Beyond 1.3 Billion: An Excerpt from China CMO

The recently published book China CMO features interviews with 17 brand marketers who have no been actively working in the country without much reporting on the insights and learnings they have taken away from doing so. The below is an excerpt from the opening chapter.

China CMO cover

Pursuing the China Dream

To kick off 2013, China Central Television (CCTV) took the show on the road to ask office professionals, street cleaners, entrepreneurs, migrant workers, and members of the

CPPCC one question: What do you lack in your life?

Some lacked material things, like money. Others pointed to a more spiritual lack, such as a lack of energy or love. Still other responses fell into the transcendental school of thought, saying “Lack and no lack are all in the mind.” And yet some people answered that they were completely content with what they had.

In a country of 1.3 billion individuals spanning much more than just a geographic, socioeconomic, generational, or historical spectrum, how could anyone even begin to capture all the degrees of separation in such a question?

Despite the vast levels of granularity that make up a complex China, the dreams and pains of the Chinese have more in common than you’d think. So when you go out and ask a question like “what do you lack in your life?”, you may find that a 31-year-old man from Shanxi Province living in Shanghai who lacks home ownership and a spouse who is experiencing a similar kind of loneliness as an 83-year-old Shanghainese grandmother who lacks stable community after being uprooted by gentrification. The challenge for brands in China these days is not just meeting the lowest common denominator among the Chinese, but having vision above and beyond industry categories to help Chinese consumers reach their highest aspirations and dreams.

At Nestle, that means thinking further than “how can I mobilize Chinese consumers to drink Nescafe for breakfast when there’s not a habit already in place?” What they’re thinking is “how can we make Nescafe a casual and pleasurable experience for individuals at any time of the day?”

Nestle’s Paolo Mercado shares, “Now, it sounds like a very simple thing, drinking for breakfast. But when you’re in China, you realize it really is a long road to when you con- sider the fact that there isn’t even a strong tea drinking habit at breakfast. And so that’s why we are adjusting more towards pleasurable products for casual consumption, for any time of day.”

For Mondelez, it’s not just about getting Chinese consumers to twist, lick, and dunk an Oreo. It’s about fulfilling a universal desire found in any family. Haiyan Wang relates:

“To celebrate Oreo’s one hundred year birthday, we decided to make it a celebration about bringing families together. So we created what we call an ‘Oreo mission’. The mission could be as simple as going to the playground with your kid for half an hour. Given just how fast the pace is these days, it’s a luxury to even be able to spend half an hour with your kids. For example, most days, I leave early in the morning before my kids are awake and return in the evening when they’re already asleep without having been able to spend time together. It's really something deep down that every parent really longs for, to spend more time with the family. So for Oreo’s one hundred year celebration, we wanted to make it about bringing families together.”

There’s an inexhaustible supply of challenges facing every marketer in China. But at the end of the day, the CMOs we interviewed shared with us that it’s not really about the com- petition, cultivating the right talent, managing agency relation- ships, or countless other challenges. It’s a matter of asking:Is your brand culturally relevant?

Gaining Cultural Context: A Brief History of Modern China

It was nearly fifty years ago in 1966 when China underwent a purging of the ‘four olds’ – old thoughts, culture, customs, and habits. The doors of universities and schools were closed, and students became Mao’s ‘Red Guards’ – up until 1969 when anarchy broke out and the young guards were sent to the country- side, becoming a lost generation with no education. The children of the Cultural Revolution have experienced a series of rooting and uprooting of values, and have been likened to ‘immigrants in their own country’.1 For today’s parents, who lived through a period when wearing as much as a necktie was condemned as a sign of capitalism and a statement against the Communist party, it’s hard to imagine how jarring it must be for a mother or father to see his or her children reaping all the benefits of a capitalist society with socialist characteristics just a generation later. Where- as the parents of today’s youth in the West have been adopting brands since the early 1900s, most overseas brands have little to no brand equity among consumers in China. Consequently, foreign marketers in China are finding themselves back at the drawing board to weave together a new hierarchy of values in a way that is relevant to the culture and consumers.

