Selling to the Chinese Consumers
- 1. Selling to the Chinese Consumer As Presented to: Franklin Yao, CEO October 13, 2010
- 2. Agenda 1. China: Land of Opportunities 2. The China Market is Different, Differentiated, and Complex 3. Form an Effective Insight‐Driven Strategy 4. Overall Thoughts / Q&A 1
- 3. China versus Denmark Copenhagen Denmark China Shanghai By 2025, China will have 219 cities with more than one million inhabitants – 219 Copenhagens! and 24 cities with more than five million people – 24 Denmarks! Source: McKinsey Global Institute: Preparing for China’s urban billion 2
- 4. China will be Consuming More and More CAGR of Domestic Consumption per Person %, 2007‐2020 9.0% 8.3% 8.0% 7.0% 6.3% 6.0% 5.0% 3.8% 4.0% 3.0% 2.3% 2.2% 1.9% 2.0% 1.5% 1.5% 1.3% 1.2% 1.0% 0.0% China India Brazil Mexico US Canada UK France Japan Germany Source: Global Insight, February 2009; McKinsey Global Institute China model, in February 2009; McKinsey Global Institute analysis 3
- 5. Chinese Consumer Prefer Global Brands Chinese Cosmetics Market Share Top Cosmetics Brands in China By Sales 2008 2008 Brand Loyalty1 Market Share % Maybelline 20.27 77.63 Chinese Avon 8.04 Brands 64.22 L’Oreal 7.93 20% 64.23 6.94 Olay 51.77 4.46 Aupres 62.08 Foreign & Joint 3.02 47.6 Yuesai Venture Brands 2.70 80% 57.95 MaryKay 2.47 48.85 Shiseido All foreign brands! Source: 2009 Report on China Consumer Goods Markets Monitoring and Analysis; Sinomonitor.com 1Definition of brand loyalty: (# of consumers who will choose Brand X next time / # of current Brand X users) * 100% 4
- 6. You Can Influence Chinese Consumers Whisky was Danone The first PizzaHut • China is becoming the biggest imported to introduced yogurt restaurant opened Whisky import country. China. • KFC opened 3,000 restaurants and created a huge western fast 2010 The first food market in China. The first KFC Starbucks • Pizza Hut is one of the most restaurant opened common dating restaurant in opened China. • Starbucks has successfully helped increase the consumption of coffee among Chinese 1980 1987 1990 1999 consumers. • Yogurt accounted for 11.7% of China’s dairy industry in 2008. Source: SmithStreet Research 5
- 7. Agenda 1. China: Land of Opportunities 2. The China Market is Different, Differentiated, and Complex 3. Form an Effective Insight‐Driven Strategy 4. Overall Thoughts / Q&A 6
- 8. Chinese Consumers Like White Skin Asian Models Western Models Source: SmithStreet Research 7
- 9. China is not one Market Common Breakfasts Breakfast in North China Chinese pancakes Ingredients: Wheat flour, and variations of egg, green onion, sweet/spicy sauce, fried bread. Fried dough Porridge & soy milk (Zhou/Congee) Ingredients: Wheat flour, soybeans Ingredients: Rice, meats, preserved eggs and vegetables Some Chinese like to dip the fried The northeast prefers adding salted Breakfast in South China bread sticks into soy milk. vegetables whereas the south prefers have preserved eggs. The southern version also has more water in it. Guilin’s rice noodles Ingredients: Rice noodles, green onion, meat (pork, beef, or lamb) Starchy rice dumpling wrapped in reed leaves Steamed buns (Mantou) Steamed bun (Baozi) Ingredients: Sticky Ingredients: Wheat flour Ingredients: Wheat flour, meat rice, meat (pork or Northerners prefer a steamed bun (pork) , vegetables, bean paste, beef), egg and/or without any filling while the south mushroom, are all common fillings bean paste prefers minced pork or vegetables fillings. Source: SmithStreet Interview and Analysis, photo (bbs.tom.com; China Commercial Online Tourism Services; www.hljcyw.com, mm616.com) 8
- 11. The Chinese Consumer is Changing Rapidly Priorities Fashion & Style Maintain Apartment Material Family & Car Loan Goods Life Don’t Care Natural Dolled Up Much Beauty Running Lost at the Internet out of Time Crossroads Dominated Source: SmithStreet Research 10
