Starting at the top

Foreign card

While the higher positioning has been advantageous for brands like Days Inn, in the case of many others like the Swedish furniture maker Ikea, it has more been a case of passive re-branding. Yvonne Yin, public relations manager of Ikea Retail China, says that the company adopts the same kind of positioning everywhere in the world and its products are targeted at mass consumers.

But in China, the company is still considered a novelty by most of the consumers.

Such has been the draw of the brand that it is not uncommon to see people speaking various dialects thronging the company stores in China. Most of the visitors to the store are women aged between 20 and 50, including a large portion of white-collar workers.

In the traditional Chinese home decoration concept, tidiness and order are highly appreciated - walls are often snow white and furniture is placed along the wall. But in the Ikea outlets, Chinese customers can often be found making a beeline for the living room couches, book shelves that can be nailed onto the wall, and flowers hanging from the window.

"Most customers treat Ikea as a symbol of Western way of life," Yin says. "That's why we are considered a 'petit bourgeoisie' brand, maybe because of our display, but not because of our intention to do so."

"When a brand of a particular category enters China, it's a novelty at first, and people want to try it. Later on it becomes a premium brand as it's different, much like what McDonald's did some 20 years ago," Preston says.

But when the overall wealth of the society grows further and people get used to the novelty, the brand will revert to its original status, he says.

Ikea is not the only foreign brand that has captivated Chinese customers with its strong "foreign" aura. Clothing brands like Zara, H&M and even Forever 21 have gained better recognition in China for their authentic American or European designs.

"Western clothing brands like Zara and H&M are targeting younger customers who want to feel and dress like Americans, but cannot afford to spend a lot of money to do so," says Mike Bastin, researcher at the School of Contemporary Chinese Studies at Nottingham University. "The Zara and H&M stores are seen as outlets that are affordable, have good music and sport Western designs."

Lex Keijser, general manager of H&M Greater China and Singapore Region, is well aware of such a trend and has more than capitalized on the concept to boost sales.

"We release all our collections worldwide. Most of the products in the outlets, be it in Hangzhou, Shanghai, London, New York, or Paris, will be the same everywhere in the world."

To cater to customers' different needs, H&M offers various style design concepts. "We have eight to 10 campaigns every season worldwide. Basically there are always new products coming into H&M stores every day," Keijser says.

"We decide on the different markets and the products in our stores based on the customer demand and location," he says.

Early education

For some product categories that barely existed in China, the knowledge gap between the Chinese customers and their foreign manufacturers are so huge that brands often have to play the role of "early educators".

Although several Chinese wineries claim to have a history of almost a century, the concept of wine is actually one that is imported from Europe. Compared with the traditional white spirit baijiu, the market for European wines is still in its infancy in China.

Frederique de Lamothe, director of Alliance des Crus Bourgeois du Medoc in France, an association of 250 French chateaux, says that he feels more of an educator than of an entrepreneur.

Unlike the high-profile French wine Lafite, which is considered a symbol of wealth and big-ticket investment in China, many of the chateaux "present high-quality wines that are affordable and good to share", de Lamothe says.

"We are not in the same position as that of the factory-produced Chinese wine brands like Great Wall and Changyu," de Lamothe says. "Wines from these manufacturers are mass produced wines of the same taste. Our wines come from over 250 family-owned chateaux with a rich legacy in wine -making and a wider selection of products.

"The Chinese market has grown from virtually nothing six years ago. It has developed much faster than we thought," she says.

Though most of the wines from the chateaux are sold to high-end Chinese consumers, there are still some wines in the 10 to 25 euros ($12-30) range that are affordable for working people and ideally suited for special occasions like weddings and birthday parties, de Lamothe says.

Affordable price does not necessarily mean lesser profit for the chateaux. Last year de Lamothe held a wine tasting event in Beijing, and sold nearly 500,000 bottles of wines in less than a week, and more than 1 million bottles in a month.

As early educators, de Lamothe often has to convey the basic knowledge of wines to Chinese consumers, so that they are ready to spend money.

"Branding in China involves more explanation," she says. "In traditional markets like the US, they already know about wines; but in China we need to tell our history and basic things like how to match wines with different dishes."

