Challenges for marketing in china

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In this document I have tried to put the basic problems faced by Marketing Managers both in B2B & B2C channels, in China. As we know China is culturally very different from the Western and Indian …

In this document I have tried to put the basic problems faced by Marketing Managers both in B2B & B2C channels, in China. As we know China is culturally very different from the Western and Indian culture. Hence it becomes more important to understand their culture and form the marketing strategy as per that. This is a descriptive report. At the end I have tried to suggest some solutions which will help the marketing managers to be successful in China. It is really very easy to fail in China as many of Fortune 500 companies have tried and failed. Even Google is one of them, but there is always companies like Coca Cola who have a success story.
This report is only written for academic purpose.

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  • 1. C h a l l e n g e s   f o r   M a r k e t i n g   I n   C h i n a  Prepared  for:  Prof.  Heming,    Dept  Of  Economics,  OUC    Prepared  by:  Ashish  Jude  Michael,  Student  PGPEx  (IIM  Shillong+OUC  )    Date:  29-­‐11-­‐2012  Proposal  #:   Project  Report  for  Chinese  Business  Environment    (This  report  is  written  only  for  academic  purpose)                                                                                                                                                                                      
  • 2. 2   Challenges  for  Marketing  in  China      Table  of  Content       1. What  is  marketing?   2. Growth  Of  Chinese  Market   3. Importance  of  marketing  in  China   4. How  is  marketing  In  China  is  different?   A)  B2B  Channel   B)  B2C  Channel   5. Why  marketing  In  China  is  different?   A) B2B  Channel   B) B2C  Channel   6. Challenges  faced  during  marketing  In  China   A) B2B  Channel   B) B2C  Channel              7.  How  to  overcome  the  challenges  faced  during  marketing  In          China   A) B2B  Channel   B) B2C  Channel                8.  Conclusion                   Bibliography                      
  • 3. Challenges  for  Marketing  in  China   3    What  is  marketing?  If  we  answer  this  question  in  words  of  Dr.  Philip  Kotler  Marketing  can  be  defined  as  “Marketing  is  the  science  and  art  of  exploring,  creating,  and  delivering  value  to  satisfy  the  needs  of  a  target  market  at  a  profit.”    We  can  say  the  following  activities  can  broadly  constitute  marketing:   • Designing  the  product  so  it  will  be  desirable  to  customers  by  using  tools   such  as  marketing  research  and  pricing.   • Promoting  the  product  so  people  will  know  about  it  by  using  tools  such  as   public  relations,  advertising,  and  marketing  communications.   • Setting  a  price  and  letting  potential  customers  know  about  your  product   and  making  it  available  to  them.  However  the  key  processes  of  marketing   are:  (1)  Opportunity  identification  (2)  New  product  development  (3)  Customer  attraction  (4)  Customer  retention  and  loyalty  building  (5)  Order  fulfillment.      Figure 1  
  • 4. 4   Challenges  for  Marketing  in  China    The above figure gives summaries the key elements of marketing and theirrelationships. We can say marketing can be divided into three major streams:1.Marketing  Audit  consists  of  Market  Analysis,  Market  Segmentation  and  Market  Strategy.  2.Market  Research  consists  of  Qualitative  and  Quantitative  Analysis  and  Consumer  Tests.  3.Marketing  Mix  consists  of  Product,  Price,  Place  and  Promotion  generally  known  as  4P’s  of  marketing.  Generally  we  divide  marketing  into  two  channels:  B2B  Marketing:  It  means  business  to  business  marketing,  describes  commerce  transactions  between  businesses,  such  as  between  a  manufacturer  and  a  wholesaler,  or  between  a  wholesaler  and  a  retailer.  It  imply  that  the  buyer  is  not  necessary  the  end  consumer.  For  example  machinery  purchase  by  a  company.  B2C  Marketing:  It  means  business  to  consumer  marketing,  describes  transaction  between  business  and  consumers.  The  buyers  are  generally  end  consumers.  For  example  Head  &  Shoulders  shampoo  to  a  consumer.     Growth  Of  Chinese  Market  Why  is  China  taking  off  now?  If  we  consider  B2B  channel  China  has  the  reputation  of  being  World  Factory  and  where  dose  the  technology  &  machinery  for  this  factory  comes?  From  developed  countries  like  US,  Japan,  Germany  &  Europe.  Today  when  we  observe  the  balance  of  payment  account  with  other  countries  we  can  see  that  it  has  trade  surplus  with  all  countries  except  Japan  from  where  it  imports  major  portion  of  technology.  Still  the  western  countries  are  eyeing  this  market  and  are  yet  not  successful  to  grab  important  place.  The  
  • 5. Challenges  for  Marketing  in  China   5    estimated  value  of  B2B  market  in  China  expected  to  be  more  that  US$320bn  out  of  which  US$  50bn  is  being  spent  over  the  Internet  in  B2B  market  segment  in  China  and  Chinas  online  B2B  market  is  larger  than  B2C  market.  In  case  of  economic  slowdown  as  faced  in  2009  the  Chinese  economy  was  severely  affected  as  they  have  very  low  private  domestic  consumption  if  we  see      Figure  2    in  figure  2,  the  domestic  consumption  as  a  %  of  GDP  is  very  low  at  37%  which  make  its  economy  very  valuable  to  performance  of  its  exports.  China’s  consumption-­‐to-­‐GDP  ratio  has  dropped  by  nearly  15  percentage  points  since  1990  and  continues  to  fall  in  the  aftermath  of  the  financial  crisis.  While  falling  consumption  rates  are  common  in  developing  economies,  the  speed  and  magnitude  of  this  decline  have  no  precedent  in  modern  history.  In  the  United  States,  private  consumption  always  remained  above  50  percent  of  GDP  even  during  the  full-­‐scale  industrialization  drive  of  World  War  II.  In  Japan  and  South  Korea,  consumption  remained  was  always  above  50  percent  during  periods  of  rapid  industrial  development.  The  sources  of  China’s  low  consumption  rate  are  both  behavioral  and  structural  set-­‐up.  The  country’s  households  have  an  extraordinarily  high  ability  to  save:  the  average  Chinese  family  save  around  an  astonishing  25  percent  of  its  discretionary  income,  about  six  times  the  savings  rate  for  US  households  and  three  times  the  rate  for  Japan’s  this  makes,  China’s  savings  rate  is  15  percentage  points  above  the  GDP-­‐weighted  average  for  Asia  as  a  region.  In  order  to  boost  the  private  domestic  consumption  the  government  has  given  
