Smarter marketing and investment in communications is helping local brands fight back against the multinationals. Elspeth Cheung, Global BrandZ Valuation Director at Kantar Millward Brown, explains
It’s easy to be bamboozled by technology but the tech sector rarely tells the whole story. If we look at the tech sector we might observe that global brands – China aside – are steamrolling all before them.
Google, Apple, Microsoft, Amazon and Facebook are the Fearsome Five and can appear to represent the forward divisions powering a multinational take-over of the world.
But the truth about global vs local is actually very different from what is often reported. In fact, in almost all sectors outside tech, the power of local brands is growing year on year.
The latest 2017 BrandZ Global Top 100 shows that in 2006, China had one brand in the top 100. Today it has 13, valued at a total $406bn, a 937% increase in value by brands that are mostly focused on their home market.
India’s BrandZ Top 50 ranking tells the same story. In 2014 there were 15 multi-national owned brands in the Top 50, that has fallen to 12 in the latest 2017 report and we expect this trend to continue.
The reason for this is three-fold:
Firstly, local brands are investing more in media, which is helping to boost their image and salience. In China, we find that the top 15 advertisers by spend are dominated by local brands. In 2013, eight of the big spenders were multinational advertisers, in 2016, the data shows this figure had fallen to three.
Multinational brands operate in space where failure to deliver immediate financial results requires cutbacks or at least diversion of budget to other markets. This leaves the way open for more local brands to boost their presence to the point where Chinese brands have now overtaken multinationals for Brand Power for the very first time in the seven years that BrandZ has been tracking local brands in China.
Secondly, local brands are managing to appeal to key groups and build their meaningful difference much faster than multinational competitors. They do this via cultural messages that can be more nationalistic than those that foreign-owned rivals can credibly offer.
In India, for example, Patanjali – an Ayurvedic FMCG brand – has used the power of its purpose to create a healthy society through Yoga and Ayurved to grow incredibly rapidly since it was founded in 2006. In the last eleven years, it’s boosted its Meaningful Difference to 128, where 100 is the average brand.
Thirdly, we see that local brands are better able to disrupt their markets because their insights are likely to be much closer to the needs of consumers, particularly to new-to-market groups.
Telecom services provider Jio is a good example of a brand that has become known for its disruptive innovation and clear purpose. It launched its first services last year and already indexes 117 on the measure of Brand Power, a score that compares with global behemoth Vodafone’s 132. Jio is currently ranked as the 11th most valuable brand in BrandZ India.
It has done this by initially offering free minutes and data to consumers in India, including the rural areas that had been under-served by existing providers, carving out a new market and creating a new mobile power brand.
Such successes are driving a cultural change in key markets, whereby multinational brands are no longer seen as the place for aspirational consumers to shop. Part of this in markets such as China and India is driven by national pride but it’s also a wider realisation that innovation is now longer simply something that only happens in the US or Europe.
The realisation that China, for example, is now perceived as Innovative – a score that increased from 66% to 72% between 2013 and 2015 in six markets outside China – and that China is also perceived as increasingly Creative – a metric that 40% of 18-35s agreed with in 2015 – is creating a platform for these local champions to also become players in other markets.
That takes the scale of their challenge beyond simply providing multinational brands with real competition in their home markets. Even in the tech sector the power of Chinese brands is providing new competition for the big US players, particularly in emerging markets, where their cost-effective smartphones, for example, are taking an increasing share of the volume market. Chinese brands have been very successful at leveraging technology to transform themselves from imitators to innovators, making them truly equipped to take on the global players.
The true scale of the threat from strong local brands is not just that they make it more difficult for multinational brands to win or retain share in their home markets. The real long-term threat is that their home markets also provide a base from which they can develop into multimarket competitors.