Poo-ne calls?

I am not sure about you, but I have always thought that toilet stalls (and lifts, for that matter) were "quiet zones" where any sort of conversation with your neighbours was taboo.

However, in China, it seems that no visit to the traps is complete without a phone and pre-scheduled conference call.

I recognise that the Chinese are not so sensitive to preserving their (or your) personal space, but full volume phone calls whilst relieving one's self is something that after 11 years in China I still cannot come to terms with.   Add smoking to the mix (despite the signs forbidding it) plus the corresponding spitting on the floor next to where they are sitting (do they do this at home too?) and you are left with a most unpleasant bathroom environment, even in modern Grade A office buildings and 5 star hotels.

I am wondering now if "Poo-ne calls" are unique to China or if this is common elsewhere?  Either way, it is one of the few memories that I will happily leave behind in China when I one day return the UK.

HOW LONG CAN B&Q LAST IN CHINA?

Over the last 10 years I have watched B&Q grow from a couple of stores in Shanghai to a National chain of superstores.

Their growth fed on the property bubble and, for a while, their stores were busy as the emerging white collar  middle class enjoyed the BIY shopping experience.  (In China,  "Do it Yourself" is an alien concept, but "Buy it Yourself" has resonated in a land of fake or low quality decorating materials...and then they pay someone else to actually do all the work using the materials they have bought).

However, today, their stores have more staff than customers.  And yet the staff are unhelpful and lazy.  Yesterday I had two painful conversations with two different B&Q assistants in the space of 5 minutes:

1.  When I asked a nearby assistant if they had a smaller size metal clip than the one I had found, she said "No!". Then I eventually found it myself!

2.  When I asked if a demonstration fan unit could be switched on, she said no because there was no power. I then looked behind the machine and showed her that it had simply been unplugged.   She just shrugged.

With this complete disinterest in serving the few remaining customers that B&Q still has, I question how much longer they will last in China.

Their smarter global competitors, Home Depot and OBI, saw the writing on the wall years ago and exited before they grew past the point of no return.  But B&Q may now be in that unfortunate position of being too big to leave - or at least too big to leave without their Kingfisher parent company shareholders asking the Board some very embarrassing questions.   Let's wait and see.   On the basis of what I can see, it may not be a very long wait.

Chinese Expressions: Signposts for doing business in China

This is an article I wrote for the British Chamber of Commerce in Shanghai

Baijiu Bubble Burst. China’s luxury goods next?

When China’s new premier, Xi Jinping, walked smiling on to the stage with the rest of China’s new central leadership team back in November, few people would have anticipated the immediate consequences to the Baijiu industry.

Baijiu, China’s home-grown spirit that, incredibly, accounts for over 35% of global spirit sales (whisky is just ~10%), will see an unprecedented collapse in its volumes and profits.   The staple drink of China’s banquet-loving Government officers and State Owned Enterprise management teams has been hit by a ban on excessive expenditure by public officials which has included purges on everything from entourages, fresh flowers, entertainment performances, gifts, and lavish meals.

It is these last two (gifts and meals) that will deal Baijiu’s pricing and volume a double blow – just before the Chinese New Year gifting period when Baijiu is traditionally one of the most favoured presents, with gifting the major seasonal driver of off-trade (retail) spirit sales. 

 On-trade (bar, restaurant, nightclub) sales of Baijiu had already been hit by the reduction in corporate entertaining in the run up to the Communist Party Congress/Leadership Change, but rather than recover – as industry observers had anticipated – the contraction appears to have accelerated since Mr. Xi came to power as he seeks to make graft/corruption reduction a high profile early win to boost the flagging popularity of the Chinese government amongst the increasing vocal people of the People’s Republic.

We at Concise China are seeing the effects first hand by visiting retailers. Pricing of Moutai and Wuliangye (another famous Baijiu brand) at major retailers in Shanghai is down by USD$100/bottle (not a typo)!  With the pricing in a downward spiral and no end in sight, it may not be over for the beleaguered stocks which have seen >USD$30Billion in value wiped out since the leadership change.  And all of this is BEFORE the inevitable poor sales results of the critical CNY period are published next month!

