Sagging Markets? Look To China

If your to-do list right now focuses on reducing budgets and cutting back marketing expenditures, then you probably need some good news.

Concerns about the downturn in the U.S. economy mean that global brands have to look elsewhere for growth. The welcome news is that China is now ready to provide an alternative motor to the global economy.

If I were a CMO looking at static or declining sales in my traditional markets, I’d want a piece of China. A key section of this market now has enough wealth to consume products made there and abroad. Economic growth was 11 percent in 2007 — the fastest rate in 13 years. And the Beijing Olympics in August will add another feather in the cap of the world’s biggest economic success story.

Many brands are already taking action, and ad spend has soared by 20 percent each of the last three years. We’ve been working with Volkswagen since 2001, and China is now its biggest global market, with 1 million units expected to sell this year.

China, however, is not just another market. You need to approach it with care and reverence for its traditions, and an understanding of the right way to speak to newly empowered consumers. The Chinese take their culture seriously, and things that have no consequence in the West may have deep significance here. You may find that you need a shifu, or teacher, but here are a few early lessons to consider before attempting to conquer this market.

Don’t target a billion people. China may have more than 1.3 billion citizens, but not all of them are in the market for Western goods. Yes, disposable income is increasing, with top wage earners in Beijing earning on average $12,500 a year, but the “middle classes” average just $7,000 a year. That’s not much by Western standards, but in a low-cost market it’s an impressive amount of spending power.

Forget traditional statistical analysis. The analytics developed in Europe and the U.S. won’t give you the whole picture. China may seem fairly homogeneous: The vast bulk of the population comes from a single ethnic group, the Han Chinese. But the more you look at this vast country, the more complex it becomes. Do you break it down by north versus south, urban versus rural, first-tier cities versus second-tier cities, rice versus noodles? The answer is all of the above, but more importantly you have to target culturally. You can’t talk to someone in Chongqing like someone in Shanghai.

Cultural ties run deep. Ancient traditions remain an influence, even if today’s consumers can’t articulate their impact on their decision-making processes. This means that messages have to be culturally as well as strategically right. For example, when it launched in China, Fruit of the Loom selected a mango, coconut and orange as more culturally relevant symbols to complement apples and grapes in its logo.

Nike used the historical fact that old Beijing city used to be guarded by nine gates as the theme behind a three-on-three basketball-influenced campaign called Battle of the Nine Gates, which included a tournament and an experiential event. More than 6,000 kids competed within their neighborhoods for the right to represent their gate in a final held in the heart of the Forbidden City, where pop culture met ancient history in a fusion of posters, Nine Gates newspapers and street teams.

Traditions impact purchasing patterns. Image has always been important in Chinese society. As soon as they can afford it, consumers select the kind of car that will send out a strong status message to friends, family and business contacts. Different car models carry different messages than in the West. For example, Audis are the transport of Chinese officials. So if that’s the image or “face” you want to portray, get yourself an Audi.

Louis Vuitton, which opened its first Chinese store in 1992, is doing well for much the same reason. Now Fendi is about to launch, taking advantage of the fact that 15 percent of the population — more than 160 million — are now active consumers of luxury brands.

But don’t think these consumers will flash their cash. They may drive a VW, but they will still scrutinize the price of a bottle of shampoo.

Be prepared for things to change fast. This traditional market moves quickly. People who lived through the Industrial Revolution in the West probably saw a tenfold improvement in their standard of living. For many of today’s Chinese the rate of change has been far greater than that. In fact, every year in China is probably worth three in the West.

The way that information travels is also different. Although the government tightly controls TV and print, the Internet adds a different dimension to the mix, opening up new information for consumers. It offers a powerful means of expression — one in 30 Chinese people blog — and this is a great place to research what people really think.

Let’s take the Olympics as an example. When the official mascots were unveiled in 2005, traditional media praised the cartoon characters while bloggers were more critical, and more in tune with real public opinion. (By the way, MySpace, YouTube and Google count for nothing compared to homegrown sites such as Baidu, QQ, Sina, Sohu and NetEase.)

The learning curve is steep, but you can no longer ignore China. And with Western markets facing tough times, success in this market could help deliver a profitable 2008. Welcome to China.

Dan Mintz is founder and CCO of DMG.