Marketers, sales managers, product developers and strategists the world over are increasingly using data to help form decisions. Fortunately in China, we have a greater depth and breadth of data than anywhere else. Not only do Chinese use their smartphones (and faces) more frequently, across a broader array of online and offline occasions, they are also among the least concerned about data privacy globally. China Skinny uses our own in-house tools to tap into China’s vast banks of data to provide macro and granular views of consumers’ preferences and trends. These can impact everything from communications, branding and product development, to the channels and influencers you use.
However, just blindly using data to drive decisions can be reckless and is often misleading. For a start, data can miss the emotional drivers that influence decisions – these are becoming increasingly relevant as branding and premiumisation gains importance. More importantly, data can be misleading due to the likelihood of your data being skewed by fakes.
Nearly a third of China’s internet traffic last year was rated “abnormal” according to a report by third-party advertising data monitor Miaozhen Systems. The resulting loss to advertisers alone reached more than ¥26 billion ($3.75 billion). Virtually every corner of China’s internet that boasts massive user numbers has developed a shadow ecosystem of fake engagement. They are trading money for clicks, followers, commenters and buyers. Late last year Alibaba estimated there were at least 2,800 organizations in China specialising in faking ecommerce activity alone.
Zombie Weibo followers usually go for ¥10 ($1.44) per 10,000 followers, although for a higher fee, brands can engage “advanced zombies” with avatars and content expressing fake opinions. Of real concern is that it isn’t just your fly-by-night operations buying fake engagement in China; many of the best-known brands have engaged with fake social media likes, forwards and comments to bolster their impression of popularity. This taps into the tribalistic follower tendencies of consumers.
Arguably China’s most in-demand KOL, pop star Cai Xukun, clearly creates millions of fake engagements to fuel his popularity. He isn’t alone. Around 70% online celebrity peers are estimated to forge their fanbase. Last year, Chinese state media CCTV reported that 90% of views generated by many popular shows on video sites are fake. On ecommerce, the long-used method of “brushing” remains common where brands ship empty parcels to bolster their sales numbers and positive reviews on ecommerce platforms.
In addition to the ill-gotten gains for brands and KOLs, China’s big tech platforms themselves often see opportunities in the fake economy. It is well known that ecommerce platforms engage fake sales – or do little to stop them – to artificially inflate sales numbers, drive buzz and attract investment. In the build-up to its IPO, popular ‘user-generated’ travel site Mafengwo has been tacitly allowing registered merchants to place fake orders in order to beef up their onsite rankings and attract more views. 30% of all orders on Mafengwo are estimated to be fake.
Data is a powerful tool to provide clues and clarity into China’s complex marketplace, yet brands should caution from using that data as gospel. In most projects we do, China Skinny cross references data with other sources of insights to ensure its robust and reliable. We’d suggest you do the same.
On a more wholesome note, if you’re in the food and beverage space, book yourself a flight to Melbourne on September 3-6 for the prestigious Global Table event, focusing on solving our biggest food challenges and creating tomorrow’s breakthroughs. China Skinny’s Mark Tanner will be giving the opening presentation for the China section, discussing China beyond 2020. More information here. Please let us know if you’ll be there, it would be great to have a chat. Go to Page 2 to see this week’s China news and highlights.
In 2012 in the city of Wuhu, Anhui, a former street vendor and motorcycle taxi operator named Liaoyuan Zhang, left his job selling nuts to start his own nut company. In just 65 days, the company – Three Squirrels – became the top selling nuts brand on Tmall and within a couple of years, was said to be the top-selling food brand online. On Singles’ Day last year, it took less than 10 minutes to sell ¥100 million ($14.2 million) worth of snacks. The recently-listed company now has a market cap of close to $3 billion.
Many brands can learn from Zhang’s success and his trio of squirrels. For a start, its DNA is imbedded with three super-cute mascots, tapping into Chinese consumers’ adoration of Japanese-inspired Meng culture, and its cute cartoons such as Pokemon. Their appeal stretches beyond just kids with many urban professionals hooked on all that is cute. This can be observed in some of China’s most aspirational mainstream brands such as Tmall’s cat and JD’s dog.