However, I don’t believe that Baijiu will be the only casualty of this (permanent?) China sea change.  The astonishing growth of luxury goods in China (now the world’s number 2 market after Japan) is also driven by gifting. 

Highly visible gifts can be spotted, as was shown by the blogger who recently published photos on line of a senior local government official wearing a variety of Swiss watches at various public meetings! (Despite the watches’ value amounting to many times his annual income.)  The official is no longer in his job.

 

So, who else should be bracing themselves for the fall out?  I believe the following are the most exposed, in no particular order:

·      Luxury bags

·      Swiss watches

·      5-Star Hotels

·      Luxury restaurants

·      Premium spirits, especially Cognac

·      KTV (Chinese karaoke where most corporate entertainment and ‘deals’ are done)

·      Golf Clubs (some of whom have been charging over $200,000 for memberships, often paid for with company money or ‘gifted’)

·      Luxury houses (many of which have been illegally registered by government officers to names of other people to avoid discovery)

Whatever happens, China’s gift-giving, graft-based commercial and political environment has changed for good.  How deeply these reforms become ingrained in the slow changing Chinese cultural psyche remains to be seen.  But now would be a prudent moment for luxury goods companies and related industries to recalibrate their China expectations.

Proud to be British

One of the disadvantages of living in China is missing some of the truly great TV that the UK produces. Whilst dodgy DVD’s let some of this through (eg: I loved Downton Abbey, although was Series 2 dumbed down a bit?), there is often a long time lag to us seeing this in China.

A current UK TV series that I was completely unaware of until this week is Twenty Twelve – a brilliantly insightful piece of satirical comedy that follows the imaginary trials and tribulations of the event “Deliverance” team behind the London 2012 Olympic Games. (Hugh Bonneville, the actor who played the Lord of Downton Abbey, coincidentally heads the cast of this series too)

Having organized my share of events in the past, some of the situations and scenarios that Twenty Twelve dramatises are totally believable, and the dead pan delivery of the script by the superb ensemble cast make it laugh-out-loud funny (which is OK at home, but less appropriate on a British Airways plane when everyone else is asleep!).

I do not think there is ANY other country in the world that would allow/accept/tolerate a publically-funded organization (the BBC) making a comedy about how many mistakes and cock-ups a country could possibly make in the lead up to the most prestigious sporting event on the planet. What makes this even more astounding is that Seb Coe, the head of the actual London Olympic Organising Committee, even agreed to play a cameo role in one of the episodes, and the antics/opinions/idiosyncrasies of the colourful London mayor, Boris Johnson, is a consistent humorous theme running throughout every episode.

This really is TV at its best - and something that makes me proud that I come from a country as creative and self-confident as the UK.

Thank you BBC for making this, and thank you BA for sharing it - as one of the official sponsors of the games, I would have understood if BA had chosen not to.

TWENTY TWELVE

http://www.bbc.co.uk/programmes/b00yw1t9

CRM finally comes of age in China

20th March 2012 may be an important milestone in the development of China's CRM industry. In the ten years that I have been involved in trying to get companies in China to do CRM right, I have been continually undermined by the prevalence and low cost of illegally obtained and resold customer data.

As a result, only the most ethical and visionary companies have taken the time and trouble to build databases of their own customers through traditional means to cultivate powerful long term relationships. Everyone else has used mass spam email and SMS communications in a random, shotgun approach. It was only because of the sheer scale of data freely available in China that this approach had any effect - if you throw enough mud, some of it will stick.

But today, it has emerged all over the news wires that one of Chinas largest and most well known data companies (owned by Dun and Bradstreet, no less) was raided by the police and shut down for allegedly using and selling illegally obtained data (see separate article here: http://www.chinadaily.com.cn/cndy/2012-03/20/content_14867153.htm )

Whilst bad news for New York-listed Dun & Bradstreet, this is great news for those of us who believe that CRM is a strategic play, not a tactical one - even in China.

