The Coming War for the Mind
of the Consumer
Roger Sinclair, BrandMetrics
have to be a little envious of the economic growth in China and
India. What did they do that we are not doing? South Africa's
target is 6% - which remains elusive even though the signs have
been good. It
is not as though they are model nations. They each have appalling
poverty; China still treats its people as minions and India, unofficially,
retains the caste system.
not pretend to know the reason and anyway this is not the platform
to even attempt to deal with it.
there are three streams that seem to have had an influence:
market: They have freed their markets to allow anyone with
an idea to go into business and benefit from their own enterprise.
They have each concentrated on ensuring they have an adequate
supply of workers with technological training.
freedom: They understand that producing low cost goods will
grow the economy and the growth will eventually reduce unemployment
and create new job opportunities. No minimum wages and complex
China and India had socialist economies - China of the most extreme
version. There are none so keen as the newly converted and all
countries could learn a thing or two from these new capitalists.
Let's not argue about that: Simply put, they have the growth that
comes from free trade and entrepreneurship - we don't.
Cuba and North Korea still cling to communist ideals - although
in the latter case, despotic might be more apt a label - and in
their own ways they are each a mess. It is nearly thirty years
now since the late Chinese Chairman, Deng Xiaopeng, rocked the
communist world by praising the free enterprise system. "To
be rich is glorious", he announced, and then set about freeing
up his people to allow them to create wealth in the time honoured
way. Over three decades the western world has watched in astonishment
as the Chinese version of its economic system has produced year
after year of unprecedented growth.
cities are no longer drab and grey. They glitter with neon lights
and imported German cars. The people wear business suits, jeans
and t-shirts. You will rarely see the old fashioned Mao jacket;
what you will see is the previously unthinkable: the golden arches
of MacDonald's. There are over 250 000 dollar millionaires. Wealth
is being created at the speed of light.
is so ironic is the understanding by these avowed communists that
you do not impose minimum wages and high costs of employment.
That is destructive. You simply free the market, provide good
infrastructure, education and training, and let the human urge
to individual betterment do the rest. Of course it helps that
the people are naturally industrious: willing to work hard and
put in the hours.
we learn (from the McKinsey online quarterly report - 25th February,
2006) that the Chinese are being encouraged by their government
to move beyond the status they currently hold in the world economy
of suppliers of original equipment. They have turned their attention
to entering foreign markets with branded goods. They want to take
on the big brands face to face in their own backyards.
concludes that they are not quite ready for this because at this
stage they lack sophisticated marketing and branding skills. But
they plan to acquire these quickly after which the joke that even
the "made in America" strip is made in China, will become
redundant. Chinese brands will compete on level terms with the
locals. Expect soon to see new brand names on western shelves
such as Galanz micro wave ovens; TCL electronic
equipment and Haier appliances.
Benefits of Branding
reason for their interest is not hard to find and in fact was
the subject of a timely article in the Journal of Marketing (January,
2006). Claes Fornell, Sunil Mithas, Forrest V. Morgeson lll and
M.S Krishnan, collaborated in a study that not only confirms the
economic benefits of owning brands that have loyal customers who
buy repeatedly, but they have proven something else as well. Loyal
customers translate into share price benefits: they provide higher
returns for the shareholders. High returns normally indicate high
risk, but this is the amazing finding: not when it comes to customer
satisfaction. As brand marketing and customer experience leads
to improved satisfaction, the income flow increases, but the cost
of capital remains as it was: the risk does not increase. In fact
it is almost axiomatic that the more loyal customers are to a
brand, the more secure is the income stream they produce.
researchers confirm that firms that make an effort to care for
their customers and understand what makes them satisfied, are
rewarded with repeat business, lower price elasticity, more cross-selling
opportunities, greater marketing efficiencies, word of mouth recommendations
to McKinsey, businesses that sell unbranded products miss out
on these economically beneficial advantages and this is what the
Chinese have spotted. There is something of an imperative behind
this move however due to the highly competitive nature of the
home market. The need for foreign skills and technologies means
that the Chinese must compete at home with the world's most sophisticated
businesses. To gain the scale advantages that are essential for
their own products, they must respond by selling abroad as well.
And that means meeting the competition in their own countries,
using the same tools and winning profitable market share. That
is what brands do and that is why the Chinese have no choice.
McKinsey state that the Chinese are not yet ready for this new
onslaught, they are probably suggesting that this will require
a focus on consistent high quality and attention to customer service;
two attributes that are not critical when you are selling commodities
or cheap original equipment.
their newly branded products into the conventional channels will
be a challenge in itself. Assume they are successful and the brand
is on the shelf, it will only last if the consumer likes what
it offers. Satisfy them and they will reward the brand with all
the benefits mentioned earlier. The brand owner will make money.
Get it wrong and consumers are quick to apply the most effective
punishment in commerce: they stop buying. This is conventional
wisdom to seasoned western brand owners.
is intriguing about this possibility is that western brand owners
have not been very successful at launching new brands into existing
markets. The failure rate is greater than three in four and each
attempt is very expensive. That is why many companies prefer to
buy established brands than to take the very extravagant route
of starting from scratch. Perhaps that is what the Chinese will
do. McKinsey hints at this. Owners of second, third and fourth
tier brands which have distribution and some consumer acceptance,
can expect a knock on the door.
what will the man from the east want to buy? Not the resource
- the machines and raw materials. They have all of that and know
more about volume manufacture than most westerners. They will
be after (to paraphrase the accounting definition of an asset)
the economic benefits that flow from the resource. They will be
buying the registered trademark, its associated brand equity and
the income stream that this produces.
Chinese purchase of British motor manufacturer, Rover and MG,
is more of a rescue mission than a purchase of a going concern,
but it makes the point extremely elegantly. The Chinese buyers
will have been less interested in the plant and equipment than
in the very well known and respected brand names.
has been central to developments in marketing and marketing thought
for the past few decades. If this prediction becomes reality,
the impact on world economies and the marketing industry will
be substantial. What we are witnessing now is the battlefield
being demarcated for World War v.3 in which what is
at stake is not the lives of the people, but the minds and pockets
of consumers. It promises to be a great scrap.
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