  • 6. 6   Challenges  for  Marketing  in  China    the  people  the  right  to  go  shopping.  In  2011,  China  begins  its  12th  five-­‐year  plan,  shifting  its  economic  focus  from  export-­‐led  sectors  to  increasing  domestic  consumer  demand.  The  plan,  passed  by  the  government  in  mid-­‐March,  2011,  is  designed  to  develop  the  country  into  a  major  consumer  marketplace.  It  plans  to  increase  consumer  product  imports,  promote  urbanization,  and  optimize  the  consumer  market  for  consumption.  That  the  Chinese  consumer  is  driving  global  growth  is  well  known.  The  statistics  are  arresting:  ten  million  new  Chinese  consumers  enter  the  market  each  year.  In  2010,  China’s  consumer  market  was  estimated  to  be  worth  $1.7  trillion.  Credit  Suisse  projects  that  the  burgeoning  domestic  consumer  market  could  grow  to  nearly  $16  trillion  within  a  decade.  But  while  the  consumers  are  there  in  droves,  brands  don’t  necessarily  know  how  to  reach  them.  Still  there  are  some  interesting  facts  on  China’s  B2C  market:  •  There  are  more  than  420  million  Internet  users  in  China,  a  number  growing  by  the  minute.  The  advertising  and  marketing  landscape  in  China  is  rapidly  changing  to  adapt  to  dynamic  media  and  communication  technology  trends.  •  There  are  five  times  as  many  people  in  China  learning  English  than  there  are  people  living  in  England.  There  is  an  implication  here  for  marketers—the  younger  generation  has  a  lot  of  exposure  to,  not  to  mention  interest  in,  the  West.  •  Chinese  consumers  spent  $9  billion  on  luxury  goods  in  2010,  second  only  in  magnitude  to  the  United  States.  •  The  consumer  in  China  has  become  significantly  more  sophisticated  than  ever  before.  Simon  Pestridge,  global  brand  director  for  Nike,  said,  “There  is  no  difference  between  the  consumer  in  China  and  the  consumer  in  the  U.S.  They  are  incredibly  proud  and  savvy,  which  is  different  from  10  or  15  years  ago.”    Importance  of  marketing  in  China  Marketing  is  just  like  first  step  which  you  make  while  you  enter  any  market.  And  when  that  market  is  as  big  and  important  as  China  that  first  step  is  really  important.  In  China  things  work  basically  by  relationships  or  “Guanxi”  and  marketing  plays  an  important  role  for  initiating  this  relationship.    There  has  been  several  example  when  the  marketing  strategy  of  MNCs  even  such  as  Coca-­‐Cola  after  initial  hiccups  learnt  the  lessons  and  localized  their  marketing  strategy.  
  • 7. Challenges  for  Marketing  in  China   7    Coke  changed  its  name  to  KeKouKeLe  in  which  Ke  Kou  means  tasty  ,  good  to  eat  and  Ke  Le  means  be  happy.  And  this  made  Coca  Cola  a  great  advantage  on  Pepsi  its  arch  rival  in  Chinese  market.    Another  point,  which  MNCs  get  wrong  about,  is  thinking  China  as  a  single  market.  Actually  there  no  single  market  but  actually  two  markets  one  Urban  &  other  Rural  and  both  totally  different  from  each  other.  And  one  should  market  products  differently  in  each  of  them.  MNCs  like  Google  failed  at  the  hands  of  Baidu  in  China  just  as  they  were  not  able  to  formulate  a  good  marketing  strategy  for  Chinese  Market  where  the  major  Internet  users  were  youth  and  students  and  Google  just  targeted  working  professionals.  Finally  Google  shut  down  its  China  Operations.  This  shows  that  marketing  is  very  important  for  surviving  in  Chinese  Market.        How  is  marketing  In  China  is  different?  The  question  of  how  to  market  and  sell  in  China  is  one  that  is  debated  endlessly  by  foreign  companies  seeking  to  profit  from  the  huge  potential  of  the  country.  Views  expressed  by  business  people  claiming  to  know  the  secret  of  success  in  China  vary  wildly,  from  those  (generally  newcomers)  who  say  that  marketing  and  selling  in  China  is  ‘just  like  home’  through  to  those  (usually  those  with  at  least  a  couple  of  years’  experience  in  China)  who  exaggerate  the  unique  nature  of  Chinese  business  and  Chinese  people  to  such  an  extent  that  selling  in  China  sounds  like  an  impossibility.  The  reality  is  that  these  two  positions  are  both  equally  correct  and  incorrect  –  there  is  no  reason  why  a  Western  company  with  a  flexible,  patient  and  ‘listening’  approach  to  marketing  and  sales  should  not  succeed  in  the  Chinese  market.    B2B  Channel  As  Chinese  companies  have  developed  over  the  past  decade,  they  have  rapidly  become  more  sophisticated  in  their  business  systems  and  practices,  creating  both  opportunities  and  challenges  for  Western  businesses.  Although  ongoing  East-­‐West  cultural  differences  continue  to  pose  challenges  to  foreign  enterprises  carrying  out  marketing  in  China,  companies  that  make  an  effort  to  understand  such  variations  and  integrate  them  into  their  marketing  strategies  stand  a  greater  chance  of  succeeding  in  the  China  market.  