How to understand the purchase behaviour of Chinese consumers in just three characters: 性价比

I have always found it interesting that no matter how wealthy a Chinese consumer may be, they are insistent on trying to get a better deal on most of their transactions. Whilst I knew this was cultural, I never truly understood it until I learned the three characters 性价比 (xìng jià bǐ). Literally this translates as:

性 quality

价 price

比 compare

The Chinese apply this quality-price ratio assessment to every purchase decision, no matter how cheap or how expensive the item is.

If a Chinese consumer (for example, my wife) believes that a silk scarf is over priced in a market at 50 RMB she may argue/negotiate relentlessly for what seems like hours until she achieves a price that provides her with sufficient xìng jià bǐ. And yet if a Chinese consumer (for example, my wife again) spots something in a London antique shop that she believes offers xìng jià bǐ, she will buy it in a flash, even if the cost is 100 times that of the silk scarf.

It is essential that brand owners and marketers truly understand this when making pricing decisions in China. It is rarely relevant what it costs to make, it is simply about what value the Chinese consumer places on that item, and if that value exceeds the selling price. If it does, it will sell.

Consequently, the importance of the back story and brand heritage of international brands cannot be understated - if a consumer feels they are buying into a tradition or intangible benefit that cannot be found in any other product, then the more usual price comparison becomes an irrelevance in the purchase decision.

xìng jià bǐ is all you need.
(And you thought marketing in China was complicated?) :-)

How to market a US$ 1 million house in Shanghai

This picture taken today shows a young and enthusiastic real estate agent standing at a cross roads in a Shanghai suburb. He his holding a hand-written sign advertising a US$1 million house nearby.

Contrast this with the US or UK, where properties of this value are advertised in prestige magazines and viewings are carefully selected.

With property prices in China's key cities still massively over valued compared to global norms, the value perception is such that a US$1 million house does not warrant any special marketing approach, other than a guy with a sign on the street.

One has to question how sustainable these valuations really are, and whether the Chinese ten year property bubble really is about to finally deflate?

If so, the guy on the street might have to start selling something else - and so will his many friends!

Early Adopters

This picture taken today in a traditional Chinese vegetable market shows a typical Chinese "early adopter/early majority". She has just bought a new 3G mobile phone and is very proud of it.

Her demographic is hardly the target audience for a 3G Smartphone. Her salary is about US$300 per month and I question her need to be "always on" with her social network! But there she is, proudly standing behind her vegetable stall with her unopened 3G phone.

Mobile phones, like many other categories in China, show that the Chinese often adopt products at an earlier lifestage/product maturity. Good examples include Scotch whisky, iPads, Swiss watches, and luxury cars.

One of my Chinese friends has just spent 750,000RMB (over US$100,000) on an Infiniti G37 convertible car. His (Japanese) work colleagues wonder how he can afford it, as in Japan this is the type of car you would buy at the peak of your earnings. But in China, you need this type of car earlier in your career development to show to everyone (especially your peers) that you are one of life's achievers. And what does he do at weekends? he has joined the Infiniti G37 car club, so like-minded achievers like him can drive down China's new motorways in convoy and network with each other at their destination.











So next time you wonder how and why the Chinese are buying up the world's latest technology and luxury goods, remember the middle-aged woman in the vegetable market.

Paying the ultimate price

After the China high speed rail crash tragedy over the weekend, I was not surprised to see that 3 high-ranking officials of China Railways were immediately fired. Whilst this very visible action from the government may go someway to appeasing the masses, it is not the correct reaction. Instead, China should shut down its high speed rail network until every inch of track has been walked, every power unit checked and every signal/safety device tested.

