Shaun Rein on MNCs in China

by: Shaun Rein

The following interview with Shaun Rein of the China Market Research Group originally appeared in China Success Stories:

What is your relationship with China?

I first arrived in China in 1997 and have been active here in a number of roles. Before starting CMR, I was the Chief of Research for the venture capital firm Inter-Asia Venture Management. I also served as the Country Head for the software company WebCT, before we sold it to Blackboard (NASDAQ:BBBB) for $180 mil. USD. Furthermore I completed my graduate studies at Harvard on China's economy, so I was here as a graduate student too conducting research.

In what way are Chinese markets different from western markets?

The Chinese markets are changing much quicker – both with regulations and with consumer consumption patterns than the US markets which are much more mature. In the US, consumers have been purchasing the same products for generations and can identify with certain brands. For instance, people buy Tiffany's (NYSE:TIF) for weddings or use Tide (NYSE:PG) to clean clothes in the US. In China, brands are just entering the market and have not built up their long-term brand positioning.

This leaves great opportunities for MNCs as China's emerging 250 million strong middle class make it a major revenue generator for MNCs. China can no longer be seen as a cheap place to source – it now needs to factor into the growth plans for MNCs to actually sell into China.

In China, you can see advertisements with non-Chinese people in it, how does this affect the sales of the product or the brand in this type of advertisement?

Many MNCs have failed when they hire models or spokespeople that Chinese cannot relate to. You can have non-Chinese people in an ad, but the model must be someone that Chinese consumers can associate with or want to be like.

Clarins has done a terrible job in China by trying to sell male grooming products by having metrosexual and ethnically diverse models. The typical Chinese male just cannot associate with that image, so their sales have not been great here. On the opposite side is Biotherm by L'Oreal (OTCPK:LRLCY) which has done a great job of utilizing Korean movie actors to position their male grooming products. Chinese view these stars as the epitome of masculinity.

What are the most common mistakes made by international companies in product marketing in China?

Too many companies take a short-sighted strategy when expanding in China and become too opportunistic and reactive when positioning their brands, rather than shaping the markets for the long-term. For instance, Buick (NYSE:GM) originally positioned itself as a high-end car in China for business tycoons, that was on par with, or more expensive than, some BMWs and Mercedes (DAI). They sold well, but then noticed that the middle class wanted to buy cars too, so they watered down their brand and started selling cheap $10,000 USD cars under the same Buick label.

They confused the marketplace. No one knows what Buick stands for anymore and they will have a hard time going forward. Buick did not understand what their brand stood for and did not segment China's consumer base well.

Are most marketing mistakes made by international companies made out of ignorance or a feeling of superiority, or something else?

A lot of MNCs fail, especially global #1 brands, because they are so successful outside of China they try to replicate what works in other developing regions. This is what happened to eBay (NASDAQ:EBAY) – they did not listen to their local managers enough who advised to keep their global brand but also localize it enough. Companies need to keep their heritage but tweak it enough for local conditions.

What also happens is many companies simply do not hire the right talent to populate their China teams. They need to have people with China experience and track records and delegate to them enough authority to be flexible in certain situations. YUM (NYSE:YUM) brands is a great example of a fabulously run company in China. Their Pizza Hut chains made tons of money because they were able to localize their product. While low-brow in the US, Pizza Hut is upper-middle class in China.

How important are brands for Chinese people?

You are seeing Chinese becoming more and more brand loyal when brands fit their needs. Consumers are getting a lot more sophisticated too. Even just 5 years ago, Chinese consumers would buy the most expensive item like a Gucci bag just because it was the most expensive which they equated with quality. Now, we are seeing consumers starting to buy items to differentiate themselves from others and find they are more willing to consume to express their uniqueness.

Try to take away QQ – an instant messaging and online game provider – from a Chinese youth and you will see a very loyal and angry consumer.

A final word of advice for our readers?

Bottom-line is that you need to hire the right people for your China team and empower them to make decisions. China is changing so fast that you need to get people who understand how to react to the changes and take advantage of them. Of course, it does not hurt to get good market research.