SHANGHAI — There are arguably two final frontiers for foreign brands seeking to expand their market share in China: one is smaller cities across the country; the other is the Internet.
This story first appeared in the February 21, 2012 issue of WWD. Subscribe Today.
Aside from all the talk about which cities could be the next sweet spot for international brands, it seems everyone — from fast-fashion companies to luxury labels — is exploring the best way to navigate an exploding Chinese digital terrain comprised of more than 450 million Web users, which makes the country home to the largest online population on Earth.
“It is an interesting topic, and it is certainly very timely,” said Sage Brennan, founder of China Luxury Network, a consultancy that provides brands with intelligence about affluent Chinese consumers. “The most powerful consumers in China are young, and they are online, and they are not only the future for these brands, but they are the present in many cases.”
Seventy percent of China’s netizens, as Internet users are called in the country, are under 34, while 41 percent have college degrees, according to a 2010 McKinsey report on how brands can profit from China’s digital landscape. More than 70 percent make at least 55,000 yuan annually (about $18,000), an income that McKinsey classifies as middle class. Chinese consumers are online an average of 19 hours a week, the study said.
By 2015, McKinsey said it expects the urban Internet PC penetration to reach 66 percent, which is similar to the penetration in Western Europe today, while the rural penetration will double to close to 30 percent.
“There is a lot of learning to be done,” added Brennan. “There is an incredible flux right now in this sector, and obviously every brand in the world wants to figure it out.”
One thing to understand about the Internet in China is that it is inherently and overwhelmingly social. Aside from playing games or watching movies and other forms of entertainment, the Chinese log on largely for one main purpose: to talk to each other. Half of the country’s Web users regularly use blogs and social media, according to Nielsen, while one third participate in online discussion forums, known in China as BBS, or Bulletin Board Systems.
The BBS has long been a mainstay of China’s online social world. Emerging in the late Nineties on college campuses as spaces for students to share academic information, the rather rudimentary platforms have since become pervasive digital places where netizens interested in specific topics ranging from automobiles to baby products congregate to talk. There are countless BBS on the Chinese Internet, divided not only by topics but also region, age, gender and income.
They are also spaces where Chinese search for shopping advice. Eighty percent of BBS users seek out the opinions of others online when making purchasing decisions, according to research from the Shanghai-based social media consultancy CIC, which coined the term “Internet word of mouth,” or IWOM, which refers to online chatter about brands and products on BBS or other forums. CIC says that nearly 60 percent of respondents in a survey made final purchasing decisions based upon the recommendations and opinions of other Internet users. Almost 50 percent of netizens will share their product experiences post-purchase, CIC research says.
Two of the country’s most popular fashion BBS include “Only Lady” and “Metroer.”
According to Sam Flemming, head of CIC, BBS are key places for brands to connect with, and to understand, target audiences: “It is important for any brand to be able to impact the influential and the most informed, connected consumers out there for their market. That is the beautiful thing about BBS. At the very least, you should be listening to what is being said there,” Flemming said. “However, engagement is a little more difficult.”
Flemming recommends companies launch campaigns for sampling their products or contests on BBS. Another tactic is to identify key influencers within the community and approach them to discuss new products or make announcements about the brand on the forum.
Some companies, such as Lancôme, have opted to start their own BBS. In 2006, the cosmetics brand launched its Rose Beauty BBS, which, with 4 million subscribers, has remained one of the top beauty forums in the country and is a commonly cited example of one of the top online brand strategies in China to date.
Rose Beauty includes features such as pages where members can rate products, comment on them and share them on other social networking sites. Members can take part in contests to receive free trials of new products. There are videos with special beauty lessons, as well as columns with contributions from writers of influential fashion magazines and blogs. Another section is a user-generated shopping guide based on photos that members post of recent purchases. And there is a special e-magazine and additional page with the latest news and offers from Lancôme.
