Beyond the horizon

Chinese brands pursue global opportunity in fast-changing world

The growing prominence of Chinese brands on an increasingly dynamic world stage came into focus at an event hosted by WPP in Beijing that brought together some of the most influential brand-builders in the country.

The event marked the launch of the BrandZ Top 100 Most Valuable Chinese Brands 2017, the seventh release in this annual series.

Senior leaders from fast-growing Chinese brands such as Tencent, Ctrip and Mengniu joined the heads of global brands, among them Intel, Shell and Nestle, to discuss the increasingly sophisticated demands of digitally enabled Chinese consumers, and the challenges of the current business environment.

At a time of great uncertainty in much of the world, with election shocks and unpredictable world events now an almost daily occurrence, many businesses and governments are looking inwards; China is doing the absolute opposite, the event heard.

This approach is bearing fruit. The value of the BrandZ™ China Top 100 has continued to climb, up 6 percent on 2016’s rankings, after a 13 percent rise the previous year – highlighting the role of strong brands in helping businesses thrive in challenging conditions.

At the launch event, business leaders, academics and WPP experts came together for a series of lively debates on building a Chinese business in an unpredictable world, the outlook for Chinese brands as they become global brands, and how to reach consumers in digital China.

The event honored this year’s Top 100 winners, showed what lessons could be learnt from the swift rise of market-driven brands in China, and highlighted brands to watch in the years ahead.

To my mind, if China was a stock, I’d be bullish on it and I’d be buying the stock.
WPP CEO Sir Martin Sorrell

BrandZ Top 100 Most Valuable Chinese Brands 2017

Shaking things up – transformation behind continued brand growth

Innovative businesses that are adapting to ever-higher consumer expectations of quality and service have helped drive the total value of the BrandZ Top 100 Chinese Brands to $557 billion in 2017. That value is higher than the entire GDP of Argentina, which lies just outside the Top 20 economies in the world.

Not all of these brands have had a smooth run; most of them have had their ups and downs in the past few years, but there was one thing they did do: they always maintained their communication with consumer, intensified their contact with the consumer, and enhanced their relationship with consumerDoreen Wang, Millward Brown’s Global Head of BrandZ.

Tencent – the first Chinese brand to have a brand value over $100 billion – has taken top spot for the third year in a row, while Alibaba has moved past China Mobile this year to take second place. The Top 10 highlights what a fast-changing market this is. Four of the Top 10 are technology brands and household names, but when the China ranking was launched just seven years ago, there wasn’t a single tech brand in the entire Top 100.

The seven brands that in 2017 make their debut in the Top 100 come from a wide range of industries, from banking and automotive to home appliances and tourism. But what they have in common is that they are strong challenger brands in their categories, redefining consumers’ needs and what’s possible in their sector. New inclusions this year are: VIP.com, China CITIC Bank, Iqiyi, HLA, Caissa, Geely Auto, and Vatti.

Wang explained the value of strong brands to the business bottom line; while Chinese stock markets have fluctuated, brands in the BrandZ Top 100 have generated strong returns. In the past seven years, investments in the YMCI have returned just 6 percent in total; a portfolio made up of the Top 100 Chinese brands would have retuned 76 percent over the same period. “A brand is not only about marketing, it’s the soul of an enterprise. And in brand building, marketing is not an expense, it is the most important investment for any enterprise,” she said. “Only by investing in your brand building can one enjoy a long-term, highly effective, continued top performance in the capital market.

And the winner is ….

How BrandZ calculates the Top 100

Selecting the Top 100 brands from 100,000 brands around the globe is more difficult than winning an Oscar award, though infinitely more scientific, as Doreen Wang explained.

Using the opinions of 3 million consumers and drawing on 4.5 billion data points, BrandZ is the most authoritative brand value list in the world. To rank in the China Top 100, brands must be built by enterprises from Mainland China, they must belong to listed enterprises and their financial data must be publicly available. Banks must generate at least 20 percent of their income from retail banking, to ensure the ranking has a consumer focus.