Yet while many Chinese brands plaster cute mascots over their packaging and promotions, Three Squirrels has always gone deeper incorporating the personalities into everything they do. Videos, stories, games and prizes showcase each squirrel’s personality, providing consumers the experience they so-often seek, and weaving them into a longer narrative. Thoughtful extras that add to the experience include a wet wipe, a bag for shells and often nut crackers with purchases. On its customer service line, consumers are addressed as pet ‘owners’ and purchases are called ‘adoptions. Everything Zhang does keeps his customers at the heart of his business, so much so, that he considers “fans” to be as much a part of Three Squirrels as his employees.
Three Squirrels’ D2C (Direct to Consumer) model bypasses retailers but still manages a notable premium over the sea of competitors that make up China’s massive snacking category. It also taps in to other digital channels such as asking and listening to its social media fanbase about the type of products they want, which has shortened its new product development cycles to a few months.
While the Three Squirrels brand was built on the back of Tmall sales, like many online retailers, lowering ecommerce margins and high customer acquisition costs have led it to focus on channel diversification. Whereas Tmall once accounted for 80% of its sales, now just half of its billion dollar-plus revenue comes from the platform. A nice chunk of this growth has come from the drive for offline ‘experience’ stores, where gross margins exceed 40%, versus sub-30% online.
Unlike it was in 2012, selling online is no longer novel in China. Whilst it remains a vitally important sales and marketing channel, one of the advantages of brick and mortar stores is that it is harder to compare products than simple searches online. In online stores, brands tend to use their best-selling products for promotional purposes and so must discount, resulting in even lower margins. Customers can see how many ratings, and often the number of purchases, which is likely to further distort sales as consumers regularly just go for the bestselling or most reviewed items. In an offline store, hero products are not nearly as obvious and so the distribution of sales is less likely to be skewed towards just a few popular items. This plays better to Three Squirrel’s strategy of product diversification which has seen cakes account for over 20% of its sales, and nuts just over half.
Brick and mortar stores also allow consumers to buy very little at a time, at a much higher frequency, and without added delivery costs. The fixed delivery costs online means each order needs to reach a certain dollar amount in order for it to be financially viable. Offline purchases have no such threshold.
Whereas no one should underestimate the importance of ecommerce in China, China Skinny is increasingly seeing brands focus more on traditional retail as the golden years of high growth and high margin sales through platforms like Tmall and JD appear to be over. Experience-focused physical stores such as New Retail has also given the channel a second wind. Brands are becoming increasingly concerned about being over-reliant on platforms such as Tmall for sales and are also cognisant of ecommerce platforms launching more private label brands, which are somewhat of a conflict of interest. Like many things in China, it is important to understand and assess sales and marketing channels beyond the hype and develop strategies that balance risk with opportunity, such as China Skinny does. Go to Page 2 to see this week’s China news and highlights.
In July 2017, Beijing set the target to make China “the world’s primary AI (Artificial Intelligence) innovation centre” by 2030. Whilst a detailed plan didn’t accompany the goal, it sent a message reinforcing how serious China is about AI. Such a signal is almost always accompanied by investment, policy and supporting regulations (or lack thereof) from Central Government. In early 2018, eagle-eyed Chinese spotted AI-related books on Xi Jinping’s bookshelf, highlighting that the mandate is being supported from the very top.
The vital ingredient for AI is the data that fuels the machines that learn from it. Unlike in the West where data is becoming more difficult to access as a result of heightened privacy legislation, China has very liberal rules. Chinese consumers are also among the least concerned about privacy and rate convenience as more important. On top of that, between some of the highest ecommerce, mobile payments, general smartphone and o2o (Online to Offline) usage rates in the world, coupled with the “datatization” of public spaces through facial recognition, the breadth of data-sourcing opportunities are second to none. China has so much data, it needs AI to make sense of it all.
There has been no shortage of news about how AI will touch most things we do including our education, whether or not we’re offered a job, romantic matches, bank loans, how we are entertained, self-driving cars, and even the scarier things such as military drones. In China, ‘keeping the population safe’ has become one of most commonly cited applications. Yet possibly the most underreported driver for why China needs AI is to address the lack of youngsters being born to fill the gap in the workforce, as the ballooning elderly population retires.
While AI has some way to go to being able to match humans for feelings and emotional intelligence, improvements are happening. This is where things are getting interesting.
