Challenges of Western Brands when Marketing to Chinese - Literature review Example

?Review of Literature Challenges of Western Brands When Marketing to Chinese China’s economic growth, though patterned after the principles of the West, is proving to be progress towards a different path (Boisot and Child, 1996, p.601). China started an economic reform, in 1979, which allowed it to liberalize its economic and political regulations. These changes have made consumers in China become increasingly wealthy. The disposable income of urban households has grown steadily from 2004 to 2007 (PRC 2011). This domestic has a lot of potential, which in turn has attracted the interest of local and foreign corporations. This potential can be signified by the continual growth of retail sales of consumer goods, for instance retail sales figures increased by 3% in 2007 (PRC 2011). China may be described as a large and homogenous developing market. The ‘huge population, the rapid industrialization and unprecedented economic growth’ provides manufacturers a great opportunity (Ewing et al., 2002). Multi-million Fast Moving Consumer Goods (FMCG) like Coca Cola, Uniliver and Mc-Donald’s have experienced a lot of success in this market. The consumer brand consciousness in china goes through four eras and steps into a post-industrialization era. The consumer’s attitude has seen a change from a supply-side orientation to a demand-side orientation (Schlevogt, 2000). Nolan (2002) once pointed out that china is moving rapidly to integrate with the world economy. The Preference For Domestic Brands There are still some issues which may act as an impendent for international companies. One such impediment, cited by many scholars, is local brand loyalty in china. Ayala and Lai (1996) claimed that foreign brands may find it hard to enter this market, due to the development of brand loyalty. “Foreign brands underestimate the power of domestic brands and the degree of brand loyalty to them” (Ewing et al, 2002). Consumer behavior will often vary from country to country, and in China’s case consumers tend to prefer local brands. After the economy opened up, local brands began to gain experience and marketing sensitive from multinational corporations. Chinese Local brands will often tend to have a better understanding of domestic consumer behavior and they are often more flexible in the adoption of a strategy that fits with the local market environment. Other factors that internal brands have to contend with while competing with local brands are ethnocentrism and protectionism. According to Bates (1998) the idea that “west is best” is no longer the dominating factor for consumer’s first choice. Although, western culture still does influence consumption behaviors, it tends to benefit local brands more than their foreign competitors. For example, there has been a general trend among businessmen to wear formal business attire, rather than casual wear. But local brands like Youngor and Firs have been the main beneficiaries of this trend instead of foreign manufacturers. “European fashion was most aware by Chinese consumers, but consumers simply consider it as a source of choice rather than actually purchasing European fashion products” (Bates,1998). According to Nolan (2002) when China joined the World Trade Organization, their local corporations needed to find a way to compete on a worldwide field. China’s industrial policy also faced many issues in the process of emerging into the global business arena. These limitations in turn, constrained the development of local brands. For instance, ‘policy inconsistency exists in the same industry, China’s weak economy based, and failures in China’s bureaucracy’ (Nolan, 2002). The Growth of China’s Fashion Industry The Vogue China Fashion Index (2006) (the National Bureau of Statistics) found that Chinese consumers associate fashion with modernization, innovation and personalization. According to the statistics, 18.7 % of Chinese consumers consider modernization as the highest factor while selecting fashion, and then followed by 17% who consider personalization more importantly, and then finally 15.7% consider innovation as the biggest factor in choice of fashion. This trend would be described by Chinese consumers as the emergence of the first impression and 77.4% of consumers consider fashion as represented by apparel. Davies (1992) presented four criteria ‘differentiations, premium price, separate existence and psychic values’. Therefore, consumers require quality satisfaction, personalization and innovation in order to make a purchase. According to a projection done by O&L and a Global Investment Report done by Goldman Sachs (Ong, 2007) pointed out that apparel market was seeing a seven percent yearly increase which goes up to more than RMB 200 billion. One of the other major stimulating factors for this industry is the high profit margin brought about by low labor and sourcing costs. This profit potential has attracted the interest of many foreign and local brands, to swarm the market. According to Ong (2007) consumers are becoming less price sensitive and are putting more focus on the quality, service as well as the innovation of the brand. Fashion may be classified in different ways. There