There is no doubt that foreign brands have been viewing China with apprehension for a while now as political tensions continue to escalate between western superpowers, namely the US and Australia. China has found itself in a seemingly never ending series of retaliations, most recently with Trump’s Tiktok ban and the last two Australian journalists being flown out back home.
With Chinese netizens often kicking up quite a fuss online when it comes to boycotting foreign brands over whatever the most recent political transgression is, brands are justifiably concerned. According to a survey by consulting firm AlixPartners conducted just before Singles’ Day 2019, 80% of Chinese shoppers said they planned to boycott American brands, citing “patriotism” as the major reason. Yet despite the fuss, the US was the second best performing foreign country of origin after Japan, which goes to show brands should not be scared off simply by online buzz and propaganda rhetoric.
But how are these sensitive times playing out for top Chinese influencers and KOLs taking on foreign brands?
For starters, many of these top influencers with large fan bases, such as ‘lipstick king’ Austin Li and Viya, are increasingly cosy with the government. Just this summer Viya became a standing member of the all-China Youth Federation, a part of the communist party, as the government hopes she can help spur the economy and aid in poverty alleviation. Austin Li has also recently been selected by the government as a “special talent”, entitling him to a Shanghai hukou (residency) that is usually only given out under certain circumstances.
These top influencers are finding themselves in a potentially tough spot as China battles it out with the main countries of origins for foreign brands that can take up a chunky part of these influencer’s portfolio. It seems they are increasingly worried about any reputational damage and assumably anything that could strain relations at home. As there is no official mandate or news on the topic, China Skinny reached out to a few of our clients and local livestream/KOL agencies to discuss their own experiences.
How are brands being affected?
It looks as though top tier hosts in particular, including Austin Li and Viya, are being very cautious and picky with foreign brands. US brands are under particularly intense scrutiny, which “are more or less considered a no-go unless they have come out with pro-China statements”, according to a local influencer agency. Even Australian brands will be thoroughly vetted to ensure they have no strong ties to the US or else risk being turned down by hosts.
A British brand who works frequently with the likes of Austin Li and Viya says that Mr. Li’s team has recently told the brand to remove references to foreign accreditation, awards or accolades, such as US FDA certification and anything to do with royal endorsement.
While it appears small bits and pieces of similar news are seeping through the cracks, agencies who haven’t experienced it yet for themselves also say they would not be surprised. “We didn’t hear anything about US, UK, or AU brands being blocked,” says a China-based influencer agency, “But that’s not to say that it’s not unofficially happening. The possibility is a little scary though, and we wouldn’t be surprised as the US increases its sanctions.”
How concerned should foreign brands be?
While there is no official news or evidence of this potential roll-back, as US sanctions increase and tensions with Australia and the UK rise, foreign brands should be arming themselves with the knowledge to navigate any impending risks in the market. For brands particularly reliant on their country of origin background, heritage branding, and/or foreign accolades, should consider adopting more strings for their bow. However, it is also important to note that many of these top hosts with government ties tend to have a lot more at stake than mid-to-lower tier influencers that most foreign SMEs are utilizing due to their budgets.
Life is thriving once again in China and consumer confidence is definitely stronger than much of the rest of the world still waylaid by the pandemic. Alibaba has seen a spike in cross border ecommerce transactions as Chinese consumers continue to demand quality, imported goods. Brands shouldn’t shy away from China because of this news, but we would encourage them to audit their current strategy and pre-empt risks that may suddenly find them in hot water.
In dire need of some action outside of our Shanghai office, my colleague Sheryl and I jumped at the chance to head to Hangzhou to check out Alibaba’s Taobao Maker Festival, an annual event showcasing China’s young entrepreneurs and emerging brands. As Alibaba had to get creative in the wake of COVID-19, we were promised a unique take on this year’s festival and wanted to see what the hype was all about.
