China on a Shopping Spree

photo credit: yogma

There was a telling article yesterday in Time Magazine online about China's recent shopping spree around the world. The Chinese government has a wallet bursting full of cash, $2 trillion to be precise, to buy everything from non-branded commodities to flashy branded cars. In the current economic climate, the Chinese state entourage is a welcome sight for country hosts as all are eager to be lavished with some red Maoist money. I find the picture quite ironic, since here back in China it is the foreigner who casually flicks a coin in the pan of the poor Chinese man. Anyway, here's a quick summary of the top 5 recent spends by country:
1. Russia $25billion (loan to state owned oil co.)
2. Brazil $10billion (loan to state owned oil co.)
3. Germany $10billion (incl. $2.2billion worth of BMWs and Mercedes)
4. Great Britain $2billion (incl. 13,000 Jaguars)
5. Spain $320million (incl. gallons of olive oil)

This is a telling sign where the wealth in the world now lies. The spending at government level is reflected also at consumer level where the majority still say they will spend more this year than last - probably the only people in the world to say this right now! However, the nature of goods and brands spent on will differ. There will be more trading down and looking for more value for money, which could mean in some categories, like home appliances and household daily items, people will switch to reputable brands that offer a more competitive price. However, in times of recession, people do still need the little luxuries in life, so sales of beauty products are expected to continue to prosper, but consumers will be more discerning, which means it is imperitave to get all your marketing and communications right...relying more and more on effective in store which can help drive your bottom line up.

Points-of-sale, Points to Ponder

Last week I was asked what would be the best store entry strategy in China for a particular new luxury skincare brand. It was a very specific request because the brand is already in China, albeit with little to no awareness of it's presence, plus they had a very real offer to operate a 2 week trial space in the promotional area of a Shanghai department store. If they perform well during the 2 week trial period, they will secure a permanent space in the store but if they don't then...that's it, out! So a very critical 2 weeks to say the least.

Anyone with even a half-baked understanding of the Chinese consumer market will be able to tell you that point-of-sale activities are one of THE most effective ways to spend your limited marketing dollars. Of course, the usual sexy ATL stuff, PR and new media should also be part of your toolbox but POS activities (or BTL, the larger category to which POS activities belongs to), are so closely linked to sales results that it should constitute a key part of any marketing plan, and does not deserve relegation to it's sometimes poor Cinderella status. True, it may not seem as strategic as ATL or as glamorous as PR but when handled properly, it not only drives brand awareness, helps educate consumers about your brand story and gives customers real value, but also keeps you in the department stores' good books and not least, brings out shining sales results without breaking the bank.

Why are POS activities so effective? The 2 main reasons are the spontaneous nature of purchase decisions (back in the day, working in a large FMCG company, we estimated that in the region of 70% of purchase decisions in China were made in-store); and secondly, POS activities are very targeted and hence helps cut through the clutter ie. you capture the right audience, at the right place, with the right message. And the cherry on the cake - the costs are low and the results are easily measurable. In the current climate, that's surely enough reason to give it some serious thought.

More in a later post on what constitutes good POS activity.

How relevant and consistent is your brand?

photo credit: yahlen

It's amazing what information you pick up if you keep your ears open while about town, especially in a jam packed Shanghai metro during rush hour. A young ambitious couple were talking about franchises. They were fed up of being small cogs in the wheel of a large organisation and were considering spending their life savings on buying a food franchise business to run (which to me would only mean they are only slightly bigger cogs in an even bigger organisation).

The discussion was between KFC and Tea Storm (茶风暴). Hmmm I hear you say, what on earth is Tea Storm. Well if you think coffee and sandwiches for Starbucks then think cold milk tea and sweet rice balls for Tea Storm! And of course they require minimal real estate since they are just kind of hole-in-the-wall set ups. The difference in franchise cost was also huge, 5millionRMB (ca.730,000USD) versus 100,000RMB (ca.15,000USD).

But the interesting point I think is not that KFC costs so much more, that is kind of obvious, but that Tea Storm, a seemingly naff brand in my eyes can actually command even 100,000RMB for their business model. Putting personal taste aside, the lesson really is, that building any brand is about being relevant to your customers and being consistent, in everything from the images and colours you use to the quality of your products and the tonality of your communication; consistency to the point that you can package it all up into a structure that you can franchise off and leverage x-fold. KFC has proved it's relevancy in the China market by outperforming McDonalds 2 to 1 in number of outlets. Not only is fried chicken more appealing to Chinese tastebuds than hamburgers but they also have a product localisation program and offer even chicken congee! Tea Storm has based it's brand on being the best cold pearl milk tea (珍珠奶茶) around, which appears to be rather relevant to the Chinese consumer. Not only that, it has chosen a market so specific that it can be the best at what it does.

And here is an interesting link, if you are wondering how KFC can command such franchise fees. Quick summary: each restaurant in China brings in an average revenue of 1million USD and 20% profit.

Department Store or Fashion Museum?

photo credit: dubbie

Rumours in the industry today that the high end retailer from HK, Lane Crawford, is struggling in Beijing and could close down soon. That would be another embarrassing and expensive flop in China after the failure of Lane Crawford Shanghai and Hangzhou in previous years.

So is there any truth to the rumour? Well, having walked through the beautiful airy store, with it's glimmering mirrors and shiny counters it really seems to be the model of what a fashion and beauty sanctum should look like. Described as a 'fusion of fashion, art and architecture', it's new edgy, artsy communication is also very refreshing BUT BUT...despite seemingly having done everything right, the biggest let down has to be it's location. It's out of the way, in a part of town not frequented by shoppers, it's not convenient, it has no residential area close by, it has no thriving eateries and restaurants in the vicinity (a very important factor driving store traffic in China). The place has the grandeur and emptiness of an impressive museum during closing hours.

However, it would be a shame if it did close, after all it houses 600 high-end fashion and beauty brands, many of which are new to China, like Alexander McQueen in fashion and Ole Henrikson in beauty but somehow I can't imagine Lane Crawford letting a $38million investment go down the drain like that in what has only been just over a year. Let's see.

To spend or not to spend?

Just when we thought the New Year celebrations were coming to an end, the 5th day of the Chinese New Year was upon us yesterday, a day that, judging by the noise, could easily be mistaken for New Years Day itself. It was welcomed in with spectacular fireworks and more importantly, hour long, noisy heartstopping firecrackers; all this to welcome in the God of Wealth 'Cai Shen'. This year perhaps just a tad noisier than others, just to make sure Cai Shen doesn't take his wealth elsewhere.

This year marks the 30th year of the opening up of China. It will also probably become the 1st year that China will experience a slowdown in what has been a soaring 30 year ride of economic wealth. The big question is how will China fair in the global downturn? Exports will certainly decline further and the population have been called to be dutiful citizens and spend, spend, spend! So will they spend more? And what will they spend on? Or will they simply spend more discerningly?

The prosperity of the past decades has witnessed an embrace of all things western and a development of discerning tastes for quality, style and luxury even. These are characteristics not typically associated with Chinese brands. So, despite a strengthening of Chinese patriotism, not least through the success of the 2008 Beijing Olympics, can we really expect the Chinese consumer to turn and buy local? Probably not; even for low involvement type purchases like food and drink, the dairy scandals of the past year were enough to put anyone off. International brands offering safety and good value for money (value meaning not just functional but also emotional) will fair the best in these conditions. As for the astute Chinese consumer, they've been good savers in the past and know when to tighten their belts when they need to.