The number of surveys indicate that Chinese are increasingly looking toward foreign brands at the expense of Chinese brands for everything from food and cosmetics to airlines and hotels. This means more opportunities for foreign companies considering increasing their foothold in Chinese market and winning more customers at the expense of the local competition.

According to the surveys, China’s food and entertainment industries are at the bottom of the “brand trust scale” while local technology firms are perceived as the most trustworthy brands. In retail, Western companies Nike and Zara enjoy the best reputation, however in grocery market, consumers show more price sensitivity. For instance, Taiwanese grocery chain RT Mart is doing well on the brand trust and overall value while British Tesco is leading among Western grocers in China.

Remarkably, large number of Chinese brands in retail are still perceived as not delivering enough value, even at throwaway prices. As a result, consumers are willing to pay premium for Western branded products as long as the price difference is reasonable.

Companies should learn to engage with their customer from the senior level. A company’s president or a CEO should be able to come out and address important issues head on.

Apart from the food safety scandals, social media has been playing increasing role in shaping brand perception of local products and companies. Chinese netizens are typically more likely to leave negative comments in social media following disappointing experience as opposed to writing raving reviews if the experience was positive. This situation often leads to brands falling out favor very quickly, especially if a company fails to address its social media crisis fast enough.

In one of the episodes of Thoughtful China program, Chinese consumers’ trust was the topic of discussion between several participants across number of industries. The interviewer was asking questions about the best ways of building brand trust, manage brand reputation and respond to crises. Below is the summary of the answers that made the most sense to me:

Companies should learn to engage with their customer from the senior level. A company’s president or a CEO should be able to come out and address important issues head on. Communication by senior level management would build trust and put such company on a different level of engagement with its customers.

China is still largely a relationship based society which explains the phenomenon of KOL (key opinion leaders) in the social media – individuals whose opinions are held in high regard by the large number, sometimes hundreds of thousand, of followers. Building relationship with KOL in the area of company’s operation is extremely important for brand reputation management.

Company should consider cultivating internal KOLs, the process that takes time and requires close engagement in social media. Once again, company’s CEO with enough charisma could be the best candidate for KOL. Chinese customers are very likely to appreciate such company’s efforts to build direct relationship with consumers from the highest level.

Chinese consumers tend to put more trust in large companies that are viewed as more reliable. In the West, on the other hand, people are more likely to distrust big corporations. Communicating the size, global reach and long history of a particular company will actually be beneficial in China in terms of brand perception.

Consumers in China are becoming increasingly demanding for greater social responsibility from companies they deal with. Issuing periodic social responsibility reports by such companies, as it is common in the West, will also help in building better reputation and, ultimately, solid and sustainable brand trust.

Overall, local brand trust situation in China shows signs of improvement, partly due to increased pressure from the government on corporations to become more transparent. Also, China’s market is still young and, since building trust takes time, foreign brands with established history and track record are likely to still stay ahead of local competitors for some time in the area of brand trust .

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International education in China: facts and trends

The main reasons behind increased demand for international education are internationalization of labor, the rapid growth of academic mobility at the higher education level, and the increasing dominance of English as the language of business.

International education in China has been mainly the market for the children of expatriate families. Government regulations have been holding back the development of this sector for locals which, potentially, could be practically unlimited. Therefore, 410 international schools in China have mostly been teaching foreign children or those from mixed marriages where one parent is a foreigner.

Dulwich College has been one the most well represented international schools in China with facilities in Beijing, Shanghai, Suzhou and Zhuhai. Presently, every single first tier city and larger number of second tier ones, have at least one American and one British school and their numbers keep growing.

Some of the most well-off Chinese parents go as far as obtaining for their offspring passports from African and Caribbean countries which are used for the sole purpose of qualifying them for international schools. This is why it is not uncommon to come across Chinese kids with Gambian or Senegalese passports enrolled in some of those prestigious educational institutions.

Moreover, international education in China is also one of the most expensive in the world with fees reaching $40,000 per year for high-end Shanghai and Beijing schools. Such price level is already comparable to tuition fees of top Western universities.

