China 2015: MARKET DYNAMICS | Brand Extension
Brand extension is becoming more prevalent in China as the market and consumers evolve and brands seek growth by entering new categories (category extension) or new product lines within their current category (line extension).
Like in other parts of the world, Chinese companies sometimes extend brands proactively,
driven by opportunity, retailer requirements or new leadership and vision. Other times brand extension happens reactively, when a brand, or more frequently an entire category, is under pressure, and brand extension becomes a survival strategy.
But regardless of motivation – proactive or reactive – Chinese brands tend to move quickly and are inclined to take risks. Execution can be particularly Chinese in a variety of ways such as these:
- Until the recent rise of China’s middle class, some categories were relatively open – hotels or real estate, for example. In categories like these, brands extend organically to fill open space. In contrast, western brand extension often happens when brands look for space in crowded categories.
- Chinese brands extend brands defensively. Chinese companies sometimes buy into growth categories outside their core business, with the assumption that profit will happen over time. To preempt this activity, brands extend into related categories before new competition arrives.
- Chinese are inclined to extend brands through overseas acquisition. This approach often enables Chinese brands to move rapidly into the premium range.
The technology and ecommerce companies generally extend their brands as part of a strategic vision. These brands follow
the changing needs of their customers and other consumers. And some brands, like Tencent with its introduction of WeChat, combine this desire to serve customers with ambition to become a megabrand.
Instances of brand extension appear throughout the brand profiles that appear in Part 3 of this report. Here are a few examples:
Apparel In acquiring major stakes in children’s education companies, Semir strategically broadened its mission from being a marketer of children’s wear to becoming a one-stop provider of children’s clothing along with education, entertainment and other services.
Health Care In its ongoing initiatives to make a traditional Chinese medicine brand established over a century ago more contemporary and relevant, Yunnan Baiyao acquired the feminine care brand Qing Yi Tang, in 2014, and continued to extend into cosmeceuticals. Tong Ren Tang, an even older traditional Chinese medicine brand, dating from 1669, also has entered cosmeceuticals.
Oil and Gas With over 30,000 gas stations, the most of any Chinese brand, Sinopec leveraged its retail location strength by launching a bottled water brand available in its convenience stores, and making the stores a drop-off and pick-up site for SF-Express, the logistics company.
Technology The online video website Letv moved from content provider to device producer with the introduction of a low-price smart TV. In part to distribute its TVs, Letv launched an ecommerce site, shop.letv.com.
Apparel Faced with the continuing weakness of the apparel category, Anta, an adult sportswear brand, entered the growing children’s wear business and promoted the move by holding children’s Olympics.
Alcohol With consumption pressured by government restrictions against lavish entertainment, baijiu brands sought ways to sustain sales. Yanghe introduced a wine formulated to have healthy properties.
Furniture Known as a maker and marketer of bedroom wardrobes, Suofeiya entered a joint venture with
the French brand SALM as part of a strategy to expand the Suofeiya product line to include a wide range of storage furniture, such as wine cabinets and bookcases.
Food and Dairy With the acquisition of Yashili and collaboration with Arla, Mengniu extended its liquid milk business into milk powder products.
Banks Seeing an opportunity to serve China’s aging population, China Everbright Bank introduced pension products.