Golden Week in China (1 to 7 October) comes at a time when Western beauty and skincare brands in Chinese markets face make-or-break decisions. “Guochao,” or the rise of indigenous producers, coincides with nearly all brands from the United States and Europe losing market position, and relevance.
The trend towards Chinese domestic brands has been growing for several years. The favored status once enjoyed by coming from the US or Europe no longer exists. It is becoming an increasing handicap as Chinese consumers shift to homegrown as the default sentiment. It means Western owners of beauty and skincare products have to decide how to respond.
To a large degree, brands from the West have brought problems upon themselves. Marketing has consistently been a major trouble area with the continual push of the traditional brand as the hero message. It works outside China, but not with Chinese consumers. They are not interested in the product as hero of communication. They are interested only in what it will do for them, how it will add to how they see themselves, and their values.
Marketing departments from the US and Europe have not learned to leave practices that work elsewhere at home. This is often not helped by the use of global advertising agency groups that have locations in China, but run by managers rotated in from outside. The result is the reinforcement of flawed communications strategy.
One recurring problem is the belief that brand localization can be achieved by working with expensive premier social media influencers (Key Opinion Leaders, or KOLs), and leading celebrities. Often the connections created with consumers are tenuous and brief, and use of high-profile influencers increasingly comes with risk of personal scandal and other problems.
Chinese marketers tend to use small follower influencers, and in particular, Key Opinion Consumers (KOCs), that allow for far more granular messaging, and drive peer-to-peer recommendation. It produces consistently rewarding results. KOC marketing is often not a realistic option for Western companies because they do not have the in-house capability to recruit and manage KOCs, and neither do their agencies.
The situation for brands from outside China became significantly worse during COVID as the majority struggled to find a response. Chinese counterparts did the opposite. They were quick to identify and implement new ways to sell. From relatively little use, live-stream selling accounted for £110 billion in sales in 2020, according to KPMG.
Beauty sales reached record levels in China during some months of 2020. Engagement rates on social media were without precedent. However, some Western beauty companies lost control of their brands to members of the public who became recognized as official brand representatives on the all-important Little Red Book platform.
The fact that the fast eat the slow in China has never been better illustrated. While most US and European brand head offices considered what to do, Chinese rivals were able to accurately measure consumer mood, and implement tactics to increase market share. It gave added impetus to an existing trend in which Chinese companies were already ascending.
And then came guochao, that for outside brands has turned a difficult situation into one requiring a radical response. Guochao is a movement that turned “Made in China” to “Designed in China.” It is not so much based on patriotism, but the recognition that Chinese companies now create high-quality products. The manufacturers themselves play on attributes of culture and nostalgia. The message is compelling, and it has left those from the West unsure of how to react.
The first response to problems faced by Western brands is simple—audit. Third-party evaluation should provide objective assessment of assets and liabilities, taking into account product portfolio, market, consumer psychographics, marketing, and competitor activity. All of these elements need analysing in detail to enable brands to move forward with planning that can work. Anything else is shooting in the dark.
Auditing must come from an independent source that has ground-level as well as strategic experience. Taking guidance from consultants with theoretical understanding and access to a mass of research and statistics might work if markets were theoretical too, but they are not. They are full of real people, and what is needed are practitioners that have a true understanding of the look, feel, and mood of markets, and what works in terms of connecting with buyers. It is a good reason to avoid management consultancies.
An audit enables planning based on the realities of the brand’s situation, and it is often advisable to appoint experienced Chinese strategists, if only to produce a roadmap for others to follow.
The other key attribute that needs to be factored in is agility. Chinese markets change very quickly, and often this is driven by brands that are quick to identify opportunity. To a large degree, this ability to adapt comes from deep learning and analysis, but is also part of the modern Far Eastern culture that constantly seeks change and improvement as opposed to the prevailing Western desire for “normal.”
In most cases, acquiring agility means at least initially putting Chinese staff in senior management or advisory positions, or using consultants in these roles. In either case, trust must be given.
The outlook for Western brands in China is far from impossible. Success requires a realistic assessment of how prepared a brand is for the market, and if there is a will to properly localize and learn, and implement strategy based on buyer focus—then it is perfectly possible to have a profitable and sustained future.
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