By linking the meaning of brands to consumers with public financial data, WPP focuses not only on brands generating good earnings now but those also demonstrating strong potential for the future.

Ways to win - 7 lessons from 7 years of BrandZ in China

1. Gear up for a two-speed China.

The vast middle class is pursuing increasingly high-end products and services, but not everyone can afford to do the same, and to overlook lower income-earners is to miss a huge opportunity. These consumers also want innovation, but at a fair price that’s within reach. Providing a taste of the top end, but at a great-value price, is what brands like China Southern Airlines, Supor, Han Ting and Robam have been doing to great success.

2. It’s all about me, me, me.

The gradual shift in the Chinese psyche from “we” to “me” has finally reached a tipping point. Everyone, from teenagers to those born in the 1940s, is sharing their secrets on social media, and they’re all focused on their own, individual experience. When brands let them down, they tell everyone they know about it. Brands that meet or surpass consumer expectations grow at nearly three times the rate of brands in the same category that don’t; CTrip, Hisense and Huawei all understand this. Look at the online services brand 163.com; their brand value has risen 36 percent in a year, and this has everything to do with their focus on the individual.

3. Make dreams come true.

Everyone wants to target the young, but millennials want more than something that’s just cool and new. They want a brand they can believe in and that shares their values. Young consumers attach great importance to a brand’s ability to fulfil its promise, not just talk about its vision. They want brands that can really turn the sky bluer, make the water clearer, and make the world a better place.

4. You’ve got the power.

For the first time ever, the Brand Power of Chinese brands has surpassed that of global brands. Brand Power is a combination of salience, being meaningful and being different. Global brands probably still have the upper hand when it comes to being different, but their media investment has declined in the past three years, and their salience (springing to mind when someone thinks of a category) has gone down with it. Now, almost all the top 15 advertisers are local. They must maintain their salience, while at the same time building meaningful difference.

5. There’s more to mobile than a mobile phone.

Many of the most valuable brands are increasing their investment in new media, but not just online. Brands like Yili, Chinese Construction Bank, Baidu, Tencent and Alibaba are also spending in cinemas and on other screens, such as posters in lifts. Interactive screens are everywhere, not just on our mobile phones, and the strongest brands look at opportunities across them all. Think not just of mobiles, but mobility, and be where people are.

6. E-commerce is STILL taking off.

China’s e-commerce and social media worlds are more closely aligned than in any other market in the world. Last year, 31 percent of WeChat users in China bought something through the platform, up from 15 percent just one year earlier. And what takes Amazon two days to deliver in other countries takes just an hour or two in China through WeChat. But e-commerce penetration in China is only 46 percent, compared to 75 percent in Korea. This signals a clear growth opportunity for frontline e-commerce brands like VIP.com and JD.com.

7. Look outside.

Chinese businesses are snapping up international ones – Midea has acquired Kuka, Wanda has bought AMC, and Ninebot has acquired Segway. Mergers and acquisitions by Chinese companies have doubled each year for the past two years. Other Chinese brands have been global almost from day one thanks to online trading; think of the drone maker Dajiang, for instance. Big opportunities lie beyond Chinese borders, both for classic brands and those that are internet-based.

If the first thing that comes to mind when you think about Chinese brands is still ‘cheap and low quality’, then I can tell you that you’re getting old. You are out, The feedback we get from overseas consumers reflects the hard work done by Huawei and other Chinese brands in the past few years; the percentage of Chinese brands which are seen as high-tech and high in innovation has increased dramatically in the past three years, especially amongst the young. Global head of BrandZ, Doreen Wang.

Strategies evolve as balance of power shifts

The rise of China as a global economic powerhouse is creating the conditions in which Chinese brands can flourish, both at home and around the world, the heads of some of the best-known brands in China said.