On a normal year, TMF will see hundreds of selected merchants surrounding Hangzhou’s scenic West Lake area near Alibaba’s HQ. But this year the festival is now on wheels – 18 wheels, to be exact. The transformer-esque 18 wheeler mega-truck, which folds out into a full stage, and accompanying smaller vendor vans makes the offline pop-up a mobile caravan which will travel 3,900km over 20 days, starting in Hangzhou and hitting Xi’an, Chengdu and a final homecoming in Wuhan. Alibaba is looking to hit “college towns” with scores of curious and entrepreneurial Uni students looking to be the next smash hit on Taobao.
And what Uni student wouldn’t be lining up to try some hot dry noodle (热干面) flavoured beer, buy a tiny vintage-looking vinyl record player (appropriately named Tinyl) or picking out an ancient Chinese ‘hanfu’ style robe for their feline friend back at home? Yes, you read that correctly: hanfu for cats.
Many of these young vendors are uniquely combining recent consumer trends into their creations, which is no doubt why they were handpicked by Taobao as ideal representatives. Through these vendors we can see the rise in pet ownership, personalisation, brand crossover designs, single-person tech products (single person rice cookers) and a resurgence of cultural products, including a new spin on vintage & heritage designs (or “China cool”).
If you’re not able to make it to one of those four cities or are interested in more than the handful of vendors selected to be in the caravan, don’t fret. Taobao will be launching an online 3D simulation through the Taobao app for 4 days between August 10-14 which will allow users to create their own avatars and explore the booths of more than 150 of the selected merchants. These merchants will be spread across “kingdoms” representing categories including technology, fashion, anime and games, food, cultural heritage and novel designs.
Livestreaming remains strong despite the reopening of brick & mortar retailers
These young merchants have also been using livestreaming to continue flogging their wares during lockdown, in February alone the number of merchants on the Taobao livestreaming platform increased by 719%.
When we sat down with Chris Tung, Chief Marketing Officer of Alibaba Group, he emphasized the significance of livestreaming, particularly amongst Gen Z, saying, “A lot of young people tell me that last thing they do before turning off the light at night is watching Taobao livestreaming for half an hour and getting the deals that he or she wants. We’re talking about millions of people.”
While livestreaming is the hot topic on the lips of every China-savvy brand, and rightly so considering the value of livestreaming ecommerce alone in 2019 was ￥433.8b and yet is expected to double by the end of 2020, some of us are wondering: will the hype continue?
Chris Tung says, “Right now livestreaming is seen more as a shopping channel as a last minute purchase decision rather than finding out what’s new and what’s cool. After the pandemic livestreaming will play an even bigger role in pre-purchase exploration.” Despite consumers being able to visit their favourite stores and malls again, it’s all about efficiency. Once you get a taste of the good life there is no going back, especially for Gen Z consumers.
Reaching a new equilibrium between offline and online
This more permanent transition to digital shopping is shown through Alibaba’s Intime department store in Hangzhou, one of China’s largest. While foot traffic is 70% of what it was pre-lockdown, sales for InTime have almost fully recovered thanks to its digital push from ecommerce and livestreaming. When stepping onto the first floor you can hear the ripping of Sellotape being used to package up high-end cosmetics from behind booths such as MAC, Bobbi Brown, and Clinique. These packages are being ordered over InTime’s ecommerce app Miaojie, which delivers products direct from the mall to busy office workers within 2 hours, just in time to re-stock your favourite mascara before your next meeting.
InTime has also heavily relied on livestreaming during the lockdown period, turning 5,000 of its mall staff into livestreamers. Despite the store reopening, InTime added another 1,000 combination mall staff/livestreamers to keep the online sales going.
With O2O stores relying more on their online sales, we will see an increase in the production quality of these livestreams, as well as their hosts, as it turns into a more significant part of the decision-making process. Despite the ‘return to normalcy’ there is undoubtedly a new equilibrium in offline vs. online and how they will continue to complement one another.