is the street wear, the haute couture, office wear, and others (Easey, 2002).China’s fashion industry can be subdivided into three sections. Firstly, there is the haute couture market, which is monopolized by foreign brands like Giorgio Armani, Christian Dior and Louis Vuitton. The consumers in this market target high quality, personalization and innovation (Ong, 2007). Then there is the designer wear market, which has experienced a lot of fierce competition between foreign and local brands. This competition has been led mainly by improving quality and service of local brands, like Giordano, Lining and Youngor, which have become market leaders in the production of business, leisure and sports apparel. As the dramatic growth of middle class consumers, this market requires more on quality and service (Ong, 2007). Finally, there is the street fashion category, which can be defined as a low priced and basic clothing market. This category has a huge following among Chinese consumers. Manufacturers under this category have the benefit of low entry barriers, which has seen many local brands flow into this market (Ong, 2007). Local Celebrity Endorsement Chinese local brands differ from western brands in the way they solicit brand loyalty. This section will cover those differences in terms of advertising, product performance, store ambience, country of origin effect and switching costs. Most Chinese local brands will advertise their products, through celebrity endorsements. According to Erdogan (1999), celebrity endorsements in marketing communication are valuable because it is able to translate the credibility of the celebrity to the brand. The main difference between local brands and their foreign counterparts is their focus on improving brand awareness rather than brand image. The main fashion opinion leaders are young consumers who are easily influenced by their celebrity idols. These consumers will tend to trust the quality of the suits based on their idols testimony or amend their dressing style to fit in with one portrayed by their idol. Another important factor is the differentiation strategy used by manufacturers, that is, advertising will always focus on product category rather than image. Therefore, consumers will exhibit a preference when purchasing clothes, for instance a tailor jacket from septwolves or a formal suit from Youngor. Various Media Channels The choice of mass media is another measuring instrument for the effectiveness of advertising. It can be a bit difficult to find an effective media source, due to the regional differences in media selection. For example, television advertising is more effective in medium cities than large cities where the entertainment value of television program is weaker, while outdoor media better in Guangzhou than Chengdu (Tai, 2007). To sum it all up, the advertising of local brands focuses on clear product category, effective, believable and understandable media. Another important factor that affects consumer consumption is the store ambience. A good store ambience will attract Chinese consumers. In this regard, most local brands prefer a franchise boutique set up or flagship stores rather than upscale department stores. Top ten department store sales came in at 709, 600, which is a small figure as compared to total sales figures, which came in 40,153,600; this represents 3% of total sales figures. Most brands emphasize the store experience, where most brands have their own individualized promotional activities. For example, during the Beijing Olympics, Fazeya designed the Beijing Olympic Suits whereas Metersbonwe opened a 10,000 sq.m flagship store, with the aim of allowing consumers to experience consumption and cultural expression in china. The two most important factors that influence brand performance are price and the product itself. Western brands don’t know the fashion taste of the Chinese more than the local brands. Local Brands Are Learning From Their Foreign Competitors Products produced by local manufacturers differ from foreign brands in their size measurement, colors, materials, durability and functional quality. These local brands seek to attain the market prowess in their core competencies. According to Hooley et al (2004), these core competencies should provide potential access to the market and make a significant contribution to the perceived consumer benefits. For instance, Qipai was able to set a standard in the production of Chinese jackets, Lilang has established a niche for itself in the production of warmth jackets, and Young or places a big emphasis in the quality of its materials. Core competences are difficult for competitors to imitate (Hooley et al, 2004). However, the improving quality of fashion has led local brand manufacturers to search for competencies to make use of. Some of the core competencies which they would seek to improve on include durability, functionality, materials, colors, quality and size measurement. As many European brands, for example, are starting to target the Chinese market, many local brands are looking at the products to look for ways on how to improve it and make it more appropriate to the local market. As they learn more, they are becoming more able to go global. Jefen, a known Chinese brand