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2018-10-11 13:52:40 Commentary

Since the growth of China’s e-commerce sector has slowed in recent years, independent sellers have found themselves in the midst of a cutthroat, survival-of-the-fittest struggle for market dominance. According to a 2015 report, for example, just 5 percent of the 6 million sellers on Taobao — the country’s largest e-commerce platform — were profitable. In part to relieve this pressure, some Chinese manufacturers and sellers are now expanding their sales efforts overseas.

It’s an uphill battle. In its 2018 report on Chinese brands, the market research firm Kantar Millward Brown found that, worldwide, consumers aged 18-24 are slightly more receptive to Chinese products than those in older age brackets. Yet even then, only a little over 10 percent of them said that finding out a product was Chinese would make them more likely to buy it. Older consumers — who are likely less familiar with some of China’s innovative younger brands, such as the cellphone maker OnePlus or the drone manufacturer DJI — are even more skeptical of the “Made in China” label.

Part of the issue is continued poor branding. If they want to succeed overseas, Chinese companies must learn how to build and leverage their brand identities to attract new buyers and build customer loyalty. It may seem obvious, but to date, many Chinese sellers continue to underestimate the importance of maintaining a good brand — a failing that not only costs them sales, but has damaged the reputation of Chinese goods worldwide.

The majority of Chinese sellers looking to expand overseas start by getting their products listed on a local third-party e-commerce platform — such as Amazon or Wish. In one sense, this can be an advantage for Chinese brands, who have plenty of experience with such sites. As Simon Lin, CEO of the Shenzhen-based hairdryer manufacturer WizEvo, notes, “There are similarities between e-commerce platforms worldwide, and so we can use the experience gained from our home market overseas.” But these similarities can also blind Chinese companies to some of the key differences between domestic and international e-commerce platforms.

Too many Chinese companies continue to underestimate the importance of branding.

The key advantage of e-commerce sites is that they are highly meritocratic. Theoretically, at least, any product or company can have success on e-commerce platforms through a combination of strong reviews, competitive — if not necessarily cheap — pricing, and good search-engine optimization. Unlike the shelves of physical retailers, which are highly curated and have only limited space, e-commerce sites are constantly adding new sellers and products from around the world, and even familiar faces can be knocked down by upstart competitors if these fresh products are more innovative or of higher quality.

One way companies can fend off such challenges — or mount one of their own — is to build a strong brand. Yet too many Chinese companies continue to underestimate the importance overseas consumers attach to branding. Instead, they take shortcuts designed to boost short-term sales, regardless of the impact these methods can have on long-term growth.

One of the commonest schemes involves paying for fake reviews. While familiar on Chinese e-commerce sites, it’s an increasingly expensive and ineffective tactic abroad, as consumers and e-commerce platforms alike have grown wise to the practice in recent years. Now buyers can use browser extensions like Fakespot to identify fake reviews, and online marketplaces conduct regular audits to weed out fake posts.

Chinese companies also tend to overestimate the impact of price on purchase decisions. Cost is certainly important, but that doesn’t mean it is necessary — or wise — to always try and undercut the competition. By matching every price cut their rivals make, a brand can end up devaluing its own product. Apple, for example, does not generally compete on price. While in the short-term, slightly higher prices may lead to reduced sales, in the long-term they can help a company establish a reputation for quality.

Ultimately, consumers are willing to pay a premium for products from brands they like and trust, and that they believe reflect their status and lifestyle. The Chinese manufacturing industry offers a good example of how this works. For years, Chinese factories have produced high-end consumer goods for companies such as Gucci, Burberry, and Hugo Boss. Yet when these same manufacturers turn around and try to sell carbon copies of these goods— made in the same factories and with the same methods, just without the branding — they fail to fetch the same premium. Consumers are buying the brand, but not necessarily the product itself.

In other words, if Chinese companies want to reverse popular perceptions about Chinese production quality and compete abroad, they need to rethink their branding strategies. Based on an analysis of several Chinese brands that have established themselves overseas, a successful brand-building strategy can be broken into three basic components: good product development and marketing strategies, a focus on community-building and user-generated content, and — eventually — a shift away from third-party e-commerce platforms.

Given the highly competitive nature of e-commerce marketplaces, brands looking to stand out and generate buzz must first deliver high-quality products that resonate with a particular audience.

The Shenzhen-based electronic equipment manufacturer Anker is an example of a Chinese company that has had success producing and marketing goods aimed at international consumers. Founded by Steven Yang, a former Google employee from the city of Changsha in the central province of Hunan, the company has split itself into five targeted brands, each concentrating on a different slice of the tech market. The company claims it focuses on the market between three- and five-star Amazon ratings, producing high-end, though not necessarily revolutionary products that are designed to be affordable, but not cheap.

One of the company’s brands, the Seattle-based Nebula, also uses crowdfunding as a way to reduce risk, get free advertising, and collect customer feedback. Its Indiegogo campaign for a mini-projector brought in $1.2 million, allowing it to raise money for product development while also ensuring it wasn’t making products for which there was no consumer interest.

Getting this kind of user feedback and building connections with consumers is key to a successful brand-building strategy, and both are things Chinese sellers need to learn how to leverage. One of the more straightforward ways of accomplishing these goals is simply to give out cash. Insta360, a Shenzhen-based manufacturer of 360-degree cameras, offers rewards to camera-owners if they submit content the company can use to promote its products. According to Max Richter, Insta360’s marketing director, the company believes that getting consumers involved in brand-building is superior to corporate-led approaches. Other Chinese brands have adopted the practice of creating “power user” groups — typically consisting of a company’s biggest and most loyal fans —that it can poll for feedback on new products.

Finally, it is important for Chinese companies to begin transitioning away from their reliance on third party e-commerce platforms, which limit the amount of control they have over their brand and can cut into profit margins. There are different ways to do this. Some Chinese brands operating abroad have adopted a dual-track strategy. Anker, for example, continues to sell through e-commerce platforms like Amazon, where it benefits from good reviews. At the same time, however, the company works to get existing customers — those who found it through Amazon or other e-commerce platforms— to make their next purchase directly through the company website. Another Chinese tech company, Tronsmart, prefers using a website to present its products before directing buyers to make their purchase through local e-commerce platforms.

Insta360 has taken a different approach. Given that its cameras cost several hundred dollars each, the company recognized that some consumers would prefer to physically inspect them before making a purchase. It has therefore worked to get its products into brick-and-mortar stores in target markets.

The groundwork being laid by smaller, internationally successful Chinese companies such as Anker and Insta360 is key to China’s economic future. While there remains room for growth domestically, it is nevertheless important for companies to begin diversifying and looking for new markets now. The road ahead remains rocky, but I believe the day will come when consumers around the world see Chinese branding as a marker of high quality, and not as a synonym for second-rate.

Editors: Wu Haiyun and Kilian O‘Donnell

(Header image: A 360-degree camera produced by the Chinese company Insta360 is shown off at the National Association of Broadcasters show in Las Vegas, April 24, 2017. Jason Ogulnik/IC)