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For western companies like Coca-Cola, Maybelline and Nestlé, the brands of the century have long offered a huge advantage to local Chinese rivals.
But these established groups are increasingly threatened by Chinese start-ups, which have been turbocharged by social media marketing experts and optimized supply chains.
This change was highlighted at this month’s “618” e-commerce festival, China’s second-largest shopping event of the year, as local brand Babycare surpassed Procter & Gamble’s Pampers in sales volumes, according to data released by Alibaba internet group.
It wasn’t a surprise: Genki Forest, a Chinese beverage company, surpassed Coca-Cola and Pepsi in online sales last year. “Individual Day”, Is a billion-dollar curiosity, the biggest shopping holiday in the country.
A year earlier, Perfect Diary, a home cosmetics brand, Maybelline and Estée Lauder had jumped to number one on Singles Day, in 2019 the Three Squirrels snack brand surpassed Nestlé.
“Foreign brands had an advantage in the Chinese market by replacing the high-end western lifestyle. But Chinese consumers now have more confidence in the “China style”, said Albus Yu, investment manager at China Growth Capital, which has backed venture capital funds such as Maia Active, a Chinese Lululemon challenge.
The dominance of Chinese brands is a major step forward in a country where historically foreign products have been seen to be safer and of higher quality. It poses a great challenge for more and more multinationals looking for growth in China.
It also clashes with China’s political priorities. President Xi Jinping has called for the country attention to internal demand for growth.
“This next decade will be a decade for Chinese brands,” said Elijah Whaley, vice president of Asia-Pacific marketing at Launchmetrics analytics firm. “Home brands will take a large share of the growing consumer market in China.”
In the first three quarters of 2020, domestic sales of China’s fast-growing consumer goods brands increased by 2 percent and foreign brands fell by 6% year-on-year, according to a report by Kantar Worldpanel and Bain.
Analysts say that a large part of the success of local brands in recent times is large investments in marketing, especially on social media. This has been driven by strong protection of venture capital.
“Marketing has refreshed Chinese products. They don’t have the heritage brands they strive to protect, which means they are willing to take risks and move fast, ”said Mark Tanner, CEO of Skinny China, the marketing company.
According to Launchmetrics, marketing can generate more than 60% of the initial expenditure of Chinese consumers, compared to 15-25 percent of foreign brands in China.
“Foreign brands are much more organic in their marketing approach, they want to grow slowly and that’s how it works in other markets. But everything here is accelerated because there is a lot of venture capital, ”said Jenny Chen, one of the founders of the cross-border marketing software agency WalkTheChat.
Chinese brands have also been quick to develop supply chains. Being close to manufacturing clusters in China, they have developed relationships with suppliers to accelerate the development of new products and reduce costs. Often, these suppliers are the same ones that produce great products from great foreign brands.
“Magic is in the order of a small range. You can create thousands of items and see what the stick is, ”said Rui Ma, a Chinese technology analyst at TechBuzz.
Shanghai Chicmax, a cosmetics brand, went from designing to selling a face mask in three days. That process took a three-year mark on foreign shampoos, Skinny China company Taner noted.
Analysts say that variety and speed are important because young Chinese consumers have eclectic tastes and a stronger desire to follow trends than Western ones. GlaxoSmithKline had 400 products for European customers in a single oral care category, 12,000 for China, Tanner added.
Young Chinese consumers are also expected sophisticated ecommerce experience. When they buy a lipstick, they can first see how an influencer promotes it in Douyin (Chinese version of TikTok), and then switch to the Xiaohongshu social media platform to get feedback from professional beauty bloggers, finally customer reviews and photos before buying at Alibaba Taobao after consultation.
Some Chinese agents they have gathered huge fans, such as Li Jiaqi, “King of Lips,” who has 45 million followers in Douyin. Li’s approval could lead to a product being sold out in minutes and he has previously criticized foreign brands like Hermès and Chanel.
Watching Li’s live experiences, Zhang Qiping, a 28-year-old professional from a Chinese foreign company, discovered the home brands Florasis and Perfect Diary.
“I thought the lipsticks looked great, and then I went to Xiaohongshu and saw that a lot of people recommended them, so I went ahead and bought them,” Zhang said, before buying the lipsticks from Dior and Yves Saint Laurent.
But “micro-influencers,” who have a much smaller reach of less than 10,000 followers, are an important group for brand marketing. They are often customers who have become brand advocates for companies, offering free products or small payments.
“In the Chinese influencer industry, you can find an almost total price: a sponsored campaign that looks like original content, or a small message from a microinfluencer,” Chen told WalkTheChat.
Another effective way for brands to reach customers in China is through groups on messaging platforms like Tencent’s WeChat, where they are limited to 500 users. This allows brands to interact with consumers in a more intimate environment, but some western companies believe they offer a safe return on investment.
“Chinese brands are willing to take more risks,” Whaley said.
Chinese media document how Perfect Diary has opened thousands of WeChat groups led by “Xiaowanzi” or “Abby” a virtual agent of beauty sponsored by a large marketing team.
Over the last weekend of 618 promotions, one of Abby’s 200-person WeChat groups was flooded with branded promotions, with shoppers posting photos, asking questions and giving feedback.
When asked for an interview via WeChat, Abby replied that she would be answered by a responsible employee and sent Jerry a cartoon mouse with a flower.
Asked how international brands could win, Zhang, a consumer working for a foreign company, replied: “When it comes to brand change, I usually look at opinions about Douyin and Xiaohongshu. It’s all about getting brands promoted by beauty bloggers.”
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