With all honesty, I do not believe that the train crash on Saturday can be said to have been a surprise. Mired in corruption allegations from the start, this visually impressive show-piece of Chinese infrastructure has had a series of embarrassing breakdowns in the last few weeks and so there was a degree of inevitability about Saturday's disaster.

Whilst corruption has doubtless played a part in what is increasingly looking like shoddy construction, it is not the only factor. China has "acquired" immense knowledge and capability almost overnight in many high tech industries, without the accompanying due process of trial, error, learning and refinement. As a result, I believe there is less of an appreciation of the complexities and risks associated with applying this technology. This shallow understanding therefore leads to a blasé approach to construction and maintenance, with a corresponding stretching of safety margins and tolerances.

45 people have now paid the ultimate price on Saturday. I pray that their deaths are motivating enough to ensure that the necessary steps are taken to ensure this will never happen again. But in a country of 1.4 billion and where life is still cheap, I fear that nothing will really change.

Insights or Sampling (Part 2)

On 7th June, I posted an observation about the "marketing" of Tibet 5100 mineral water.

I was fortunate enough to take a trip on the Shanghai-Beijing high speed railway a couple of weeks ago. At prices similar to flights, this is not a cheap experience and some forward thinking brands are already marketing to the captive premium audience in the waiting hall, eg: Cadillac:
















I was interested to note that Tibet 5100 had secured the exclusive rights to distribute a free bottle of water to every passenger. Surely a great opportunity to educate the fledgling brand's target audience on the provenance of this water through some effective display techniques and information leaflets? But no...here is the Tibet 5100 (Premium) mineral water distribution point at Hong Qiao station:
















Someone tell me why no one cares?

Retail Service Culture (or not)

If Retail in China is going to develop then it needs to learn service culture - and quickly.

The rapid growth of TaoBao and numerous other on line retailers will already be creaming off the most discerning, confident and knowledgeable shoppers who shun the crowded malls in favour of the convenience of shopping from the comfort of their home.

I visited a store in Shanghai this weekend with an intention of spending on a pre-researched major purchase. However, when a simple request for more specific details was rejected by the store staff because they could not be bothered to find out, I walked out.

I accept that China does not have a natural service culture, but I have seen first hand that the hotel companies are working hard to train this into their people. Unfortunately, the retailers are not, and it seems they will only learn their mistake when their shops are in future only visited by the simply curious who do not have any money to spend.

Life After iPhone (part 2)

Further to my previous post, my iPhone-less cold turkey experience lasted just 3 weeks!

Yesterday, I relented and so I am now the proud owner of an iPhone 3GS (because I don't like the design of the iPhone 4).

I heard last week from an expert during a research group that "anyone can get addicted to anything that gives pleasure". It seems I was addicted to my iPhone.

If I am not alone in this, then Apple's future commercial success is a psychological and medical certainty.

Life After iPhone

Do you remember when phones were phones?

If you picked up your phone it was because you wanted to speak to someone and your mind became focussed on the job in hand.

The trouble with the iPhone is that it does so many things that it encourages a constant state of partial engagement. Every time you pick it up, you have infinite choices of whether you want to talk, read, socialise, play, calculate, muse, listen, watch or create.

Following an unfortunate event at the weekend involving a sailing boat, a surprisingly rough lake and rather gusty winds, my trusty, well worn and well loved iPhone Mk. 1 no longer functions and I have been forced to resurrect my faithful old Nokia. But in the space of 24 hours I have moved from a state of "How will I cope without my iPhone!" to one of "Will I bother to replace it?". My iPad Mk. 1 does all of the distracting fun things that the iPhone used to do, and does them much better. The only exception is phone calls, which the iPhone was never very good at anyway.

So maybe I am setting a new retro trend: Ditch your iPhone, and go back to using technology that is optimised for a single purpose...

Phone = Phone.
iPad = Fun

Insights or Sampling?

Tibet 5100 is a Chinese brand of supposedly premium bottled spring water. It's brand credentials are compelling, being bottled at source in the purity of the Tibetan Himalayas - the highest source of spring water in the world.

