lipton Tea joining forces with designers in a streetwear-inspired fashion show to reach a completely new body of consumers, and TripAdvisor who partnered with Beijing-based handbag brand Rfactory to create handbags emblazoned with the online travel firm’s logo. Blackmores have teamed up with top-20-world-ranking Tsinghua University to develop a health communication curriculum course for natural medicine. In addition to the aspirational associations and the perceived commitment to China, the course puts Blackmores in good stead, set to reach some of the industry’s most persuasive future influencers during their formative years.
Like anywhere, partnerships in China allow plenty of scope for creativity and can produce much higher returns than mainstream marketing initiatives. Yet they should be well-considered, appropriately executed and kept relevant to both the existing consumer and those targeted to justify the investment and risks that come with such collaborations. Agencies such as China Skinny can assist in identifying and maximising such partnerships.
On another note, China Skinny’s Mark Tanner will be joining an esteemed line up of experts at The Secrets To Doing Business In China forum in Shanghai on Friday May 18. Mix and mingle with China-based businesses and a large delegation of visiting Australian businesses in town for the Aussie Rules and SIAL. For more details tap/click here. Go to Page 2 to see this week’s China news and highlights.
If you’re in China buying a tub of skincare online, a tray of New Zealand kiwifruit at the local fruit store, an expensive bottle of wine dining out, or even a well-known condom brand at a convenience store, there’s a fair chance you’ll end up with a fake. Unlike Western consumers who take things at face value, Chinese consumers are inherently untrusting of things for sale which contributes to them taking quite a different customer journey for products and services than consumers elsewhere.
Up until five years ago, the prevalence of fakes saw many consumers just accept it as a likely consequence of shopping in China. In 2013, China’s massive retail market saw just one million consumer complaints to relevant government departments. At the time, Americans numbered less than a quarter compared to China’s population but made more than twice as many complaints overall. The sudden rise of social media encouraged some aggrieved Chinese consumers to take complaining into their own hands. In 2011, a wealthy businessman in Qingdao disappointed with his Lamborghini’s service hired nine men to destroy his sports car with sledge hammers, and circulated the video on social media, which was followed by a run of copycats. But overall, most consumers seemed to just grin and bear it.
That is no longer. Last year consumer complaints grew 44% to 2.4 million – edging closer to America’s 2.7 million complaints. As China’s consumers have grown more sophisticated and assertive, so have their channels of recourse. Consumers are more aware and confident about the options available to them meaning brands are much less likely to get away with the things they used to. This is further exacerbated by the rise of ‘professional complainers’ who troll supermarkets for products with incorrect labelling and claims, unlawful additives and multiple production dates, earning ten times the purchase price in compensation.
As consumers have become more proactive in dealing with issues, CCTV’s annual 315 consumer watchdog broadcast has become less relevant. Once one of the most potent beacons of consumer protection, the show was notorious for bankrupting businesses it singled out. Even überbrands such as Nike and Apple took material hits after being shamed on the show in 2012 and 2013 respectively.
Last Thursday’s 315 show confirmed how much less of an impact it makes these days. Just a fraction of the media and online buzz now accompanies 315 relative to the golden days five years ago. Nike was singled out again last year, but it appeared to do little to break the label’s stride in China. Brands are also much better prepared these days with comprehensive crisis plans, illustrated by VW who apologised within minutes on Weibo after being singled out on 315 this year, again. The show has been unable to find its mojo since CCTV joined a string of other state media for corruption involving shows such as 315.
Yet with the fall of 315, the rise of complaints has been augmented with enthusiastic complaining – and praising – on digital channels such as social media and online reviews on ecommerce and travel platforms. In short, it is becoming more difficult to fix actions that annoy Chinese consumers. Much like anywhere, brands should be particularly vigilant to do what they can to keep consumers happy, within reason. Go to Page 2 to see this week’s China news and highlights.
Next week sees the Year of the Rooster end as we embrace the Dog for the next 12 lunar cycles. The dawning of the pooch marks the beginning of the enormous Spring Festival holiday, which will inevitably be marked with millions of selfies from teeming transport hubs, billions of WeChat messages and red envelopes, and probably a good few fake boyfriends to keep the family at bay.
For a large portion of China’s 280 million migrant workers, it will be the one time of the year to return to the family with cases full of gifts. The mass homecoming has become well known globally as the world’s biggest annual human migration; 2.98 billion trips will be made during this year’s festival period from February 1 to March 12. This includes 2.48 billion trips in cars, 390 million in trains, 65 million by plane and 46 million boat trips – a staggering operation, even by Chinese standards.
