Mark Tanner

China’s New Channels of Competition More of a Threat than Ever

2018/05/02 Mark Tanner
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The strategies and recommendations that China Skinny developed five years ago were quite different than those we do today. When we cited the best examples of marketing in China, we would typically look to foreign brands. Back then, most domestic companies’ marketing plans were focused on price promotions and discounts.

Things have changed in recent years. The allure of overseas origins remains attractive with many Chinese consumers and there are some great case studies of foreign brands backing that up with a smart marketing strategy, yet our recommendations are increasingly drawing on lessons from domestic brands. We only need to look to the dairy category where imported brands have a natural perceived advantage for health and safety, yet domestic players still manage a 38% premium per litre for online sales. This is due to slicker marketing and usually a better understanding of the market overall. Our recent survey of Australian businesses with Austcham confirmed that exporters are increasingly waking up to this, with domestic brands seen as more of a source of competition than foreign brands – 50.7% versus 49.1%.

Domestic brands are also much more likely to have stronger distribution networks and more of an appetite for lower tier cities, which are the fastest growing markets in China. Of the 50 million new households that are expected to enter China’s middle and upper classes between 2016-2020, half of them are likely to be located outside of China’s top-100 cities according to a BCG-Alibaba study. Although incomes in smaller cities are less than in larger cities, the lower cost of living means more cash is available for discretionary purchases. Further, rising property prices and increased indebtedness help fund consumption from consumers starved of the choice available in China’s high-tier cities.

Traditional domestic brands are not the only source of local competition for foreign brands in China. One of the newest competitors to the mix are the key opinion leaders – the same folk that foreign and local brands are paying hundreds of thousands of dollars to endorse their brands. Just as George Clooney built his billion dollar tequila brand and Gwyneth Paltrow with lifestyle brand GOOP, China’s influencers are realising their value not just as endorsers of other brands, but to launch their own brands such as Zhang Dayi’s own fashion label and Mi Zijun’s snack shop.
The most potent new string of competition isn’t going to come from celebs though, it is likely to come from the platforms who are selling your brands themselves – China’s online giants who are becoming increasingly powerful in both the online and offline world. Although China have been late adopters of private-label brands, it is another area the big ecommerce platforms are likely to lead. Netease is the latest platform to launch its own private label, Yanxuan, selling clothing, furniture, and appliances from the same Chinese suppliers who manufacture for international brands like Kering’s Gucci, Burberry, and Deckers’ UGG. It follows Taobao’s Xinxuan which launched last year, and JD’s Jingzao in January.

The ecommerce platforms have the data to evaluate the attractiveness of the private label products coupled with the ability to test them with little risk. Just look at the 80,000 smelly Thai durians Alibaba sold in a minute. While Alibaba may be best known for its multi-billion-dollar acquisitions such as RT Mart and food delivery Ele.me, it is making plenty of smaller purchases that could add to its arsenal of home brands such as NZ dairy company Theland. Some would say it could be a conflict of interest, particularly given Alibaba’s ability to dial brands on and off, but it is the inevitable reality of supplying dominant retailers much like supermarket chains in the West.

New sources of competition all cement China’s position as the most competitive marketplace on the planet. Even categories that have been out of reach of domestic players such as the auto industry are now starting to see more and more threats from hungry and smart domestic brands – both Alibaba and Tencent have made notable investments in car manufacturers. Brands should be aware of who their competition is in order to carve out their unique place in the market and not become too reliant on one channel. Agencies like China Skinny can assist with such market mapping, gap analysis and differentiated branding and positioning. Go to Page 2 to see this week’s China news and highlights.

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