Nike and Coach lead branding revolution in China
Companies that cater to individual consumer needs are thriving, writes Ben Cavender
For many years, companies selling to Chinese consumers have relied on raising prices and focusing on easily recognisable images to differentiate their brands and drive sales. While this worked well during the period of unfettered economic growth in first decade of the 21st century, China’s economic landscape has changed and this strategy is no longer a sure bet. Being high profile and more expensive is not always better. Instead, to be successful in China brands now need to work harder to differentiate their products and focus on the individual aspirations of their customers.
Brands can no longer simply play the premium card to drive sales. This is especially so after the central government’s aggressive campaign against corruption in addition to growing consumer sophistication and brand familiarity, and a middle class who increasingly worry that economic advancement may not be as bright as they thought.
Looking at the recent struggles of perennial consumer favourites in China , such as Louis Vuitton and Gucci, show just how far the market has shifted. Once stalwarts of the luxury segment in China, both brands have suffered through a slow 2013 and 2014 owing to anaemic demand. Some of the blame can be attributed to the government crackdown on corruption, which has caused people to be more circumspect about what they buy, but the declining fortunes of these brands come more as a result of shifting consumer behaviour and needs.
Consumers have grown beyond simply showing off obvious markers of status and wealth and instead are looking more closely at brands that allow them to express their own individuality and which also offer a high degree of value not only in terms of brand cachet but also design aesthetics, construction quality, retail experience and after-sale service.
Even as China’s economic growth continues to slow there is tremendous upside opportunity for brands to sell on the mainland. However, they now have to focus more on brand and product differentiation than on simple expansion.
Chinese consumers do not want me-too products anymore. They want fast access to new products as they become available in international markets, and access to special products that may not be available elsewhere. In other words, they want to feel valued as consumers and to not be seen as an afterthought. Brands such as Coach have become successful in China by focusing specifically on what the local consumer wants.
Coach has provided a good model for product differentiation by working to involve its best customers in decisions about which designs and products to offer and solicit a high degree of feedback during product design sessions. This allows it to build excitement around the brand and also create a community of loyal followers who prefer to buy something that is different and trendy, and affordable. Increasingly, consumers are spending less for something fun that not everybody else owns rather than spending more simply to own an expensive product.
In addition to product differentiation brands are also finding that products that allow consumers to express their own individual sense of style is important. Ten years ago, if a consumer walked into a store to buy a suit they might ask the sales associate to help them match a shirt and shoes and tie because they did not know what items went well together. Now, it is common for consumers to ask to see a wider range of products so they can find something different.
Nike is an excellent example of a brand that has worked hard to individualise products to meet consumers’ needs. In a market where sportswear is often more about fashion than about working out, Nike has focused heavily on the ability of its customers to customise its products. It’s “Nikeid” shoe option, which allows consumers to customise their shoes, has given buyers a strong impression that the company seeks to cater specifically to their individual design interests and it is one reason why Nike has consistently managed to dominate the sports apparel market in China.
A key mistake that many brands make in China is trying to do too much across too many product categories. Five years ago, to be successful in China, brands had to have a large footprint. It meant investing heavily in a large number of store-fronts and developing mass awareness before consumers would trust the brand enough to buy. Now, it is more important to have a clearly defined expertise in a specific niche. Brands such as Arc’teryx and Osprey, that produce outdoor backpacks and apparel, are good examples of this. Despite lacking the footprint that many of their competitors have, they have been able to build a loyal following of outdoor enthusiasts who see the brands as being best in class owing to their presence in other global markets and the perception that they are focused on technical excellence rather than marketing.
While China’s economy is undeniably shifting into a new phase of more controlled growth, this does not mean that opportunities for brands to enter the mainland market are gone. Instead, brands must focus more carefully on differentiation and connecting with consumers over their lifestyles and personal interests. If they can do this well, room for growth is limitless.