Just seven in 10 will head home for family reunions during Chinese New Year, with 13% opting for leisure travel according to a Tongcheng-CCN survey in December. 6.5 million of those travellers are expected to head to 68 countries this festival – 7% more than the last year’s festival.
Thailand is forecasting 400,000 Chinese visitors over the week-long festival and tiny Macau is expecting 960,000 Mainland tourists as Chinese sideline tradition to serve their increasing lust for travel experiences. Even Finland will have its time in the sun with Alipay showcasing the widespread acceptance of their payments platform in the country.
The growth in Chinese investing more in decorating their homes has produced a byproduct that may be the biggest trend for Spring Festival travellers this year – empty paint buckets. Railway stations are already dotted with travellers carrying the white plastic tubs, which have become popular chairs, tables and food storage containers and an endearing reminder that Chinese trends aren’t always related to luxury handbags, shiny smartphones and quirky online campaigns.
Whilst widespread adoption of paint buckets takes a different path from Beijing’s aspiration to cultivate local tech innovation, there remains plenty of riveting trends coming from China. At China Skinny, we’ve used the New Year as an opportunity to identify what we think will be the biggest trends to watch in the Year of the Dog – ones that every brand and marketer should be aware of – here they are!
If you’re taking a break for the Chinese New Year festivities next week, we hope it is a good one. For the tourist operators in Macau, Thailand, Finland and other popular spots – we trust it will be successful and selfie-filled. Happy New Year, we’ll back in the Dog.
Who are China Skinny? We are a marketing agency on the ground in Shanghai conducting research, building strategies, and executing them for over 100 multinational brands both big and small, across 20 categories. What’s your biggest China problem? Contact us to see how we can help. Go to Page 2 to see this week’s China news and highlights.
Earlier this month JD launched its first 7FRESH, a 4,000 square metre grocery store in Beijing that follows many of the new retail concepts from Alibaba’s Hema stores. JD heralded the supermarket the first of 1,000 stores that could open in the next three to five years. Hema also plans to significantly ramp up its presence, with 2,000 stores planned over the same period.
The focus of 7FRESH is a “personal and educational” hands-on shopping experience including “magic mirrors” that sense when customers pick up a product, and display product information such as nutritional facts and origin. JD also plans to introduce smart shopping carts allowing consumers to shop hands-free, which will be particularly helpful for shoppers with kids in tow. Facial recognition allows shoppers to check out and pay using the technology, able to walk out directly with the purchases or have them delivered within 30 minutes.
It is part of the growing new retail trend in China which has seen online giants shake up the bricks & mortar scape by creating richer, more convenient shopping experiences which drive significantly higher sales than traditional retail stores. Much like Alibaba’s Hema, JD is using big data from its 266.3 million shoppers to help craft the experience.
Physical stores still account for more than 80% of China’s retail overall and well over 90% of grocery sales, so JD and Alibaba’s battle for supremacy will be interesting to watch. Unlike the pure ecommerce world, where Alibaba has significantly higher margins by farming out most marketing, stock holding, fulfilment and customer service to brands, in the physical world it will be operating a more ‘full service’ model like JD.
Whilst JD’s market cap is just one-seventh of Alibaba’s, it has some very powerful organisations behind it. Tencent is the largest shareholder of JD, owning a fifth of the retailer. Its super-app WeChat leads China’s o2o and social media spheres, which will provide valuable data and influence to assist in the success of 7FRESH. Tencent’s new retail grocery ambitions will also be supported by the stake it purchased in Yonghui in December, yesterday’s investment in Carrefour’s China business and Saturday’s launch of its first unmanned WeChat store in Shanghai.
Walmart – the world’s largest company by revenue – owns 12% of JD and is likely to provide insights and support to 7FRESH from its wealth of retail experience including 22 years in China. It will not only help Walmart gain traction in China’s previously elusive ecommerce and new retail segments, but it will also provide plenty of learnings to roll out in its Walmart stores in China, and potentially to its stores in the US and globally.
In short, there is no better player than JD to take on the mighty Alibaba in the new retail game. Two hungry, data-focused, well-funded and well-oiled players, and a host of other competitors, will ensure the rate of innovation in China’s retail segment will continue to dazzle. It will also create another segment where China is likely to lead the world and possibly export its systems globally. New retail in China is happening, and happening fast, and brands that best understand and embrace it are most likely to succeed in the years ahead.
Who are China Skinny? We are a marketing agency on the ground in Shanghai conducting research, building strategies, and executing them for over 100 multinational brands both big and small, across 20 categories. What’s your biggest China problem? Contact us to see how we can help. Go to Page 2 to see this week’s China news and highlights.