Despite China’s commoditized commercial landscape, Chinese consumers are not promiscuous. When properly motivated, they are loyal because they see brands as both identity surrogates and tools of advancement.
This begs the question: Which brands are Chinese consumers loyal to and why?
What: The Prophet Brand Relevance Index
Prophet’s Brand Relevance Index (BRI) measures the affinity consumers have with brands – that is, loyalty born of relevance. Specifically, the BRI ranking is an aggregation of four dimensions of engagement:
- Customer obsession – How in touch a brand is with how consumers live and work, as well as their needs and desires.
- Distinctive inspiration – Is a brand motivated by a clear purpose, and does it elevate engagement into rewarding experiences?
- Ruthless pragmatism – Does a brand make experiences simple, provide superior reliability and is widely available?
- Pervasive innovation – Does a brand push the status quo with novel solutions, and create new ways of working?
Crucially, research has shown that relevance delivers better, financially robust growth. The top fifty brands in Prophet’s U.S. BRI achieved 6% higher ten-year revenue gains versus the S&P 500. And their profits grew by 12%.
Local versus Multinational. The performance of domestic players in China seems to have strengthened. The number one and two ranked players in Prophet’s China BRI are Alipay and WeChat, neither of which existed fifteen years ago. Both hail from the mainland’s dynamic tech sector. Alipay is the nation’s largest online third-party payment platform, operated by e-commerce behemoth Alibaba. Tencent’s WeChat is a hugely successful messaging and social media application with almost 900 million active users.
Among the top fifty brands in our Index, 32 were foreign and only 18 were local. But Chinese companies outperform global players on three of four dimensions of relevance – customer obsession (+1.4%), pervasive innovation (+0.6%) and ruthless pragmatism (+3.2%). They trail only on distinctive innovation (-0.4%).
When Alipay and WeChat are removed from the mix, however, domestic brands lose their edge. (Social media and ecommerce platforms have scant international competition due to regulatory protection.) They fall behind on the “value added” dimensions of customer obsession (-0.4%) and pervasive innovation (-1.2%) and fall further behind on distinctive innovation (-1.9%). However, they do maintain superiority on “basic” pragmatism (+1.5%).
These findings are consistent with on-the-ground reality. Despite impressive scale, few local companies compete directly with multinationals. None charge sustained premiums because they do not command loyalty.
Why: Underlying Cultural and Business Drivers
The above engagement dimensions explain what consumers like about each brand, not necessarily the “why?”. This can only be revealed through consumer insights, and how they affect business strategy. So what is it that makes Chinese consumers tick?
Projection versus Protection. The Chinese are characterized by a unifying “Confucian conflict” between projection of status and protection of economic and social interests.
This tension is clear across China’s cultural landscape and in the rhythm of daily life. Passion for luxury brands, booming sales of red wine (very little of which is consumed at home), over-the-top names of apartment buildings (“The Gathering of All Heroes under Heaven,” for example) and omnipresent VIP cards are expressions of the former.
The latter is evidenced by sky-high savings, an acute fear of germs, internationally-produced infant formula that charges 300% premiums and a fixation with feng shui – that is, harmonization of design with the environment to minimize risk.
The duality can be perplexing.
On one hand, when the Chinese feel empowered, they go for it con brio. Compulsively entrepreneurial, mainlanders are passionate about educational achievement and industrial aspiration and militantly nationalistic. China’s epic infrastructural revolution, from economic backwater to industrial world-leader, has been driven by a number of larger-than-life characters, from Wang Jianlin, founder of Dalian Wanda, the country’s most expansive real estate and movie theater empire, to Jack Ma, founder of Alibaba.com.
On the other hand, when insecurity pervades the air, conservatism reigns. Cautious and self-protective, the Chinese people are rule-bound, fixated with order, tentative in implementing change, understated in expressing opinions and obsessed with preserving face. Hierarchies ossify. Opinions of new generation employees are squelched under the weight of conformism and conservatism.
The result? A paucity of products and services that are genuinely value-added, and capable of compelling a premium price.
How: The “Golden Rules” of Marketing in China
So how do brands win in the Middle Kingdom?
