Billions: Selling To The New Chinese Consumer
November 23rd, 2007
No, this is not a post that suggests that just because China has a bizillion people you will make tons of money just by entering this market. If only it were that easy. Let me take that off the table from the outset; don’t misconstrue the point of this post.
I recently listened to a very good and interesting podcast interview by Christine Lu of the China Business Network with Tom Doctoroff, Greater China CEO and Northeast Asia Director of JWT, and top tier marketing and advertising firm. Check it out (a mere 10 minutes in length).
Then a few minutes later, I opened up the NY Times and saw the following related article about the Olympics and China’s marketers, that extensively quotes Tom: For Olympics, China’s Marketers Are Showing Their Pride. Check it out (has a cool picture at the top, by the way).
Well done, Christine and Tom. Some good information and insight for MBA students on marketing, markets, connecting with customers, and all in the context of cross cultural differences. And now I better understand some of the differences between Confucianism and Daoism, per Tom’s discussion, and how some of those foundational beliefs relate and apply to marketing strategy.
Then several days later, I came across this very good WSJ Op-Ed piece, Capturing China’s Middle Market, which notes:
Historically, multinationals have focused on China’s premium market. But the playing field over the last few years has changed rapidly. Multinationals sticking with a premium-only strategy are increasingly under attack from emerging Chinese champions with a compelling offering: fairly reliable products at prices low enough to attract China’s growing ranks of mid-level consumers. Indeed, China’s middle market is growing faster than both the premium and low-end segments. In some categories, the “good enough” space already accounts for nearly half of all revenues. Eight out of every 10 washing machines and televisions now sold in China, for instance, are “good enough” brands.
The op-ed piece goes on to note how Gillette, Anheuser-Busch, and Colgate-Palmolive purchased Chinese companies so that they could gain access to China’s middle tier market:
Gillette was extremely careful to protect both Duracell’s and Nanfu’s brands — a crucial part of the strategy as Gillette continues to sell premium batteries under the Duracell brand and has maintained Nanfu as the leading national brand for the mass market. Dual branding, cost synergies, a broadened product portfolio, economies of scale, and distribution to more than three million retail outlets in China have paid off for Gillette, which has seen significant increases in its operating margins in China. In 2004, for instance, Anheuser-Busch outbid its competitor SABMiller to acquire Harbin, the fourth-largest brewer in China. That acquisition allowed Anheuser-Busch to reach the masses while preventing Harbin from moving upmarket. The next year, it increased its stake in Tsingtao Brewery, to 27% from 9.9%. Both moves enabled the global brewer to rapidly increase its share among China’s current mid-market beer drinkers.
Colgate-Palmolive made similar moves in China. It entered into a joint venture in the early 1990s with one of China’s largest toothpaste producers, and it acquired China’s market leader for toothbrushes a decade later, allowing it to scale up and then leverage its production processes to compete in other parts of the world. As a result, Colgate more than doubled its oral hygiene revenues in China between 1998 and 2005, and it now exports its China products to 70 countries.
The above also relates to Ashley’s recent blog post and comment discussion therein, Government Promises and 2008 Olympics.
Entry Filed under: Pre-Departure, Beijing, China
4 Comments Add your own
1. Christine | November 25th, 2007 at 7:23 am
Hi Chris,
Thanks as always for listening to The China Business Show. One really great example of China’s middle tier consumer market in action would be to pay a visit to a Carrefour and Wal-mart on a Saturday afternoon in Shanghai. There are endless aisles of Chinese brands being purchased alongside multinational brands we recognize on our own supermarket shelves. It’s always interesting just observing customers comparison and price shopping the same way we do back home in our own supermarkets.
Pay a visit to the meat, fish and poultry section and it’s a great example of how these international retailers have localized for Chinese consumers (eels, chicken feet and all) — a very smart idea as it now offers middle class consumers a clean and modern alternative to the early morning street markets they’re used to.
Lastly, stand in the checkout line and observe what actually goes into the shopping carts of Chinese customers and see what % of items are local Chinese brands versus international ones.
I think it’d be a fun exercise…hope that helps!
Christine
2. Chris Carr | November 25th, 2007 at 8:54 am
Christine!
Thanks for the check in.
Great minds think alike. Er, wait … my mind is NOT great so that statement cannot apply; but yours, with your business acumen, is!
Yes, Carre Four is actually an annual stop on the trip that I build in for the very reasons you mention. They also need to see that there are parts of the world where Wal-Mart’s business model is getting its butt kicked, and to add to the humiliation, by a FRENCH based firm!! Losing anything to the French is almost more than one can bear.
This year, I will likely take them to a large Carre Four in Beijing rather than Shanghai, given how logistics are likely to shake out.
Keep those great podcasts coming!
3. Matt Sprecher | November 27th, 2007 at 7:51 pm
The articles above bring up some interesting situations. Looking at how companies like Gillette, Colgate-Palmolive, and Anheuser-Busch succeeded in the Chinese market just shows why people are so interested in such investments. Although the investment could prove to be costly for a small business owner, someone as big as Gillette or Anheuser-Busch can afford to take such risks in the market.
It will be interesting to look at brand labels when we take our trip to China. I’d be interested to see how people feel about this. USA consumers have made a big push to invest in all different industries, so it should be our goal to see which product brands we find over seas. I think we will be surprised by how many US brand names we see on the back of Chinese products. I’m setting the over/under at 50.
4. Richard Ciesco | November 27th, 2007 at 11:27 pm
I think that in the past many companies have over looked China as a potential market because we as Americans always had this idea of China as starving farmers working their land with no money. This idea might have keep businesses from wanting to sell products there, but how things have changed. Even though the per capita income in China is still lower than the US, because of the huge number of people that live in the country it has keep that number low. Now the number of people who have money to spend, could be above that of the US. This is because over the past couple of decades China has built it’s manufacturing abilities along with other business areas and ahs brought in foreign money, the economy has taken off.
With this happening so fast, US companies are jumping at any opportunities for an easy way in. One way to do that is by acquiring companies based in China. These companies already have distributions set up in China. So if you can by a China based company all of a sudden you have a way of distributing their product and your own. Now you can make the product there, slap a US company’s name on it and charge a premium. It’s too bad US companies 15 years ago weren’t paying more attention to what going on in China. I guess it’s better late than never!
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