So, what innovative marketing strategy is the company using to highlight the unique attributes of this aspiring Chinese brand to compete effectively with the more established French brands?

Yes - you guessed it...Supermarket sampling of the water, served in a plastic cup.

Despite what appears to be a considerable marketing budget, the company behind Tibet 5100 seems to have forgotten to get a planner involved in their marketing thinking. So, whereas Evian, for example, are selling health and well being with their insightful LIVE YOUNG positioning, Tibet 5100 are instead selling WATER.

Money down the drain.

RETAIL LOYALTY IN CHINA (OR NOT)

A research paper published this month by Kantar has highlighted that grocery shoppers in China are some of the least loyal in the world.

Whilst the research explores deep analysis to try to explain the reasons why, I believe there are three key things that modern trade retailers in China could do to improve the loyalty of their shoppers:


1. STOP FOCUSSING ON PRICE ALONE
Yes, the Chinese are incredibly value conscious. But this is culturally ingrained and so is simply a hygiene factor for success in this market. The major grocery retailers, however, appear to only focus/ communicate this aspect of their proposition. But low prices alone cannot drive loyalty if everyone is following the same strategy.


2. ENHANCE THE SHOPPING EXPERIENCE
Very little attention is paid to the shopping environment and the training of store staff in China. But low prices result in low margins making it very difficult for retailers to invest in the soft stuff that can enhance the shopping experience and so make someone leave the store having enjoyed a positive experience and with the intention of returning again. Whilst the International brands have the best global credentials to be able to own this space, they are also faced with shareholder pressure for profitability that may reduce their ability to implement these initiatives. Best Buy is a clear example of an international retailer who tried, and ultimately failed, to sustain an enhanced customer shopping experience in China for these reasons. Unfortunately, it appears that it may not yet be economically viable to "Surprise and Delight" shoppers in China.


3. STAND FOR SOMETHING THAT PEOPLE CARE ABOUT
The retailers need to become more shopper-centric, and this could be achieved by simply listening to their shoppers. If they were to ask shoppers in China what the single most important factor was in their choice of groceries, the answer would almost certainly be food safety/quality. However, no retailer has yet been brave enough to make this their stated mission.

With China's ineffective quality standards enforcement, a "food quality" brand positioning would certainly be very difficult to deliver. But maybe Private Label could become this differentiator?

Currently, Private Label is virtually non-existent in China, arguably because no retailer has sufficiently invested in their brand to make any product bearing that brand name credible. But perhaps the answer in China is to approach Private Label not as a low cost option, but as a premium option. Tesco Finest in the UK is an example of how high levels of consumer trust in the Tesco brand name enabled the creation of a super-premium range of products selling at prices higher than the established brands. A secondary benefit of the Tesco Finest launch was a halo effect, further enhancing the consumer perception of the Tesco brand.

If Tesco (or any other retailer in China) was able to launch a marketing-supported premium private label brand that guaranteed 100% control of the supply chain from farm to shelf, and therefore of the quality of the product, they would most likely kill three birds with one stone:
• They would credibly be able to position themselves as China's highest quality grocery retailer
• They would secure a meaningful differentiation that would be very difficult for competitors to quickly copy
• They would enhance their profitablity through the sale of higher margin goods, enabling them to invest in the previously unaffordable soft stuff


I don't mean to take anything away from the obvious rigour that has gone into Kantar's (very interesting) research paper. But like many things in China, the answer to the issue may not be that complex. But, as with almost everything in China, actually taking the necessary steps to address and resolve the issue may prove very difficult.

SNAKES & LADDERS

I have come to the conclusion that the main issue with doing business in China is that there are too many Snakes, and not enough Ladders.

