American consumer brands in china: finger-licking good
...But Chinese shoppers still prefer homegrown tech, telecom and banking
October 7, 2013
China has become a land rush for Western consumer companies, and the winner so far comes not from fashion capitals like Paris or New York, but rather from the Blue Ridge Mountains of Appalachia. Kentucky Fried Chicken is the most popular Western brand for China's enormous and continually-growing middle class. And it's joined on the top 10 list by other American household names, from Pampers to Coke. These companies benefit not only from increased sales, but also by being able to charge a "brand premium" worth on average 13%.
According to Millward Brown, the New York-based research agency, American brands dominate the Chinese market for consumer goods, fast food items and the like. Much of that is because of the global appeal of American popular culture, which holds sway throughout the world. But there's also another issue: Chinese consumers are concerned about reports of impurities in Chinese food products, making many of them wary of certain home-grown products. Even KFC has been affected, on account of a December report that eight batches of its chicken contained unacceptably high levels of antibiotics.
But that aversion to Chinese brands may be ebbing. Another study, by Epsilon International, showed a growing willingness for Chinese shoppers to consider Chinese brands; 43% of respondents to a 2013 survey said they would buy products made in China, compared to only 31% in 2011.
A trend-setting First Lady
The Epsilon study proved that consumers in China are swayed by many of the same popular culture forces as their counterparts in the West. Just as Michelle Obama has made certain American designers fashionable, so too has China's First Lady Peng Liyuan, who has somewhat broken the mold for her position by appearing at diplomatic events in chic, haute couture clothes — but made in China, by Chinese designers.
China is even seeing a trend called "Liyuan style," in which Chinese fashion brands are beginning to possess the sort of cachet previously reserved for Western, especially European, clothes and accessories.
The Millward Brown studies showed Kentucky Fried Chicken was at the top of the list of the 20 best-known international brands, a collection that skewed heavily towards Western companies. In fact, Samsung was the only Asian company on the list. Number two was Pampers diapers, followed, in order, by Colgate, Olay, Crest, Apple, McDonald's, Unilever's Omo detergent, Coca-Cola and Carrefour.
But that advantage may well be slowly being eroded as Chinese shoppers begin to have more confidence in homegrown brands, and also become willing to pay more for them. What's more, Chinese consumer-oriented companies are beginning to do the sorts of brand-oriented advertising and marketing that their Western counterparts have mastered over many decades.
In some industries, Chinese brands dominate
Outside of the consumer segment, in areas such as Web services and telecom, household-name Chinese brands like Tencent and Baidu continue to outperform their non-Chinese rivals. In some cases, this is due to government policies that favor Chinese companies. But in other instances, the companies have attracted loyal customers through quality products at reasonable prices.
There are several instances where Chinese brands outperform their American competitors on the global stage — at least when stock prices are used in determining their value. Chinese social media site Tencent, for example, was ranked 21st on the most recent MillwardBrown list of global brands, surpassing Facebook, which fell to 31. The change is largely the result of the run-up in Tencent's share price in the last year; it's more than doubled in price. While Facebook's shares have increased in recent months, the company has for the most part disappointed investors since going public in 2012.
The gradual slowing of the Chinese economy is only increasing the importance of brands, says Millward Brown, as consumers will have less disposable income and will be forced to be more careful with their shopping decisions. That only adds to what was already a difficult task; overall, says the company, "achieving and sustaining brand strength in China is challenging and complicated."