The Spoils of the 4-2-1 balinghou’s

When power was passed from Mao to Deng Xiaoping and China was brought back into the mainstream, a large number of reforms took place. One of the most significant of those which has had a definitive impact on China’s trajectory is the One Child Policy. Originally put into place in 1979 to ease China’s economic, social, and environmental plights, the One-Child Policy has born a kind of chicken and egg conundrum today. Out of the One-Child Policy has come the 4-2-1 family structure, meaning each child has two parents and four grandparents who lavish all their attention and resources on him or her. But with all the spoils of being only children comes a tremendous pressure for every only-daughter or only-son to be the best of the best in all he or she sets out to do. With families only having ‘one shot’ to cultivate a child prodigy, all finances and energies are funneled and invested into the only child, with the expectation that he or she will be number one. That means every only child is expected to be at the top of his or her class, get into the best universities, obtain bread-winning jobs, marry a cream-of-the-crop spouse, and own a home.

Fast forward to now: for China’s post-80s generation, also known as 八零后 (balinghou), the direct and indirect effects of the One Child Policy are felt in a very real and tangible way. On the one hand, the balinghou generation that makes up China’s urban middle class is chided for its selfishness and insatiable appetite for material pursuits, whether it’s the newest smart phone, the most expensive fashion labels, or overpriced cups of coffee. Visa’s Vivian Pan says, “For those in their early twenties, they are not afraid of spending tomorrow for today. They may make about RmB 3000 a month, but they’ll use half a year’s salary on a bag or a dress, and that’s ok with them.”

On the flipside, a greater part of China’s post-80s generation is pulling the weight of heavy societal burdens and feeling a sense of hopelessness as they hack through the forest on their own. As China’s property bubble balloons, China’s urban middle class is finding itself way beyond the times of the iron rice bowl as they tread water to gain security. With a 100 square meter apartment costing 40 years of annual income, the prospects are dishearten- ing for the balinghous.2 As a result, many of China’s youth have little choice but to settle in affordable yet shabby and cramped living spaces.

One balinghou named Bryce shared with us:

“What’s the greatest challenge I face? With the rising housing costs and owning a house being the standard for any man that wants to get married, I feel so hopeless when I think of the future! I mean, what’s the point? Parents pour all their money into raising a child and helping to buy a house for their child, and the children need to take out housing loans to secure a home in order to marry. But what about after marriage? What about the costs of raising a child, or if my parents become ill due to the pollution? What about the pursuit of higher education? If my funds are depleted, where am I supposed to find the money to foot the bill?”

The Grey RMB

The improvements in health care and overall quality of life will have a startling t on China’s demographics over the next ten years. By the year 2020, according to McKinsey, there will be nearly 130 million more senior citizens in China than there are today.

Traditionally, this category has had very little impact on marketers. The elderly in China, thanks to living through the hard times of the Cultural Revolution, have not been big discretionary spenders, preferring to save rather than spend.

Yet by 2020, this will have transformed. The new generation of elderly people in China are more likely to spend like the younger generations. The South China Morning Post looks a little further ahead to 2050, when one in four people in China will be over the age of 65.3. They foresee opportunities in travel, trans- port, cosmetics, catering, health care, and more. They point to Japan’s example where there was a similar development curve and an aging population over the course of the country’s emergence as an economic powerhouse.

China 3.0 – Are you ready?

There is a grab-bag of terms that speculators, academics, and every other China expert use when theyproject China’s future, such as high inflation, slow stock performance, the slowdown of GDP growth,and increasing public debt. As China goes beyond Mao’s communist revolution and Deng Xiaoping’smarket revolution, a mixed sense of careful optimism and uncertain anticipation hangs in the air. With lofty goals for growth in the years ahead, just how the country grapples with growing pains such as a yawning income inequality gap between urban and rural regions, an aging population, a gender imbalance, and hazardous pollution will determine the course of China’s future. But what implications do all of the buzzwords have for China’s 1.3 billion individuals? And how can marketers position themselves to be an integral stepping stone in consumers’ lives?

