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China challenges Western Brands

Given the growing importance of the Chinese market to Western brands in their international business development, some have fared very well while many have lost their opportunities and reputations:

  • US electronic retailer Best Buy confirms their imposition of a Western retail model cost them their business; all nine of its branded stores closed leaving them with huge debts - paying off staff, leases, suppliers - not to mention the reputational damage in the market that's yet to be quantified.
  • Mattel's famous doll Barbie failed to appreciate the more conservative Chinese customer wary of buying sexy dolls for their children. Having spent $30 million to open their flagship store in Shanghai, after two years the company closed the store following lack of custom and bad press.
  • Mercedes had the Chinese market sewn up in luxury chauffeur cars after successfully localising for this market. But since 2007 sales declined as young, wealthy Chinese consumers wanted to drive themselves in more stylish, 'sportier' cars.

So what can brands do to ensure their success with Chinese consumers?

  • Location and layout - Unlike Best Buy which grouped its merchandise by product category, winners will have done their homework and learned the Chinese shopper chooses by brand name.
  • Respect local tradition - Jia Duo Bao, a cold herbal tea, outsells Coca-Cola even though it is twice the price. This healthy, herbal natural product appeals to China's health consciousness.
  • Adapt the product and branding - Mercedes has adapted once again and last month had its best sales month ever in the company's 87-year history, China being the top market sales in Asia. This was largely due to rebranding and redesign.
  • Pricing - IKEA realised its 'low-cost' products were actually 'mid-range' in the Chinese context, forcing it to lower prices and target a different demographic group instead of its traditional mass markets in Europe.

As British retailer Topshop plans its break into China next year with iconic model Kate Moss leading the way, mass-market foreign brands might be a tough sell with demand for top-end, luxury brands currently winning out. So what will Topshop need to do to ensure their success in this competitive market? What localisations will they need to make? Will they need to raise their prices so as to be perceived as aspirational?

What will make the difference for those who make money in China is good listening, localisation and long-term plans for building market share.

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