Footwear and apparel along with home electronics remain popular categories for online purchases in China. (Chart 1)

However, Chinese online shoppers are much more receptive to online shopping across different product categories than their counterparts in Western countries. According to a recent PWC report, 70% of Chinese online shoppers have purchased products online in more than 10 categories within the past 12 month. (Chart 2)

The China Observer View:

Companies which have historically relied heavily on physical retail outlets in other parts of the world may want to consider the e-commerce channel in China. Chinese online consumers are more willing to purchase a greater variety of products online than their peers in other consumer markets.

Companies like Yum! Brands are betting on the rise of middle-class consumers around the world. According to analysis conducted by Jana.com the size of the global middle-class could increase from 1.8 billion to 3.2 billion by 2020 and to 4.9 billion by 2030. Asia will account for nearly 85 percent of this growth, with China and India experiencing the most significant increase. The image above is from a recent infographic created by Jana which highlights key findings for marketers about opportunities for mobile advertising in emerging markets like China.

Fanta is a global brand of fruit-flavored carbonated soft drinks which is part of The Coca-Cola Company. Coca-Cola started doing business in China shortly after the ‘reform and opening’ in 1978 and established its first bottling plant in Beijing three years later. By April 2012, Coca-Cola celebrated the grand opening of its 42nd bottling plant in the northeastern city of Yingkou. It is one of the most successful Western multinational companies operating in China with ambitious plans to invest four billion more dollars in China over the next three years. The Coca Cola Company markets a variety of brands in China including Coca Cola, Minute Maid and Fanta.

Challenge:

Like in many parts of the world Fanta competes head-to-head with Pepsico’s Mirinda brand. Fanta needed to differentiate itself in the Chinese market from its foreign rival through increasing its brand recognition among Chinese consumers – particularly in the youth consumer segment.

Solution:

By partnering with Ogilvy in China, Fanta launched an online campaign titled, “Ninth Class” in April 2011. The name refers to the common understanding that Chinese students take eight classes on a typical school day and Fanta’s “Ninth Class” provides an outlet for young internet users to learn from playing online games. On the Fanta China website, visitors watch an “Orange Man”(a man dressed in an Orange fruit suit) toss oranges into a big bowl. Visitor participants guess how many oranges can fit in the bowl before the bottom orange squeezes out juice from the increasing pressure. Lucky participants could win prizes as much as ￥9999 (over $1500). Traditional advertising via TV commercials and real life exhibitions ran alongside the online interactive gaming campaign. For a better understanding of how it all worked, view the video summary below:

Click here to view the embedded video.

Result:

Fanta’s “Ninth Class” was widely viewed. Over four million people participated in the game on its website. Fanta’s brand name recognition increased significantly as news of the campaign spread widely through Chinese online and offline media. The association between the oranges used in the campaign and Fanta’s orange soda also helped reinforce the Fanta brand among Chinese consumers.

The China Observer View:

Chinese youth are avid gamers, and often spend their free time in Internet cafes or gaming on their mobile phone in their free time. Students use gaming as a way to escape the high-pressure learning environment as they work tirelessly to acheive high scores on the national college entrance exam. Recognizing this cultural trend, Fanta and Ogilvy delivered an impactful interactive campaign for young Chinese consumers. Other companies seeking to engage the youth consumer segment should also consider incorporating online games into their digital marketing strategy. Fanta’s “Ninth Class” showed that by being attuned to the local nuances of contemporary Chinese culture marketers can come up with creative strategies to engage consumers online.

The Hurun Report, in conjunction with the Industrial Bank Co.(兴业银行), recently released a report on China’s luxury consumer market. In particular, the report examines High Net Worth Individuals (HNWIs) defined as individuals with an excess of 6 million renminbi (approximately 950,000 USD). Beijing is home to the most HNWIs with 460,000 people. There is also a high density of HNWIs located in China’s coastal provinces from Jiangsu down to Guangdong. The map above illustrates the distribution of HNWIs across China.

Samsung Electronics, based in South Korea, has been the world’s largest technology company by revenue since overtaking Hewlett-Packard in 2009. Samsung opened its first manufacturing facility in China in 1992 after China and South Korea normalized diplomatic relations in August of that year. Like many multinational companies, Samsung’s focus shifted quickly from leveraging China solely as a production base, to selling directly to Chinese consumers. Two decades later, Samsung has experienced a great deal of success in China, with its total sales there growing 32% year-over-year to 9.5 billion dollars in 2011.

