Chinese Brands Rising: Strategic Imperatives in an Era of Increasing Consumer Confidence

This article reviews the findings of Prophet’s 2018 Brand Relevance Index (BRI) survey, the only index designed to measure the importance of brands in consumers’ lives. In several ways, conclusions point towards more sophisticated Chinese shoppers with more faith in Chinese brands.

Key Observations

Pragmatism Rules. First, Chinese consumers remain fundamentally practical. Of the four BRI pillars – pervasive innovation, customer obsession, distinctive inspiration and ruthless pragmatism, the last pulls the most weight (7% more than average). This reflects a basic cultural truth: Chinese want brands that will help them advance in life, products that are means to a practical end. 

Local Brands Rise. Second, local brands now constitute of the majority of the BRI’s top fifty. Two years ago, 32 of the top fifty were multinational (MNC) brands. Today, 30 are from the mainland. New local top fifty brand categories run the gamut from consumer electronics, to retail, digital media and travel & hospitality. 

Innovation Spreads. Third, for the first time, innovation – not basic price/value reassurance -- is propelling the momentum of some local brands. In 2017, when AliPay (#1) and WeChat (#2) were included in measurement of “pervasive innovation,” local brands boasted a large advantage. But when those two power brands were excluded, MNCs took the lead. In 2018, that lead evaporates.  

It is important to note, however, that local brands still score significantly lower on “distinctive inspiration,” indicating the lack of long-term brand purpose, the lynchpin of loyalty and price premiums. 

Bling Fades, Confidence Rises.  Finally, the appeal of in-your-face bling amongst first tier consumers may be wearing thin. Huawei mobile phones are more relevant than Apple in first-tier cities. On the other hand, aspirational MNC brands across hospitality and auto industries rank in the top fifty only in tier-three cities. The fact that most consumers in these markets are not yet able to afford these brands is likely indicative of future optimism, despite latent anxiety about China’s economic headwinds China. 

Actions Marketers Must to Maximize Relevance

When examining which brands penetrate the BRI’s top fifty, five strategic imperatives emerge.

Introduce Meaningful innovation. Scale and speed have always, and will continue to, underpin trust in China. But home-grown innovation plays an increasingly important role in establishing brand affinity. The definition of “leadership” is now multidimensional, particularly amongst the emerging affluent. In some cases, local brands outpace MNC competitors on the innovation front – for example, Huawei and Haier are, for the first time, regarded as more innovative than Apple and Philips, respectively.  

Huawei P20 Pro is the first phone to sport a triple rear camera. In late 2016, Xiaomi's Mi Mix phone launched the world’s first “near-bezelless”design – the edge between screen and body -- to achieve the highest screen-to-body ratio.

Chinese technology giants continue to innovate and redefine how business and consumers connect and engage with each other. WeChat (#3) launched Mini Programs in 2017 to seamlessly connect businesses and consumers.

Innovation is easy to claim yet difficult to deliver. Successfully cutting through the clutter requires meaningful and tangible innovation based on in-depth consumer insights rather than scatter-shot innovation for the sake of itself. A question: Do you know what drives behavior and purchase prefereces of your consumers?

Liberate Lifestyle through Connectivity. The speed of connectivity innovation in 2018 has passed an inflection point. The Chinese no longer are happily surprised at the lifestyle enrichment platforms offer. They demand them. 

First, every aspect of daily life is integrated in one-stop apps that offer unprecedented seamlessness. Meituan (#8), a food delivery and restaurant review app, recently merged with Dianping, to broaden offerings that include everything from ticket booking to travel arrangements. The March 2018 acquisition of Mobike, a dockless biking giant, further allows consumers to discover their world. 

Second, technology liberates by connecting like-minded subtribes, people who share similar passions. Adidas (#14) created the “Republic of Sports,” a full-range of omnichannel experiences. Fans of specialty sports from rock climbing to mountain biking to marathon racing gather virtually and offline to both compete and share performance enhancement tips. Meitu (#39), once a photo-beautification app, has morphed into a “social photo” platform for aficionados to follow similar, often offbeat, trends. Its soft launch of “Social Circle” has been a success. Users spending an average of 25 minutes on the site.

Third, online and offline retail worlds are increasingly connected, further reinforcing seamlessness. JD.com (#35), the Amazon of China, introduced a “full service” luxury platform, Toplife. It implemented an end-to-end high-end experience -- from customized online stores to deliveries at home. Hema Fresh (#43), owned by Alibaba, has been such a hit property prices near its supermarkets have risen. Every product is bar-coded and provides information to both ensure quality reassurance and dramatize brand provenance. To boot, thirty-minute delivery is supported by state-of-the-art logistics.