By resolving the projection-protection tension through adherence to three golden rules of marketing:
1. Maximizing public consumption
2. Externalizing the pay-off
3. Providing reassurance on both physical and social levels
Let’s take a closer look at each of these rules.
Maximizing Public Consumption. In China, status is an investment. Consumers will pay a premium for goods consumed – and admired — in public. For example:
- Starbucks, which operates 2,600 outlets in China, has performed a miracle of marketing by selling coffee in a land of tea drinkers. The company’s Chinese real estate strategy focuses on Grade A office buildings, and stores are smartly positioned as gathering sites for professionals, not Howard Schultz’s private “third space.” In-store furnishing encourages group visits, with broader tables and fewer, plush chairs. Notably, a cup of coffee emblazoned with a Starbucks logo is 30% more expensive than in America. But unbranded sandwiches are half the price.
- Häagen Dazs does not operate parlors in Japan, but there are more than six hundred in China. A cone costs six dollars. But no Chinese millennial will pay for the privilege of eating premium ice cream on a living room couch. They want to be out in public, seen eating the treats with their friends.
“Public” brands that scored in the BRI’s top fifty clustered into different status-driven categories. These include: luxury autos (#12 Audi; #19 BMW), premium hotels (#4 Marriott; #15 Shangri-La; #29 Ritz-Carlton; #35 Hyatt; #37 Four Seasons; #48 Westin), and international mobile phones (#27 Apple; #45 Samsung).
Most of these brands reinforce their role as identity surrogates to claim the top the social hierarchy. Audi, for example, creates a parallel between the design of its autos and classical Chinese arts that exemplify timeless aesthetic ideals. The Audi driver is presented as an in-control connoisseur – no, master – able to differentiate not only genuine from fake but also perfect from flawed.
Every element of Shangri-La’s customer experience enhances its role as an exclusive second home. Lobbies, tastefully ornate with Asian accents, are public living rooms where deals are struck. Fitness centers’ $10,000-yearly fees and exquisitely luxurious facilities reinforce their function as modern clubhouses for CEOs. The Golden Circle, Shangri-La’s loyalty program, buttresses elite status of members. A broad range of restaurants generate 40% of profit versus no more than 20% in the United States.
Externalizing the Pay-Off. China is both ambitious and insecure. This is a country where “early MBA” courses for five-year-olds are popular. So brands must deliver benefits that are externalized — that is, show they are a means to an end.
Indulgence evaporates. Luxury brands, non-essential in the West, are tools of advancement in China. Thus, companies should focus on transforming the internal “feel good” benefits of their products into external pay offs. Johnny Walker’s Blue Label holds exclusive “whiskey appreciation summits” where men expand professional networks. Bayer’s Elevit, a folic acid consumed by pregnant women, has evolved from nutritional supplement to a holistic prenatal adviser.
“Pay off” brands that achieve high BRI scores cluster into different advancement-driven categories. These include: Sports apparel that enable players to “reach higher” in life (#7 adidas; #49 Nike; #51 North Face), mass-market autos that promise middle-class arrival (#6 Ford; #9 Volkswagen), international tourism services that offer a broadened worldview (#3 Visa; #22 airbnb; #33 Cathay Pacific), and premium cosmetics that advertise outer perfection (#16 Lancôme; #20 Estée Lauder).
Adidas’ markedly higher BRI score than Nike’s suggests the former has done a better job providing real life utility. The brand’s social platforms and wearable devices help runners master their domain. As Nina Chung, online opinion leader and endorser, states, “I use gravity plus adidas to build my abs. I learn kick-ass moves to defeat calories. I strengthen my legs to command the city. Finally, it’s time to meet the ‘me’ I can love.”
Chang’an Ford, the joint venture between Ford Motor Company and Chang’an Automobile Group, also performed surprisingly well. In the West, “Go further” is a functional claim of “democratizing technology.” In China, emotion rules. The brand satisfies an urge to go further in life. To sustain its high ranking, however, Chang’an Ford needs to ground emotion in the challenges of everyday life by offering relevant “mobility solutions.”
Providing Reassurance on Physical and Social Levels. China is a society with limited institutional protection. There are no impartial courts. Bank loans are secured through an opaque web of personal relationships. Food safety is not taken for granted. And “face,” the currency of advancement, is won or lost in political power struggles.