While the pace of growth in China has slowed in recent years, significant opportunities remain, and Chinese brands are developing the products, services – and the skills to promote them – that will serve them well as they compete in new markets.

One of the biggest strengths of China is attitude, dedication, believing in a better tomorrow, going for it. Feeling self-responsibility to own your life – it’s contagious. It’s motivating to come over here and feel that.Nestle CEO Paul Bulcke.

Agile Chinese brands are challenging global legends, and Chinese consumers are demanding more from all the brands they interact with.

“The foreign MNCs always think about their competition being their fellow MNCs. It’s not,” said WPP CEO Sir Martin Sorrell. “This is very significant change.”

Bulcke said start-ups now could be created one day, and the next day be connecting with the world. This was a huge challenge for established brands.

“What has brought us here is not going to bring us further. The world is going to see reverse innovation out of China, new trends. The consumer in China is faster moving than any consumer in the world.”

Yunfeng Bai, co-founder and CEO of the education and technology business TAL, said the opportunity was for China to become more than a manufacturing hub. “We hope to change from “Made in China” to “Wisdom from China”.

Technology has been the great enabler of many emergent Chinese brands that are disrupting their sector.

China has gone from analog to smartphone in one bound, us poor devils in Europe and the US have gone from analog to desktop to a mobile phone and then a smartphone. It’s a disruptive force.WPP CEO Sir Martin Sorrell

SY Lau, CEO of Tencent, said innovation was now a matter

Our learning has been: if we do not want disruption to take over us, then we should disrupt ourselves first. (Many industries) are getting a new lease of life because entrepreneurial leaders of organizations are embracing technology and integrating new forms of engagement … and looking at the value-creation chain in a very different format.

The role of brands is rising to prominence in China, as consumers become more discerning and more demanding of transparency from the businesses behind brands.

“We have seen many examples of very successful Chinese companies with 10 or years’ history that easily collapse, so that’s why I think today, when you look at brand, it’s really the single biggest asset that a Chinese company has,” said Jeffrey Minfang Lu, CEO of dairy brand Mengniu.

Bulcke said: “China and the Chinese consumer has moved dramatically in the last 10, 15, 20 years in asking exactly and expecting exactly the same things that we would consider more sophisticated, evolved consumers elsewhere.”

Ben van Beurden, CEO of Shell, said this meant focusing not just on what the consumer buys, but their broader understanding of a brand.

I would say focus on the quality over everything else,” he said. “That’s not just the quality of the attributes of the product that you present and improve functionality, but it’s also the quality of how the company operates. So in our case, being able to operate at high standards in our facilities, safety and environmental, ethical performance, is also a move to quality that is unstoppable; it’s a force for good for society and I think is a way we can differentiate ourselves.

China and the US now account for 40 percent of global GDP between them, creating what WPP CEO Sir Martin Sorrell described as “a G2 world”.

“If you went back to the early 19th century, China was the most dominant economy in the world,” he said. “I think what you see with the most valuable Chinese brands and the growth of local companies now is the culmination of that cyclical change.”

Please mind the gap

Building awareness and reputation in new markets

Consumer views about what “Made in China” says about quality are changing around the world, particularly among the young, who increasingly view the label as a byword for innovation.

But many brands that are huge successes at home have a lot of work to do to raise their profiles in other markets, and they’re going about it in new ways, panellists led by Ogilvy China CEO Chris Reiterman said.

“Chinese brands are no longer seen as cheap and low quality; they’re much more associated with new ideas, innovation, but also being affordable,” said Alice Lee, General Manager, Brand Innovation Centre, and Managing Director, TCL Corp.

“In a nutshell, the perception of Chinese brands now is ‘affordable innovation’.”

Deepender Rana, CEO Kantar Insights, Greater China, said international consumers’ opinions tend to shift when they tried Chinese-made products for the first time. Brands looking to take their Chinese success abroad should therefore focus on the consumer experience.

