How Global Brands Should Harness Data to Compete in China’s New Consumer Goods Landscape
By Jacob Cooke
Recent consumer habits reveal a growing number of strong local brands gaining traction in the China market. As Chinese brands increase their market share, it leaves global brands with mounting concerns about how to stay competitive in the local market. Jacob Cooke of WPIC Marketing + Technologies breaks down what’s behind this surge of Chinese consumer brands, the implications for global brands, and why companies need to leverage data to stay competitive in the world’s most dynamic consumer market.
In the wake of this year’s record-setting “618” (June 18) e-commerce shopping festival, a major storyline in Chinese and western business media was the strong performance of Chinese consumer brands.
The Financial Times reported that western consumer brands in the China market are “increasingly threatened” by homegrown upstarts, pointing to several Chinese brands – all founded in recent years – that have grabbed significant market share from western giants. According to Alibaba’s Tmall, Babycare, a Chinese brand founded in 2014, had the highest gross merchandise value (GMV) of any brand in the mother-and-baby sector. Meanwhile, Guangzhou-based Perfect Diary, established in 2017, was the top cosmetics brand during the Singles’ Day online shopping festival in 2019 and 2020.
The emergence of strong local brands is most evident in China’s fashion, beauty, and fast-moving consumer goods (FMCG) sectors. In recent years, other Chinese consumer startups like beverage company Genki Forest, toymaker Pop Mart, and underwear brand Ubras have become major players in product categories historically dominated by western brands. The trend extends to more established Chinese brands too, with legacy apparel giants Li-Ning and Anta, for example, seeing their profits and share prices skyrocket in 2021. Taking an even wider view, Chinese companies have become global leaders in several consumer technology sub-categories, including smartphones (Xiaomi, Oppo, Vivo), laptops (Lenovo), mobile applications (ByteDance), drones (DJI), smart appliances (Haier), and video games (Tencent, NetEase).
What’s behind the surge of Chinese consumer brands – and what are the implications for global brands that have looked to the China market for growth?
Chinese brands haven’t necessarily won the day. Global brands still enjoy substantial advantages in China, but they need to study and emulate the best practices from upstart local players to stay competitive in the world’s most dynamic consumer market.
One of the most commonly-cited reasons for the growing popularity of local brands is nationalism – that Chinese consumers, especially young consumers, are switching to local brands because of national pride. Some point to recent boycotts of certain foreign apparel brands as evidence of a broader pattern of nationalist-driven consumption.
While nationalism may motivate purchasing decisions to some degree, I view it as a simplistic explanation for the overall trend – one that obscures Chinese consumer preferences and detracts from the savvy business practices of the successful local upstarts.
For one, despite the emergence of strong Chinese brands, the data shows that there is still strong interest and trust among Chinese consumers in foreign products and brands.
Take another look at this year’s 618. Tmall Global, Alibaba’s cross-border platform, reported that Chinese consumers purchased more than RMB 100 million worth of imported goods within three minutes of the sale opening. Eight hours into the event, sales of imported goods had already exceeded the total from 2020’s multi-week 618 festival. On JD Worldwide, JD.com’s cross-border marketplace, over 20,000 foreign brands participated in 2021’s 618, with over 700 of them doubling their sales from the previous year.
With backlogged pre-orders for the iPhone 13 and the early success of Universal Parks’ Beijing Resort, it’s clear that there is not a widespread patriotic rejection of foreign brands – even of the most quintessential American brands.
Moreover, many of the successful domestic startups do not make overt appeals to blind patriotism in their marketing. The social media pages and e-commerce stores of Perfect Diary, Genki Forest, and Ubras do not emphasize the local origins of these brands or that their products are “Made in China”. Some of Pop Mart’s most popular collections are based on American intellectual properties, while the landing page of Babycare’s flagship Tmall store highlights that the product design team is led by American, German, and Japanese experts.
If nationalism were fueling the success of these brands, marketing managers would probably take note and play into nationalist sentiments – a positioning with limited risk given that these brands are China-focused and have little, if any, overseas revenue exposure.
What’s Really Behind the Rise of Local Brands?
A more useful framing is to look at how successful local brands are competing on product offering, price, and branding strategy. Increasingly, Chinese brands are making high quality and trendy products, selling them at accessible prices, and articulating a brand identity that resonates with young consumers – sometimes by using Chinese cultural elements and aesthetics as part of “guochao” (national trend), and sometimes without.
In my view, the fundamental reason for the success of local brands is that they effectively apply data across their operations. Through data, these brands understand the demands of their target consumers, design and produce goods that meet those demands, use digital channels to reach those consumers, and deliver the right messaging to convert purchases and build brand loyalty. By harnessing the power of real-time data, they execute this entire process at a rapid pace to meet the fast-changing needs of consumers.
Foreign brands should not view the rise of domestic brands as a matter of mere nationalism and throw in the towel. Instead, they should learn from and adopt the best practices of these success stories.