Challenge:

Despite Samsung’s success in China, its mobile phone business faces intense competition. With the fastest growing number of new activations, China is expected to overtake the U.S. in 2012 as the world’s largest smartphone market. Samsung competes at the high-end with the likes of Apple’s iPhone and at the lower-end with local giants like ZTE and Huawei (for more about ZTE and Huawei, see Making the Connection by David Wolf).

Solution:

Samsung decided to use short films to connect Chinese consumers with its mobile phones as part of a digital marketing campaign in 2010. It sponsored a range of original films and posted them on major Chinese web portals and video websites including Sina, Ku6, Tudou and Youku. Samsung titled the first series of films “Four Nights of Strange Tales” (四夜奇谭). Unlike the cases of Nike and Johnny Walker, Samsung used films to tell stories in which the actors visibly used its products, like its Galaxy smartphone.

The film series was directed by an award-winning director from Hong Kong and featured a combination of well-known actors and actresses from mainland China, Hong Kong, and Taiwan. Samsung took full advantage of their established fan bases by publishing film-related interviews and features to promote further viewings and discussion on major social network websites like Sina Weibo (microblog site).

Result:

Samsung’s short film series “Four Nights of Strange Tales” achieved tremendous success by attracting over 210 million views in less than two months. According to the latest data, Samsung now controls over 24% of market share in China, in contrast to Apple, the fifth largest vendor with just over 7% market share. While there are multiple other factors that contributed to this result, no one would deny that its unique marketing strategy significantly extended Samsung’s influence and increased its brand loyalty.

The China Observer View:

We are all accustomed to viewing product placement in movies and television shows. However, what is unique about the Samsung campaign is that the videos were designed around the products themselves, rather than merely placed in an existing story. In addition to effectively creating a compelling story to draw viewer interest, Samsung also did an excellent job choosing the right demographic of actors and actresses. Since they were the targeted end consumers themselves it allowed the actors to engage in meaningful dialogue with consumers online through social networks and other web portals popular among Chinese youth.

IKEA Group, from Sweden, is the world’s largest furniture retailer, owning over 280 stores in 26 countries as of last summer. Like many foreign companies, IKEA chose Shanghai to start its business in China, opening its flagship store there in 1998. Now IKEA runs ten stores across nine cities in mainland China, and is about to open its eleventh store in Wuxi this June. IKEA China achieved total sales of ￥4.9 billion (about $775 million) and attracted 31 million customers visiting its stores in 2011.

Challenge:

Compared to fellow retailers, IKEA adopts a relatively conservative approach to opening new stores in China. IKEA locations were limited, thus making it hard to reach a young generation of white-collar consumers spread across China’s first-tier and lower-tier cities. IKEA found it challenging to build a distinctive brand and influence consumers’ tastes given Chinese customers chose to treat visits to their stores as entertainment destinations rather than a place to purchase new furniture.

Solution:

In October 2010, IKEA China expanded its PR team with an emphasis on social media. IKEA started to organize real-world and virtual events to engage potential customers both on- and off-line. For instance, IKEA created its own profile page on Douban, a popular Chinese social network website which allows users to recommend, comment on and compare their favorite books, films, and music. Its profile page contains tips on decorating homes using IKEA products. In September 2011, IKEA launched an event on its profile page called “the dream home in films” (“电影里的梦想空间”). The idea was simple: users were required to upload screenshots of their favorite home furnishing styles from famous films and write a description of the scenes. Each episode had a different theme, focusing on different types of room in a virtual home including bedroom, living room, bathroom and kitchen. Participants could win gifts sponsored by IKEA.

Result:

IKEA successfully attracted widespread and active engagement amongst Douban users, which are considered to be well-educated and creative urban Chinese. IKEA’s online and offline events provided potential customers with an outlet for self-expression, giving them a positive impression of the IKEA brand. IKEA’s profile page on Douban at the moment has over 30 thousand followers and 210 thousand visitors. By investing in its brand in China, IKEA was able to achieve a 20% increase in sales so far this fiscal year.

