For Western companies such as Coca-Cola, Maybelline and Nestlé, secular brands have long offered a formidable advantage over local rivals in China.
But these established groups are increasingly threatened by Chinese start-ups whose growth has been turbocharged by smart marketing on social media and optimized supply chains.
This change was highlighted during this month’s “618” e-commerce festival, the second largest annual shopping event in China, as local brand Babycare surpasses Procter & Gamble’s Pampers in terms of sales volumes, according to data released by the Alibaba internet group.
It’s not unique: Genki Forest, a Chinese beverage company, surpassed Coca-Cola and Pepsi in online sales over the past year. “Singles Day, ”A multimillion-dollar extravaganza that is the country’s largest shopping spree.
A year earlier, Perfect Diary, a home cosmetics brand, had jumped on Maybelline and Estée Lauder to become number one on Singles Day, while in 2019, the snack brand Three Squirrels surpassed Nestlé.
“Foreign brands had an advantage over the Chinese market by representing a superior Western lifestyle. But Chinese consumers are now more confident in the “China style,” said Albus Yu, director of investments at China Growth Capital, a venture capital fund that has supported brands like Maia Active, a Chinese challenge to Lululemon.
The preeminence of Chinese brands marks a change in a country where foreign products have historically been considered safer and of superior quality. It also poses a great challenge for multinationals that are growing looking at growth in China.
He also calls on China’s political priorities. President Xi Jinping called on the country to focus on domestic demand for growth.
“This next decade will be the decade of Chinese brands,” said Elijah Whaley, vice president of Asia-Pacific marketing at Launchmetrics, an analytics company. “Domestic brands will take a large share of China’s growing consumer market.”
In the first three quarters of 2020, domestic sales for fast-moving Chinese consumer brands increased by 2 percent while those of foreign brands decreased by 6 percent year-on-year, according to a report by Kantar Worldpanel and Bain.
Much of the recent success of local brands comes down to strong investments in marketing, particularly on social media, analysts said. This was fueled by strong support from venture capital.
“Marketing has made Chinese products fresh. They don’t have heritage brand assets that they seek to protect, which means they are willing to take risks and move quickly, ”said Mark Tanner, general manager of Skinny China, a marketing company.
Marketing can account for more than 60% of the costs of Chinese consumer startups, according to Launchmetrics, compared to 15-25% for foreign brands in China.
“Overseas brands are much more organic in their marketing approach, they want to grow slowly, and so it works in other markets. But that’s all accelerated because there’s so much risk capital involved,” said Jenny Chen, co-founder of WalkTheChat, a cross-border marketing software agency.
Chinese brands have also been agile in terms of developing their supply chains. Being close to manufacturing groups in China, they have cultivated relationships with suppliers, allowing them to accelerate the development of new products and reduce costs. Often, these suppliers are the same through which foreign premium brands supply goods.
“The magic is in the order of small batches. You can produce thousands of articles and see what’s left,” said Rui Ma, China’s technology analyst at TechBuzz.
Shanghai Chicmax, a cosmetics brand, has gone on to design a face mask in three days. This process took a brand of foreign shampoo three years, said Tanner of Skinny China.
Variety and speed matter because young Chinese consumers have eclectic tastes and a stronger desire to drive the trends of their Western counterparts, analysts said. While GlaxoSmithKline had 400 products for European customers in an oral care category, it had 12,000 for China, Tanner added.
Young Chinese consumers are also expecting one Sophisticated ecommerce experience. When buying a lipstick, they can first look at an influencer who promotes it in Douyin, the Chinese version of TikTok, and then go to the Xiaohongshu social media platform for reviews from professional beauty bloggers before finally buying into Alibaba in Taobao after consulting the feedback and photos from customers.
Some Chinese influencers they have amassed huge fanbases, such as “King of Rossetti” Li Jiaqi, who has 45m followers Douyin. A support from Li can bring a product to sell out in minutes and has already criticized foreign brands such as Hermès and Chanel.
It was watching Li’s live streams that Zhang Qiping, a 28-year-old professional in a foreign company in China, discovered the national brands Florasis and Perfect Diary.
“I thought the lipsticks looked beautiful, and then I went over to Xiaohongshu and found that there were a lot of people who recommended them, so I went ahead and bought them,” said Zhang, who had previously bought lipsticks from Dior and Yves Saint Laurent.
But “microinfluencers,” which have a much smaller reach of less than 10,000 followers, are also an important group for brand marketing. They are often regular customers that companies have converted into brand advocates, giving them free products or small payments.
“In China’s influencer industry, you can find a price for almost anything: a sponsored campaign that appears to be native content or a small post by a microinfluencer,” Chen told WalkTheChat.
Another effective way for brands to reach customers in China is via groups on messaging platforms like Tencent’s WeChat, where they are limited to 500 users. This allows brands to interact with consumers in a more intimate environment, but some Western companies see them as offering an uncertain return on investment.
“Chinese brands are more willing to take the risk,” Whaley said.
Chinese media have documented how Perfect Diary opened thousands of WeChat groups led by “Xiaowanzi” or “Abby,” a virtual beauty influencer supported by a large marketing team.
During the last weekend of 618 promotions, one of Abby’s WeChat groups of 200 people was inundated with brand promotions, while shoppers posted photos, asked questions and gave feedback.
When asked for an interview via WeChat, Abby replied that a dedicated staff member would respond and sent a picture of the mouse cartoon Jerry who had a flower.
Asked how international brands could win back, Zhang, the consumer working for a foreign company, replied: “When it comes to brand change, I usually look at magazines on Douyin and Xiaohongshu. It all depends on whether brands can get it. beauty bloggers to promote them “.