What marketers need to know about China's economic slowdown

We’re only one month into 2016 and the entire world’s economic outlook is being shaped and questioned because China is enough of a superpower to dictate such a ripple effect from its economic downturn.

The precarious nature of China' economy leaves many questions unanswered for both Chinese brands looking to expand globally and Western brands wanting to benefit from the scale of such a huge population.

One of China’s most notorious brand exports is Alibaba. The internet giant released its financials this month and bucked the wider economic woes, posting a 32 per cent revenue growth in the final quarter of 2015.

With headlines consistently mixed around what will happen, what does this mean for marketers in China and globally? We asked CEOs from the China and APAC region what marketers should be thinking about.

Tom Doctoroff, CEO Asia Pacific, JWT

In China, multinational manufacturers are confronting a first-in-a-generation structural slowdown. Vigilance is in order. Panic is not. The bottom will not fall out of the market but some sectors may enter a state of suspended animation.

Chinese consumers, even the most upwardly-mobile ones, are cautious even in the best of times. And China's millennials, the so-called "Post 90s" cohort, are a particularly wary lot. For the past decade, more than seven million people have entered an increasingly tight job market every year.

However, let's keep in mind a couple reassuring facts. For the past several years, incomes of mass market consumers, particularly in lower-tier cities, have risen. This is one reason why Chinese exports are no longer as competitive as they were five years ago. And the slowdown will affect geographic regions differently.

Given these cross-currents, we should expect: First, "high involvement" categories which are hallmarks of middle class arrival - cars, premium fashion, watches, foreign travel, premium furnishings, high-end home entertainment equipment - will be significantly impacted. Until the economy finds its equilibrium, purchases of these expensive items will be considered particularly "risky".

Publicly-consumed goods that both project status and are not prohibitively expensive will bounce back more quickly than big-ticket items. These items are premium but are not particularly high in terms of out-of-pocket cost. Italian restaurants, French wine and luxury accessories for gifting will suffer less than automobiles, upscale sofas and $10,000 luxury bags.

Secondly, unless economic winds worsen dramatically, sales of mass market brands should be relatively stable. During the first six months of 2015, Anta sports shoes enjoyed a +24 per cent increase in retail turnover.

However, there will be a flight towards value. Multinational marketers must resist the urge to compete based on price. Local brands boast the scale to operate at low margins and regard "cheap" as a competitive advantage. International brands will never have the operational resourcefulness of mainland players to win a low-cost game.

International brands must recalibrate their price-value equation. Focus should be on external payoffs, rather than internal satisfaction or release. In a back-to-basics environment, celebrating indulgence is risky. Premium yogurt should focus on “delicious digestion that gets you going” rather than pure taste satisfaction.

Finally, the importance of digital channels will continue to proliferate at an accelerated pace. The Internet provides "radical transparency" of both price and value. Chinese consumers will invest more time searching for information, even for relatively low-involvement categories such as cosmetics, sanitary napkins and apparel. Marketers should align "top down" brand messages with "bottom up" social media and e-commerce strategy. The latter should skillfully leverage online opinion leaders and promote advocacy through focused user generated content.

Across China's unsettled commercial landscape, marketers must avoid knee-jerk despair. Now is the time to commit to long-term thinking. China remains a huge and promising market. The country's consumer class has achieved critical mass, but brands need to work harder to calm the nerves of disoriented shoppers.

Torben Pheiffer, group managing director, Publicis Sapient China

While the stock market is taking a visible hammering, the future of the real estate markets and the extent of GDP growth contraction remains speculative. On the surface, it doesn’t seem to be having a big effect on the average Joe and Jane on the street. Anecdotally we’re not seeing any visible change in footfalls on Shanghai’s shopping streets and 2015’s 11/11 (the world’s biggest online shopping event) was yet another record-breaking year in terms of consumer spending.

The average consumer is unlikely to be heavily invested in the stock or real estate market so they shouldn’t be feeling a direct pinch. I think the super-rich and the upper middle classes are probably the most exposed, which means luxury goods,and big investment items might well be starting to feel an impact. While some industries remain robust (e.g. travel and hospitality), others are seeing challenges (FMCG). The economic slowdown is contributing to this but it is also a result of market saturation and increased competition over the last few years, as strong local brands have emerged and more and more international brands have invested in China.

It’s still relatively early days so people are being cautious and there’s definitely some market skittishness, but so far we’re seeing an increase in budgets from our house accounts and our steady relationships.

What we are seeing, however, is two changes in brand spending behavior. The first is greater attention being paid to return on marketing dollars, and the second is an investment in delivering consumer experience, value, service and utility – all driving to commerce – not just marketing messages.

If the downturn does start to impact a brand’s target consumer, the conversation is more likely to turn towards how they retain the people that are buying. Targeting and loyalty will become essential, so data driven marketing and CRM is going to play an ever increasing role.

Technology and innovation is going at a crazy pace here and consumers are becoming more sophisticated and starting to demand more from brands. The concept of end-to-end design and thinking about customer experience really didn’t feature prominently two years ago. It’s become topical, not just with multi-nationals, but with local Chinese brands too, as they start thinking about going global.

Chinese brands with global intentions aren’t motivated by a local market slow down. They want to reach international markets because that’s the logical next frontier for them.

While we do multinational work in China, increasingly we’re engaging with Chinese brands going global. They are established and strong Chinese brands, with good local revenue growth and their next opportunity is the international market. They want to become premium brands in Europe and North America and the other BRIC countries.

Danny Mok, CEO of Leo Burnett China

The spending power and consumers’ confidence in top-tier cities will drop a little bit. It would be more difficult to win over consumers, especially for premium priced brands and products.

Hence, global brand/marketers should be more conservative in their forecasts and be prepared to deliver more consumers’ benefits to justify their premium pricing. While RMB would likely continue to depreciate slowly, this will go hand in hand with the central government's policy to stimulate domestic consumptions. Overall speaking, local brands would be more competitive and could fully leverage their stronger channel power in lower-tier cities that would pose additional threats to global brands/marketers.

In my opinion, the China economy would not crash: the growth would slow down but it is still going to be better than most of the markets in the world. Also, after close to a decade of high-speed growth, most of the local brands/marketers have never faced a slow market. Would they have enough experience to respond to the changes? This is a question mark and it gives an edge to global brands/marketers who have the experience of having operated in different markets in the world where they could borrow relevant experience to adjust their business strategy in the changed Chinese market.

Ad spend has already been showing decline since the mid of 2015, it is anticipated that further decline would happen in 2016. The switch of ad spend from traditional media to digital / new media would speed up and marketers would demand creative and innovative advertising formats more than ever. While marketers would be more cautious in committing to long-term, large-scale media buy, they would be a lot more interested in exploring short-term, guerrilla marketing with more measurable ROI.

Charlotte McEleny

I'm The Drum's Asia Editor, charged with finding all the interesting industry news and insights from the Asia Pacific region.

When I'm not writing about this diverse and innovative region, I can be found eating Singapore's incredible food.

All by Charlotte