China is often likened to a union of many nations encompassing all kinds of extremes. Capturing those extremes calls for a keen eye of observation tuned to the behaviors and preferences of the Chinese, which can seem contradictory at times. As Marie Han Silloway of Starbucks remarks, “China is like Brave New World meets the Industrial Revolution because on the one hand, you’ll go to a lower tier market and people are still farming, but then they’ll pull out a smartphone. That to me is exactly what China is about.”

As the country undergoes rapid urbanization and the largest internal migration history has ever seen year after year, companies are finding that their long-standing global strategies need more than just a few tweaks to keep up with China’s massive shakeup.

For AB InBev, covering so much ground in China requires a big picture strategy with tactical execution. It holds true for trillion) in comparison to RMB 1 trillion (USD 160.5 billion) in first tier cities.

Visa’s Vivian Pan speaks to the breadth of the country, likening China to “a combination of a few rent countries with rent regions and rent products. When you consider the FMCG products in second and third tier cities, you’ll see brands that you’ve never seen in Shanghai. It’s a huge country and if you want to build a national brand, you really need to spend a lot. It’s not just one year of spending; it’s continuous, year after year.”

Knowing just how to devise a ring that straddles the line between customization and scalability in a country as diverse as the Mainland is a balancing act. But many of our interviewees could see an increasing shift toward shared similarities over differences when looking ahead to a future China. Speaking to scalable solutions for Coca-Cola in China, Stephen Drummond explains, “Of course, there are regional differences, but there’s a lot of shared history, experiences, and culture. China is increasingly becoming quite national.”

For Mondelez, finding those consistencies starts with knowing where their consumers are. HaiyanWang shares, “As a marketer, we always try to approach and understand consumer behavior. In a way, there are a lot of consistencies across rent markets, no matter if it's a mature market or developing market. There are probably more similarities than differences in terms of how consumers perceive new things and how willing they are to try a new experience.” “I think the key to unlock those shared common points regardless of where you are always starts with a very good understanding of the consumers.”

No matter what the industry, product, or strategy, all of the CMOs we spoke with were united in their mission: to know where their consumers were yesterday, where they are today, and where they’ll head tomorrow.

The Cost of building and establishing brand equity in China

China is on the agenda for many global brands, and there’s no denying the importance of succeeding in this market. When asked if they receive a fair share of global funding from head- quarters, our interviewees responded with a chorus of nodding heads. Well down the path of expansion to 1,500 stores by 2015, Starbucks has a growing presence across 45 markets in China to- day. “It has been very publicly stated that by 2014, China will be our second home market, which means we aim to be the largest home market outside of North America. So from an investment and focus standpoint, our whole leadership team is very supportive of what we need and what we need to do – so that part takes no convincing,” says Mary Han Silloway of Starbucks.

While many overseas brands have echoed the same goals as Starbucks – to make China one of the crowning jewels in their global portfolio – we have seen the rise and fall of multinational titans all too often. Just a year ago in 2012, few would have dared to contest Apple’s rise to the top in China as a dominant player in the market for smartphones, but the maker of the iPhone has been eclipsed by Samsung and other local brands, bringing it to sixth place in terms of share for China’s smartphone mar- ket.6 Setting high ambitions to make China the biggest market in terms of overall revenue must be backed with a long-term commitment to China and its consumers. Volkswagen’s Melissa Bell shares, “We can very easily demonstrate the importance of the China market from the sales potential, but we also have to be able to demonstrate the future potential. Sometimes, there is the assumption that ‘our sales are going so well that you don't have to invest’, but my view is that we have to continue building relationships with consumers in an extremely competitive market like China. So it is really about having dialogue and communication to educate the global team about the future value in China, where our current weaknesses are, and what we have to do to overcome them.” In 2012, the German automaker sold four of China’s top ten selling cars to reach 14% market share.

One of the greatest challenges that marketers face is the cost of building and establishing brand equity in China. While global headquarters may have deep pockets for funding China growth, knowing just how to allocate and stretch resources is vital. De- spite China’s unique history and wide range of consumer behavior, business fundamentals still apply. The key is to tailor global solutions to meet different expectations rather than to reinvent the wheel.

More information on China CMO can be found at the book's dedicated website.

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