  • 8. 8   Challenges  for  Marketing  in  China    When  discussing  Chinese  attitudes  towards  marketing  and  sales,  it  is  important  to  make  the  distinction  between  the  different  types  of  companies  operating  in  China.  Marketing  staff  employed  by  western  multinationals  typically  have  more  heightened  awareness  of  marketing  concepts  than  local  Chinese  companies,  often  employing  expatriates  or  returnee  overseas  students  with  MBAs  in  senior  marketing  positions.  With  such  large  variations  in  marketing  practices  among  different  types  of  companies  in  China,  foreign  companies  are  best  advised  to  take  a  flexible  approach  to  sales  and  marketing.    In  general,  the  principle  of  ‘marketing’  in  business-­‐to-­‐business  markets  is  less  widely  recognized  in  China  than  in  more  mature  markets.  Commonly,  marketing  is  viewed  as  a  task  for  the  sales  department,  its  role  sometimes  viewed  as  little  more  than  taking  care  of  the  company  logo  and  brochures.  In  short,  marketing  is  defined  by  many  in  Chinese  businesses  as  consisting  of  only  the  ‘promotion’  element  of  the  4  Ps.  ‘Product’  is  the  job  of  engineers,  ‘price’  the  job  of  salesforces  and  ‘place’  the  job  of  senior  management.  At  worst,  marketing  departments  are  derided  as  ‘spending  departments’,  their  apparently  superficial  output  seen  as  a  poor  substitute  for  the  relationships  that  are  so  important  in  a  Chinese  business  environment.    Figure  3  In  contrast  to  some  Western  markets,  the  salesperson  and  more  broadly  the  principle  of  selling  are  more  widely  respected  in  China.  Two  issues  perhaps  lie  at  the  core  of  this  fact:  firstly,  the  entrepreneurial  spirit  of  the  Chinese  people,  and  secondly  the  great  importance  placed  on  relationships  in  business  decision-­‐making.  A  good  salesman  must  be  adept  at  forging  not  only  relationships,  but  also  friendships  with  potential  customers.  The  importance  of  relationship  
  • 9. Challenges  for  Marketing  in  China   9    building  tends  to  imply  a  long  sales  process,  requiring  of  salespeople  patience,  continual  learning  and  an  on-­‐the-­‐ground  presence.  How  do  Chinese  Companies  want  to  be  targeted?  As  per  a  study  made  by  B2B  international  the  following  was  the  result    Figure  4  We  can  clearly  see  that  Chinese  Companies  like  Exhibitions  &  Conferences.  For  initial  phase  they  are  comfortable  with  emails  &  websites  too.  But  for  finalization  they  prefer  networking  and  workplace  interactions.    B2C  Channel  Perception  and  awareness  According  to  executives  responding  to  the  survey,  consumer  awareness  in  China  is  king;  raising  consumer  awareness  is  one  of  the  three  most-­‐frequently  cited  goals  for  the  near-­‐  and  mid-­‐term.  About  a  third  of  Chinese  (35%)  and  non-­‐Chinese  (32%)  companies  are  focused  on  brand  awareness,  making  it  the  most  commonly  cited  marketing  goal  for  the  coming  year.  But  brand  perception  is  critical  too,  and  the  top  focus  of  non-­‐Chinese  companies—27%  of  Chinese  companies  and  36%  of  non-­‐Chinese  companies  named  positive  brand  perception  as  a  top  marketing  goal  for  the  next  year.  Brand  awareness,  however,  may  be  particularly  challenging  for  non-­‐Chinese  companies  looking  to  break  into  industries  in  which  there  are  already  hefty  domestic  competitors.  For  example  Nike  has  built  its  marketing  and  branding  strategy  around  basketball.  As  in  China  basketball  is  very  popular.    Change  your  brand  for  China  
  • 10. 10   Challenges  for  Marketing  in  China    Best  Buy’s  shift  away  from  its  core  brand  in  China  may  be  indicative  of  how  some  non-­‐Chinese  brands  need  to  approach  the  market.  While  operating  a  China-­‐only  brand  appears  not  to  be  the  norm,  the  vast  majority  of  non-­‐Chinese  marketers  (63%)  indicated  they  believe  they  need  to  change  their  brand  attributes  for  Chinese  consumers.  (Fig.  3)  In  many  cases,  this  may  mean  altering  some  brand  attributes  to  demonstrate  alignment  with  local  Chinese  culture  and  local  Chinese  tastes.  For  instance,  western  spirits  brands  have  had  to  alter  their  scotch  marketing  to  account  for  Chinese  cocktails  that  mix  scotch  with  ice  and  green  tea.  That  is  not  to  say  that  strong  global  brands  need  a  complete  brand  makeover  to  compete.  The  success  of  many  global  brands  in  China  would  seem  to  support  this:  take  Starbucks,  McDonald’s,  and  KFC,  for  instance.  Still,  even  if  brands  don’t  need  a  complete  makeover,  they  might  benefit  from  a  few  nips  and  tucks.    Online  and  mobile  are  the  future  Moving  forward,  digital  and  mobile  marketing  will  be  a  critical  part  of  the  mix  for  all  brands  in  China,  as  marketers  seek  to  integrate  their  message  across  both  traditional  and  digital  platforms.  China  has  more  than  420  million  Internet  users,  according  to  the  China  Internet  Network  Information  Center,  and  its  number  of  mobile  subscribers  tops  850  million.  Online  marketing  is  extremely  or  very  important  for  reaching  the  Chinese  consumer.    Why  marketing  In  China  is  different?  B2B  Channel  How  Well  Do  Western  Companies  Choose  Their  Marketing  &  Sales  Approaches  In  China?    Figure  5  