Trying to tap into this lucrative market, increasing number of private Chinese schools are now offering international curriculum for locals. Students in such schools can choose to opt out of traditional Chinese programs in favor of English based ones in order to boost their chances of enrolling in top Western universities.

There are also signs of authorities gradually easing their strict rules with regards to international education in China. One of them was a relatively recent relaxation in the regulations for Sino-foreign school partnerships. If the regulations are eased further, and given Chinese students’ demand for overseas universities,  the market will most certainly grow further.

Considering Chinese parents insatiable drive to invest in the their children education combined with the means of large number of them to do so, international education in China is well on the way to become the largest market globally.

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As this infographic illustrates, increasing number of Chinese online shoppers now put higher value on branded goods over lower priced generics. In fact, sales of not branded goods have dropped to 35% in 2014 compared to 42% in 2011, while sales of branded products have increased to 65%. This trend is certainly good news for foreign brands targeting Chinese online shoppers.

At the same time, the rise of branded ecommerce in China hasn’t been affecting every brand equally. In fact, the share of top brands sales has seen a slight drop of 2% while the sales of lesser known brands increased by 4%. Regional and pure online brands have shown the largest increase of 6%.

How to succeed in branded ecommerce in China?

The infographic gives the following advice:

Beginners:

• Build standalone online marketing and sales systems, supplemented with a small digital sales team.

Intermediates:

• Integrate online and offline channels to improve consumer engagement;
• Rely on full-function digital team or an integrated team for online and offline channels;

Experts:

• Disrupt established business models to create innovative, consumer-led products and experiences;
• Create project teams focused on multiple consumer segments.

Here is infographic:

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Back in 2007, Bill Gates told Fortune that he expected China to be Microsoft’s biggest market, “though it might take 10 years.”. Those comments were made during a visit to Beijing when Gates was awarded an honorary degree from Tsinghua University and met with four members of China’s ruling Politburo. 

Did the policy of accommodating the authorities actually helped Microsoft in China?

Unfortunately, Gates’ “Chinese dream” has never materialized. While Microsoft doesn’t release specific figures, it is estimated that China contributes less than 10% of the revenues. Sales of Microsoft’s biggest earner, Windows OS and MS Office are almost non-existent in China where 95% of installation are pirated. Although, those products run on almost every computer in China, the market share simply can’t be translated to revenues.

First, back in 1992 when Microsoft just entered the market, they tried to get tough with existing users using illegal software copies. They sued some Chinese companies but ultimately lost, angering the authorities in the process. At the same time they tried to sell legal versions of their software at the cost of several monthly wages while a pirated copy could be bought at a street corner for less than $1. Not surprisingly, that didn’t work either. Fast forward to the present, Windows 10 is now offered for free to all users in China, including those running pirated copies.

In their efforts to please the authorities, Microsoft began censoring the content according to Chinese government guidelines and even revealed the Windows source code to them. The company has also customized Windows security to the specs of Chinese government clients. The consequences of that move were later blamed for helping Chinese hackers in their attacks on Google as revealed by WikiLeaks a few years later.

After all of that, Microsoft was still treated with suspicion by authorities culminating in anti-monopoly investigation of the company in 2014. In July of that year, about 100 officials from SAIC (State Administration for Industry and Commerce) stormed four Microsoft offices in China, questioning executives, copying contracts and records, and downloading data from the company’s servers, including email and other internal communications.

The investigation coincided with Microsoft’s decision to stop supporting Windows XP in hopes that the move would force users to replace it by upgrading to Windows 10. Unfortunately, Windows XP was still widely used by many companies in China including the government who didn’t take that decision well. Some analysts suggested that angering the authorities culminated in the infamous antitrust probe of 2014.

Finally, Microsoft not only agreed to provide Windows 10 upgrades for free but also to develop a special customized version (officially called ZhuanGongBan) to meet specific demands of the Chinese military.

Things started to look better for Microsoft when Bing was allowed to continue operating in China while Google, who didn’t agree to censor its search results, was cut off the market. However, at that point, Baidu was already an established leader with about 70% market share and Bing, which incidentally sounds like the word “sick” in Chinese, seemed to miss the train. Today, its market share in China hovers around 2%.