The China Observer View:

In China, and most of the world, marketers understand that they need to have a presence on social media sites, but the problem is they do not always know the best areas to invest online. Understanding the needs of its target customer segment (young, white-collar Chinese), IKEA chose to build an online community on Douban, a social networking site aligned with its customers’ interests. Furthermore, IKEA used this online channel to provide potential customers with a positive experience interacting with the IKEA brand. The IKEA approach requires a deep understanding of the preferences of your target consumers as well as knowledge of where they prefer to spend their time online.

In 2011 the number of daily unique visitors on Taobao reached 120 million – an increase of 120% from 2010. According to the report, 2,358 pieces of clothing are sold every minute on Taobao – the total length of all clothing sold is equivalent to a roundtrip from the earth to the moon. Other items sold on Taobao in 2011 include home electronics (310 million), personal accessories (130 million) and toys (83.64 million).

Interestingly, Taobao users are gradually adopting new technologies to purchase goods. In 2011 the number of mobile transactions increased six times year-over-year reaching 10.8 billion yuan, with average daily transactions of 200 million yuan.

Marketers in particular should keep an eye on the growing number of branded Taobao Tian Mao (formerly called Tmall) stores that have emerged. Companies across a wide-range of industries are turning to Taobao to serve Chinese consumers rather than investing in their own independent online stores. See a few examples below:

• Cosmetics & Beauty: L’Oreal, Olay
• Clothing & Accessories: Gap, Ray-Ban
• Consumer Electronics: Samsung, Microsoft, Toshiba, Philips, HP, Motorola, Dell
• Automotive: Chevrolet

The China Observer View

Marketers seeking to sell their products online in China should think twice before investing in independent online shopping portals. Taobao is where Chinese consumers prefer to shop online – rather than try to convince them to shop on your site, consider opening a branded online store on Tian Mao where consumers are already shopping.

Additionally, marketers should keep an eye on the rise of mobile e-commerce in China. “M-commerce” will continue to grow in importance in the coming years; however, for now it is a form of payment limited to relative early adopters.

L’Oreal is a Paris-based cosmetics company with worldwide sales of €20.34 billion ($26.96 billion) in 2011. L’Oreal entered mainland China in 1996, and currently holds the second largest percentage of market share behind Procter & Gamble.  Operating three factories in China, L’Oreal has launched 17 brands – including two local Chinese cosmetics brands. It aims to become the biggest player in this fast-growing market.

Challenge:

Historically, the cosmetics industry in China has focused solely on female consumers. However, Chinese and foreign MNCs view male consumers as an emerging market to place their investments. L’Oreal needed to develop an appropriate marketing strategy to target Chinese male consumers to develop a skincare market for men.

Solution:

In light of Li Na‘s historic French Open win, Chinese people, especially the younger generation, grew interested in tennis. L’Oreal became an official sponsor of the 2011 Shanghai Rolex Masters to capitalize on its audience of young male viewers. L’Oreal cooperated with the most popular P2P Internet streaming media site in China called PPTV, which streamed the sporting event live for the first time ever. L’Oreal marketed its new product through the partnership (Hydra Energetic Anti-Dullness Moisturizing Gel Cream) as the “choice of successful (tennis) masters” (“大师制胜之选”). L’Oreal not only named the live-streaming channel after its product, but was also the only advertiser on the site. Besides online ads, L’Oreal also invited distinguished tennis stars like David Ferrer to endorse its products.

Result:

With the help of PPTV’s wide coverage across its website, software, and apps for iPads and iPhones, more than 10 million users watched the tennis event from October 8-16, 2011. L’Oreal benefited from the tremendous viewership that gained exposure to its new product through the ubiquitous advertisements. In addition, L’Oreal was able to further learn about the preferences and needs of its target market through online questionnaires that accompanied the event’s live-stream. These firsthand insights can help L’Oreal better navigate China’s emerging male cosmetics market in the future.

The China Observer View:

Athletic event sponsorship has traditionally appealed to marketers because viewers tend to have a strong emotional connection to the event. The is why companies like Visa and Coca Cola spend excessive amounts of money to endorse high-profile events like the Olympics and World Cup. Marketers should be willing to experiment combining traditional marketing vehicles like events with emerging technologies to create a differentiated message in the marketplace.