THOUGHT LEADERSHIP

 

One Size Strategy Recipe to Fail

Sep 07, 2015 Franklin Yao

This article was originally published at AmCham Insights magazine, Issue Sep 2015.


A few years ago in Hong Kong, I presented to a foreign executive who had been appointed Head of Asia-Pacific for a global cosmetics company. It was his first day on the job. He began by saying he ran a company in Japan and essentially told me, “That means that I know everything that there is to know about China, what more could you possibly teach me?”


Taken aback, I chose not to argue that I was not trying to give him answers, but discuss some of the key questions he needed to answer to find success in the China marketplace. Instead, I noted down that with this type of hubris at the top, this company was doomed in China.  Sure enough, Revlon announced their withdrawal from China within three years of our meeting. The reasons Revlon failed in China: turning away from its core brand positioning, insufficient investment, not focusing on winning a core set of geographies, and not getting the right mix of products to compete in the marketplace, were no different that day than three years later. These questions were just not addressed with empathy, respect, and with an eye towards building trust.


Empathy


When it comes to information that is given to us on China, context is also important. A statistic, description, qualitative interview, and piece of advice have wildly different implications depending on the context. If an American consumer told you he bought a Rolex, it might signal the purchase is a badge of his success. A Chinese consumer doing the same thing could be saying he intends to climb the success ladder and it’s only the first of many watch purchases.


Marks & Spencer (M&S) set up shop in China in 2008 as they did in Hong Kong, and expected a scaled version of the same success. It announced earlier this year that it was closing five of its 15 locations, and was looking for local operating partners. Hong Kong had been a British colony for nearly 150 years and so translating British lifestyle was familiar and in many cases aspirational. The first question Marks & Spencers should have asked is: how can a Brit lifestyle fit into the context of the lives of a Chinese household? Whether we consider M&S clothes unappealing is not the point, its merchandising strategy needs to be considered in the context of how shopping is done in a Chinese household.


Unfortunately for M&S, housewife isn’t a popular occupation in China.  Most women in China work and have little time for afternoon tea, shopping for bras, or finding clothes for their children.


If Marks and Spencers aimed to fit into the everyday life of a Chinese family, why choose to open a store across from Yuyuan Garden? The foot traffic is there, but who foots the traffic is everything: tourists traveling around Yuyuan gardens were not its consumer. It’s been a struggle for Marks and Spencers from day one in China; but from day zero, they should have found answers to basic questions; primarily, how does an established form of British living fit into a modern Chinese lifestyle?  What comes next, and whether Marks and Spencers can reset and find a way to understand and add meaning to a Chinese household will determine its future success.


My personal opinion: M&S has a smaller-space retail format (larger than a convenience store, smaller than a supermarket) called Simply Food focusing on providing ready-to-eat fresh foods. M&S Simply Food has been proliferating across the UK because it focuses on something modern, white collar professionals who don’t have time to cook every day need in their lives. Great Britain is running out of housewives as well. And the last time I checked, the Chinese economy is growing towards an economy of modern, white collar professionals.


Respect


Let’s talk about “Guanxi.” The foundation of every relationship is respect. MNC’s have the ability to respect, and not patronize Chinese consumers. Respect is not telling someone what they should do or feel or buy, it means taking into consideration another person’s feelings, aspirations, and rights. The moment MNCs patronize, is the moment Chinese consumers no longer feel respected. What are Chinese preferences? What do Chinese need? How can we provide this?

When Levi’s launched the Denizen brand out of San Francisco, they envisioned penetration into emerging markets, as Denizen jeans were basically a cheaper pair of Levi’s.


Levi-Strauss promoted a new line of jeans by showing ads featuring people being actively silly in Brazil, Russia and India. The message was, “As a citizen of one of the developing BRIC countries, you too can be part of the global developing world.” This is so off-code for what a Chinese consumer aspires to be, which is to have better jeans than an American, eat better sushi than the Japanese, and drink better wine than the French.


Levi’s was providing their Chinese consumer group with a product and brand that they did not want to be associated with. Historically the term “denizen” means, “A foreigner allowed certain rights in the adopted country.” Try finding a pair of Denizen jeans in China now.  After a big 2010 launch, the brand pulled out in 2012.


One of Apple’s few missteps in China was the launch of the (relatively) bargain-priced 5C, which consumers were embarrassed to buy (you can’t afford a 5S?) I do not recall many examples of foreign firms creating a cheaper-priced product for China that has appealed to Chinese consumers. I believe that when multinationals respect the ability for Chinese consumers to appreciate a global product, success usually follows. It has been harder for Chinese fashion consumers to appreciate American brands versus the easier appeal of their European counterparts. But everyone in China wears jeans, and for all intents and purposes they were invented by Levi’s. How many people in China know this? Levi’s would have been better off investing in its main line and bringing more respect to its own heritage.


Trust


When you are 1 out of 1.35 billion, by definition most of the people around you are strangers. Couple this with the still-developing Chinese legal system and consumers often ask themselves: Whom can I trust? Who is vouching for you? What reasons can you give me to trust you?  Once you have earned my trust, how are you going to keep it?

If you have been in China for ten years or longer, I have a strange question for you: do you remember what a treat it was to go to KFC?  I know one reason for this may be because we had far, far fewer choices ten years ago for Western food. But a big part of it was the quality of the food. The original-recipe fried chicken was better in China than it was in the U.S.


The restaurants were clean, and twice as large as they were in the U.S. and they were in nice locations: the first KFC in China was opened by Tiananmen Square in 1987. We would hear apocryphal stories about parents not being able to afford if for themselves, but happily watching their little emperor children eat their fried chicken. Somehow it all felt worth it. And somewhere along the way, as expansion and revenues piled up, KFC lost its way.


In December 2012, food safety concerns caused KFC to cut ties with 100 suppliers. We all know that trust was further eroded last year when it was discovered that one of its suppliers, OSI, was accused of using expired meat. A renewed push to target younger consumers with celebrity endorsement and a new menu was launched at the end of last year, focusing on KFC’s continued innovation. I don’t think this gets to the point.


When SmithStreet conducted a study on innovation in baby formula coming off of the melamine scandal, we found that the only thing that mattered to consumers was trust. So if we are going to innovate, we need to innovate in building trust. Coming off of quality depreciation and serious food scandals, KFC needs to consider taking a similar approach. One case-study that KFC can take inspiration from is the Domino’s Pizza Turnaround campaign in the U.S. in 2010, when a flailing Domino’s, focusing on transparency, essentially admitted that previously its pizza “sucked”, and that it was starting from scratch to regain consumer trust. Domino’s sales have recovered since then.


You can nitpick, but a Starbucks experience in China is essentially the same as it is in San Antonio or London. In an oasis of poor customer service, Starbucks in China stands out. The Starbucks Chinese consumer travels abroad, and that helps reinforce trust in Starbucks, because they know that the Starbucks China experience is a similar good.


In 2013, when a CCTV ran a report about how Starbucks was charging more for equivalent coffee in China than in the U.S., Starbucks CEO Howard Schultz did not bow to official criticism. He defended the higher prices as a result of higher costs and investments in China. The message was: Trust us, we are Starbucks; and it worked.



About the Author

Franklin Yao is Managing Partner and Co-founder at SmithStreet, a growth consultancy based in Shanghai.

Follow Frank and SmithStreet on Twitter.



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