Enrich Experience through Curated Content.  Consumers crave identity-affirming “social consumption.” They seek emotional connection and self-expression through content. The most relevant brands curate content with an understanding of what makes consumer tick and commercialize affiliative desire by forging communities of like-minded brand advocates.

IQiy (#49), a streaming service, boasts over 76 million PC and 158 million mobile users. Recently IQiyi-produced shows such as “Rap of China” introduced “hip-hop lifestyle” as a platform for self-expression. “Idol Producer” generated strong ties between performers and viewers by linking contestant success to viewers’ real-time feedback. To amplify content impact, IQiyi developed tie-in themed mobile games and ancillary products to enhance “stickiness” of its entertainment properties.

Multinational brands recognize the power of curated content. Estee Lauder (#22) has repositioned itself as a relevant brand for the youth by through skill deployment of celebrity influences such as Yang Mi. Its online commerce site doubles as a fan community destination by drawing users to share “beauty secrets,” with buzz-worthy tips curated by the brand.  Taobao.com (#6) established lifestyle verticals based on shared passion points with the “Taobao creation festival,” designed showcase individuals’ creativity.

Foster a Happier and Healthier Home. There are now more 200 million middle class households.  Home ownership is on the rise across all city tiers.  The home is a new center of gravity in life. Previously a site of safety prone to extreme price sensitivity, it is blossoming into an: a) oasis of self-expression and b) bulwark of family protection reinforced by advanced technology. 

Haier (#21) rolled out “smart home solutions” in 2018, which allow consumers to control all appliances at their fingertips. Centered around the four most important physical spaces – the living room, kitchen, bathroom and bedroom – it integrates key functions via voice control: air and water purification, laundry management, home security and health maintenance. Midea’s (#33) smart kitchen appliances enable recipe preparation based on food already in the refrigerator. It even suggests personalized recipes based on past preferences, balancing health and taste considerations. Xiaomi (#15) has diversified its product offerings away from mobile phones to become a “lifestyle ecosystem” across three design principles: intelligence, aesthetics and affordability.  Philips (#24) has partnered with Xiaomi to develop connected lighting offers to create the right mood during different day parts and social occasions.

Inside the home, the Chinese are finally willing to pay a premium for products, graced with artificial intelligence, to enhance family well-being and happiness.

Empower Chinese Citizens of the World. In 2018, 140 million Chinese will take trips abroad, up +15% from 2017. The percentage of Chinese who visit foreign countries is double Japan’s when the latter country was at a similar level of per capita consumption. Travel has blossomed from a unidimensional badge of status (“I’ve been to Paris”) to a portal of multidimensional experience and cultural discovery. Frequent Independent Travelers (FITs) want to eat like locals eat, get around town like locals get around town and live where locals live. 

That said, China’s FITs are globe-trotting newbies. They fear the unexpected and seek solutions that resolve a tension between desire for exploration and safety of the familiar.  Brands that do both touch the heart of first-generation jet-setters. 

Qunar.com (#12) invented a local immersion platform (当地人) that enables travelers to discover authentic “WeChat-able” destinations and experiences. Alipay (#1) is no long just an international virtual payment system. It offers “reassurance” services including insurance, tax refunds, shopping loans and Wi-Fi packages. UnionPay (#23), has made an aggressive push to become the credit card for overseas travelers, with 90 million cards accepted in 200 countries by 23 million merchants. The brand has also forged alliances with smart phone virtual payments systems including Huawei Pay and Apple Pay to add depth to its long-term positioning, “Union Pay, Your Way.”

In Conclusion

Chinese consumers are evolving rapidly, across city tiers. Technology fuels lifestyle liberation. Local brands are creating stronger bonds with mainlanders, driven by a new spirit of innovation within Chinese corporations. Yes, protective pragmatism still rules – and traditional corporate structural barriers still preclude genuine breakthrough -- but the sophistication and deands of China’s middle class and emerging affluent consumers are apparent in Prophet’s 2018 Brand Relevance Index results. 

To earn the loyalty of the Chinese, marketers must abide by five strategic imperatives: a) introduce tangible innovation, b) liberate lifestyle through connectivity, c) enrich experiences through curated content, d) foster a happier and healthier home and, finally, e) empower Chinese citizens of the world. 

Brand relevance remains the lynchpin of loyalty, both in Chin and around the worlds. 

 Thanks to Prophet’s Cecilia Li, Benoit Garbe, Leon Zhang, Yu Huang and FeiFei Xu for their significant contributions.