Western companies looking to do business in Asia, especially in China, don't always confront a homogenous market, and the ways that consumers make decisions about what to buy aren't always predictable, according to a group of marketing experts who spoke at the 2007 Wharton Asia Business Forum. Like developed-world consumers, many urban Chinese people are technologically savvy and comfortable seeking product information on the web. But unlike them, they don't typically show brand loyalty and are often more motivated by price than perceptions of product quality or prestige.
Consider cosmetics. Ellene Hu, director of global skincare marketing, Asia, for Estee Lauder, said that Chinese women will willingly pay for premium products such as the ones her company sells. But they are also willing to jump to another higher-end brand if that company offers a generous giveaway. "For cosmetics, the Asian market is very promotion-driven," Hu noted. "'What are you giving away?' is always a question in the consumer's mind. We have had to struggle with how to do that and preserve our brand equity."
What's more, Asian consumers, from country to country, show varied levels of enthusiasm for Western brands. Japanese women tend to prefer Japanese brands, making it costly for outsiders to break into the market, Hu said. Korean women, in contrast, have historically embraced Western brands, although that's beginning to change as local manufacturers invest heavily in marketing and R&D. "In China, Japanese brands have had some success, and women are willing to look at Western brands," she said.
Thanks to China's sizzling economic growth, its consumers also are becoming more knowledgeable and discriminating, she said. But they have still had far less exposure to Western brands and Western marketing techniques than their developed-world counterparts. They are therefore in an investigatory stage, trying different brands, many of which have only recently arrived in their country. "You will have daughters bringing their mothers to the cosmetics counters and telling them what they should buy," Hu noted.
The Louis Vuitton Surgical Mask
"Chinese consumers aren't brand loyal, but they are brand conscious," added Fred Young, team leader for the Asian division of Swain Tours. "During the SARS scare, I saw someone wearing a Louis Vuitton surgical mask. I seriously doubt it was real, but still, somebody recognized the Louis Vuitton brand and wanted to be associated with it."
Even so, consumers in China and other fast-developing Asian countries tend to be less attracted to luxury brands than their Western counterparts. Partly, that's simply a matter of economics. Although many of them are experiencing a significant rise in their standard of living, they are still relatively poor compared with people in the developed world. As a result, "you are seeing the emergence in Asia of what we call the 'good-enough' segment," said Mike Booker, a Singapore-based partner with Bain & Co. "It provides basic functionality at an affordable cost. It will be similar in size to what you will see in developed markets but will be offered at a fraction of the price."
Of course, marketers' approaches will differ depending on their product category, Booker noted. Some categories are dominated by good-enough offerings. Others, like cosmetics and baby formula, lend themselves to premium products in the developing countries of Asia, just as they do in Japan, the United States and Europe. "Nobody wants to be seen as not spending money on their child, so infant formula is very premium," Booker explained. "When you increase the price, sales go up. This will likely remain a premium product, so there's no reason for [companies] to water down their lines with less expensive offerings."
Contrast cosmetics and baby formula with chocolate. Though many companies offer low-priced chocolates in developed markets, well-known firms like Hershey are increasingly trying to push into the premium segment and persuade consumers to trade up. Hershey, for example, last year bought premium-chocolate maker Dagoba Organic Chocolate. But in developing Asian markets, a mainline offering like the Hershey's Kiss might count as a premium product and be undercut by local producers. "You can get a three-cent chocolate bar in Indonesia," Booker noted. "That's the good-enough segment. For multinational corporations, the premium segment there remains tiny. By the time it arrives, the local chocolate maker will be a $5 billion a year company."
Young, who previously worked as senior research director for the Committee of 100, a nonprofit focused on improving China-U.S. relations, cautioned that Asian markets generally, and China in particular, have greater diversity than many Western marketers assume. "There's no such thing as one China," he pointed out. "In Shanghai, people prefer having a separate MP3 player and phone. In other cities, people want one device. In Shanghai, people want carousel loaders for their CD players. Down south, one-CD trays are fine because they're cheaper. And tastes can be completely different when you drill down to the small cities. People there aren't interested in foreign brands."
Bain's Booker agreed, but pointed out that many manufacturers are striving to tailor their offerings to local tastes. "A yogurt manufacturer has introduced a cucumber-and-kiwi mix because that tested well with some Chinese consumers, and Colgate offers a tea-flavored toothpaste."
Colgate Palmolive has operated in Asia for decades, which has given it the opportunity to develop a deep knowledge of its customers and their tastes, according to John Hofheimer, director of consumer and market knowledge for Hills Pet Nutrition, a Colgate Palmolive division. And while it's the leading premium toothpaste maker in many Asian markets, it has endured a number of challenges along the way.
In 2004, the company faced a marketing crisis in China, for example, when the local media linked its toothpastes with cancer. Some of Colgate's products and those of other companies include an anti-bacterial chemical called triclosan. Regulators in China and elsewhere had checked off on the chemical's use, but an academic study in the United States alleged that it could cause cancer when combined with fluoride. Because of its own research and studies by others, Colgate Palmolive remained convinced that the products were safe.
"In China, the study got picked up and, because we're the leading brand of toothpaste, we were singled out," Hofheimer said. "All of the major newspapers led with stories saying, 'Colgate causes cancer.' At first our management said, 'This isn't true, so let's not overreact.' But within two weeks, our business in China had dropped by 25%. So we addressed it with an aggressive marketing campaign. We were surprised by the lack of government support. We were out there alone."
Colgate Palmolive's plight was exacerbated by competitors' conduct, Hofheimer noted. "There is a marketing tactic in Asia called 'push girls.' Young women are paid to approach consumers in stores and suggest products to them. The push girls were telling people that our toothpaste causes cancer." Colgate Palmolive learned from its mistakes and will respond promptly if it faces a similar problem in Asia in the future. "By not responding right away, we left the wrong impression, and we didn't have enough invested in relationship-building with the government."
Another challenge for Western marketers operating in Asia is the "gray market," said Estee Lauder's Hu. Companies with well-known, high-end brands understandably want to move deliberately as they enter new markets, fully investigating pricing, positioning and distribution channels. But if they are too slow, local entrepreneurs will start importing their goods on the sly. "In India, for example, we didn't have an official retail-marketing arrangement. So we had a lot of people buying our products elsewhere and selling them on the gray market." In theory, that's illegal, but rules are often murky in developing markets and enforcement is weak.
Regardless of the product or its position, companies need to make greater efforts to research Asian markets and local consumer preferences before plunging in, said Booker. "I'm shocked at how bad some of the research is. Many people really don't know what's going on in the market for their products. But that means that a savvy company can do the basics and get an advantage. A lot of basic data isn't available yet in China, so you have to do the hard [work] yourself."
A firm doesn't have to spend a lot of money or hire a consultant to get that knowledge, added Hu. Her company relies on its local employees and their familiarity with the idiosyncrasies of customers' tastes and preferences. Estee Lauder also does a lot of focus groups with customers and potential customers.
And whatever else Western marketers in Asia do, they need to be sure that they hire staffers who are fluent in both English and the local language or contract with well-qualified translators, said Young of Swain Tours. Then they should devise ads and marketing materials specifically for the local market. "You can't just hire someone and say translate our U.S. ads," he noted. "Coke did that and its slogan, 'Coke Adds Life,' ended up as 'Coke Brings Back Your Ancestors from the Dead.'"