Most big and established brands in China have been doing their best to be respectful and connect with Chinese consumers since the coronavirus outbreak. Well-publicised initiatives include thoughtful campaigns and large donations. But there has been little airtime about smaller brands and entrepreneurs who are looking to test Chinese waters in 2020 – how should they be approaching China in these unique times?
We have seen a few negative reactions as some SMEs are indefinitely postponing future China development plans, or even diverting China activities to other markets. We see this as a short term and potentially costly approach. Right now is arguably the best time to start developing your China strategy and building a deep understanding of the market, so that when the ball starts rolling again, you will be placed ahead of the crowd and ready to jump in.
Building a brand is paramount in China, and this takes time. It is widely understood that you will not make money in your first or even second year despite ‘decent’ sales, largely due to administration and customer acquisition costs. If the economic recovery from SARS in 2003 is any guide, pent up demand and positive emotions saw China’s GDP growth actually accelerate from 9.1% in 2002 to 10.0% in 2003. New brands should be taking this time to strategize their target audience, branding, positioning and channel-approach to hit the ground running when normality returns.
What better time to arm yourself with knowledge on the China market? Foreign brands looking to enter China face an incredibly alien business environment, and you will need help along the way to combat the quickly changing landscape.
While often engaging consultants, research firms and strategists can very valuable, it can also be costly in the early stages. Building up your knowledge and understanding your knowledge gaps can save costs and time in the long run. We’d suggest self-educating to stay informed and up-to-date with free, English-language resources which can help narrow down potential approaches for your business. We recommend the following resources:
WalktheChat: a Beijing-based agency that does social media management with a key focus on WeChat
InsideRetailAsia: InsideRetailAsia looks closely at trends in offline retail, and does a great job of quickly updating new openings, brand activations.
SixthTone: SixthTone provides a small window into popular culture in China with its down-to-earth journalism covering the weird and wonderful side of China.
ChinaSkinny: More than just a shameless plug, our newsletter is the most-read globally on the topic of marketing to China – so there must be something of value in there!
There is no “one size fits all” strategy to approach the China consumer market, which means doing your due diligence on current trends, popular products and identifying your key target audience. It’s valuable to have an understanding of the type of content and campaigns they like to engage with, as well as best platforms to reach them on each stage of the customer journey. This will ensure they greatest likelihood of a successful strategy to maximize your ROI.
For example, many consumers are currently self-quarantined in their homes and looking for something to do. This can be the perfect time to engage an agency for quantitative research studies aimed at gathering consumer sentiment to narrow down your target market or sending products for trial tests.
Conducting market research is often just the beginning. While saving you time, money and often ensuring eventual success, this process can help brands identify strategies that are unlikely to succeed before too much time and money is sunken into them.
Don’t forget the importance of digital
The current COVID-19 virus has changed the way of life for many people in China over the past several weeks. As we saw with the H7N9 virus in 2013, consumers are cooped up in their homes spending more time online, researching, ordering and seeking entertainment.
According to McKinsey & Company, pre-outbreak digital consumers in 2019 were already spending an average of 358 minutes per day online, with 33% using social media (WeChat, Weibo, etc.) and 11% using short video apps such as Douyin. Since the virus has hit the amount of time people spent online has soared from an already staggering 5 billion hours on January 23, to 5.73 billion hours on January 24 and topping 6.11 billion hours on February 3, says QuestMobile. The proportion of time spent online gaming alone has risen 38% alone.
With people intensely immersed in social media during these trying times, social e-commerce is primed for growth. Ironically, the cost of acquisition on digital platforms has declined over this period, allowing a lower-cost method to engage and nurture consumers. This reiterates the importance of getting your digital strategy in order as soon as possible, and ensuring it is relevant and optimised for China.
The Bottom Line
Our final word of advice is to not only be patient as China grapples with this crisis, but to take advantage of this unique downtime. China moves at lightning pace and will soon continue to do so. While other companies and brands rest on their laurels or move on to other markets, start preparing. China is a complex environment, and the better your preparation, the quicker you will be able to start making an impact on the ground.