  • 11. Challenges  for  Marketing  in  China   1   1    From  the  above  figure  we  can  see  where  exactly  the  western  companies  go  wrong.  First  is  the  major  at  conference  and  exhibition  where  the  general  tendency  of  western  marketing  professionals  think  its  wastage  of  time,  and  commit  the  first  major  mistake.  Second  is  workplace  interactions  which  western  companies  indulge  on  only  if  deals  are  at  very  advance  stage.    Now  lets  see  the  logic  behind  first  phenomenon  where  Chinese  buyer  think  that  exhibition  it  will  be  easier  for  him  to  see  the  available  product  to  solve  his  problem  and  he  can  physically  see  then  also  he  can  meet  related  sales  persons.  As  Chinese  people  are  much  more  comfortable  after  the  physically  see  the  product.  But  western  companies  don’t  understand  this.  Now  lets  see  the  second  phenomenon  if  we  consider  decision  in  western  countries  it  looks  like  figure  6.      Figure  6  Here  we  can  see  that  after  completion  of  one  activity  only  the  other  start.  Now  let  us  see  the  decision  making  in  Chinese  companies  in  figure  7.    Figure  7  
  • 12. 12   Challenges  for  Marketing  in  China      Here  we  can  see  that  there  are  many  parallel  activities  such  as  supplier  input  scoping,  Supplier  input  evolves  into  a  series  of  increasingly  specific  proposals  along  with  Customer  refining  of  needs  are  all  going  in  parallel.  It  may  also  happen  that  the  buyer  is  simultaneously  be  speaking  to  other  suppliers.      B2C  Channel  Chinese  middle  classes  believe  that  with  the  right  competitive  tools,  they  will  find  an  opportunity  to  transform  their  lives,  in  contrast  to  a  blue-­‐collar  laborer,  who  sees  his  social  and  economic  status  as  more  or  less  fixed.  It’s  the  difference  between  basic  needs  of  survival  and  physical  safety  and  a  need  to  satisfy  social  status  requirements.  The  middle  class  engages  with  society  to  get  recognition  for  financial  success.  It’s  important  to  note,  though,  that  this  is  not  about  arrival,  it’s  about  being  on  the  right  journey-­‐-­‐they  see  theirs  as  a  continuous  struggle  upward,  and  there  is  an  acute  awareness  that  all  could  be  lost  in  the  blink  of  an  eye.  Civic  institutions  are  unreliable;  there  is  no  political  representation;  wealth  is  not  protected  institutionally;  the  safety  net,  particularly  health  insurance,  is  incomplete.  People  say  that  all  they  want  is  to  be  happy  and  to  be  in  control  of  their  destiny,  but  at  the  same  time  they  understand  that  this  ideal  is  not  truly  practical.  The  middle  class  seeks  to  create  something  sustainable,  reducing  the  chances  of  falling  off  the  middle-­‐class  pedestal.  While  China’s  middle  class  is  becoming  more  modern  and  international,  it  is  not  becoming  more  Western.    A  brand’s  success  is  rooted  in  an  appreciation  of  people’s  fundamental  motivations—and  in  China  this  means  that  a  premium-­‐priced  product  must  be  a  tool  for  social  advancement.  And  the  range  of  product  categories  perceived  to  achieve  this  objective  has  expanded  significantly.  For  example  in  the  fifteen  years  since  DeBeers  entered  the  market,  the  penetration  of  diamond  engagement  rings  has  risen  from  8  percent  to  80  percent.  The  company  achieved  this  by  understanding  that  marriage  is  perceived  differently  among  Chinese  than  Westerners.  While  the  latter  like  to  believe  that  passion  and  romance  last  forever,  the  former  see  commitment  as  persistent,  not  love  as  such.  De  Beers  gave  the  Chinese  man  a  tool  to  demonstrate  his  reliability.  
  • 13. Challenges  for  Marketing  in  China   1   3    THE  JOURNEY  OF  SUCCESS  This  journey  is  the  materialistic  &  societal  success  of  a  person  at  his  different  stages  of  life.  Today,  the  middle-­‐  and  upper-­‐middle,  as  well  as  wealthy  classes  have  all  achieved  critical  mass.  The  strategies  of  brands  targeted  to  each  must  shift  accordingly.    Acceptance:  Young  college  graduates  are  unproven,  in  search  of  acceptance.  They  need  acknowledgment  of  their  potential,  not  admiration  for  their  achievement.  For  example  Wrigley’s  Double  Mint  chewing  gum  asks,  “Are  you  really  ready?”  and  presents  fresh  breath  as  a  shield  against  coworker  alienation.  For  individuals  just  out  of  the  starting  gate,  brands  can  sharpen  their  basic  survival  skills—to  pounce  on  opportunity  or  demonstrate  their  potential.  Rejoice  shampoo  links  dandruff-­‐free  hair  to  having  the  confidence  to  approach  the  boss  when  a  chance  to  translate  English  arises.  Ariel  detergent  links  clean,  white  shirts  with  an  ability  to  “rise  and  shine  at  the  office.”    Recognition:  Once  strivers  are  in  mid-­‐career,  they  must  be  recognized  for  both  their  past  achievements  and  their  capacity  for  further  advancement.  Products  play  an  active  role  in  their  winning  the  game  by  demonstrating  their  advanced  survival  skills.  For  example  in  one  ad,  Sony  Handycam  associates  digital  transmission  capabilities  with  resourcefulness  by,  somewhat  ironically,  enabling  a  vacationing  professional  to  delay  returning  to  work.  Technology  brands  from  Motorola  to  NEC  to  Hewlett  Packard  are  productivity  weapons,  competitive  advantages  deployed  on  the  business  battlefield.  As  people  scale  their  work  hierarchies,  it  also  becomes  increasingly  important  to  them  to  sharpen  their  internal  tools—for  example,  “determination  to  face  the  future”  (China  Mobile’s  Go  Tone  network).    During  the  middle  stages  of  advancement,  a  happy  family  is  an  important  factor,  a  necessary-­‐but-­‐not-­‐sufficient  prerequisite  to  being  taken  seriously  as  an  adult  constructively  engaged  with  society.  That’s  why  many  automobile  ads  targeted  to  business  people  feature  parents  with  their  (only)  child  and  Epson  commercial  printers  dramatize  color  accuracy  by  depicting  a  father  educating  his  daughter.  
