Starting a business in China is often considered challenging, especially for small business owners who have a limited budget and need to make choices. Of course, having a huge budget does not necessarily mean that companies will succeed in the Chinese market, even for large companies.
Combined with our experiences in multinational companies and over the years, we have observed many ups and downs of foreign small and medium-sized brands in China. Here we go; we have put TEN common mistakes for the China market strategy that you might ask yourself, "What did I do wrong?". We hope this summary will help you to understand why the path to the China market could be a bumpy ride.
1. The Chinese Market Is Enormous. What I Need To Do Is Just Sell My Products!
China is as diversified as Europe and the United States, which means you can't regard China as a big market. There are more than 600 cities and 34 provinces in China. Different regions and cities in China also differ significantly in culture, cuisine, dialects, climate, and buying habits. The standard of living varies between cities, and there are significant differences in the distribution of wealth between regions. Coastal towns and areas such as Shanghai, Hangzhou, and Guangzhou are most highly developed. Compared with China's poorer western areas, the per capita income of their population is much higher.
Therefore, when targeting a country as large as China, it is essential to segment the market and choose the appropriate market segment based on per capita income, city or region, and consumer behaviour. Don't be fooled by the prospect of 1.4 billion consumers because it does not mean that they are all your target audience.
2.My Brand Is Fab! But I Don't Have Supporting Evidence Other Than Viva Voce.
Chinese consumers have now been trained to be astute, and this has its technical contents. As far as cosmetics are concerned, they are well aware of which ingredients can bring specific effects, and even the combination of ingredients with different contents is more effective. In context, if you marketed the product by simply saying it is excellent, containing anti-ageing, whitening, or hydrating blah blah blah. This, we are afraid it is not attractive to Chinese consumers at all. They will only trust laboratory data, certifications issued by authorities, or specific patents related to the product more than anything.
For a GOOD product, the brand needs to prove it harder through professional endorsements and data to get in the mind of your target audience.
3. Exclusive Distributor - All In One Solution! REALLY?
You might be thinking of an exclusive distributor, while others use a network of distributors to respond to regional differences and provide more tailor-made strategies. Unless you are confident with an exclusive partner, we would recommend multi-layers distributors for different channels to have more control over sales.
Especially, due to regional differences, distributors tend to establish a more comprehensive network within their home regions, while large national distributors often lack of solid local connections.
Most established distributors in China are accustomed to discounted prices, which might not align with your global pricing strategies. Without proper management, distributors will often let loose with local pricing management and ignore brand building. An exclusive distributor might work as an ultimate solution, but more control needs to be done from the brand end! Don't lose that!
4. To Achieve Sales, Products Are More Than Enough, No Need To Invest On Brand!
Entering a new market without making any significant marketing investment could be dreamy. Yet, when it comes to China market, especially in the face of the considerable potential and competitive incentives in the market, you should toss this idea away. You will never thought about this for the home market; why you would think differently for the China market?
Local markets are often competitive on their own. You can mistake by not recognising local brands' competitiveness, which is more mature and established in the local market.
Your brand will soon enter a price war in an environment with fierce market competition and sell-through via distributors with zero/minimal brand direct input and involvement. Just remember, you have to make noise before both brand and products fade into the background. We have witnessed many niche brands failed after entering the China market, such as HOUSE 99; even some heavy invested brands that only started to make profits after five years.
5. Monthly Meetings With Distributors Set. Let's Chill!
You might think monthly meetings with the distributor are sufficient; Only seeing numbers and data doesn't necessarily mean a good job has been done on the back. We all had a similar situation for those who suffered previously when the distributor went completely silent just overnight, right? It would be too late when you found out the local distributor failed the operation after a long-missing PO.
With China's regulations and policy changes, we constantly remind that you need to consider at least small scale local operations from the very beginning. Having a local presence will definitely enable real-time brand management and control operation.
