It should no longer be a surprise to any foreign company that what works for their products in their own country will not necessarily work in China. True, the amazing potential of the Chinese market entices companies worldwide to make the leap into the market. What's more, recent attempts by the Chinese government to encourage their people to spend more and save less in an attempt to prop up aggregate demand are more favorable than the shaken and cautious consumer currently favored in the United States. Consumer spending levels in the US will not likely return to previous levels seen in the years before the meltdown, at least in any time soon.
The tapestry of the world consumer market is changing, and Asian countries will hold a greater stake going forward. China has recovered quicker from the global slump than the United States, and Chinese consumers. who save between 30% to 50% of their annual income, have more cash to spend than US consumers. So if you are a foreign company trying to make inroads into China, regardless of whether you are a small, medium or large enterprise, does this give you a green light to throw your shampoo or sports drink on the shelves in Chinese big cities? The answer is... maybe.
PepsiCo's Frito-Lays now sells Peking duck potato chips in China. In 2003, they introduced "cool lemon" flavored chips for the summer months that boasted mouth freshening qualities. The packaging has pastel colors and blue skies to illustrate the "cool" feeling of these potato chips. This is an interesting if not confusing way to market such a product from a Western perspective. Why would Frito-Lays do this?
Unfortunately for Frito-Lays, they like many others had to learn what it takes to be successful in China the hard way. The company could not move potato chips off the shelves in the summer months. In the other seasons, sales were good enough; however, come the summer months, the shelves would be overflowing with an excess of unwanted product. Frito-Lays accordingly conducted market research, and it was only after they had investigated the preferences of the Chinese consumer that they realized that motivations in the country are a lot deeper than they had expected. Traditional Chinese medicine declares that fried foods generate heat. Potatoes, fried food, would cause their body to get hotter. The last thing the Chinese wanted in the blistering summer heat was to eat something that made it worse. Frito-Lays accordingly developed the cool lemon flavor, which have come to be its biggest selling line in the region. They have also since developed a cucumber potato chip.
What this example illustrates is not only that foreign companies have to adapt their products to Chinese tastes, but that they need to acquire a deep knowledge of Chinese tastes before going to market. An understanding of yin and yang, balance of food and body and traditional medicinal techniques goes a long way to make a product such as potato chips more palatable to the Chinese. Due diligence is required to learn more about what lies beneath the ancient civilization's psyche. This is a pressing matter especially now, as the increasingly competitive local companies already have a head start on their understanding of what Chinese consumers want and what they don't want. Foreign companies are now faced with a formidable local enemy like never before.
Another striking example of learning the hard way is the renowned marketing expert Coca Cola. Coca Cola's sales surged only when it developed "Coke Light" for the Chinese market, a much less sweet product than Diet Coke, which had failed to gain the traction Coca Cola hoped for in China. Coca Cola found that Chinese consumers preferred less sweet tastes, which led to Coke Light's development. Unilever realized this particular facet of the Chinese consumer and it lightened the sugar level in its Lipton tea drinks before it entered China.
Many US companies mistakenly believe that their products will be perceived as "premium" foreign products for the upwardly mobile Chinese person to aspire to, and this in itself is grounds for market entry. They believe that due to this prestige, it can market products as is. This is a huge miscalculation. Maybe this approach would have worked a number of years ago, but local brands are now competing for the premium space cheaper and with equal quality. In fact, according to the China Consumer Center - Core Annual Survey (Dec. 2006), consumers trust Chinese brands more than foreign ones.
The Chinese market is definitely profitable - over 60% of 150 companies surveyed in 2007 by the AmCham China Market survey boasted profitable results in the region, and a further 11% boasted that they were "very profitable". But foreign companies need to be patient, cautious, and not gloss over the complexities of a unique consumer market.
Aaron Wong is the Founder of AQI (Arrow Quality International), the first and leading Chinese Bridge consulting firm. Aaron is an extremely fluent speaker of Mandarin Chinese, and proficient in Cantonese Chinese (so he claims). He has over 7 years in the translation industry in positions of freelance translator and contract Federal Government linguist. Aaron has been involved in many business ventures that include selling his family cherries when he was 10 to a computer business when he was 13 to sending English teachers to China and Taiwan to teach English at 24. He graduated from the University of Utah in 2 years with a dual Bachelor's degree in Chinese and Asian Studies; and received his Masters in Management with an emphasis in business management from Colorado Technical University with a 4.0 GPA. Aaron received his MBA from the University of Utah in the spring of 2007. He also currently serves as the Secretary of the Board of Directors for the Lehi Area Chamber of Commerce, a volunteer Business Counselor for SCORE, a Student Mentor for the University of Utah SMART Start program, and has been recognized as a Top 40 Under 40 Professional by BusinessQ magazine. Find out more at http://www.arrowquality.com
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