An Updated Playbook for Global Brands
For many successful Chinese upstart brands, their retail operations focus almost entirely on the domestic market at present. This gives them an advantage over global brands active in multiple markets since local brands can allocate nearly all their R&D resources to develop China-specific products. Multinationals often select products from a global portfolio to sell in China, which may not have been developed to meet the specific needs and preferences of Chinese consumers.
However, it’s not just that Chinese brands enjoy the benefit of focusing on a single market. Local brands have demonstrated a remarkable capability to analyze market data and integrate it into their production cycle at a rapid pace, allowing them to develop new products that meet the fast-changing needs and preferences of consumers. While global brands may take months or years to develop a new product, local brands are constantly iterating their products based on data – in some cases executing the entire process from design to manufacturing to end-sale in under a week. They will launch a new product, analyze sales performance and customer feedback, and modify accordingly.
Consumer multinationals should consider investing resources into accelerated product development for China that leverages data insights into both current trends and projected trends – and be willing to iterate products accordingly.
For firms hesitant to localize their China operations to this degree, they should lean on data to inform their China merchandising strategy and logistics.
Brands should carry out regular quantitative assessments and projections of Chinese consumer preferences and needs and ensure that the SKUs they take to market will meet those preferences and needs. Moreover, they need to conduct regular competitor assessments to ensure that a market exists for their product at an acceptable price point.
“Chinese brands have chipped away at the competitive advantages western brands used to enjoy in the market—but that does not mean Chinese consumers are turning away from foreign goods en masse.”
At WPIC, using our proprietary data analytics software, we provide brands with granular assessments of the market for any given consumer product on China’s e-commerce marketplaces. There is ample publicly available information about sales volume, pricing, product variables, and customer sentiment. By using the right tools, brands can gain a comprehensive understanding of the competitive landscape in their product category or sector.
Leveraging data to anticipate trends is especially critical for firms who need to budget time for their overseas inventory to arrive in China. Firms importing inventory into China can save substantial costs not only by selecting the appropriate SKUs to market, but by importing the appropriate quantity. Amid a global supply chain crunch precise inventory management, informed by granular market insights, can be the difference between profit and loss.
To take a basic example, if a brand wants to sell a series of athletic shoes on Tmall, they should know a few pieces of information before bringing the product to market. Is the market for athletic shoes already saturated? What are average and median prices for athletic shoes, and would consumers buy at the price that allows the brand to profit? What colors, styles, and use cases are most popular? Inventory quantity is also key, as brands should avoid sending excess inventory into market to save costs – and to avoid reputational damage if demand exceeds supply, and customers who are accustomed to rapid delivery of goods purchased online become frustrated.
The next piece of the puzzle is digital marketing. Most successful local upstarts are digital-first, direct-to-consumer (DTC) companies that depend on online channels for both marketing and retail. This has been especially significant for reaching young Chinese consumers – who as a group have significant spending power, are less brand-loyal, and primarily learn about and purchase new products through online channels. For example, over 90% of Perfect Diary’s sales are online.
The Financial Times report noted that marketing can take up 60% of Chinese consumer startups’ budgets – a figure attainable only through the hefty investment dollars that have poured into these startups. Foreign brands may not be able to compete with those marketing budgets.
In addition to generating exposure for competitor products, the aggressive marketing efforts of Chinese consumer startups drives up the prices of Tmall and JD.com’s built-in marketing tools, such as keyword bidding. User growth on these platforms is plateauing, so more brands are competing for a static number of eyeballs, further driving up the price.
With customer acquisition costs rising, optimizing ad spend is even more crucial for foreign brands hoping to be competitive in China. These brands should work to identify which marketing channels and content offer the highest return on ad spend. With China introducing new pro-competition measures that will make it difficult or impossible for platforms to build closed-loop ecosystems, brands will have new ways of driving traffic from social platforms to e-commerce platforms. Using granular data to allocate ad spend will help a brand reach more potential consumers and convert purchases.
For example, livestreaming has become a hot channel that integrates marketing and sales, can generate major buzz, and drive significant revenue in a short timeframe. However, with top-tier celebrity livestreamers charging sky-high prices, it can be difficult for a brand to profit from a livestreaming engagement. Firms in the FMCG sector that aim to reconvert customers on a frequent basis may benefit from an influx of new customer data and exposure through a high-profile livestream. However, firms selling pricier goods on a less frequent basis, may generate significant sales during a high-profile livestream, but lose their entire margins from the livestreamer fee.
With the rise of local brands, the Chinese market has become even more competitive. Foreign brands are still popular, but they need to leverage data to reduce costs, drive sales, and earn profit in this new landscape. At WPIC, we work with our global brand partners to adopt these data-enabled practices – both for established players and newcomers in the market – so that our brand partners are competing on the same playing field as digitally-savvy local upstarts.