That still wasn’t the end to troubles of Microsoft in China. Most recently, the company has announced that its MSN website in China will be shut down on June 7. The portal currently hosts news, lifestyle content, and the company’s Bing search engine for Chinese users. Unfortunately, it never really caught on barely registering against much more popular competitors like QQ.com, Sina and Sohu. Among other reasons was the fact that Microsoft was forced (again) to change its Windows 10 default search from Bing to Baidu cutting off traffic to the portal via its desktop OS. On the mobile front, there simply aren’t enough Windows phones in China to compete with Android dominated ecosystem.

Microsoft will have to get really creative in order to stay relevant in China, especially in the face of competition represented by BAT (Baidu, Alibaba, Tencent) as well as others who continue to encroach on Microsoft traditional territory of operating systems and office apps.

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On the other hand, the company’s success didn’t come completely unexpected considering huge popularity XiaoMi has been enjoying in China in the last year or so. Clearly, to achieve this feat, XiaoMi had to do a few things right and they did. This begs the question: what other companies, especially Western newcomers, could learn from XiaoMi’s experience?

I’ve looked at their strategy from the marketing standpoint and came up with the list of 7 reasons of their unprecedented success broken down into 4P marketing categories (product, price, place & promotion):

#1: Product – not just another knock-off

Competing only on price was not what XiaoMi has chosen as their core strategy. Surely, their phones and tablets are cheaper than Apple’s and Samsung’s but, by far, not the cheapest ones in the market. There are cheaper smartphones that flood China, however all of them have a major flow – poor quality. Essentially, those devices are reverse-engineered versions of Samsung models built from cheaper materials.

By coming up with a good quality phone at lower price range was the key strategic move that put XiaoMi firmly on the map. The phone has a robust case, high quality screen and a reasonable battery. It doesn’t break easily, unlike cheaper copycats that start having issues after just a few months of use.

By building it’s own Android-based OS called MIUI, XiaoMi phones got new exciting features not found on standard Android devices as well as plenty of customization options.

#2: Price – pay less now, pay more later

XiaoMi has also realized that selling cheaper phones near their actual cost was not a sustainable long term strategy, so they decided to go with the Amazon’s model – just cover the cost of the devices and make money from selling content. Although, XiaoMi is often compared to Apple, especially considering the fact that their founder, Lei Jun, resembles Steve Jobs in his style and charisma, it is clear that XiaoMi’s true inspiration comes from Amazon.

Also, XiaoMi mostly sells online which further reduces cost of sales and overheads related to brick and mortar stores or dealing with distributors and retailers.

XiaoMi has also managed to harness the power of social media by not only broadcasting their messages and announcements but by actively engaging with their customers. Engineers are routinely encouraged to speak directly to consumers and use gathered feedback to refine software.

#3: Place – gain strength at home first

Although there are rumors of XiaoMi’s inevitable coming to North American and European markets, the company seems to stay focused on China with 97% of the shipments locally. It has been mentioned that their next target will be in South East Asia and, most likely, other BRIC countries. Recently, ex-Google executive,  Hugo Barra, who himself hails from Brazil, has become new XiaoMi’s international face.

It seems that the company is not in a rush to go to more developed markets dominated by Apple and Samsung and prefers staying focused in its home base where the market is still booming. Perhaps, potential IP related troubles stemming from frequent accusations of possible infringements, also play role in choosing to stay away from US and EU for now.

#4: Promotion – the power of word of mouth

OK, this one got to be my favorite so I have to break it down. First of all, early on, they have pioneered flash style sales which were done with little or no advertising. Flash sales basically mean selling limited quantities during limited periods. They always create anticipation and urgency – great factors to win consumers’ minds and hearts. Needless to say, the units were sold quickly and talked over a lot all over China’s vibrant social media. Word of mouth marketing worked very well for XiaoMi and they continue to take full advantage of it.

#5: Promotion – active use of social media

XiaoMi has also managed to harness the power of social media by not only broadcasting their messages and announcements but by actively engaging with their customers. Engineers are routinely encouraged to speak directly to consumers and use gathered feedback to refine software.