6. I Can Take Time After Entering China
The pace of doing business in China is significant, and business is a series of chain reactions and operations. Before you officially enter the China market, it may be a relatively slow process before formulating a brand strategy suitable for the market, conducting industry research, consumer research, and upfront investment. But once the business starts to operate, It will be a chasing game.
The supply chain of consumer goods in China is relevantly mature. The supply chain of a domestic brand in China is about 2-4 weeks, while the current supply chain abroad is about EIGHT weeks. You might think a short-term OOS doesn't mean a lot, but in reality, it could be a knockout in the fiercely competitive market. If there were repeated shortages, it would inevitably affect the entire brand's reputation, and sales will be affected on a large scale. Whether your distributors are willing to withhold huge stock locally is another story, but overall an accurate FCST is crucial for an effective supply chain management.
7. Chinese Consumers Will Pay For Any Foreign Brands?
There is no shortage of good products in China today, especially in the past two years with the rise of domestic brands. From January to July 2021, the domestic fashion & FMCG category raised over 231 investments and financing alone. Beauty and personal care accounted for 23%, followed by beverages and food, respectively, accounting for 22% and 17%. It simply means that at least 500 brands are merging into the market every year, looking to grow. This number is only China's emerging brands and does not include foreign emerging brands.
Chinese consumers have returned to their rationality. Today, the 80s-90s TAs, the primary target audiences of various brands, are mostly well educated, live a travel life, and have seen many. The curiosity of foreign brands is not as intrigued as in the last century. They will not blindly follow any trend, as described as "smart" consumers. They will go into many details about the brand - from celebrity endorsement, ingredients to efficacy. They will be hard to impress by anything ordinary or superficial. Where you are from is no longer necessary, it is more about why they need you.
8. Risks With China Market Are Relatively Low
2021 is the year of regulations changes, 21 laws and regulations promulgated to the public. After re-adjusting the rules for the beauty category, the supervision of the beauty industry has been strengthened.
Since that, L'Oreal, Estee Lauder, Coty, Sephora, Henkel and other foreign beauty companies and their subsidiaries have been fined one after another. The fines totalled more than RMB¥1.95 million. The punishment was mostly based on the Anti-Unfair Competition Law. "False propaganda" is the primary basis for the penalty, and "no basis for efficacy or exaggerated efficacy" has become the focus of punishment.
It is essential to understand Chinese laws and regulations before entering, and it is associated risks, significantly when Chinese legal and policies have changed over the years. Potential fines are involved, but in the worst-case scenario, there will be the risk of complete suspension of business in China under current regulations.
Related Reading About China Policies and Regulations：
9. Only The Global Decision Matters
Chinese embrace their lives with digital and social. Online shopping has been increasing exponentially, as well as online reviewing and sharing. We can quite confident to say without investing in digital presence; brands might be doomed to failure.
An essential aspect of brand marketing is localisation. It can only achieve by cooperating with a team that understands your brand. Burberry failed the Chinese New Year scarf due to failure in localisation - the advertisement made the scarf look like a counterfeit. Dolce & Gabbana was cancelled because of insensitivity to Chinese culture, and their business plummeted.
You need to respect the country's long-standing traditions and latest trends to carry out localisation successfully. A missing local team might lead to slow decision-making for your China development. It is not just affecting marketing but also product development. For some brands, China is taking 50% of the global business. That is why localisation requires in-depth local research, analysis and understanding of the market, avoiding "applying to all".
“China is a tough, large market with fierce competitors,” Kaifu Lee, Google’s former China head, recently wrote. “To have a chance in China, the American company must empower the local team to be responsive, autonomous, localized, and ready for combat.”
10. Small Changes? They Won't Notice It!
Believer us when we say - Nothing is too small.
From the customs to platforms, they all have strict controls over products. Any changes to the packaging must be filed for review when the products enter China. You might think that small changes between batches are not a biggie, but there was always a risk of customs or platforms chose you for a random check.
Think twice before you put any changes to the existing products. Always make sure your distributors or filling agency are aware of those changes.
Commenti