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CHINA: "The Insight Bureau Column: Chinese whispers"

CHINA: "The Insight Bureau Column: Chinese whispers". Article by Graeme Maxton, The Insight Bureau.

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backCHINAtalk July, 2008

Rationalism Trumps Nationalism When Chinese Consumers Choose a Brand

A new BCG study finds that Chinese consumers are more practical than patriotic when it comes to choosing between foreign and local brands. And thanks to strategies that companies have borrowed from chameleons and hermit crabs, some foreign brands do a good job of appearing to be local.

As the competition between multinational and local brands in China intensifies during the months leading up to the Olympic Games and after, some brand analysts have concluded that Chinese consumers will increasingly favor local brands, largely for reasons of national allegiance.

Although the Chinese often claim to prefer local brands-and patriotism is undoubtedly a factor in that preference-nationalism plays a relatively small role in actual purchases, according to Foreign or Local Brands in China? Rationalism Trumps Nationalism, a new report from The Boston Consulting Group (BCG). Brand choice in China is, in fact, much more complex. What might appear to be a nationalistic preference for local brands is actually a preference for reasonably priced products with reliable quality.

"That's a wake-up call for marketers to stay with the basics," said Hubert Hsu, leader of the firm's Consumer practice in Asia and a coauthor of the report. "The appeal to national pride alone is usually not a sufficient reason for most Chinese to favor one brand over another when it comes to opening their wallets. Companies would do well to focus on the practical values that consumers seek in their products, as well as product availability, price, and promotions."

The report presents the results of a large-scale survey in 13 Chinese cities conducted by BCG's Center for Consumer Insight in Asia. The survey included approximately 4,000 Chinese consumers representing a range of household incomes and regional characteristics. That effort was supplemented by in-depth qualitative research consisting of focus groups, home visits, and "shop-alongs."

"One complicating factor in determining brand choice in China," coauthor Carol Liao noted, "is that consumers don't always know a brand's true country of origin. Another is that brand preferences depend more on demographics and category characteristics than on national pride alone. And, adding to the confusion, claimed preferences don't always align with actual purchases."

That discovery came about when the authors of the report visited Chinese consumers in their homes, expecting to find the local brands they had claimed to prefer. Instead, the authors were surprised to discover Safeguard and Lux soaps, Pantene shampoo, and Olay and Avon cosmetics. The consumers' explanations were strikingly similar: they had always assumed that those products were, in fact, local.

Welcome to the world of "chameleon brands." Much like a chameleon blends into its surroundings, some foreign brands can appear to be Chinese, even to a native. Although most local brands were identified correctly as Chinese, consumers in the survey were mistaken about the origin of foreign brands as much as 80 percent of the time.

Chameleons and Crabs

The report notes that the confusion about the provenance of brands in China isn't always by accident. Foreign companies often try to make their products look Chinese to appeal to consumers who might prefer local products. Some brands adopt a Chinese name; others use Chinese actors in commercials and local motifs in advertisements. Another tactic is to borrow a Chinese "shell" (in hermit-crab fashion) by purchasing a license to market and produce the local brand. That allows the foreign company to enter the market at the low end of the segment or in a category in which "local" knowledge is valued by consumers, and then, with additional investment in R&D, marketing, and distribution, to launch new products under its "local" brand.

What did the consumers say when the authors pointed out the true origins of the brands on their shelves? Their initial response was surprise, but it was quickly followed by the admission that it really didn't matter, because they were more interested in price and quality. Despite their expressed biases toward local products, none of these consumers were willing to switch from their foreign brands to local ones. "The appeal of patriotism doesn't stand a chance against practical product benefits," coauthor Matt Anestis concluded.

In targeting their products for Chinese consumers, it is important for marketers to understand that a general bias in favor of local or foreign products can be overridden by specific demographic characteristics and category requirements, including the desire to trade up. Beyond those factors, there is an additional set of activities having to do with brand identification, product availability, price, and promotions that marketers can implement to influence brand preference. Those factors can be points of leverage for marketers in influencing consumers' predisposition to purchase either a foreign or a local brand.

Source: Boston Consulting Group - GAI

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