KnowThis Blog Postings
- Published on June 15, 2012
- Posted by Paul Christ
Chasing China's Shoppers (Wall Street Journal)
By now, most leading companies realize they can no longer ignore the Chinese market. While it is currently a significant market in terms of the number of customers, its potential to grow in terms of purchasing volume is even more significant as the income of Chinese consumers continues to rise. However, a large number of U.S. and European companies have experienced difficulty tapping into this market. Many seem to view China as just another foreign market, and do not seem to offer the Chinese market the special attention many business experts believe it deserves.
One of the biggest reasons foreign companies have been slow to gain traction in China is that many entered the market using the same marketing techniques they use in their home markets. This is so-called, standardization approach to international marketing, tends to be a much easier and less costly way to enter markets as much of the decision elements of the strategy are already laid out. This approach contrasts with the adaptation strategy, where marketers need to undertake in-depth analysis of a market and then adjust their marketing strategy to the unique elements of each market. As might be expected, the adaptation approach is more expensive and time consuming.
In this story, we see the adaptation approach seems to be the key in China, particular for the retail marketer. As discussed, Best Buy has struggled in this market. In 2011 it shut its Best Buy branded stores in China and instead has invested in its Chinese subsidiary chain, Jiangsu Five Star Appliance. However, this chain also struggled as it employed a western-style marketing approach. It was not until the company made key adjustments for the unique characteristics and needs of the Chinese market that it was able to realize success.
The story also points out other marketers that did not do well when they entered into China. This includes retailer Home Depot, which has closed half its Chinese stores and is now reevaluating its strategy.
The potential buying power of China's middle class is vast. About 247 million Chinese, 18.2% of the population, qualify as middle class, meaning their households spend between $10 and $100 a day on average, according to Brookings Institution economist Homi Kharas. If current patterns continue, the number will soar to 607 million by 2020, and spending by China's middle class will rival that of the U.S., after adjusting for inflation and purchasing power.
In addition to differences in consumer purchasing behavior, what are other key factors that confront U.S. and European firms as they try to market in China?
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