  • 14. 14   Challenges  for  Marketing  in  China      Admiration  and  Iconization:  Toward  the  top  of  the  hierarchy,  the  laoban,  or  boss,  requires  unanimous  respect  and  deference.  Given  the  ubiquity  of  rival  factions  and  impatient  upstarts,  power  is  conditional.  Authority,  therefore,  must  be  self-­‐evident—hence  premium  Ballantine  scotch’s  tagline,  “When  success  speaks  for  itself,  there  is  no  need  to  show  off,”  or  BMW’s  call  to  “Reflect  your  inner  leadership  spirit.”  In  China,  iconic  stature  is  the  best  defense  against  corporate  maneuvering.  Icons  are  paragons  of  wisdom,  masters  of  the  system.  They  are  revered  because  they  both  lead  and  teach.  This  is  why  the  most  premium  products  often  base  their  appeal  in  “shared  mastery”  and  “artistic  connoisseurship”  potent  demonstrations  of  internalized  confidence.    The  middle  class  is  on  a  perilous  journey  of  advancement,  both  material  and  societal.  In  this  context,  brands  should  enable  strivers  to  achieve  surer  footing  every  step  of  the  way.    Major  challenges  faced  during  marketing  In  China  B2B  Channel  Poor  ability  to  listen    An  inability  to  listen  is  a  common  criticism  of  Western  companies  amongst  Chinese  buyers.  The  importance  of  this  cannot  be  overstated,  and  this  relates  partly  to  the  need  to  show  respect  to  any  potential  customer.  Most  importantly,  only  by  studying  customers’  requirements  and  how  they  evolve  in  China,  can  any  company  hope  to  engage  with  and  meet  the  needs  of  Chinese  companies.    
  • 15. Challenges  for  Marketing  in  China   1   5  Therefore,  Western  companies  are  prone  not  to  communicating  their  message  in  the  wrong  way;  rather  they  tend  to  make  a  far  more  basic  mistake:  they  refuse  to  listen,  and  therefore  communicate  completely  the  wrong  message.  Unwillingness  to  negotiate    Just  similar  to  unwillingness  or  inability  to  listen  is  a  similar  ill  disposition  towards  negotiation  when  it  comes  to  western  companies.  This  may  well  relate  to  the  fact  (already  discussed)  that  definition  of  the  customer’s  needs  and  definition  of  how  to  meet  those  needs  tend  to  happen  concurrently  rather  than  sequentially  in  China.  This  can  make  Western  companies  feel  unsure  of  exactly  what  they  are  negotiating  about,  something  they  tend  to  try  to  resolve  by  insisting  on  more  structured  negotiations.    Western  companies  are  also  prone  to  showing  a  sheer  unwillingness  (rather  than  inability)  to  negotiate,  even  walking  away  when  ‘the  going  gets  tough’,  wrongly  assuming  that  all  differences  are  irreconcilable.  This  is  absolutely  the  wrong  approach  in  China,  where  negotiations  are  extensive  and  the  opening  price  is  almost  never  the  price  the  customer  ends  up  paying.  The  Chinese  approach  to  completing  deals  usually  involves  many  rounds  of  negotiation,  and  often  a  large  number  of  people  from  different  levels  within  an  organization  will  be  involved  in  the  negotiating  process.  Even  when  tacit  agreements  are  in  place,  contracts  can  often  be  redrawn  several  times  before  a  final  agreement  is  in  place,  which  can  be  frustrating  to  foreign  businesspeople  unfamiliar  with  Chinese  negotiating  practices.  Ignoring  the  importance  of  Marketing  in  Product  Life  cycle    Some  of  the  ‘mistakes’  made  by  Western  companies  in  terms  of  their  marketing  and  sales  approaches  and  messages  can  be  explained  by  the  fact  that  their  Chinese  activities  are  relatively  new.  Companies  are  providing  solutions  to  needs  which  have  only  just  emerged,  and  mutual  understanding  between  buyers  and  suppliers  is  still  developing.  There  has  been  a  strong  tendency  for  Western  companies  to  undervalue  the  importance  of  marketing  in  China,  seeing  it  as  something  that  takes  place  not  at  the  beginning  of  the  product  life  cycle,  but  once  channel  access  and  market  penetration  have  been  achieved.  This  is  extremely  surprising,  given  the  sophistication  of  marketing  techniques  in  the  West,  and  may  result  from  a  lack  of  knowledge  of  the  target  market,  as  well  as  a  lack  of  
  • 16. 16   Challenges  for  Marketing  in  China    confidence  that  marketing  techniques  will  be  successful.  Focus  on  product,  channels  and  price,  rather  than  promotion    If  Chinese  companies  tend  to  regard  promotion  as  the  only  aspect  of  marketing,  there  is  an  opposing  tendency  for  Western  companies  in  China  not  to  pay  promotion  enough  attention.  Many  Western  companies  entering  the  market  first  carry  out  some  kind  of  channel  (place)  research,  as  well  as  an  examination  of  the  likely  prices  the  market  will  bear.  They  have  usually  given  a  good  level  of  consideration  as  to  which  products  will  appeal,  albeit  with  insufficient  thought  to  how  these  will  need  refining.  Company  resources  have  been  thrown  into  understanding  the  size  and  nature  of  the  market  opportunity,  with  much  less  emphasis  placed  on  how  that  opportunity  should  be  communicated  directly  with  the  target  market.Figure  8  shows  the  priority  of  expectations  which  Chinese  Buyers  have  from  Western  or  companies  outside  China.    