“The Chinese brands, in terms of quality, are ahead, and in terms of perceptions, they’re behind,” he said. “So when the foreign consumers actually try the brand, they’re like ‘Wow’. They’re shocked. The role of brand building for Chinese brands abroad is to first get awareness and familiarity, so that we can encourage that trial.”

The need to put products in people’s hands – or at least videos of products in front of them – has been at the heart of drone giant Dajiang’s growth. The business generates more than 80 percent of its revenue outside China, and many buyers don’t even realize it’s a Chinese brand.

“We attach great importance on experience,” said DJI Vice-President Paul Xu.

“The idea of a drone is very new for many people … we must take it to the customer, let them experience it.” This was done both physically and by distributing about 1,000 online videos a year showing the products in in action. “This is to make our global customer resonate with our product, and we can then gain information on how they feel about our product.”

The other way to grow a Chinese brand abroad is through acquisition, something the travel company Ctrip has been doing, snapping up Hong Kong’s Yong An, the UK’s Skyscanner, India’s Make My Trip and a collection of other online travel agents in just the past three years.

James Tang, Senior Vice-President at Ctrip, said moving outside China was a gradual process; the bulk of revenue still comes from the home market, where the brand is known by the tagline “Go any time you please”.

“Based on my experience at Ctrip, my view is this,” he said. “One, build good brand, two, use your channel well, use any channel that gives you an ROI greater than one, and three, based on one and two, you need invest heavily to build your brand.”

Landy Huang is Chief Evangelist Officer, Greater China, at Google, and says her role is to help Chinese brands go global. They tend to fall into one of two camps: the gradual expansion model such as Ctrip’s, or global-first companies that from day one have a clear vision of global success achieved through digital marketing and distribution.

“These are two very different approaches,” she said. “I think both of them work, and both of them are very good – big style.”

Panelists said building a Chinese brand was like building a triangle of product, experience, and then promotion and advertising.

Paul Xu warned of the perils of the overnight internet sensation. “Many of the products may have raised few hundreds of millions in the beginning and then eventually faded out and disappeared completely. This happens quite often. I believe that building a global brand is a very long process.”

Chinese brands have a good story to tell. They just need to tell it better.
Deepender Rana, CEO, Kantar Insights, China

This time, it’s personal

How digital data is changing the game

The digitization of Chinese consumers’ lives is fueling greater demand for premiumization and an expectation that data will be used to provide a highly personalized product or experience.

A panel session moderated by Wunderman China CEO Bryce Witwam heard that brands are not just grappling with the right balance between data privacy and the best use of data for consumer benefit, they’re also having to rethink entire business models.

“The development of the mobile internet gives us a piece of information that we have never before been able to get during the whole history of human evolution … and this information is location,” said Steven Shu, CMO at MTWM, the company behind the Wai Mai (takeaway) service.

We know the location of the customer, we know the location of the services, and through our methods, we provide distribution services for ordinary items such as food, supermarket shopping, flowers, and cake to our customers. Continued technological advances will bring disruptive change to our overall business model and marketing methods.

An Li, General Manager at Netease Media Marketing, said providing a news service was now about delivering customized content based on a huge range of data, from current location and reading history to the preferences of people identified as similar to each user. Artificial Intelligence promises to make that personalization even better, but this is not just about more targeted marketing, she said.

“Rather, it is a business model change. The process – which starts with a user knowing your brand, then experiencing it and then a transaction takes place – has been turned upside down, and Mei Tuan Wai Mai (MTWM) is a perfect example,” Li said.

Paul Hu, CMO Group Sales + Marketing with Volkswagen Group, China, is at the sharp end of challenges to business models. “The automobile was invented about 100 years ago but it has never been like this, where the whole industry has arrived at a crossroads,” he said.