recently launched in Paris through the Paris Fashion Week. They also rolled out in New York. The international recognition, in turn, is changing how Chinese view local brands. They are also getting involved in Corporate Social Responsibility (CSR) efforts. Faipai, another known Chinese brand, donated RMB 40 million to the victims of the Sichuan Earthquake. This efforts allowed them free publicity and a chance to be put side by side other international brands that are doing the same CSR work. Understanding Chinese Values May be the Key to Market Entry There is a deep relationship between image and spirituality for the Chinese (Wong, Chung, & Zaichkowsky, 1999). When the Chinese buys cloths there is a strong connection wo their self-image because of their belief that what is seen externally, is what is inside them. Therefore, if they believe they are superior, they must show they are superior in everything they do and possess including clothes and accessories (Wong et al., 1999, p. 67). For example, in their studies on social interaction patterns, Wong and Ahuvia (1998) found that Chinese stressed harmonious interactions among in-group members, whereas Americans focused on expressing the private self by meeting personal needs. This belief makes Chinese more conscious of the brand rather than the quality of the material or the clothes itself (Wong & Ahuvia, 1998). They believe that the reputation and credibility of the brand becomes their own. What they possess becomes what they are and if they wear something expensive, then they become expensive. Culturally, China puts a lot of importance on respect. They work hard on climbing up the ranks society. This hierarchical mindset becomes the primary motivation of the Chinese in running after Western fashion brands. They believe that when they wear Western brands, they also possess the high regard and image that the West is known for all over the world. Chinese, in fact, is more concerned about social status and position more than most race. They work hard on being and looking like the person they want society to perceive them to b (Vigneron & Johnson, 1999). Wong and Ahvia (1998) proposed that Chinese feels that the more expensive their possessions are, the more Western they look, the more they attract attention. This is the very insight that many Western brands have been using as a tool to attract attention. This is also reflected on the Confucian values. They believe that superiority in all aspects of life, including social image and materials possessions are very important. The only way to fully glorify one’s own life is when one becomes well respected in the society (Wong & Ahuvia, 1998). Wealth and image are integral parts of their life and every Chinese must work hard on this for themselves and for their family (Wong et al., 1999). In fact, Wong and Ahuvia (1998) did a study on how the Chinese prioritizes socialization and found out that while Americans considers socialization as a support for one’s personal growth and the self-image as the most important component to self-fulfillment, the Chinese considers social perception equally important to how they feel or perceive themselves. That is how the Chinese ends up giving more value to the brand name rather than the quality. The more prestigious the brand is, the higher they go in the society and the more fulfilled they become. It is also uncanny how the Westerners believe that others will respect someone if that someone respects himself. It always starts internally for the person but for the Chinese, it is simultaneous (Wong et al., 1999). Since most young Chinese are more eager to prove themselves and more pressured to make something of themselves, they choose the path that will quickly improve their social image and reputation. Fashion is an important part of that because it is something they can easily control and the society can easily see (Wong & Ahuvia, 1998). It is not uncommon for many Chinese to consider someone successful based on one’s possession, without regard to professional success or social contribution (Wong et al., 1999). It is their shortcut to a job promotion. Those who show up with better clothes, with better brands are perceived to be better. The west perceives this as vanity, the Chinese thinks it’s logical. When a Chinese buys Rolex, Hermes or Louis Vuitton, they are not after the quality of the material or the detailed craftsmanship. They do it because it serves a higher purpose for their being. It means more than just fashion, what they wear is equivalent to their reputation. Fashion is not just about vanity and that’s is something Western brands must understand if they every want to make it in the Chinese market. Past research about the Chinese market have been useful in providing a deeper understanding on how the economic progress and movement of China and the strong cultural ties affect the fashion decisions of the market. This paper will update many of the information provided. Many of the analysis done are more than five years old. There is great value in revisiting different fashion brands and juxtaposing that with many of the updated statistics on sales and revenue of different Western brand and market trends. 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