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Expanded China Top 100 showcases brand impact on fast-changing market

Expanded China Top 100 showcases brand impact on fast-changing market

4 categories, 17 brands added, value rises record 30 percent

The value of the BrandZ™ Top 100 Most Valuable Chinese Brands 2019 increased 30 percent, the highest annual value increase since the launch of the BrandZ™ China ranking nine years ago.

With the addition of four categories—consumer finance, entertainment, lifestyle platform, and transport—the expanded ranking more fully depicts how the growing sophistication of Chinese consumers is altering the brand landscape and creating a unique marketplace of products and services available with unprecedented speed and convenience.

The added categories, and revised BrandZ™ eligibility criteria, qualified 17 brands to join the BrandZ™ China Top 100, more newcomers than ever before. With their innovations in artificial intelligence, e-commerce and New Retail, and social media, the newcomer brands are both inspiring and fulfilling the rising expectations of Chinese consumers.

Brands accelerated their expansion in lower tier cities. And with the growing global presence of Chinese consumer brands, overseas consumer attitudes toward Chinese brands became more positive, although awareness of Chinese brands continues to lag, according to recent BrandZ™ research conducted with Google.

Among the Top 10 brands in Overseas Presence, six are in the technology category, compared with only three just a year ago. The three technology brands added to the Top 10 in Overseas Presence are: DJI, the world’s largest Drone maker; UBTECH, a leading developer of robots; and smartphone maker Xiaomi. Among other 2019 highlights:

  • Technology led the ranking in number of brands, 11, and contribution to total value, 26 percent. All but two of the technology brands rose in value. Of the 17 newcomer brands, technology is the most represented category, with four brands.

  • The increase in brand value crossed most sectors of the economy, with 13 categories increasing in value, led by entertainment, up 186 percent. Education, up 57 percent, and retail, up 55 percent, showed ongoing strength.

  • The mobile-centric, convenience-driven Chinese lifestyle drove the success of the five most valuable newcomers: Xiaomi, Didi Chuxing, the ride-hailing app; Meituan, the services booking site; Ele.me, the food delivery app; and peer-to-peer lender Lufax.

Chinese government initiatives to drive digitalization, expand consumption, foster more equitable prosperity, and promote selected strategic industries influenced these developments. They occurred despite China’s slower economic growth, stock market volatility, and international trade tensions. However, the potential for continued brand growth comes with complications.

New competitive challenges

New Retail illustrates this dilemma. Over 800 million people use the internet in China, mostly with their mobile phones. With this unique scale, the major e-commerce retailers, Alibaba and JD, developed online shopping emporiums informed by vast amounts of customer data, and distribution systems that fulfill online purchasing with rapid offline delivery.

These systems have democratized access to brands throughout China. Shopping online, people living in lower tier cities see the same products, and usually the same prices, as people living in the Shanghai, Beijing, or Guangzhou. Inland delivery may take a day or two, while in the coastal mega cities, delivery can happen in just hours.

This online-offline phenomenon empowers brands to reach an ever-widening audience of customers throughout China. But because the e-commerce channel is open to all enterprises, well-established brands increasingly face competition from new, unknown businesses able to build sales volume without being actual brands, at least not yet.

These businesses may eventually reach a threshold where sustainable growth requires brand building. Meanwhile, e-commerce and social media platforms have also enabled the emergence of what Kantar Worldpanel labels Chinese insurgent brands. These new fast-moving consumer goods (FMCG) brands are small, nimble, and a threat to multinationals, especially in lower tier markets.

Succeeding in this hypercompetitive environment requires deeply understanding today’s consumer, and personalizing the brand experience with relevant products, services, and communications. That level of personalization depends on access to customer data, which, typically is gathered and controlled by the e-commerce platform rather than the brand.

Customer insight and communication

Alibaba and Tencent, in partnership with JD, are developing programs to share a wider view of shopper behavior. The challenge for brands is to understand how the various platforms work and to align with the platforms in ways that best yield pertinent customer insights and meet strategic objectives.

This competitive environment also requires brands to communicate effectively across media, particularly social media, which has become more complicated. Kantar Media divides social media into two types: core social media, like WeChat, which is used primarily for communication; and derivative social media, like gaming or video sites, which emphasizes content. Optimizing ROI requires that brands be present on social media in the most effective and relevant way.

It is also increasingly important for brands to understand how shopping habits are changing as Chinese consumers become more sophisticated and rational about purchasing decisions. At least two factors drive this development:  greater knowledge about products and services because of the internet; and greater concern about the future because of slowing economic growth.

The premiumization trend of the last several years continues, but as part of a larger context. Chinese consumers are still willing to trade up when they want particular quality or prestige, but for other needs, when a good product or service is available at a lower price, consumers are ready to trade down. Kantar Worldpanel recognized this phenomenon in fast moving consumer goods and calls it Stratified Spending.

This phenomenon is one of the reasons for the emergence of Pinduoduo, an e-commerce competitor to Alibaba and JD, with a site that promotes lower-priced products and discounts earned by group purchasing.

Potential in lower tiers and overseas

Also increasing and complicating the potential for brand growth is the population shift to lower tier cities. Two complementary developments are reversing the traditional migration pattern: coastal cities are losing some of their appeal as they become more crowded, polluted, and expensive; and smaller cities, with a more relaxed lifestyle, are becoming more attractive.

As a result of central and local government policies, lower tier cities have benefited from improved infrastructure, including: highways, high-speed rail, airports, housing, and internet access. These improvements, along with government financial incentives, have attracted more industry and expanded employment opportunity.

While the brand growth potential in lower tier cities is significant, it comes with a challenge. Applying tactics that worked well in Shanghai or Beijing will not guarantee success. In general, consumers in lower tier cities prefer shopping that is less transactional and more based on personalized relationships. Because many Chinese brands began in lower tier cities and understand the distinctiveness of these markets, they currently enjoy an advantage.

Overseas expansion growth opportunities have also increased. As China moves beyond the industrial focus of the Belt and Road initiative, more consumer-facing brands, especially in technology, increase their international presence. This development fits with the government’s China 2025 strategy to establish leadership in areas including artificial intelligence, robotics, and green energy.

To accelerate overseas expansion, Chinese brands need to understand the variations in overseas attitudes towards Chinese brands, and identify the countries where consumers are most receptive. Even then, Chinese brands need to differentiate more and build awareness, especially among young people. Whether going abroad or expanding domestically, the potential for brand growth is enormous, but realizing it requires the knowledge and expertise needed to surmount new challenges in ways that are creative and sometimes transforming.