10 Considerations For Brands In China
How is China’s marketing landscape evolving, and what do brands need to know? Here are 10 of the key economic, cultural and political considerations shaping the China marketing landscape in 2023.
1. GETTING BACK TO GROWTH
Since 2021-22 a lot of brands have been in survival mode. Brands have favoured sales certainty over costly brand equity investments, and in this context frequency of sales have been more important than penetration. Sales security has trumped expansion efforts.
The China opportunity hangs in the balance. This may be the point where global brands look back and realize their position in China was forfeit to local players. We see this happening now with high-profile exits such as AirBnb, GAP & OldNavy, Forever21, and SuperDry. Global brands struggling with decisions about China should not overlook the depth of potential – a rapidly growing middle class, and many untapped lower-tier cities. Despite challenges, China will continue to grow and mature thanks to its overall momentum.
2. CHINESE BRANDS FLEX
Chinese brands have made gains when compared with global competitors in the China market. The decline in foreign brands appears to now be systemic. On one-hand, foreign brands are struggling in China as a result of management and operational duress from Covid. On the other hand, Chinese brands are simply winning with more well adapted pricing, marketing and operational advantages. In short, Chinese brands are making the most of home court advantages.
Conversely, Chinese brands themselves are struggling to find success on the global stage, falling short of their lofty global ambitions. The winning formula they employ at home has not been as successful globally. Until they can move past bottom-of-funnel tactics to more brand focused strategies, they will likely struggle to break through. Over the long-term, however, China’s national champions will become formidable
3. FORTIFYING CRM
It’s become evident that brands are focusing on building the systems necessary for customer care and retention. A slow economy, combined with customer data regulations have shifted this focus toward fortifying CRM systems, while improving LTV (lifetime value). In short, brands are looking to consolidate customer connections, and own the relationship with customers more directly, while cutting acquisition and awareness costs on ‘paid’ channels.
Having a clear picture of databases allows brands to understand the synergies around geography, demographics and identity. Brands will increasingly work together as a way of filling gaps in coverage (such as getting younger/older). They will also look to extend value to customer groups, offering values/ benefits (together with brand collaborators) instead of having customers defect to other brands.
4. RATIONALITY REIGNS
In the past, there was much more a culture of trialing and exploring, but now customers increasingly want products that reliably get ‘the job done.’ Last year marked a shift to more rational consumer conditions, characterized by: (1) increased interest for product utility and function; (2) increasing brand loyalty, and: (3) shifts in content consumption toward education and learning.
Some of part of this shift is a result of short-term economic (confidence) declines, but it is also part of a secular shift, as more stable, mature conditions take shape in China. This year is likely to see the plateau of a 20 year bull-run where new advancements were unfolding at a frenetic pace (and rapid change was a constant pressure) giving way to more modest conditions.
5. GEN Z AS CULTURE CATALYSTS
China’s Gen Z have been at the forefront of counter-consumerism for a number of years and discontent among the youth has been escalating quickly. Over the course of a couple years, attitudes have gone from wanting to sit on the sidelines, to actively hoping that the game gets cancelled. There is deep frustration and apathy about future career and personal prospects.
Hobbies and experiences are starting to overshadow shopping, which isn’t cool any more. Data from Kantar Worldpanel in 2022 show that Gen Z (ages 25-34) are reducing unnecessary expenses at a faster rate than average. The analysis suggests that GenZ are prioritizing ‘value’ with premium products, offered at affordable prices. And, that they expect to buy fewer products, less often, with expectation of premium products offering better, longer-term value.
6. SIMPLE PLEASURES
The rise of more experience driven, activity-based consumption in China, has been well documented. Simple pleasures, together with other forms of ‘experience commerce’ will continue to thrive. Lead by Gen Z, there’s a growing focus on affordable and basic experiences organized around three main areas:
1. Sensory payoffs: snacks, tastes, f&b
2. Connecting; eSports, dating apps, events
3. Health/Wellness: supplements, gym/fitness, food quality
While these trends are a boon for brands lucky enough to be in those categories, there are significant opportunities for other brands to capitalize on related concepts through marketing, customer service and product merchandising.
7. CHASING THE ‘SILVER’ DOLLAR
China’s aging and elderly population are an important frontier for marketers. They are digitally savvy and spend a lot of time online, and they are also highly active in buying online. Research from Kantar in 2022 showed that ‘silver’ consumers outpaced average sales growth nationwide, growing:
7.1% in high-tier cities - compared with an average of 3%
4.6% in lower-tier cities - compared with an average of 0.5%
Research shows that users aged-60+ spend more time online than the 40+ segment. WeChat, Douyin, Kuaishou and Pinduoduo are among their top platforms. Taking aim at older users, Little Red Book (RED) has launched a version of its app for this demographic, called Mei Pian. Look for more media to launch offerings for older segments in 2023.
8. THE WEB3 PRIORITY IS AI
AI and the package of advancements from projects like ChatGPT (or China’s own, GLM-130B protocol), represent important near-term opportunities as initiatives that brands should expand into for 2023. Linking CRM with third-party data and search holds powerful rewards for brands. Tech similar to ChatGPT will change the way customers search (how brands are discovered), and the channels used for search (eg. Voice assistance).
This makes improvements around search and service stand as priorities in light of advancements in AI. Expect to see a lot of activity here as the relationship between AI, brands and marketing continues to evolve.
9. PIVOT TO ASIA
Many brands are pivoting away from China and re-investing more widely across the region. India, Indonesia and Vietnam are among the most favored new targets. Even long-forgotten giants of developed Asia (Japan & S. Korea) are seeing major increases in brand activity.
Brands evaluating how to balance investments (focus) for/into China versus the region, need to proceed very carefully - especially if it means pulling out of China prematurely. The rest of the region does not offer ‘easy’ opportunities. The region is fragmented, with a patchwork of consumer affluence and attitudes to contend with. And while there’s uncertainty now, the potential for it to come roaring back can’t be ignored.
10. TRAVEL SNAP BACK
Brands and consumers are closely watching how things go with international travel. When Chinese consumers do start traveling again, the effects will be profound - much as they have been in other parts of the world, with travel and hotel surge pricing and busy airports. Back in 2019 more than 150 million travellers ventured abroad, spending US$255 billion. It’s been projected that travel will go from 5% of this volume up to 50% by summer 2023.
Busy airports and travel hotspots may prove to be incredibly powerful channels for sales and brand impact into the second-half of 2023.
A note about our report: At the end of 2022, Totem Media surveyed a group of 82 brands on their advertising plans for 2023. This group of brands represents a cross section of (mostly global brands) from very large to medium sized - most of which have more than ten years experience in the market. All charts and statistics shown above were sourced from the Totem Media Brand Surveys from 2022 and 2023.