- 12. China has its own Forms of Creativity “I know a factory that “This bag is pretty!” “This bag is not sold in can make it. Who wants China.” Post on online to buy it?” forums User Responses Get responses Reply Users check and critique sample Factory makes a “Count me in!” Factory sends sample quality sample Contact the factory Send sample back for improvements Deliver bags to users Pay deposit Users receive product “Great bag!” Product delivery Comment online Source: SmithStreet Research 11
- 13. Social Media has a Huge Influence on Brand P&G’s “Homework” for 2008.12.28 P&G distributed a market research questionnaire disguised as homework assignment to Hangzhou Primary School Students primary school students which required them to use P&G tooth paste. A parent’s blog + a local community forum 600 comments within 3 hours 2008.12.29 Journalists conduct interviews P&G denies involvment Chinese netizens showed strong disapproval 2008.12.30 The education department of Zhejiang Province announced that it would cease cooperation with P&G effective immediately. Source: q.sohu.com 12
- 14. Agenda 1. China: Land of Opportunities 2. The China Market is Different, Differentiated, and Complex 3. Form an Effective Insight‐Driven Strategy 4. Overall Thoughts / Q&A 13
- 15. Define your Brand or the Market will do it for You Brand A and Brand B are the first line and second line brands of a global fashion company, respectively. Brand A Millions Most people will search for Chinese Name A for both the first and second Differentiation between 2.0 line of products Google sina blog Baidu the first line and the 1,686,805 Taobao Total 1.5 second line is very low 1.0 Most people search only 559,403 for the name of the first 0.5 129,446 40,356 22,780 line 0.0 However, search items Chinese Name A Chinese Name B Chinese Name C Chinese name D Chinese Name E skew heavily towards Chinese Name F. 7 out of every 10 results are Brand B Chinese Name F related products or news. 200,000 Search results for Brand B 172,852 in Chinese on major search Google sina blog Baidu 150,000 engines and portals is only 9.3% of total searches for the brand in China. There is a lack of 100,000 understanding of the fashion 50,000 company’s brands and the 7,261 1,369 614 21 differences between product 0 lines Chinese Name F Chinese Name G Chinese Name H Chinese name I Chinese Name J Source: Google; Baidu; Sina; Taobao; SmithStreet Primary Research 14
- 16. Understand the Market at a Deep Level Rated China Hospital System Pricing Analysis 7,000 Market Share of Foreign Brand 1st Class 100% Device B 6,000 2nd Class 90% Device A Market Share of Foreign Brand 80% 5,000 3rd Class 70% 60% Device C 4,000 3,662 50% 40% Device E Device D 3,000 30% 20% 2,000 2,610 10% 0% 1,000 2,246 0 1 2 3 4 5 6 7 722 328 474 Price Multiple (Price of Foreign Brand/Price of Local Brand) Price Multiple (Price of Foreign Brand/Price of Local Brand) ‐ Grade III Grade II Grade I Purchasing Decisions Nominated by Doctors Price 15 After‐sale service 7 Relationship with supplier 3 Colleagues’ recommendations 5 Overall quality 18 Source: China Ministry of Health 15
- 17. Governments often Determine the Size of the Market Beijing, Shanghai and the Chinese Government all pay attention to nursing care and disease control for Disease X. • More Channels • More Aged Care • More Professionals Market of Rising Governmental New Disease X in Awareness at National Market of China and Local Levels Disease X in Original Market China • Public Education of Disease X in • Professional Education China Source: SmithStreet Research 16
- 18. The Story of 85°C Franchise or Owned? 17
- 19. Agenda 1. China: Land of Opportunities 2. The China Market is Different, Differentiated, and Complex 3. Form an Effective Insight‐Driven Strategy 4. Overall Thoughts / Q&A 18
- 20. Sun Tzu Said: zhī jǐ zhī bǐ bǎi zhàn bú dài 19
- 21. Carl von Clausewitz Said: 20
- 22. China is a Freeway… Shanghai, China 20 Jinchuang Road, 10th Floor Yangpu, Shanghai 200433 +86 (21) 6565 6533 New York, USA 521 Fifth Avenue, 17th Floor New York, NY 10175 +1 (212) 292 4420 www.smithstreetsolutions.com 21