Figure  8  “We  know  best”    A  valid  criticism  made  by  Chinese  businesses  of  their  Western  counterparts  is  that  they  sometimes  appear  hard-­‐wired  into  thinking  that  everything  they  do  is  automatically  superior  to  the  local  competition.  Essentially,  Western  companies  forget  that  marketing  is  about  the  profitable  satisfaction  of  needs,  and  that  if  a  need  is  different  in  China  to  the  West,  then  the  value  proposition  must  also  be  different.  There  is  often  a  tendency  to  try  to  ‘re-­‐educate’  Chinese  buyers,  rather  than  simply  providing  a  value  proposition  that  meets  the  market’s  existing  needs.    “Marketing  is  a  ‘Western’  discipline  –  it’s  less  important  in  China”    Some  Western  companies,  many  of  them  guided  by  Western  market  entry  consultants,  tend  to  overstate  the  importance  of  relationship-­‐building  or  “Guanxi”  in  China,  in  that  they  see  it  as  a  substitute  to  marketing  effort,  rather  
  • 17. Challenges  for  Marketing  in  China   1   7  than  complementary.  Good  salespeople  are  sometimes  left  stranded  alone  in  a  small  representative  office,  with  no  marketing  capability  to  complement  them.    Communication  problems    It  cannot  be  denied  that  there  remains  a  significant  language  barrier  between  Chinese  and  Western  companies,  albeit  one  that  is  closing  as  huge  numbers  of  Chinese  businesspeople  learn  English  and  increasing  numbers  of  Westerners  learn  Chinese.  Once  companies  need  to  interact  at  an  operational  rather  than  strategic  level,  linguistic  difference  can  often  cause  miscommunication  and  result  in  problems.  B2C  Channel  China  is  still  an  emerging  economy,  and  marketers  often  feel  they  don’t  have  the  research  they  need  to  target  these  new  consumers.  Furthermore,  regional  differences  across  China  are  pronounced  but  poorly  understood,  particularly  by  foreign  firms.  And  as  incomes  of  Chinese  in  second-­‐,  third-­‐,  and  fourth-­‐tier  cities  rise,  their  consumption  patterns  will  drive  market  dynamics  in  unprecedented  and  unpredictable  ways.  Still  we  can  divide  the  major  challenges  faced  by  Foreign  companies  in  B2C  segment  into  three  main    challenges:    Driving  down  prices  As  we  know  the  Chinese  Market  is  not  similar  to  western  or  developed  countries,  here  the  per  capita  income  (PPP)  is  nearly  one-­‐fourth  of  US  which  comes  to  about  US$8466  as  compared  to  US  at  US$48,442.  And  the  saving  rate  is  very  high.  The  disposable  income  is  very  less.    Hence  China  is  a  market  with  low  margins  and  high  volumes.  There  is  also  a  saying  that  one  is  often  negatively  surprised  on  margins,  but  positively  surprised  on  volumes.  China’s  intensely  competitive  markets  are  price  sensitive  and  the  high  cost  of  distribution  has  made  it  very  difficult  for  MNCs  to  achieve  the  margins  which  they  are  accustomed.  But  there  exists  an  opportunity  in  terms  of  enormous  volume  which  MNCs  can  target  only  thing  is  that  they  have  to  tap  the  fastest  growing  pool  of  consumers  and  build  relationship  with  them.      Deepening  geographical  penetration  China  is  a  vast  country,  precisely  the  4th  largest  country  in  terms  of  land  area  and  
  • 18. 18   Challenges  for  Marketing  in  China    largest  in  terms  of  population.  South  eastern  and  costal  part  of  China  is  densely  populated  where  else  the  north  and  central  part  is  having  a  low  population  density.  Most  of  the  MNCs  are  well  established  in  Teir  1  and  Teir  2  cities,  but  are  struggling  to  go  into  Tier  3  cities.  Income  is  rapidly  growing  in  smaller  cities  though  they  are  sizeable  as  per  world  standards.  Building  capabilities  in  these  areas  require  investment  and  local  partnership.  There  are  136  Tier  3  cities  spread  across  China,  this  presents  difficult  decisions  in  terms  of  which  cities  and  regions  are  to  be  prioritize.  Even  after  problem  of  Tier  3  cities  is  solved  the  challenges  will  be  posed  for  serving  Tier  4  cities,  as  these  cities  are  important  for  companies  to  capture  middle  class.        Learning  about  the  new  middle  class  China  is  a  market  of  Middle  Class.  There  is  a  niche  market  for  luxury,  which  a  few  affluent  people  can  purchase.  But  a  large  number  of  MNCs  are  targeting  the  middle  class.  As  we  have  discussed  earlier  how  the  person’s  phase  of  life  decides  his  purchasing  behavioral.  Similarly  for  targeting  middle  class  MNCs  have  to  learn  about  the  middle  class.  A  recent  survey  by  McKinsey’s  China  Consumer  Center  of  6000  consumers,  including  many  from  smaller  cities,  shows  striking  variations  in  taste,  attitudes  and  brand  loyalty  both  among  members  of  different  income  class,  as  well  as  across  cities  and  region.  Successful  MNCs  have  to  develop  a  deep  understanding  of  the  consumers,  who  may  not  be  able  to  afford  company’s  products  today  but  be  able  to  do  so  in  future.  And  also  they  have  to  be  willing  to  innovate  and  adapt  to  meet  the  needs  of  these  rising  consumers.    The  above  challenges  became  more  complicated  and  uphill  tasks  for  MNCs  because  of  the  following  limitations:    Lack  of  reliable  market  research  The  overwhelming  consensus  is  that  there  is  a  dearth  of  good  market  research  on  the  Chinese  consumer  and  market.  There  is  a  lack  of  reliable  market  research  on  Chinese  consumerism  general.  Given  China’s  breadth,  its  unpredictability,  and  the  diversity  of  regional  tastes,  a  lack  of  understanding  of  consumer  preferences  