Localization mantra

Although being European or American is often welcomed and respected by most Chinese consumers, it does not necessarily mean that the brand is in a safe harbor. Whether intentionally or forced to upgrade in China, these brands face a common task: to localize, so that they can keep in line with Chinese culture that won't easily change.

Bastin admits that some brands are not successful in China because they are too reticent to change.

For instance, he says, Oreo cookies were considered too sweet in China when they were launched in 1996, and consequently saw flagging sales. But fortunately, the company is developing local flavors like lemon that are being welcomed by Chinese customers.

"Some European home appliances brands have also not been too successful, as they are not delivering the quality and service that they are supposed to. Most of these brands cannot compete with Chinese brands on the pricing front, and often beat a hasty retreat."

Although 95 percent of the products in Ikea are from global purchase, Yin says the brand is trying to expand its influence by customizing homes across different regions in China. It has set up a research team to study and understand the nuances of the Chinese market.

In Beijing where the property prices are high, the prototype rooms in Ikea are small - usually 30 square meters to 50 square meters. However, in Chengdu where the average living space is much bigger, Ikea has the largest prototype rooms among all its stores in China. Other adjustments include adding a balcony outside the kitchen in the prototypes for Tianjin.

While appreciating the localization efforts, Gong says foreign brands also have to find a subtle balance between localization and their originality.

"For example, suits are from the West, so we have to maintain their Western look. However, suit brands have to be redesigned to fit Chinese customers' figure. Many clothing brands are not doing well in this segment and that's why you also see most of them selling only belts and bags in China."

Some of the brands that have a higher positioning in China fail because they do not do the necessary market research.

"For instance, the clothing brand Gap prints skull patterns on children's clothing, which goes against the traditional Chinese culture of peace and love."

Preston says the adjustments really vary across the brands. "If I'm doing supermarkets, it is easy to localize; but if I'm doing Ralph Lauren, I cannot be too local as it is more of an inspirational product. For some brands, retaining their originality is very important and changing that too often becomes counter-productive. "

However, there are some components that are necessary to add more leverage to the brand, he says. "Some elements can be simple, maybe just the way you design the stores, and the way you serve people, which can help you to localize without changing the brand too much."

But he admits that besides proper branding, there are many factors that can affect brand performance in China, such as management skills, and the proper connections with partners and other allied services.

"There might be a lot of reasons for the failures," he says.

Flat world challenge

The "flat world effect" described by well-known author, Thomas Friedman in his best-seller The world is Flat to describe the global market where historical and geographical divisions are becoming increasingly irrelevant, has also begun to undermine Western brands' dreams to become high-end brands in China.

"It is getting harder to position higher than the original positioning, because customers are getting more and more informed," says Tan from Days Inn.

"Twenty years ago, Western brands could position themselves at whatever level they wanted in China, since there was not too much of competition. Customers now know what brands mean and hence we cannot deviate too much from the original positioning. To gain their confidence we have to provide better quality and service," he says.

Jean-Michel Dumont, Asia chairman of Ruder Finn Public Relations also has a similar viewpoint.

"As companies mature and invest in R&D, it is a logical step for them to target the more affluent segments and raise the brand awareness," says Dumont, adding that launching this repositioning in a buoyant market such as the Chinese one makes absolute sense.

"However, as this market also strongly recognizes brand value, unless the rest of the world eventually follows, the brand repositioning is doomed to long-term failure," he says.

According to Dumont, Chinese consumers, who often blend travel and shopping as they plan a trip abroad, are especially astute at researching in advance.

"As consumers get more exposed to global markets, either through international travel or the Internet, brands have to be consistent globally in both their positioning and pricing. Gaps in either one of these fields will destroy the credibility of the brand."

Unlike the Western society that relies largely on branding and other business skills, China began to build its brands just 15 years ago, and not many of them have adopted professional management, says Bastin.

"But Chinese brands are fast catching up," he says. "Once they gain trust from Chinese customers and start delivering the same quality of services provided by the foreign brands, they will become a force to reckon with in China."

Chinese consumers will mature much faster than what the Western people imagine, he says. "By that time successful people will seek their exclusivity by buying private services, rather big logos."

Preston estimates that an area that is highly underdeveloped is probably the service segment. "So a lot of services can still come to China and do well, like finance, after-sales and travel services."

wangchao@chinadaily.com.cn

(China Daily 08/17/2012 page1)