From partnerships with local distributors to live streaming with KOLs, Mark Tanner of The China Skinny looks at the factors that could be threatening your IP and brand image in China
As Omicron outbreaks spread in many cities across China, there is little to no likelihood of China opening up in the first half of 2022, and just a slim chance that we may start to see signs of a gradual opening later in the year. For foreign brands with stakeholders based outside the Mainland, it is a challenging time. It is not only more difficult to build and maintain relationships with team members and key partners, but also difficult to keep abreast of the market and ensure that things are tracking as they should be.
With the inability of foreign staff to travel to China, many overseas brands have increased their reliance on distributors. Many brands have flourished through great relationships, but for others, the experience hasn’t been quite so rosy. A recent article from CBBC member company Rouse noted the risks of entering the China market with a local distributor, but many of the challenges could also apply to existing businesses already in market.
These risks include losing control of your brand if bad actors choose to release lookalike or counterfeit products, especially in the same e-commerce spaces you are operating in; losing your IP, social media or websites/domains to distributors after contracts are terminated; losing out on other opportunities due to exclusive distribution rights; another company registering your brand’s Chinese name; and discovering products bearing your trademark or product design being exported out of China (these are usually counterfeits unless you have a production line in China for the export market).
Yet the considerations of losing control of your brand in China span far greater than legal risks and rogue distributors. The simple structure of many Chinese marketing strategies hands over much more control than it should.
Live streaming with big-name KOL hosts is a good example. It’s a sometimes-essential, but often-lazy approach to shifting products. Yes, you’ll get a quick hit in sales. But you’re more likely to further reinforce the KOL’s brand than building credible brand equity of your own. Too much KOL live streaming activity is difficult to sustain, as can be seen with upstart local brands spending two to three times more on marketing than established brands – often around 70% of their sales revenue. As a partner at soft drink darling Genki Forest noted, “We need to resist temptation, to be self-disciplined and accumulate a lot of brand assets rather than just sell products and do live streaming all the time.”
The over-reliance on celebs and KOL live streaming has become particularly pertinent since stars have been discredited for everything from philandering to tax evasion. As a result, some brands are gaining back control by building their own live streaming presences. This is supported by consumer preference. During Singles’ Day last year, 83% of shoppers said they watched live streaming from brands they’re interested in, versus 43% who watched professional KOLs’ and 31% who watched celebrities’ live streams.
E-commerce platforms also give brands less ability to control their destiny. The e-commerce platforms own the customer data and relationships. A change in algorithm or preference for a competitor can see your brand and product sales tank. Cost of sales are also increasing, rising from 3% of GMV (Gross Merchandise Value) in 2017 to 6.3% last year on the Alibaba platforms.
Much like live streaming with KOLs, e-commerce platforms serve a great purpose at certain stages of the journey and should be ramped up to build awareness and trial, but brands would be wise to transition to having more control about how and when they talk to their customers, and ultimately how they control their brands. Smart brands are using brand-focused strategies on flexible platforms to give them more control. This is evident with the rise of stores on WeChat mini-programmes, which have seen transaction volumes surge 897% since 2019.
Whilst not quite the extreme of losing control of brands through distributors, KOLs or platforms, the inability to travel has seen many stakeholders become more reliant on teams on the ground in China. This isn’t always a bad thing – but it can be if stakeholders are flying blind.
For foreign brands, working with localised teams is a balancing act: it’s important to ensure on-the-ground staff have the autonomy to localise for the unique China market and make decisions swiftly. But at the same time, as stakeholders in the HQ in London or elsewhere, you’re ultimately responsible for ensuring your brand stays true to its roots and doesn’t stray too far from the very DNA that makes it successful and appealing to Chinese consumers. Once borders open again, the lines between products sold in China and those outside will blur again, so it’s critical that things haven’t strayed too much.
Firstly, it’s important to have an understanding of what’s happening on the ground. CBBC’s market research and analysis services can help you to make informed decisions, accessing deep insights and data updates and research specific to your brand, products and target audience that can end up saving you a lot of money, time and and ensure you don’t miss opportunities. Call +44 (0)20 7802 2000 or email email@example.com now to find out more about how CBBC can help. These kind of insights can also help foster better relationships with local teams thanks to a more informed understanding and alignment about their challenges and opportunities on the ground.
This article originally appeared on The China Skinny. The article also includes insights from James Godefroy for Rouse