Brand success in China lies in urban middle class, says 2017 BrandZ report

The Chinese urban middle class is key to brands' success in China

China brands catering to the urban middle class have posted impressive performances, with technology and retail jumping 16% to $163.7b and 22% to $74.2b respectively, according to BrandZ Top 100 Most Valuable Chinese Brands report.

Education and travel agencies showed the fastest growth, surging 46%, but still pales in dollar amount to technology and retail sectors.

Newcomer travel agency brand Caissa (79th) has seen success from the strategy of focusing on going premium to attract wealthier middle class consumers, identifying a niche market of travellers looking for a refined experience.

Overall, the top 100 most valuable Chinese brands have grown 6% to hit $557.1b in brand value, with technology, banks and telecom providers leading the brand value contribution. Tencent continues it reign as China’s most valuable brand, rising 29% to $106b.

Technology brands continue to lead the pack, as three technology brands were in the Top 20 Risers listing, reflecting the centrality and advanced adoption of technology in Chinese life.

Sina (61st), a web portal, and NetEase (31st), online and mobile game maker, were the two other technology brands in the Top 20 Risers listing besides Tencent. Sina’s brand value surged 43% to $900m while NetEase jumped 36% to $2.6b.

Sectors dependent on traditional economy have seen a decline in brand value, with sectors like banks, insurance, and oil and gas seeing a 6% drop in value. There are exceptions to this trend, as alcohol, food and dairy sectors’ marketing activities by individual brands helped curtail the sectors decline.

Baijiu, China’s rice wine, for example, expanded distribution and adjusted pricing and marketing to reach a broader audience, allowing them to make up for decline in sales after government measures reduced demand for alcohol at official events. Moutai (9th) broke into the top 10 for the first time, increasing 41% in value.

“China has come to terms with a new normal for its economy but there are still massive opportunities for strong distinct brands to address the aspirations of the rising urban middle class and drive superior value for shareholders. The strong brand value growth we have seen this year in the technology, travel and education sectors demonstrate that brands that clearly meet a defined consumer need will thrive,” said David Roth, chief executive officer EMEA and Asia, The Store, WPP.

China brands continue their long march overseas, with many top technology brands deriving a significant proportion of their revenues from sales abroad. Lennovo, which was named best brand at building global awareness in another BrandZ report , had the heaviest export-focus, with 72% of revenues gained from overseas. Huawei and ZTE where next with 58% and 47% of their revenue derived from outside China respectively.

Global perceptions of Chinese brands are changing according to the report, and will continue as Chinese brands seek to boost overseas growth via organic expansion, acquisition and marketing activity. Chinese brands have been on an acquisition spree in 2016, such as Haier’s purchase of GE appliance and Ctrip’s acquisition of Skyscanner.

“This year we have seen many firsts. With China emerging as a technology powerhouse, it is fitting that in Tencent we have the first brand from China to break the $100 billion brand value barrier. The Brand Power - which tests consumer inclination to select a given brand - of Chinese brands continues to grow and for the first time has started to surpass that of multinational rival brands. We expect this trend to accelerate in future years as Chinese companies realize they need to build differentiated brands to command a premium in a competitive market, where penetration led growth is plateauing off in many categories.” said Deepender Rana, CEO, Greater China at Kantar Insights.

High-value brands continue to beat the market in delivering better shareholder returns, with the BrandZ China Top 100 Portfolio outperforming the MSCI China Index, with a 76% surge since July 206, compared to a 6% increase for the MSCI China Index.

Millennials are increasingly important for commercial and brand success in China, with increasing their loyalty requiring understanding of the attributes they seek in brands. Millennials tend to favour brands that are famous or trendy, with mobile handset brand OPPO being the mot successful at increasing millennial loyalty by 157% since 2014.

The report by WPP and Kantar Millward Brown, utitlises the same methodology in calculating the BrandZ Top 100 Most Valuable Global Brands report. The China report combines financial data from Bloomberg and Kantar Worldpanel with over 400,000 Chinese consumer opinions. Brands must meet the criteria of being originally created by a Mainland Chinese enterprise, be publicly traded and banks must derive 20% of their earnings from retail banking.