Chinese brands provide a model for competing in uncertain times
Adaptation and innovation frees
brands from old business models
Chief Strategy Officer Global Clients
Valenstein & Fatt
“It is not the strongest of the species that survives, nor the most intelligent,
but the one most responsive to change.”
- Charles Darwin
We live in increasingly challenging times.
Military strategists refer to this climate as VUCA.
Volatile, Uncertain, Complex and Ambiguous.
They use these axes to plot a practical code for awareness and readiness.
It seems the perfect acronym for the challenges we face as marketers.
Markets are definitely volatile and uncertain, while consumers have never been more complex or ambiguous.
How do we navigate our brands through such hostile and uncharted territory?
Are we ready to manage risks, foster change, and solve problems?
How will we win in this hypercompetitive world?
China is surging ahead of the West.
It is a preview of the future that our brands will face.
We would be wise to absorb China’s lessons to give our own brands the best chance of survival.
China’s phenomenal transformation from imitators to innovators has been much lauded. We are in awe of the scale, popularity and commerciality of BAT (Baidu, Alibaba, and Tencent). We marvel at the transformation of Lenovo into the world’s biggest PC maker by volume. What can we learn from China and how can we absorb its innovation lessons?
Let us focus on three key themes: the cult of the new, cultural leadership, and consumer complexity.
THE CULT OF THE NEW
China is one of the fastest adopting countries in the world for new products and applications. It embraces newness and novelty like no other nation on earth. It takes the embryo of an idea, sometimes a pre-existing one, and iteratively evolves it until it is transformed. China’s innovation philosophy is a brilliant blend of reiteration and reinvention. It liberates itself from outdated business models.
The growth of super apps
This is Chinese innovation on steroids. WeChat is WhatsApp, Facebook, Twitter, PayPal, Amazon, Skype, Uber and Facetime all rolled into one. It had 768 million daily users in 2016. Thanks to WeChat, QR Codes (which barely made a dent in the West) have become essential to mobile commerce in China. It is now a CRM platform that controls the intermediation between business and consumers through owning and managing user profiles. Its big-brother data capabilities are disquieting. It is light years ahead of any competitor in functionality and reach.
Novelty never grows old
Novelty can come from anywhere. In personal care, we have seen the rapid adoption of personalization, such as Skin Inc’s bespoke blend of 10 different serums. YSL’s beauty engraving service is so popular, it now accounts for 80 percent of their orders. The craze for Korean and Japanese beauty and hair products seems insatiable. The “Korean face mask selfie” craze has now spread to Hollywood.
The Chinese mindset always seeks newness, whether by inventing new products, services or categories or disrupting existing ones. Brands and marketers need to manifest and behave in more unexpected and agile ways. We need bolder experimentation and rapid iteration.
China has taught us that it is better to experiment, fail fast, and learn than to procrastinate and risk extinction.
Stickiness is key
Brands that succeed in China are culturally sticky. They understand how to both leverage and lead culture. They champion “slow culture,” celebrating traditional festivals such as Chinese New Year, and they feed “fast culture.” Singles' Day is an Alibaba-created festival to celebrate singles on 11/11 every year. With sales on Tmall and Taobao of US $17.8 billion in 2016, it is now the largest online shopping day in the world. Great brands harness the hottest key opinion leaders (KOLs) with powerfully placed endorsements and product demos in top shows and online dramas. Cultural currency is so valued that brands have reportedly paid up to $50 million for sponsorship rights for shows like The Voice. Famous KOL’s have the reach of the gods. This makes word of mouth, in the right context from the right KOL, priceless.
Take a cultural stance
Chinese consumers, like most people, are full of beautiful contradictions. They are both materialistic and idealistic. Great brands capture this idealism by harnessing an issue or challenging a point of view that resonates with their audience. P&G’s SK-II brand did this brilliantly when it took on the stigma of “leftover women” and the Chinese ”marriage market” with its #changedestiny campaign. SK-II’s sensitive and moving exploration of the issue hit a nerve with the over-25s.
Further afield, cultural leadership triumphed when 50 brands took on Fox News and refused to sponsor Bill O’Reilly’s The O’Reilly Factor, resulting in his dismissal for sexual misconduct. Companies understand that consumers expect brands to have shared values and to use their power for good.
It is not enough for brands to have their finger on the pulse of culture; they need to know how to influence and lead it.
China is the world’s biggest economy with an incredible spectrum of consumer needs. Navigating this complexity is crucial.
Innovating for extreme ends of the social pyramid
In 2015, Chinese consumers accounted for over one-third of all global luxury spending. Fuerdai (second-generation rich) millennials are driven by ostentatious displays of wealth and status. Infamously, one of the richest men in China bought two gold Apple watches for his dog and took a picture of him wearing them for Instagram.
The growing middle class, with their love of luxury, has led to the trend for “extreme premiumization.” The increasing rejection of mass or supermarket brands in favor of more niche or aspirational ones could prove problematic for big global brands. Competition is becoming fiercer as more Chinese consumers upgrade their choices. Brands must prove that they are worth upgrading to.
At the other end of the social pyramid, “lean value” is required for lower tiers. Chinese brands have creatively adapted to meet this need with a nuanced understanding of local culture. People want convenience, functionality, and an easy user experience. Utility is key. “Feature inflation” is rejected—they eschew bells and whistles for streamlined, simple, value-led products that target a specific need. George Yip and Bruce McKern term this phenomenon “fit for purpose” in their book, ‘China’s next strategic advantage’. It is a valuable lesson for brands targeting the emerging consumer class globally. People do not want to pay for over-featured products and services. China is the leader in how to make innovation commercially viable. We would be wise to learn from Haier or Lenovo.
Brand experience is the new battleground
Although brands need an e-commerce mindset to win in China, they also need to creatively bridge the gap between physical and virtual shopping across all channels. Online retailers are now making big investments in physical space. Retail experience has evolved way beyond sampling and discounting. Novelty plays, such as augmented reality displays, are now relatively commonplace.
Brands will need to cultivate direct relationships with their consumers. Their brand experiences will need to build their story, deliver more targeted messaging and provide personalized shopping experiences. Nike and Under Armour are leading the charge on Direct-to-Consumer.
Homegrown brands are taking on the world
Chinese consumers are both nationalistic and international. The aggressive growth of domestic brands is testament to this. It is increasingly China’s turn to become the breeding ground of world-beating competitors. The best of these brands cleverly achieve cultural stickiness while delivering quality credentials. Huawei harnesses A-list celebrities such as Scarlett Johansson to promote its top smartphone, the P9. It successfully projects both aspiration and quality on a local and global stage. Domestic brands have mastered brand talkability and media manipulation with concentrated spend on branded content and big show sponsorships. China has fully embraced a non-traditional media model with big blockbuster plays in culture that build brand fame in an ocean of competitive noise.
China has thrown down the gauntlet. While the world has watched, it has evolved at a feverish pace, from iterative imitator to ingenious innovator.
As Steve Jobs said, “Innovation distinguishes between a leader and a follower.” In this volatile, uncertain, complex, and ambiguous environment, brands must lead by embracing faster experimentation and more disruptive business models. Brands need to find ways to creatively navigate consumer complexity and rise above the fray to lead culture. Only then will they survive and thrive.