#6: Promotion – dedicated brand advocates

Through its active role in social media, XiaoMi has also succeeded in building a dedicated fan base. Those Mi-fans are very active in social media and are, in some ways, similar to those hardcore Apple advocates that we are all familiar with. Mi-fans are always present at XiaoMi’s product launches where they are known for loud cheering and applauding.

#7: Promotion – CEO as the face of the brand

Last but not least, XiaoMi’s charismatic boss, Lei Jun, does a great job in making his brand look cool and current. He has put a face to a brand, something that traditional executives in China wouldn’t feel comfortable doing. Lei Jen’s similarity to Steve Jobs in the ways he talks about the brand is not a coincidence – the late Apple’s founder still holds an almost iconic image among Chinese.

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Although, not every brand has to be on WeChat, this platform is certainly one to be considered by companies seeking to engage with Chinese consumers directly. It has its strength as well as its weaknesses which I’m going to discuss next.

First of all, a company considering marketing on WeChat should have a clear idea about its limitations as a marketing tool. Those can be summarized as follows:

• While Weibo is more about discovery of new companies, brands or services to follow, WeChat is not geared for that at all. As of this moment, searching capabilities for companies or brands are very limited, unless you happen to know exactly the name it is registered with which could be something like xmsj816 (popular Xiaomi cell phone maker).
  The only sure way to connect is via scanning QR code, which would take you straight to the company’s account with an option to follow it. This basically means that you have to induce and encourage your potential followers to scan your QR code with their phones by placing it everywhere you possibly can: from posters and brochures to delivery vans and even receipts.
• Currently there are two types of accounts associated with businesses: subscription and service accounts. Both come with limitation on the number of messages that can be sent to users. Service account allows custom menu with advanced functionality and can serve as a mobile web version of company’s official site. Through additional customization it can provide more advanced functionality by connecting to the back end database of the main service behind the app. On the other hand service account only allows one message per month to users, limiting potential of engaging with users on a frequent basis.
  Subscription account allows maximum two messages per day but doesn’t have the advanced functionality or customization. Also, subscription accounts are grouped together and the user has to go inside the subfolder to see new messages.
• Measuring the engagement with WeChat is still fairly rudimentary, although this seems to be changing. By the end of 2013, Tencent announced the release of new APIs that are available to verified accounts for annual subscription fee of RMB 300. They allow more advanced tracking of followers, however those capabilities are still very basic. As more marketers embrace WeChat, it’s reasonable to assume that Tencent could be working on embedding more metrics into the back end of the platform;

What type of account should you choose in order to take full advantage of WeChat capabilities? Here are a few tips:

Functionality vs. engagement

Since service accounts are mainly about functionality they are, in effect, serve as a mini-app within WeChat. If you can think of some type of functional service that you can offer, than the service account is for you. For example, you could direct your users to the nearest store or outlet based on their current location or you could integrate membership or points based system with such account. Some customer service functions can also be built-in within the customized menu.

Ecommerce integration

If your company is considering integrating ecommerce or payment system within WeChat, than, again, service account should be your choice. Currently, the system allows linking only Chinese issued credit and bank cards but this may change in the future as well since WeChat is aggressively expanding globally.

Direct messaging and broadcasting

On the other hand, service accounts allow only one message to users per month. So, if your business is more concerned with keeping your customers informed on new promotions, sending out coupons or announcing events, subscription account could be a better choice.

Ease of setup

Subscription accounts are much easier to setup and run and they don’t require advanced customization as service accounts do.  The level of engagement is higher but it is true only if you provide an interesting and engaging content. Don’t forget that deleting an annoying or useless account only takes a swipe of a user’s finger.

Switching

Another aspect to keep in mind is that switching between service and subscription accounts will not be possible once one is chosen. Of course, one potential strategy could be to have both – service account for functionality and subscription one for broadcasting messages frequently enough to keep your followers interested and informed.

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Things in China are no different with one exception – YouTube has been blocked here since 2012. The “Chinese Youtube” is called Youku and while it is no YouTube clone, it operates along the same lines. After merging with another video hosting provider, Tudou, in March 2012, Youku Tudou became number one video site with well over 50% market share and growing.