A friend of mine has been negotiating for weeks for a deal, and at every step of the way the Chinese buyer has thrown up another "Snake" which could potentially kill the deal. Every Snake brings with it additional costs, additional process and additional time to renegotiate the deal price. All the while, the deal becomes more and more marginal for the seller until such point that one of two things happen:

(a) The seller gives up, and walks away vowing never to trade with the Chinese again

(b) The deal happens, but the seller is so frustrated with the outcome that he vows never to trade with the Chinese again

So if you are seriously contemplating selling something in China that is not luxury goods or exclusive cars, be prepared to lose your sanity, your temper, your patience and your hair.

Only the lucky few find the Ladders.

Five things you need to know about China's inflation

1. It will not go away quickly. China has maintained a relaxed fiscal policy for a number of years with lax lending criteria combined with massive state investment in infrastructure. China's 12th five year plan announced in March shows little sign of any change, with seven strategic emerging industries identified to receive an incredible US$2.1 trillion of investment over the next few years. With this much money in the system, combined with a stated intent to dramatically raise the minimum wage every year, Chinese inflation is here to stay.

2. China's 'Big stick' approach to the problem will not work. As was witnessed by Unilever's about turn last week on planned price rises following their "little chat" with the Chinese National Development and Reform Commission, China is trying to artificially hold down prices. But this control mechanism will only work in the short term before the growing pressure it creates builds to a critical point.

3. It will affect marketing budgets. In the meantime, international companies that market price-sensitive or consumer commodity goods will be forced to look for savings elsewhere to maintain their profitability in China. Marketing budgets are likely to be the first to be reviewed, and so we should all be braced for some belt-tightening in the next few months as the effects feed through to agency and media partners.

4. It will affect product quality. Ultimately, everyone in business needs to make money, and if profits cannot be made at one end of the supply chain, the pressure for cost savings will be pushed down to the suppliers. We know from the Melamine milk scandal in 2008 that raw material suppliers in China can find ways to enhance their profits through the supply of substandard goods - no matter the consequences. It is an economic reality that manufacturers will not continue making unprofitable goods indefinitely and so something will have to give.

5. It will force China to allow the RMB to rise against the US$. For every dollar of trade that China does with the rest of the world, it has to print a corresponding amount of RMB. This ever-increasing liquidity in the system stokes the inflationary fires that can only be reduced by allowing the RMB to rise. While China has resisted the pressure over the last few years due to concerns about exports, increasing domestic demand and a stated intention to focus future investment into higher value-add industries will diminish this argument. It is therefore likely that inflation reduction will become a higher priority for the Chinese government economists rather than export growth, with a resulting assent of the RMB.

Copyright © Campaign Asia-Pacific 2011

Big Stick Update: Unilever postpones price rises

The Chinese National Development and Reform Commission of the Chinese Government has "had a word" with Unilever who have announced the postponement of their price rises.

Now, there's a surprise...

How to Resolve China's Inflation? A Big Stick.

On the radio news this morning in Shanghai was a discussion that Unilever & P&G were to increase their prices in China next month by up to 15%. This reminds me of a news item 2 months ago when Carrefour was blamed by the Chinese Government for contributing to food inflation by over-charging for certain goods. In the Carrefour case, Carrefour was subsequently found "guilty" and fined. I wonder if the Chinese Government are again using their (controlled) media to heighten consumer anger prior to "resolving" this issue with Unilever and P&G through force?

China's rampant inflation is largely of its own making, with loose financial policies stoking an already burning fire. And recent announcements about dramatically increasing the minimum wage over the next 5 years will only make the situation worse. However, expecting manufacturers and retailers to take up the slack is naive, especially the foreign-owned companies who do not have the Chinese financial safety net of being state-owned.

For many years, making a profit was an optional component in the land-grab of building a foreign-owned business in China. But not anymore. With developed economies still underperforming, the China honeymoon period is well and truly over and Global HQs are expecting their Chinese businesses to break even at the very least.

But with margins being squeezed from all sides, FMCG and consumer goods businesses in China are in for a rough ride, and it would not surprise me if we see one or two more big names pack their bags and leave.