Letter from America: The China syndrome – big challenges for US brands
International Marketing Partners Ltd
US brands looking to succeed in China must learn to listen and localise or risk damaging losses.
For many US brands, growing in China is high on their agenda. While the opportunities are very tempting, US brands may fall into the many traps of selling into a country so different from home.
According to the latest figures, China's import market is worth $1.95 trillion and has surged fivefold over the past decade, an indication that its historically closed markets are opening up for US companies that make physical products over services. After a record 2013, China is on track to push the US off its perch as the biggest trading nation, a position it has held for more than six decades.
Given this rate of economic growth, the Chinese market is a honeypot for US CMOs, some of whom have played it well there while many others have lost sales and reputations. For example:
- When US electronics retailer Best Buy imposed its Western retail model on the Chinese consumer it cost the company its business: all nine of its branded stores closed, leaving the company with huge debts – redundancy payments, early exit of store leases, cancelled supplier contracts – not to mention the reputational damage yet to be quantified.
- Mattel's famous Barbie doll did not appeal to the Chinese market's conservative, family values, with shoppers wary of buying sexy dolls for their children. The company spent $30 million on a flagship store in Shanghai but closed it two years later due to poor sales and bad press.
- After 37 years in China, Revlon recently announced its retreat from the market due to falling revenues. Compared with Western cosmetics companies, Revlon did little brand marketing, relying instead on word of mouth. Combined with its apparent reluctance to invest in developing products specifically for Chinese women – skin whitening creams and increasingly popular anti-ageing products – it is now confronted with writing off this market development investment.
- Deal-of-the-day website Groupon entered the Chinese market in 2011 and, despite the country's flourishing economy, its revenue in the country comprised less than one per cent of total global income six months later. The locals' complaint? US executives were monopolising the operation and not listening to the suggestions of the Chinese staff.
- NuSkin, the US direct-selling cosmetics company, has been broadsided by the Chinese government's allegation that it operates an illegal pyramid scheme in the country without a licence. Backed by a government investigation and a state media campaign, the approach seems to replicate a familiar pattern for global companies in China (Apple, KFC, Walmart) over the past 18 months.