“The best practice is obviously Lancôme’s Rose Beauty,” said Charles de Brabant, founder and chief executive of luxury consultancy Saint Pierre, Brabant, Li and Associates and a professor of luxury branding at China Europe International Business School in Shanghai. “It is service driven, identifying what people want and what is important to them. It is actually giving to people before the brand receives back.”
On the opposite end of the social media spectrum is the ubiquitous and infamous (at least in China) Sina Weibo, a micro-blog platform operated by the Internet giant Sina Corp., which has a staggering 250 million-plus users. Flemming of CIC describes the site as “the zeitgeist for China.”
“If you want to know what happens in China, open up your Weibo account and see what people are talking about,” he said.
Sina Weibo is becoming the de facto platform for brands to launch social media campaigns. Some in the industry say the micro-blog is starting to drain users — and advertising dollars — from social networks such as Renren and Kaixin001, Facebook-like sites that attracted swells of members largely via social games.
While the hundreds of thousands of registered users the two sites say they have is nothing to ignore, there is a noticeable decline in the number of brands seeking to launch campaigns on Renren and Kaixin001, according to Rand Han, a strategy director at Resonance China, a Shanghai-based social media digital agency.
According to Han, Renren, which is popular among teenagers and college students, still has relevance for fashion companies aiming for younger generations. But brands are losing interest in Kaixin001, which has a similar white-collar demographic of users as Sina Weibo. “From our point of view, no clients are asking for Kaixin001,” Han says. “Sina Weibo targets the same market as Kaixin001, and on Weibo you have a sense of a larger connection [with Internet users].”
Having a presence on Sina Weibo — which Han describes as “Twitter and Facebook mashed together [users can add videos and photos directly into posts, send private messages with attachments and use instant-messaging tools]” — is as simple as opening up a Twitter or Facebook account. However, it takes more than building a special brand page on the site to find followers.
“It is not like a sudden burst of awareness,” Han said. “You are building a relationship with your target market over time. Brand managers expect huge numbers right away, and that puts a lot of pressure on local agencies to deliver.”
Not unlike crafting messages for social networking sites in the West, content dispersed on Sina Weibo has to be creative: “Brand images and press releases are not very viral,” said Han, who recommends companies sync up communication strategies with celebrities.
“Any celebrity content connected to a brand, that gets a lot of tweets,” he said, adding that launching contests, polls and other questions on Weibo can also be effective for adding followers.
Audi, which ranked first this year on an annual top 100 list created by L2 Think Tank that measure’s brand digital IQ on the Mainland, has more than 61,000 followers for its branded Sina Weibo page, which features an interactive driving-experience game that rewards winners with gadgets, like an iPad. The car company also maintains separate Weibo pages for a number of its car models.
According a 2011 white paper on social media and luxury brands in China from CIC and GroupM, a media investment management group, Chanel was the most talked about brand on Chinese micro-blogs, with nearly 600,000 mentions between January and May 2011, while Burberry was the most “engaged” brand with 43,000 re-tweets during the same time period. H&M and Converse also are popular on micro-blogs, especially among consumers born after 1980.
There are questions as to how much luxury brands should be talking to customers or potential customers online, though, especially on Chinese micro-blogs.
“A big concern luxury brands do have with the social media space is if they enter a platform like Weibo, for example, are they on the same playing field as every other brand and what does that do to their brand equity and their brand image?” said Zaheer Nooruddin, the lead digital strategist for public relations firm Burson-Marsteller’s Greater China operations. “The power of a channel like Weibo has made it impossible for luxury brands not to create a presence. The opportunity is much greater than the challenge.”
Nooruddin said luxury companies that have executed their presence on the micro-blog the best have been ones that have made sure they have a customized, beautifully designed brand page; incorporated premium content, such as well-produced videos, and engagement with fans in a “more discreet manner.”
“It is not so much about creating a huge amount of buzz,” he said. “But it is more about engaging with a small niche audience.”