“Getting around has changed from having a car, having the ownership of a car, to the willingness to share.” In future, people might only share rather than own, or use a combination of both. This raises big questions about the significance of car brands if everybody is sharing. And there’s a chance that car ownership might become a hobby or luxury rather than a mode of transport – much like horse ownership now.

As the basic elements of a product or service become more similar from brand to brand, service and convenience become more important, explained Amanda Chan, Deputy General Manager of Branding at the insurance provider Ping An.

“We need to depart from the old task of brand awareness, and instead concentrate on promoting and elevating brand reputation. This is because in China, financial services companies are very similar to each other, so how can you differentiate yourself from others? We think the answer is service.” Ping An has offline agents on call, and online capital exchange services. “We need to accurately recommend our services to our clients at the right place, at the right time.”

Aiming for the perfect blend of online and offline should also be at the heart of communications strategies, said Cindy Chan, Chief Strategy Officer at Focus Group Media Group. While consumers are using mobiles, they’re also absorbing the world around them, including other screens and opportunities for brands to connect. A combination, rather than a switch to online, is needed.

“The most important thing is to change from the old way of advertising where the consumers listen to advert and then become a part of the campaign, to participating in the interaction with brand, and treating consumers not as listeners but participants.”

Nancy Zhang, Director PRS Global Marketing & Communications at Intel China, said the power of data to brands as they scrutinize their ad budgets is in being able optimize combinations of media against key performance indicators.

Looking at the current media, it is not about which one will be replaced and by what. They are complimentary to each other.

 “But now, because we have AI and machine learning to operate and calculate in the background … we will not combine these forms of media blindly, or combine them solely based on our experience, but to take advantage of the functions of big data, combine them more scientifically.”

Signs of spring after long, hard economic winter

There are three clear signals that China – and the broader global economy – may be emerging from a long cycle of debt and deflation, said Dr Wu Ge, Chief Economist with Hua Rong Asset Management.

He said a new macro-economic picture, a changing trade relationship between China and the world, and the current financial relationship between China and other countries, all pointed to a more stable environment in which Chinese businesses could thrive.

“The circle of debt and deflation has been broken,” Dr Wu said. Two key factors were at work here, he explained. First, Chinese government reforms and recovery in the US have together fuelled recovery and eased pressure on the value of the Chinese currency, the RMB

“We can say the worst time is over, after suffering seven or eight years of pain,” Dr Wu said. “We have reason to believe that the world economy as a whole will move forward with a new energy.”

And while there had been concerns expressed about the effects of a Trump White House on trade with China might be, the early signs of co-operation were encouraging, Dr Wu said.

They are preparing to prevent any potential trade war from happening. China has learnt its lesson from over 100 years ago, that you are destined to lose if you shut your doors to the rest of the world and try to live in isolation.

At the same time, outward direct investment from China has now surpassed inward foreign direct investment. Fears that this would put downward pressure on the currency, the RMB, and lead to an exodus of capital have not been realized.

“It’s just like the Spring season,” Dr Wu said. “Although it is full of signs of life, there are still many areas in which China can do better, including how to deal with the very heavy smog that occurred in the past few days … but many areas show characteristics of strong growth for business.

I think only those enterprises that integrate constantly with the world will become the kings among us.

A time to learn

As Chinese businesses and brands buck the global trend and look outwards for opportunity rather than inwards, there are two significant phenomena in play, said David Roth, CEO of WPP The Store.

One is how important education is in terms of making sure that the new generation of Chinese managers have the right tools in order to navigate their way through the changing, digital world we’re living in.

WPP is working in partnership with Yale School of Management and the Beijing-based business school CKGSB on a management course specifically focused on digital transformation and building digital brands in a changing world.

The other big takeaway from China is that the role of brands is increasingly being recognized by the very upper echelons of management.

They see the brand as the way of navigating the organization through a changing world, and reaching changing consumers, to make simplicity, certainty, trust and honesty very clear to all.

In uncommon times, China looks abroad, the West turns inward. This report examines brand value growth during unusual times.

 

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