SOURCE: AlixPartners

October 21, 2008 10:20 ET

Rise of Domestic Brands, Coupled With a Tougher Global Economic Climate, Forces Hard Decisions for Foreign Consumer Companies in China, According to New AlixPartners Survey

Service Tops Price in Findings, and Chinese Companies Are Delivering It; 4 of 8 Most-Trusted Brands by Category Are Domestic Chinese

SHANGHAI, CHINA--(Marketwire - October 21, 2008) - A survey of Chinese consumers released here today by AlixPartners, the global business advisory firm, shows that service matters almost as much as product to Chinese consumers, with price ranking much lower, despite tougher economic times in China of late. The survey also showed that several domestic Chinese brands are doing a better job of fulfilling this demand for service than are their foreign counterparts, and that four of the eight most-powerful brands by category in China today are domestic -- findings that are sure to have far-reaching ramifications for Western consumer-goods companies, retailers and private-equity firms doing business in China or contemplating doing so.

In the inaugural AlixPartners China Brand Power Index(SM), nearly 5,000 consumers were surveyed with more than 60 questions across eight consumer-goods sectors in five cities (Beijing, Shanghai, Guangzhou, Chongqing and Shenyang) on their relative preferences among the five timeless attributes of marketing: product, price, service, (store and in-store) access and (shopping) experience. In five of the eight sectors, product was ranked the most important factor, with service a close second, and in three sectors -- namely home products, consumer durables and home technology -- service ranked top over product.

In the consumer durables and home technology sectors, for instance, Chinese brand Haier ranked significantly higher than many foreign brands for service.

The eight sectors on which the survey was based include alcoholic beverages, casual clothing, consumer durables, cosmetics, home products, home technology, non-alcoholic beverages and personal hygiene. Importantly, in four of those sectors, domestic Chinese brands were found to be "most trusted": Tsingtao in alcoholic beverages, Haier in consumer durables, Hearttex in home products and Master Kong in non-alcoholic beverages. The remaining brands seen as most powerful in the survey were Olay (cosmetics), Nike (casual clothing), Safeguard (personal hygiene) and Sony (home technology) -- all foreign brands.

Price was ranked last in all eight sectors -- despite the recent slowdown in China's growth curve. The study showed that as income has generally increased in China in recent years, many Chinese consumers now have the ability to purchase a wider range of products, but are still not familiar with how to choose the best brands; so price, despite the recent slowdown, is seen as less important than product, service, experience and access. This differs markedly with a similar survey conducted by AlixPartners in the U.S. this year showing that price now ranks well above service for American consumers.

Fred Crawford, chief executive officer of AlixPartners and a leading expert on consumer behaviour, in Shanghai for the launch of this study, said, "In terms of actual profitability, China has been a hard nut to crack for many foreign companies of all kinds, including retailers and consumer-goods companies, and the results of our survey confirm that you cannot simply transfer a Western model to China and expect it to work. It has long been assumed by many foreign brands that their product will sell, despite a lack of aggressive marketing, because it is 'foreign' and therefore perceived as better quality. But that is no longer necessarily the case."

Continued Crawford: "Chinese consumers today want manufacturers to give them honest and consistent service and persuasive information on why to buy particular brands, and domestic Chinese companies are increasingly delivering just that, gaining much higher trust from consumers. Clearly, their foreign counterparts need to react quickly if they ever hope to achieve their desired returns in this market."

The study also showed that television is by far the most respected source of information for Chinese consumers after word-of-mouth, and far higher ranked than in the recent AlixPartners survey conducted in the U.S. It is important for foreign companies doing business in China to take note of this market characteristic, according to AlixPartners.

Ivo Naumann, a managing director of AlixPartners and head of the firm's Shanghai office, added, "The current global financial climate has caused U.S. and European companies to look long and hard at their international operations, including those in China. For the past few years, the focus in China has been growth, not necessarily profitability. However, we are now increasingly advising clients on the structure, cost efficiency and ultimate goals of their China operations and how companies need to adapt to succeed. For example, both retailers and consumer manufacturers need to consider how to hire and train a workforce to provide the service standards that Chinese consumers are now looking for, and already getting from selected local companies. Our study also shows that easy store access is important to Chinese consumers, so more one-stop shopping is a growing trend. Plus it shows that consumers trust manufacturers' brand names far more than retailers', meaning manufacturers bear a heavier burden for training here than elsewhere in the world.

"Make no mistake," Naumann continued, "profitability in China has become such a severe issue that we expect to see some foreign companies reconsidering their investments here. On the other hand, China remains a market of incredible opportunity for foreign companies of all kinds. And those that have trust in their ability to satisfy the increasing demands of Chinese consumers are likely to even increase their investment in this market. However, turning investments into profits is going to take a renewed push on operational excellence at all levels."

About AlixPartners

AlixPartners is a global business advisory firm offering comprehensive services to improve corporate performance, execute corporate turnarounds and provide litigation consulting and forensic accounting services. The firm's specialty is urgent, high-impact situations when results really matter. It was the recipient of a record four awards from the Turnaround Management Association in 2008. The firm has more than 800 professionals in 13 offices across North America, Europe and Asia, and is on the Web at

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