The global race for AI supremacy has illustrated just how far values differ between China and the West, resulting in different prioritisation in AI algorithms. This was evident during an AI ethics seminar in London earlier this month which highlighted that there is no global ethical standard for this very important technology which will impact us all. Codes of principles written in the west tend to focus on fairness, transparency, individual rights, privacy and accountability. Chinese AI ethicists prioritise values that are open, inclusive and adaptive, adding up to “great compassion and deep harmony” – collective good rather than individual rights.
These values don’t just provide an interesting perspective on the cultural differences between the West and China, but how AI’s execution may differ in China and how it will shape marketing here. Most of China’s tech giants are already using AI to offer adaptive and personalised offerings that make life easier and more convenient for consumers. This is already impacting marketing and will increasingly do so beyond the smartphone, such as future evolutions of New Retail and when personalised Out of Home advertising comes to the fore.
Foreign brands don’t just need to understand how this is impacting their marketplace, channels and competitors, but also how differing principles will shape its development. China Skinny would be happy to assist. Go to Page 2 to see this week’s China news and highlights.
A little over seven years ago, our fledging little marketing agency wrote its first Weekly Skinny. The topics of the day were common myths about Chinese consumers, the importance of female consumers, food scandals, fakes and 300 million+ users on Weibo. On the surface, the subject matters weren’t too different from those today. Yet open the hood and you see a Chinese consumer, national swagger and marketing landscape that is almost unrecognisable from 2012.
The level of consumer sophistication has changed dramatically. In those days, you could just put a foreign product on the shelf and many shoppers would think it was incredible. No self-respecting consumer would be seen dead with a Chinese smartphone (they now account for almost 90% of smartphones sold) or Chinese brands across a slew of categories. KFC was the pin up kid for foreign brands, managing to balance its ‘aspirational’ foreignness with thoughtful localisation. If Chinese wanted to do the pilgrimage to the source in Kentucky, getting a visa for travel to Western countries was very difficult for travellers outside of tier 1 cities, and many within. Over the seven years, the number of outbound trips has almost doubled.
Over seven years, 130 million people – more than Japan’s total population – have moved from the countryside to cities, although a third of cities are shrinking. The average wage has grown almost 75%, and with it, a willingness to make discretionary purchases. There are around 150 million new passenger cars on the road and 125% more kilometres (29,000km in total) of fast train tracks. The Beijing-Shanghai connection has carried over 100 million passengers/year on average over that time.
One of the most obvious changes on the street is the ever-present smartphone. In 2012, just 288 million Chinese sported a smartphone. By the end of 2018, it was around 785 million. Online shoppers have increased from 242 million to 610 million last year, with their share of total retail growing from 5.3% to 25%. Gone are the wads of 100 kuai notes stuffed under the mattress, with mobile payments, and increasingly facial payments seeing the endangerment of legal tender. Mobile payments in China are now estimated to be over 100 times the size of the US.
That’s China speed for you. They say China years are like dog years – what happens in seven years in some countries, takes a year in China. Based on that, we should be celebrating 50 years of the Skinny sometime in September.
Writing the Skinny every week has forced us to keep up with the macro and micro trends in China. It’s enabled us to see through the hype and often-dubious data and understand the constant changes in this market, something which is incorporated into every project we do. To mark seven years of the Skinny, we thought it would be fitting to share 7 Trends that are impacting Chinese Consumers today. Here they are.
One last note, any recent history of marketing in China would be amiss without including WeChat, which had around 150 million users when the Weekly Skinny was first published. It has now become a big part Chinese consumers’ lives. There’s no better way to learn about marketing on the super app than the China Chat conference in Shanghai this September. China Skinny’s Mark Tanner will be joining the esteemed lineup of speakers. More information here. Go to Page 2 to see this week’s China news and highlights.
On the surface, Chinese consumers appear to be some of the most environmentally-conscious consumers in the world. For years, high profile studies have praised Chinese consumer’s sustainability habits, such as the National Geographic’s 2014 Greendex which ranked China second globally for its consumers’ environmental behaviour, applauding their high public transport and scooter use, and consumption of locally grown food.