According to figures from iResearch, the online video market size will grow to 16.53 billion yuan ($2.72 billion) by the end of 2014, up from 12.25  billion yuan ($2.02 billion) at the end of 2013. With over half of the online video market share, Youku has become the primary channel to reach 600 million Chinese internet users.

Here is the list of 8 key factors that have to be taken into account when considering brand marketing with online videos to Chinese:

#1: You only got 2 seconds

There is a crucial difference between online videos and TV ads: watching TV is a passive experience vs. interactive one in case of online videos. For an online video it means one thing – it has to be engaging from the start. All of us are sick and tired of boring or over the top TV ads but we watch them anyway, often simply because we are too lazy to reach for a remote. With online videos, moving on is a matter of a click or a finger tap. If it doesn’t pick your interest in the first 2 seconds, you won’t watch it;

#2: Make them laugh

Number one type of content that is being retweeted in social media in China are jokes. If at all appropriate, make your video as funny as possible. Of course, you should take into account that many jokes Westerners find funny fall flat in China and vice versa, so make sure that it is reviewed and approved by a native Chinese first, they are in much better position to judge how funny the content seems to them. In my experience, employing goofy characters with some degree of slapstick humor works the best;

#3: Make them cry

Another type of content that works well is the one that connects on the emotional level. Recent Pepsi advertisement about a lonely father who receives an unexpected visit from his grown up successful children all brought together by accidentally triggered childhood memories (Pepsi-related, of course) has brought many viewers to tears and became an instant hit;

#4: Produce mini soap opera

The most successful video advertising in China has been built as a narrative. Estée Lauder’s launched a drama series, Sufei’s Diary, with 40 episodes broadcast daily on a dedicated Web site. The show was received as an entertainment and less of an advertisement resulting in millions of people tuned in daily. As a result, brand awareness of their product was measured to be higher by 27% over competitors;

#5: Optimize for mobile

One of the advantages of online videos vs. traditional TV ads is the opportunity for almost immediate conversion. All it takes is a click or a tap to place an order, to join a mailing list or to send some other type of interactive response to the advertiser. In order to take full advantage of it, the entire experience has to work smoothly and seamlessly. It’s especially true for videos optimized for mobile devices – you don’t want your viewers to end up on a standard landing page that is not optimized for mobile;

#6: Spread the message

Once the video is produced and posted online it’s very important to make sure it’s easily found. First of all, the tags have to be in Chinese and they should be relevant to the brand, the message and the content. Second, make sure to integrate video with other online marketing content: link to it from your main website, your social media such as Weibo and WeChat, your newsletter etc. It is even possible to integrate a specific video or your Youku video channel with your printed material via QR code (read here about QR code usage in China);

#7: Don’t count on search engine

In case of Google, videos are posted on YouTube are indexed and appear in search results within few days. Of course, it is because of the fact that Google owns YouTube. This is not the case of the largest Chinese search engine Baidu which has its own video hosting service and is in engaged in a fierce battle with Youku over the market share. Of course, most popular video content from Youku would still appear in the search results but it takes much longer;

#8: Look beyond the metrics

Measuring the reach and the impact of your online video campaign is always an important aspect of the overall online marketing strategy, unfortunately the lack of reliable tools and huge spam problem make this task very difficult. Of course, conversion rate is always the best measuring stick but if your goal is brand recognition things get trickier. The key is to focus on the quality vs. quantity as the numbers can be misleading. Reaching the key opinion leaders (KOL), individuals who are most active in Microblogs with thousands of followers, is the best way to spread your message fast and to the most receptive audience. Identifying those channels takes time and experience but the results will be well worth the effort.

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I’ve tried to consolidate the most important features that characterize branding for Chinese market as opposed to what are considered to be the most common Western practices:

 #1: Status symbol drives buyers’ motivation

It is important to realize that “saving face” concept is too ingrained in Chinese psyche which also drives motivation behind purchase choices of the vast majority of buyers in China. High brand status of items that are meant to be displayed in public, among friends and in social situations is something that plays much larger role in decision making than it does in the West.

A typical consumer would prefer buying an item that is known to be expensive and prestigious vs. those that may be more unique or of higher quality but less well known.

