Ensuring You Maintain Control of Your Brand in China

Here’s some not-great news that most of you already know: There’s little-to-no-likelihood of China opening up in this half of 2022, and just a?slim chance we may start to see signs of a gradual opening later in the year. For foreign brands with stakeholders based outside of the mainland, it is a challenging time. It is 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.

This week an article caught my eye entitled?Losing control of your brand. The commentary noted the risks of entering the China market with a local distributor, but many of the challenges apply to existing businesses already in market. With the inability to travel to China, many foreign brands have increased their reliance on distributors. We’ve seen some brands flourish through great relationships, but many haven’t been quite so rosy. The perils mentioned in the article are all too common in China, ranging from distributors taking ownership of IP, to controlling a brand’s direction, to difficult breakups, to much worse and costly challenges. Fortunately, there are legal and systematic safeguards which help minimise the risks, of which?a few are mentioned in the article.

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 they should.

Livestreaming with big-name KOL hosts are a good example. It’s a sometimes-essential, but often-lazy approach to shifting product. Yes, you’ll get a quick hit in sales. But you’re more likely further reinforce the KOL’s brand than building credible brand equity of your own. Too much KOL livestreaming activity is difficult to sustain, as we’ve seen with upstart local brands spending 2-3 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 livestreaming all the time.”

The over-reliance on celebs and KOL livestreaming has become particularly pertinent with?stars being discredited for everything from philandering to tax evasion. As a result, some brands are gaining back control by building their own livestreaming presences. This is supported by consumer preference. During Singles’ Day last year,?83% of shoppers said they watched livestreaming from brands they’re interested in, versus 43% who watched professional KOLs’ and 31% who watched celebrities’ livestreams.

Ecommerce platforms also give brands less ability to control their destiny. The ecommerce platforms own the customer data and relationship. 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 livestreaming with KOLs, ecommerce 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 programs, 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.

Foreign brands working with localised teams is a balancing act: it’s important to ensure on-the-ground staff have autonomy to localise for the unique China market and make decisions swiftly. But at the same time, as stakeholders in the HQ in London, New York, Toronto, Paris, Singapore, Hong Kong, Melbourne, Sydney or Auckland, 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 – newsletters like China Skinny help give a high level overview, but to really provide informed decisions and directions, accessing deep insights and data updates like?English-language Trackers, and?research specific to your brand, products and target audience?can end up saving you a lot of money, time and missed opportunities. It can also help foster relationships with local teams as you will have a more informed understanding and alignment about their challenges and opportunities on the ground.

Contact China Skinny?to discuss how we can assist with staying relevant and effective in China.