More recently, China’s Electric Vehicle (EV) adoption has been the envy of every environmentally-focused government, accounting for 49.5% of EV sales globally. Yet with annual EV sales growth plummeting from 126% to 2% over the past 12 months, largely due to the reduction of Government incentives, it is fair to say the purchases were more motivated by wallets and license plate quotas than sustainability concerns.
At China Skinny, we’ve been following consumer attitudes towards sustainability for many years now. Whilst there have been some hopeful green-shoots, overall behaviour is still at its nascent stage relative to most Western markets. This is reflected in the 10+ billion plastic-loaded meal deliveries a year, or the nearly three-quarters of residents in top-tier cities who couldn’t identify how to properly sort their rubbish for recycling.
Chai Jing’s raw 2015 documentary Under the Dome showed great hope for educating a population hungry for answers about China’s toxic environment, but its runaway popularity ironically saw every trace of it removed in China less than a week after airing. This stole the opportunity to corral the population into more sustainable behaviour.
On virtually every related research project China Skinny has done, we’ve found consumer responses are supportive of sustainable brands and products at a surface level, yet delving deeper into actual behavioural has found limited individual accountability for environmentally-friendly behaviour. Most consumers have expected Beijing to be the main driver for fixing the environment. As of Monday, we’ve seen the most significant step from Beijing to shift the onus onto consumers to act more sustainably.
From July 1, Shanghai residents must sort their garbage into four classifications – household food or kitchen waste, hazardous waste, recyclable waste and residual waste. Failure to do so will see individuals face fines of up to ¥200 ($29). Businesses face fines of up to ¥50,000 ($7,282). Shanghai has installed more than 13,000 waste stations, so far covering 75% of the city, and has replaced more than 40,000 streetside bins for different types of waste. The city currently generates more than 9 million metric tons of garbage every year – the equivalent of 1.5 million African bush elephants. In its quest to reduce this and make sense of the new recycling rules, it has used gags, memes and events with “performers striking forceful beats on tall garbage cans.”
Following Shanghai, another 45 mainland cities will introduce similar regulations, including Beijing, Shenzhen and Guangzhou. By the end of 2020, the 46 cities will invest ¥21.3 billion ($3.11 billion) to build waste sorting and recycling systems.
We only need to look across the Strait to Taiwan to see what an impact this could have. In the first 10 months of last year, nearly 60% of Taiwan’s waste was recycled. The daily amount of garbage during than period was 0.41kg, down from 1.14kg in 1997. When you’re looking at China’s scale, similar savings won’t just have a massive impact on its cities, but the world as a whole.
Like many things in China, Government-led initiatives are among some of the most persuasive drivers and shapers of behaviour. As consumers are forced to sort and recycle, sustainability will be brought to the forefront of consumers’ consciousness. Expect sustainability to be one of the most talked-about and thought-about factors of consumption in the foreseeable future – something worth factoring into your marketing strategy.
On the topic of trends shaping marketing in China, China Skinny’s Mark Tanner is joining CBBC for the webinar What’s Hot and What’s Not in a Slowing Chinese Economy on 17 July to share insights on trends and categories currently shaping consumer behaviour. Non-CBBC members are welcome to join. More information here. Go to Page 2 to see this week’s China news and highlights.
One of the giveaways of a newbie to China is the bafflement about being unable to access Google, Facebook, Youtube, Instagram and Twitter – unless they’re chewing through their data roaming quotas or have planned ahead with a VPN. It quickly becomes apparent that China’s digital ecosystem is unlike anywhere else in the world.
Those same newbies are likely to try and make sense of it all by making direct comparisons of Amazon with Alibaba, Facebook with WeChat and Twitter with Weibo. Yet the Chinese platforms aren’t just different by appearance and namesake; their features and, more importantly, the purpose they serve in the consumer journey are often quite disparate from platforms in the West. In many cases, they are functionally more advanced (often by years) than overseas apps, which has seen companies like Apple, Amazon and Facebook replicating features from Chinese apps.
Many brands understand these differences and focus on localising tactical campaigns to take advantage of Chinese platforms’ rich and engaging features online and offline. Yet a number still miss the bigger picture of how China’s tech giants differ from the West: their touch points with consumers are far deeper, wider reaching and offline than those overseas.