#2: Western equals quality

The persistent perception of everything made in the West or by Western companies (this loose definition would include Japanese and Koreans as well) being associated with high quality is something that is not going to change anytime soon. Goods that are made locally are often considered inferior in quality, durability and utility. Unfortunately, “made in China” label is still fairly unpopular domestically, just as it often comes across outside of China. Of course, this reputation is not always deserved on both sides but it is what it is.

Marketers would be well advised to make sure to emphasize the “foreign” nature of their products for the maximum effect.

#3: Importance of celebrity endorsement

While in the West, product endorsements by celebrities is often looked upon with fair amount of scepticism, it does work in China. People trust celebrities here, even if it is only on emotional level, and they try to emulate their apparent choices and lifestyle.

The fact that those celebrities may have heard about the brand which they are endorsing just right before the shoot and, if they got the same watch it was probably pushed on them for free anyway, is a moot point for most buyers of those brands.

#4: Hunger for top brands

Chinese just love brands, period. Mere 25 or so years of this country being open and exposed to Western style capitalism just wasn’t enough to satisfy this hunger. Now, as more and more Chinese finally have the material means to afford comparable lifestyle they remain much less discriminatory in their brand choices as would be the case otherwise.

Brands that are not considered luxury ones by any means in the West have repositioned themselves to be perceived as the top ones in China. Here, Pizza Hut joints evolved into a full blown restaurants with waitresses and lavish modern decor and Holiday Inn hotels are modern skyscraper serving top notch breakfast buffet as opposed to filtered coffee and donuts which they do in North America.

#5: Product placements

While product placements in TV shows have been in decline in the West, it still remains fairly efficient in China. Chinese audience is much more likely to associate with the brands they saw in soap operas vs. a typical Western viewer.

Companies that intend to market products suitable for those type of settings should certainly consider this route.

#6: Power of social media

On average Chinese social media user follows 8 brands. Chinese are also much more likely to share their brand experience, both negative and positive, through social media, making marketing via those channels highly effective.

There are many levels to social media marketing with some similarities with the familiar Western equivalents but also with significant differences. The sheer size of China’s online community of over 600 million and proliferation of ecommerce makes marketing through social media channels an absolute must for any brand.

For more on social media marketing in China check out my other posts.

#7: Acceptance by peers

Somewhat related to the point #1, seeking acceptance by peers of the same social status is a powerful motivator in purchase decisions. Going against the current is not a very common thing to do for a Chinese, being unique and original is valued much less than being accepted in a social circle.

Recommendations by friends and peers clearly plays an important role too. Motivating buyers to share their favorite brands and products through social media drives brand awareness and creates a valuable favorable buzz around it.

#8: Fashion versus function

When a typical Chinese consumer is presented with the choice between a fashionable item of low utility vs. no-brand but functional one, he/she goes with… fashion. Once again, status symbol (see point #1) is chosen over utility and, often, value.

This feature underscores the importance that Western companies should put into image building of their brand. Selling the most functional product would be tough if the brand is unknown or not perceived as a prestigious enough. Again, it may have nothing to do with the actual quality or an overall value of such product.

#9: City tier in branding decision

In China, cities are often categorized into tiers (read more about China’s city tier system here). Currently, only 4 cities make the 1st tier list: Shanghai, Beijing, Shenzhen and Guangzhou. Buying behaviour and brand perception may differ significantly among people living in different cities in China, a distinction that is unlikely to play a major role in Western markets within the same country.

The differences go beyond the actual purchasing power or disposable income differences and have more to do the levels of prestige and perceived value of a product. For example, lower tier cities’ consumers are somewhat less conscious about value-based buying approach that is more prevalent in the top tier cities.

Read more on this here.

#10: Western concepts without traction

Being environmentally friendly or socially responsible have become a well accepted part of marketing strategy in the West. Unfortunately, in China, such claims would do little to promote a brand. Surveys show that those concepts play very little role in shaping a favorable opinion about a particular brand.

Traditionally, Chinese believe that taking care of the environment is the area of the government and paying to finance social causes through buying a particular brand is not considered something worth doing by an average consumer. Whatever the case may be in the future, for now, the companies shouldn’t be putting much stress on those concepts when it comes to product marketing in China.

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