One luxury brand continually cited as executing an unparalleled strategy not only on Sina Weibo but across a number of social platforms in China is Burberry. In 2011, Burberry ranked second on L2 Think Tank’s digital IQ scorecard. The brand has more than 300,000 followers on its Sina Weibo page, which features product videos, pictures and celebrity sightings.
A live-stream of Burberry’s Milan fashion show garnered over 1 million views on Youku.com, China’s top online video portal, while the brand’s April fashion show in Beijing was live-streamed on nearly 20 Chinese Web sites. Burberry says it was the first luxury brand in China to launch on multiple social media sites on each of which it has created tailored content.
One such site includes Douban.com, on which Burberry showcases music-related content. Douban is considered China’s hip social network. Its users are classified as geeks, intellectuals and hipsters who log on to talk about books, music, movies and social issues, and it is gaining traction among companies whose products lend themselves to more creative marketing campaigns, according to Han of Resonance China.
There are other social sites beyond Sina Weibo. Tencent, another one of China’s massive Internet companies, has its own micro-blog. The platform is not as popular for marketing campaigns but could soon be. Nearly 80 percent of Chinese netizens use both Sina Weibo and Tencent Weibo, according to a study released in December by Admaster, an online ad-tracking company.
P1.CN is a private, invite-only social network targeting affluent members or members with a particular interest in fashion and lifestyle. The site invites its members to exclusive offline events with luxury companies and offers special brand pages and other features to share information about products.
According to P1.CN founder Yu Wang, the social network sold a Lamborghini during its first event with the Italian carmaker. Thirty members attended, he said.
“Most other social networks are not targeting this group,” Yu said. “We have managed to gather a very big portion of the target market for luxury brands. They can actually talk to the right kind of people, and they get to see these people offline, what kind of people they are. You would not be able to do this with any other kind of media.”
Taobao is also getting into the social media game. Earlier in December, China’s online shopping site revealed plans to build an e-commerce social network for its 400 million registered users. Already Taobao and its various shopping platforms have generated a host of influential bloggers spread across the country’s social media ecosystem, who comment on and share photos of fashion and other products they buy.
Twin sisters who call themselves “Qiang Kou La Jiao” and post photos of the fashions they purchased on Taobao have hundreds of thousands of fans online, for example. “They became celebrities,” said Chen Yijia, who works with Xiu.com, an e-commerce site focusing on high-end labels. “Their influence is huge on Taobao.”
These so-called grassroots online celebrities — who can be anyone from a white-collar office lady to a college student — are a unique and pervasive part of China’s online social landscape, and more brands are engaging with them to help promote products and events.
According to research from CIC and GroupM, self-made Internet stars “have an aspirational quality that particularly resonates with young people.” Half of the most talked about celebs on Sina Weibo are grassroots celebrities.
“We collaborate with more than 400 bloggers directly,” Thibault Villet, head of Glamour Sales China, an online shopping site focusing on luxury sales. “I can tell you my highest ROI has been through social media marketing, which means using bloggers and trend advisers. Ultimately, the big question is how do you monetize? Brands are building this presence online, the digital marketing, but how do they track this ROI? At what stage does it ultimately translate to buyers? How do you measure that?”
Coach is one of many brands upping investment in their Chinese digital footprint. The company recently hired its own in-house team in its Shanghai headquarters, as well as a local agency to help plan and execute its online strategy, according to Jonathan Seliger, head of Coach’s China operations.
Seliger said the brand is working with bloggers, recently revamped its Sina Weibo page and is studying e-commerce. He said the effectiveness of Coach’s social media push will initially be measured by the amount of traffic driven to the brand’s Chinese site. “In North America, Coach gets something like 75 million visitors per year. We would be lucky for 8 to 10 percent of that by the end of this year ,” Seliger said. “That is a great measure to see if your online strategy is really working.”
But opening physical stores, especially in smaller cities, is still Coach’s top priority.
“We are here to build stores and to build our market share,” Seliger said. “Our awareness is certainly growing in the marketplace, so we feel confident we can go into second- and third-tier cities and stick that flag in the ground, and then support it with our digital strategy.”