  • 19. Challenges  for  Marketing  in  China   1   9  could  seriously  hinder  marketers.  Missteps  can  be  costly,  both  in  terms  of  the  bottom  line  and  brand  equity.  Yet  even  large  brands  have  made  serious  mistakes  by  not  getting  the  right  consumer  data.  For  example,  when  it  opened  its  Shanghai  outlet,  retailer  Marks  &  Spencer  assumed  sizing  would  be  similar  to  its  established  Hong  Kong  store.  But  it  soon  found  that  smaller  sizes  were  selling  out  and  larger  sizes  were  sitting  on  the  shelves.  It  had  failed  to  foresee  the  regional  difference.  In  addition,  marketers  do  not  appear  overly  satisfied  with  market  research  providers  in  China.      Lack  of  transparency  A  lack  of  transparency  in  the  Chinese  marketing  communications  industry  has  the  potential  to  hold  them  back.  The  issue  of  transparency  is  less  about  responsible  business  than  it  is  about  consistent  standards  among  agencies.  In  particular,  this  transparency  needs  to  relate  to  some  of  the  less  “obvious”  facets  of  agency  operations,  such  as  media  research,  media  planning,  and  media  buying.  While  Western  agencies  typically  have  created  processes  to  make  these  areas  less  opaque,  Chinese  agencies  often  are  not  yet  at  that  level.    Finding  the  right  skills  Talent  is  an  important  issue  for  both  Chinese  and  non-­‐Chinese  marketers,  particularly  as  they  begin  ramping  up  their  Chinese  operations.  But  with  this  growth,  companies  are  rightly  concerned  that  they  may  not  be  able  to  take  advantage  of  the  business  opportunity  in  China  because  of  a  shortage  of  qualified  executives  and  managers  to  drive  the  process.  The  consumer  opportunity  in  China  may  be  great,  but  it  is  vital  to  remember  that  China  is  still  a  developing  market,  without  a  long  history  of  management  training.  It’s  not  a  matter  of  finding  a  person  to  take  a  key  role,  but  finding  the  right  person.  When  it  comes  to  talent,  both  Chinese  and  non-­‐Chinese  companies  are  looking  to  create  the  right  balance  of  East  and  West.  For  their  marketing  leadership,  companies  appear  more  concerned  that  the  executive  come  from  within  the  company  than  that  the  executive  is  from  China  or  not.  Chinese  companies,  as  might  be  expected,  are  most  likely  to  recruit  Chinese  nationals  from  within  the  company  as  their  marketing  leaders,  but  still,  a  significant  are  recruiting  non-­‐  
  • 20. 20   Challenges  for  Marketing  in  China    Chinese  leaders  from  within  their  ranks.  In  three  years,  interestingly,  the  situation  flips.  Chinese  companies  are  more  likely  to  recruit  non-­‐Chinese  from  outside  their  company  as  their  marketing  leaders,  while  non-­‐Chinese  companies  are  more  likely  to  be  looking  at  Chinese  from  outside  their  company.  For  marketing  staff,  both  Chinese  and  non-­‐Chinese  companies  are  looking  to  recruit  Chinese  nationals.  Today,  they  are  looking  primarily  within  the  company,  and  in  three  years  they  expect  mostly  to  be  recruiting  from  elsewhere.  How  to  overcome  the  challenges  faced  during  marketing  In  China  B2B  Channel  There  are  a  few  points  to  keep  in  mind  and  I  feel  then  things  can  me  made  much  more  easier  for  dealing  with  Chinese  Buyers  in  B2B  channel.  1.  Remember  the  marketing  basics  –  Product,  price,  place  and  promotion  are  all  important.  All  should  be  researched  before  and  after  market  entry,  in  order  to  ensure  that  the  value  proposition  meets  and  continues  to  meet  the  target  market’s  needs.    2.  Patience  –  Patience  is  required  when  applying  the  marketing  basics  to  the  local  market.  In  particular,  the  sales  process  is  longer  and  more  complex  than  in  Western  markets,  and  local  buyers  will  take  time  to  be  convinced  that  a  Western  company  has  the  ‘local’  credentials  to  meet  their  needs.    3.  Listen  –  Only  by  listening  will  you  be  able  to  understand  and  therefore  meet  the  local  market  needs.  Chinese  companies  do  not  want  to  buy  a  product  or  service  that  has  come  straight  off  a  shelf  in  the  West.    4.  Relationships  –  Focus,  but  do  not  over-­‐focus,  on  relationships.  Any  salesperson  must  be  prepared  to  be  ‘friends’  with  a  potential  supplier.  However,  this  is  as  well  as,  not  instead  of,  the  4  Ps  of  the  marketing  mix.    5.  Be  confident  in  your  quality  –  Western  companies  start  from  a  strong  position,  in  that  they  are  usually  assumed  to  have  excellent  quality.  Focus  on  the  value  you  add,  and  be  prepared  to  explain  why  you  can  add  value  in  China  specifically.    
