From Knowledge at Wharton
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. 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 skin-care 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 notes. '"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 says. Korean women, in contrast, have historically embraced Western brands.
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.
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," says 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 notes. 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.
Young cautions 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 points 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 agrees, but points 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 says. "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 percent. So we addressed it with an aggressive marketing campaign. We were surprised by the lack of government support. We were out there alone."
Another challenge for Western marketers operating in Asia is the "gray market," says 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 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, says 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."