Brands can provide reassurance by providing value-added products and services that maximize public consumption and externalize payoffs, and by leveraging scale to provide reliability and availability at an acceptable price.
Most multinational brands have more successful at the former. Local brands are better at the latter.
The BRI’s “reassurance brands,” mostly domestic, also cluster by category. Payment solutions that are accepted practically everywhere (#1 Alipay; #14 UnionPay), e-commerce malls that offer endless choice and bargains (#8 Tmall; #14 Taobao), electrical appliances that deliver reliable price and value (#11 Haier; #28 Philips; #28 Gree), and low-cost, innovation-challenged mobile phones (#17 Vivo; #23 Huawei; #59 Xiaomi).
Reassurance is a low baseline. The best local brands make reassurance sparkle by resonating emotionally with Chinese people:
- Universally-accepted Alipay pulls at the heartstrings with claims of “being by your side through the vicissitudes of your life…and your child’s.”
- Tmall’s Singles’ Day projects ego-affirming scale. Originally a promotional event for the lovelorn, the event has morphed into a patriotism-fueled demonstration of national spending power. In 2016, $18 billion in sales revenue was generated in 24 hours. Singles’ Day is also an online-telethon party. Mega-celebrities such as David Beckham, Scarlett Johansson, Katy Perry and Kobe Bryant drop by to sprinkle star dust across Single’s Day transactions.
- Haier, China’s largest appliance manufacturer, advertises sales heft around the world to buttress stature at home.
However, reassurance, no matter how artfully reinforced, still does not justify premiums – or sustained share. Xiaomi, once extolled as “the Apple of China,” is a cautionary tale of diffused energy. The mobile phone’s online community of “Mi-fans” was no bulwark against mindless diversification, bargain-basement pricing and founder Lei Jun’s narcissism. (He fancies himself as a 21st century Steve Jobs.) The company has been slow to match products with the evolving needs of young Chinese consumers who aspire for a personalized lifestyle. Domestic mobile phone manufacturers – Vivo, Huawei and Oppo – should heed the lessons of Xiaomi, currently ranked a middling #59 on Prophet’s BRI, by honing value propositions before they are no longer flavors of the month.
The best performing brands on Prophet’s China Brand Relevance Index excel at one or more of these golden rules. WeChat, for instance, hits home runs across the board. Its “moments” timeline generates social currency from public display, and its “red envelope” app – cash gifts delivered as “virtual credits”– strengthens indispensable social networks. Plus, WeChat Pay’s instant receipts and universal acceptance are safe. (Some users don’t even carry wallets.)
The White Space
China is bimodal. Premium brands, which are usually multinational, command high margins but narrow scale. While mass brands, which are usually domestic, sell at a lower price point, but have broad penetration. The white space in between is vast. By tapping into each of the above golden rules, brands can take advantage of this opportunity to become more relentlessly relevant.
International companies can be more ruthlessly pragmatic by increasing accessibility without degrading cachet. Luxury brands, for example, can leverage sub-brands to expand reach. Armani appeals to different segments through Armani Collezioni, Emporio Armani, Armani Exchange and Armani Jeans without diluting its master brand appeal. Premium brands can target youthful segments by expanding the range of lower out-of-pocket cost items. Gucci retail stores are already accessory meccas, with bags, sunglasses and mobile phone straps moving to the front of the stores.
Local brands should pull themselves up to higher price tiers. They should define a single-minded proposition and brand purpose, then reinforce their commitment to distinctive inspiration and pervasive innovation. Shenzen-based drone brand DJI’s “future of possible” proposition and Starbuck’s “share the love” gifting app are great examples of the former. Baidu’s aggressive foray into artificial intelligence and Dyson vacuum cleaners’ breakthrough designs – wireless, bladeless, colorful – epitomize the latter.
All brands, both local and multinational, should become more customer obsessed. Leading internet insurance brand Da Te Bao’s use of everyday language to simplify buying decisions and Ping’an’s “good doctor” app both signal respect for ordinary people.
In the end, deep insight into the lives of consumers is the key to locking better, more profitable, growth.