  • 21. Challenges  for  Marketing  in  China   2   1  6.  Be  methodical  –  One  of  the  qualities  that  defines  Western  businesses  is  their  methodical  approach  to  doing  business.  It  is  clear  that  when  this  turns  into  a  dogma  about  how  business  should  be  done,  Chinese  companies  quickly  lose  interest  in  your  offering.  However,  do  not  be  afraid  to  highlight  the  methodical  nature  of  your  offering,  as  this  is  something  that  is  valued  by  Chinese  businesspeople  and  seen  to  be  lacking  in  some  Chinese  businesses.    7.  Be  flexible  –  Flexibility  on  issues  such  as  product,  service,  payment  terms  and  price  is  vital  for  success  in  the  China  market.  Foreign  companies  should  do  their  best  to  identify  and  meet  Chinese  customers’  real  needs  rather  than  assuming  these  needs  mirror  those  of  customers  in  the  West.    8.  Be  prepared  for  plenty  of  negotiation  –  Any  potential  supplier  should  be  prepared  for  plenty  of  negotiation  when  selling  to  Chinese  businesses.  It  is  almost  inconceivable  that  first  proposals  will  be  accepted.  Keep  in  mind  the  fact  that  buyers  may  be  deliberately  benchmarking  suppliers,  and  always  try  to  reserve  sufficient  margin  for  further  price  reductions  at  a  later  stage.    9.  Avoid  exaggerations  –  Focus  on  the  credentials  you  have,  rather  than  exaggerating  to  make  up  for  perceived  deficiencies.  Above  all,  Chinese  companies  want  to  trust  their  suppliers.    And  finally  the  table  below  shows  when  to  approach  future  Chinese  customers/buyer  by  which  media  for  Western  or  companies  outside  China:    
  • 22. 22   Challenges  for  Marketing  in  China        B2C  Channel  Though  regarding  Lack  of  reliable  market  research,  Lack  of  transparency  Finding  the  right  skills  MNCs  have  to  either  put  their  own  efforts  or  get  professional  help  from  the  experts.  Now  discussing  about  the  basic  three  challenges  of:    Bringing  down  the  prices  MNCs  can  do  this  by  formulating  a  strategy  where  they  can  use  the  Economies  of  Scale  and  Localization  concepts.  I  believe  if  both  of  these  are  used  in  a  right  way  MNCs  can  succeed  in  bringing  down  the  prices.    
  • 23. Challenges  for  Marketing  in  China   2   3  Geographical  penetration  With  the  rise  of  income  levels  in    Second-­‐Tier  Cities  &  Third  Tier  cities  MNCs  can  use  them  as    New  Frontier  for  growth.Greatest  growth  opportunity  in  China  is  beyond  the  First  Tiercities  of  Beijing,  Shanghai,  and  Tianjin.  That’s  not  surprising  given  that  China  has  more  than  100  cities  that  have  populations  in  excess  of  1  million.  Figure  9  shows  the  long  tail  of  Chinese  Cities  which  have  a  potential  of  future  markets.  Or  thought  of  in  another  way,  many  of  the  so-­‐called  second-­‐  or  third-­‐tier  cities  in  China  have  a  similar  urban  population  to  global  cities  such  as  Amsterdam  or  Chicago.  For  marketers,  this  means  that  the  growth  of  China’s  consumer  class  appears  to  be  taking  place  outside  the  first-­‐tier  cities.  Beijing  and  Shanghai  may  be  approaching  saturation,  and  a  regional  presence  will  be  very  valuable  moving  forward.  These  second-­‐  and  third-­‐tier  cities,  after  all,  are  where  the  majority  of  the  population  lives  and  as  the  middle  class  gains  more  economic  mobility,  they’ll  have  more  disposable  income.  According  to  McKinsey,  half  of  China’s  100  largest  cities  will  experience  at  least  50%  growth  in  consumption  between  2008  and  2015,  and  25  will  double  their  consumption.      Figure  9  
  • 24. 24   Challenges  for  Marketing  in  China      Learning  about  China’s  New  Middle  class  The  changing  landscape  of  marketing  and  advertising  in  China  just  as  globally,  advertising  and  marketing  channels  are  in  a  dramatic  state  of  flux,  and  that  situation  is  mirrored  in  China.  While  traditional  advertising  channels—such  as  television  and  print—remain  strong  today,  their  predominance  is  likely  to  be  challenged  in  the  coming  years.  Among  marketers  participating  in  the  survey,  television  is  clearly  the  primary  channel  today  for  reaching  the  Chinese  consumer.  Which  new  channels  will  emerge?  Marketing  executives  at  both  Chinese  and  non-­‐Chinese  firms  foresee  a  rise  in  word  of  mouth,  public  relations,  online  and  social  media,  and  mobile  apps  as  the  most  potent  ways  to  reach  Chinese  consumers  in  the  future.  Clearly,  as  marketers  look  to  build  brand  awareness  and  perception  among  Chinese  consumers,  television  advertising  will  play  its  part.  But  as  marketing  priorities  shift  away  from  brand  development  toward  sales  and  geographic  expansion,  other  media  are  likely  to  play  a  critical  role.  In  particular,  marketers  will  likely  be  formulating  integrated  marketing  communications  strategies  across  a  variety  of  Chinese  consumer  touch  points.  But  first,  a  caveat:  While  television’s  appeal  to  marketers  is  expected  to  drop  off  in  the  next  three  years,  the  exodus  from  TV  is  not  universal,  and  is  likely  to  remain  quite  potent  for  certain  consumer  brands.      Conclusion  Marketing  is  not  a  rocket  science  with  some  hard  and  fast  formulas,  which  you  apply  to  a  specific  problem  and  you  get  results.  It  is  what  we  learn  from  previous  experiences  and  present  conditions.  On  similar  lines  we  have  seen  that  Marketing  in  China  specially  for  MNCs  and  Western  companies  is  not  so  complicated  just  we  have  to  keep  in  mind  a  few  points  and  remember  each  country  has  its  own  culture  and  tradition  and  a  good  marketing  manager  molds  his  marketing  strategy  as  per  requirement  for  a  particular  country  or  region.  I  hope  I  was  able  to  make  out  my  point  in  this  report.                    
  • 25. Challenges  for  Marketing  in  China   2   5   Bibliography     1. Wikipedia   2. McKinsey  Quarterly  –  August  2009  “A  consumer  paradigm  for  China”  by   Janamitra  Devan,  Micah  Rowland,  and  Jonathan  Woetzel.   3. McKinsey  Quarterly  –  March  2012  “Meet  the  Chinese  consumer  of    2020”   by  Yuval  Atsmon  and  Max  Magni.   4. Fobes  Insights  “Marketing  to  new  Chinese  Customer”  -­‐2011.   5. “The  Unique  Cultural  Challenges  Of  Marketing  To  Chinas  New  Middle   Class”  by  Tom  Doctoroff.   6.  “From  Made  in  China  to  Sold  in  China:  The  Rise  of  the  Chinese  Urban   Consumer.”  Published  by  McKinsey  Global  Institute.