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Three Mistakes

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“Three Mistakes” Beiqi Deng Business Law Camden Country College Dr. Dennis Hurley
12/01/2009 posted in Money & Taxes
Three Dumb Mistakes Foreign Companies Do In China
A month ago, Apple sold only 5,000 iPhones in its China debut, as against 65,000 in much smaller Korea. It is too early to declare the iPhone a failure in the country, but the launch missed expectations by a mile. Apple follows a long roster of businesses like eBay that have made the dumb mistake of not taking into account local Chinese consumer preferences, as I wrote in “HowApple and IPhone Blew It In China.”
Apple should have taken a cue from the German carmaker BMW. BMW localizes for Chinese consumers. The average Chinese buyer of luxury cars such as BMW, Mercedes and Bentley is 40 years old, much younger than in other markets. He has a chauffeur for weekdays but hits the freeways himself on weekends. BMW accommodated local habits by extending the backseat legroom in its Series 5 line by several inches. It also created its first social media site, MyBMWClub.cn, to appeal to younger owners. Using an understanding of local consumers in developing its strategies has worked for the company. In 2009 through October, BMW has sold 71,952 vehicles in China, up 36.7% from 52,622 a year before. The country is now the company’s largest market for its flagship Series 7 line, and its fourth largest market overall.
Aside from not taking local consumer preferences into account, here are two other dumb mistakes that many foreign companies make and you should avoid:
First, don’t fail to localize your advertising. A big part of marketing is creating emotional connections with consumers. Many brand managers seem to forget Marketing 101 when they’re abroad. They fail to adapt their ad campaigns, leaving consumers confused and put off.
Take Motorola . Trying to be trendy, it showcased models who weren’t from mainland China and who wore Mohawks and funky clothes. The campaign failed to resonate. One Beijing women commented after seeing one of the ads, “That’s a weird hairdo. Who wants to look like that?” Motorola went from dominating the mobile market to losing ground to Nokia and Samsung, largely because it failed to create images most Chinese could relate and aspire to.
Clothing companies like Nautica and Brooks Brothers have also gotten it wrong, using blond, blue-eyed preppy models with un-Chinese body types. Women have told representatives of my firm, the China Market Research Group, that they won’t buy a brand if they worry that its clothes will look nice on foreign models but not on them.
Consumers not only worry about sizing; they often also can’t relate to the lifestyles portrayed. Sailing and spending weekends in the Hamptons aren’t exactly the dreams of the typical Chinese. Companies should do what the bank HSBC did with its tag line “the world’s local bank,” or what the cosmetics firm Estée Lauder does with its use of a mix of foreign and local models in settings Chinese can relate to. Those companies convey the message that their brands can be trusted–and also that they can meet the needs of local consumers.
Every brand needs to maintain its global brand image and integrity. But it needs to cater to local consumers, too. Overly home-market-centric thinking simply won’t work for businesses whose fastest growth is coming in emerging markets like China, India and Brazil.
The third dumb mistake: not making things big. Chinese like things big. They are proud to have the world’s largest airport, the biggest building under one roof, the tallest hotel and even the world’s longest laundry chute (at the Park Hyatt in Shanghai). Chinese tend to equate bigger with better. They don’t feel respected and won’t buy if a brand has a tiny store that doesn’t stock the newest season’s products. They know from the Internet and from traveling abroad what exists in other markets, and they want brands to have as big a presence in China as elsewhere.
Take Tiffany . It has failed to get much traction in China because its stores are too small. It has missed out on the jewelry boom. My firm estimates that diamond sales will grow 20% a year over the next three years. Platinum sales rose 80% between 2008 and 2009. This is because Chinese women increasingly demand diamond engagement rings with platinum bands. But most of the women we interviewed told us they didn’t want to shop at Tiffany, because the stores are “too small” and “don’t have enough product selection.” Few named Tiffany as their top choice for shopping for an engagement ring.
Tiffany sells only its high-end lines in China, hasn’t introduced its silver collections and doesn’t offer much of a gift selection. That’s a serious mistake in a country where luxury sales amount to $6.5 billion a year and gifts are a big part of it. Gifts drive the sales of brands like Montblanc and Omega in China, but the truly affluent still go to Europe and Hong Kong to shop for high-end jewelry.
Contrast Tiffany’s disappointment with the runaway success of Louis Vuitton and Gucci . They have multi-level flagship stores that stock their newest collections. They also have plenty of items at the several-hundred-dollar level, for the aspiring wealthy and for gifts. They have some of the highest brand loyalty levels of all the companies we have analyzed.
Companies absolutely have to take into account the local habits and preferences of Chinese consumers when it comes to the overall brand experience. Unfortunately, even though China is the world’s fastest-growing retail market, too many still do dumb things.

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