THOUGHT LEADERSHIP

 

Success Lies in Stimulating Demand for Your Brand

May 17, 2011

By Anders Paulsson


Last month, Starbucks hailed the development of the Western-style "morning coffee ritual" in China, while its chief executive said the company aims to triple its number of stores in China to 1,500 by 2015, on the back of a 20 percent sales growth last quarter.


Bringing customers around to its product and business model has been key to the company's success in China. Although it made some adaptations to the local market when it entered the country in 1999, it still lacked a large consumer base for its product.


By making its name synonymous with coffee and the cafe experience in the minds of the growing middle class, while promoting the drinking of coffee as part of an aspirational lifestyle, the company has been able to maintain its impressive growth.


It has done this by making some adaptations to attract local customers, such as offering drinks more palatable to them, in an environment that in some respects echoes traditional tea houses in intimacy and style.


Using these factors, it has then been able to introduce customers to its wider range of beverages, fostering a coffee culture.


The lesson we can take from Starbucks and other successful foreign companies in China, such as KFC and Pizza Hut, is that foreign companies should not only adapt to local customers, but also figure out ways to encourage customers to adapt to their own business models and products.


Take Apple for example. One of the main reasons for its success in China is that it has managed to overcome embedded ideas that see low prices as of paramount importance, and positioned its brand as an icon of quality.


Before Apple's entry into China, consumers were concerned primarily with price. Noting that its main consumers are young and tech-savvy, and therefore likely to care more about individuality and functionality than other groups in China, Apple decided to build on this to counter the prevailing attitude and widen its customer base.


Using this core group as their basis, Apple could then cement its brand image as being at the cutting-edge of innovation. This then gathered momentum, and led to more people being prepared to pay a premium for its products.


Contrast this with Best Buy, whose business model similarly puts another concept – customer service – above price, but which failed in their attempt to succeed in China.


This is because the company tried to expand faster than its could cultivate its brand culture and what it saw as its unique selling point.


They also sold a wide range of products that could be found elsewhere for less money. Their focus on service was not enough to convince customers to part with their cash.


As with Starbucks and Apple, the key for foreign companies with a product or service concept that is novel to China is to identify a core group of users who can then act as ambassadors for their brand. They can sow the seeds of recognition and aspiration for the brand's business, paving the way for its wider acceptance.


US clothing brand Eno is a company that does this, employing young Chinese artists to develop creative designs, and cultivate a drive for fashion among their age group.


What it boils down to is that foreign brands targeting China that dare to define their own market will have the biggest opportunities for success.


Anders Paulsson is Partner of SmithStreet, a Shanghai-based consulting firm.

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