One of the important growth strategies executed by China’s tech companies has been to expand beyond their core industries, even if links seem tenuous to outsiders. We saw this in 2014 when Alibaba began purchasing brick & mortar stores and then again in 2018 with their investment in screen advertising.
There are a number of reasons why this type of expansion has happened much more in China than other countries: 1. In most countries when companies get too large and dominant, they are usually forced to split. In China there is barely a whiff of this; 2. Most of China’s bigger companies with real money to invest are tech firms and State Owned Enterprises (SOEs). As SOEs are comparatively more conservative, there is less competition for big tech companies when making major acquisitions; 3. Traditional channels are less mature and more fragmented in China, enabling lower acquisition costs for market leaders and much more scope for disrupting tech giants to break in; 4. Accumulation of user data is far more liberal in China, providing significant scope for tech companies who already have the data. This enables them to utilise data synergies across new acquisitions, which can help justify paying a higher price for them; and 5. Consumers are much more open the commercial use of their data and appreciate the convenience it brings.
The approach hasn’t just been adopted by China’s famous tech giants though. We’ve also seen lesser-known tech companies utilising their presence, channels and data from their category. For example, mid-sized travel portal Tuniu has tapped into the nuptials industry, launching a marketplace just for wedding photography.
What does this mean for brands? Brands should understand just where Alibaba, Tencent, ByteDance, Meituan and other niche platforms are playing, even if they don’t appear to have an obvious connection with their industry. Awareness of their reach and subsequent opportunities can help determine how best to partner with and leverage them. Even the biggest brands in China rarely attempt to approach the market alone and will buddy up with one or more of the tech giants. Similar to the many brands who have co-located marketing staff close to Walmart or Carrefour in the West, close proximity to China’s tech leaders is likely to be an increasingly common strategy in China. Contact China Skinny to assist you in identifying these opportunities and recommending how best to leverage them. Go to Page 2 to see this week’s China news and highlights.
Since Australia established formal diplomatic ties with the People’s Republic of China in 1972, the country’s fortunes have become increasingly linked to the Middle Kingdom. No Western country’s economy has benefitted more from China’s rise than Australia. Much of China’s unprecedented economic growth has been built with Australian iron ore and powered by Aussie coal and liquified natural gas. In a way, Australia’s resource traders blazed a trail for Australian exporters, teaching cultural lessons about doing business in China, and raising China’s profile as a destination for exports.
Since Chinese consumers have started entering the middle class, Australian brands have been relatively quick to make their goods and services available to them. Over the past couple of Singles’ Days, Australian products have been the third and fourth highest ranking country for product origin, even though Australia isn’t even in the top-50 countries by population.
Australia’s success in exporting to China always had pretty good odds. Australia’s relatively close proximity to China, in both flight time and time zones, makes it easier to get up to the market to do business. And unlike other major western economies, Australia doesn’t have a large domestic base or similar countries close by to send their wares, so it has always had to be a little more adventurous when prospecting for export markets. It is also the often-unthanked Chinese residents in Australia and visiting tourists who have helped promote many Australian things to their friends and family back in the Mainland. No country outside of Asia has more people of Chinese heritage per capita than Australia, on top of the 1.4 million Chinese who visited Australia last year.
In 2017-2018 Australia’s exports to China were $123.3 billion, or 30.6% of total exports. This dwarfs Australia’s number two destination of Japan where exports were $51.3 billion. Over the past five years, exports to China have surged 56%, whereas Japan grew by just 6%. Yet it’s not all Kumbaya and shrimp and steak barbecues, Sino-Australian relations have deteriorated lately, particularly over the past-12 months.
Australia’s position as one of the pioneering, best practice and reliant exporters to China – balanced with its increasingly precarious stance on geopolitics – makes it one of the most important and interesting relationships to monitor in today’s globalised world. That’s why China Skinny was honoured to be back again this year working with Austcham Shanghai on the second annual Westpac Australia-China Business Sentiment Survey which launched yesterday in Sydney. The survey provides a platform to really understand how Australian businesses on the ground in China are faring in light of the geopolitical tensions and slowing economic growth.
To Australian businesses’ credit, we had 211 complete the survey this year – 33% more than last year. Overall, sentiment was down 6.7% from last year but remained largely optimistic – with 71.6% either optimistic or slightly optimistic about the next 12-months; 81.5% in their five-year outlook. The results also pleasingly demonstrated an increase in Australian businesses’ forecasting profitability in 2019 – a strong 78.9%, from 62.5% in 2018.
