Tom Doctoroff, Greater China chief executive officer of J. Walter Thompson, and author of the book Billions: Selling to the New Chinese Consumer, delivered an instructive presentation at the GroupM/CCTV CEO Summit, “Winning in China.” His proposition was that in order to fight back against low priced local products, Multi-National Corporations (MNCs) should “brand down,” allowing the halo from the premium brand to encompass other lower-priced variants.
Tom reconfirmed the fact that Chinese consumers still tend to trust MNC brands more than locally produced goods and services, but he highlighted the trade-off between scale and margin facing the MNCs: the broader the scale, the lower the price needs to be to get less prosperous consumers to buy the brand.
Some MNCs have lowered prices by decreasing unit sizes, but others have chosen to achieve lower prices by reducing product quality. Based on his many years experience in the Chinese market, Tom cautioned against the latter strategy, warning that the Chinese are discerning consumers who will soon identify a drop in quality.
As an alternative to reducing quality and diluting the overall brand image, Tom proposed four different strategies to brand down:
Clearly separate differentiating needs from generic needs.
Tom described Colgate’s success with the branding down strategy. According to Tom, Colgate achieved success using a branding down strategy, by first introducing Colgate Total, which offered 12-hour protection against cavities, gingivitis and bad breath. Subsequent introductions included the Colgate Strong and Colgate Herbal lines. Each variant sold at a different price point, but all were premium compared to direct competitors. The other example cited was Nokia’s introduction of the 1600, which retailed for substantially less than the top-of-the-line mobiles, on the basis of being a slim and simple phone.
Brand the benefit
Few U.S. consumers would recognize the image of Buick in China. It is an aspirational brand, vying for top dog position with the Audi A6. Buick sub-brands are marketed to separate audiences. Regal targets the winners, the ones with “conquering spirit” who have made it to the top. Excelle, on the other hand, goes after those who are on the move, applauding those who actively play the game.
Expand the brand portfolio
As Tom suggested, this strategy requires a strong brand to start with. In this case he cited Olay, which markets its Regenerist Intensive Cell Care line at a 200 RMB price point. At least ten other brand variants exist, some selling for far less than Regenerist, but even with a minority of the volume, Regenerist gets more than its fair share of spend. Again, each variant is sold at a premium to direct competitors, reflecting the Olympic status of the Olay brand in China.
Maximize the perception of public consumption first
The Chinese belong to a social culture, unlike the individualistic culture of the West. Recognizing this, Pizza Hut first introduced the Chinese to the informal dining experience in its restaurants (substantially adapting their menu to meet local tastes), and then rolled out delivery to extend consumption to the home.
While none of these strategies are novel, they make eminent sense in a country like China, where brands are relatively new to people. One could argue that in markets that are more brand-savvy, branding down is far less likely to be successful.
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