One of the promising findings from the survey was that Australian businesses appear to be maturing and realising that China is a market that requires tailored initiatives. 61.1% of businesses surveyed will offer unique products and services for the China market this year – and are 32% more profitable as a result.
Domestic consumption was again considered the most important opportunity for Australian businesses and is also being supported by 26.6% investing in market research and development – 10.7% more than last year. 74.9% have a digital strategy in place or in development, with 59.7% having one that incorporated ecommerce. For those businesses already selling online, they are selling on an average of 2.5 platforms, versus 2 last year. Almost a quarter of businesses surveyed are early adopters of New Retail, with 66.0% of these businesses experiencing a 10% rise in revenue and 55.4% benefitting from increased brand and market insights.
There’s many, many more interesting insights throughout the report. The results aren’t just a barometer for other Australian businesses exporting to China; they provide any company working in China with a great benchmark to understand the common challenges and opportunities. We’d recommend you download the report and see for yourself. You can get it by clicking/tapping here.
A special acknowledgement to our own Alexander Kelso and Austcham Shanghai’s Stephanie Smith, who have worked tirelessly behind the scenes to bring the survey to life. Go to Page 2 to see this week’s China news and highlights.
Fancy a tonic favoured by Chinese emperors that cures painful joints, frail kidneys, and weakness and anemia in women? Or how about a milk beverage that will enlarge your breasts from an A-cup to a D? Perhaps a coconut drink that whitens your skin and will make you more buxom?
Believe it or not, these are all advertising claims in China, and not by small fly-by-night operations. The cure-all tonic was a top-seller from Hongmao Pharmaceutical, who outspent P&G in 2016 to become China’s largest advertiser. The breast-enlarging milk drink was the product of China’s largest beverage group Wahaha, and the magical coconut juice comes from the producers of China’s most popular coconut milk.
Reports of such advertising and other headline-grabbing news such as hordes of Chinese tourists lured to Sydney University believing it was a setting in Harry Potter movies may have some believe that Chinese consumers are a gullible posse. Don’t be misled. Whilst some consumers in lower tier cities are making discretionary purchases for the first time and lack some confidence, most middle-affluent class Chinese are incredibly sophisticated. While we’re seeing a rise in impulsive purchases, Chinese consumers typically don’t take things at face value and do significantly more research before purchasing products and services than their Western peers.
Much of this research comes down to an inherent lack of trust. This is confirmed in virtually every project China Skinny works on, in which Chinese consumers’ purchase journey involve an extensive series of touch points across online and offline channels before a purchase is made.
Most readers will be aware of the fake vaccines, fake condoms and even fake zoo animals. Yet Chinese consumers can’t even rely on cross border ecommerce, which is held up as the beacon of trust – supposedly straight from the source from a more dependable origin. In reality this isn’t true; 40% of cosmetics sold through cross border on Singles’ Day ’17 were fake for example.
Although China updated its advertising laws in 2015 to be much more punitive, many false promises continue to slip though. China has the most fragmented bricks & mortar retail landscape of any major economy, and an online sector containing tens of millions of stores that even Alibaba and Tencent struggle to control in light of their advanced data mining and AI. The regular scams have been one of the drivers behind China’s $9 billion key opinion leader (KOL) industry, who are often more trusted than brands even though close to 70% of KOLs have fake fans and engagement. Regardless, over 60% of Chinese consumers are receptive to online influencers compared with 49% in the US and 38% in Japan.
Although China’s marketing landscape is littered with fakes, foreign brands shouldn’t take Chinese consumers to be fools – they are anything but. It is good to be aware of the misleading claims out there, but don’t dare to try it yourself. It will be found out and shared on social media en masse. Chinese consumers are unforgiving to those who disrespect their intelligence, particularly foreign brands. China Skinny can assist to ensure you can still succeed by keeping everything above board.
On another note, we’re hiring! If you’re a native English speaker based in Shanghai who is curious, intelligent and personable and happy working across diverse and fascinating projects, go ahead and apply. More information here. Go to Page 2 to see this week’s China news and highlights.
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.