Recently, Procter & Gamble’s new boss Dave Taylor directly criticized his company for an “unacceptable” performance in China. In January, P&G reported that the brand’s organic sales in China last quarter dropped by a “high single digits” percentage.
The core message from Taylor was that P&G had ‘missed the boat’ in anticipating Chinese consumers appetite for higher price consumables.
While P&G misread China as a developing market typified by price sensitive consumers, key category competitors, on the other hand, surged ahead. In terms of engaging the aspirations of Chinese mums, Kimberly-Clark moved faster by providing premium diapers at higher price points.
We looked at China too much like a developing market as opposed to the most discerning market in the world.
The rapidly growing category will premiumize further with the arrival of global brands such as Jessica Alba’s The Honest Company, placing further pressure on P&G –and perhaps more harsh words in the future from Dave Taylor.
How did a global giant struggle to get it right?
While P&G will look to react quickly by rolling out more premium products in China, it feels the most important consideration is their role in the category. In mature markets, brands such as P&G and Unilever enjoy good will and associations created over the course of generations. In China, the reality for global consumer brands is that consumer relationships have not gone intergenerational –they’re still in the stage of needing to be nurtured and built upon.
For this reason, a clear point of view on a brand’s category is essential to creating emotional engagement and loyalty. While category strategy is seen as fundamental in mature markets, it is simply ‘thrown out the window’ when brands launch in China, where a ‘tactical sales mindset’ seems to take over.
For P&G, initial disappointments can be traced to misleading assumptions made about China. CEO Taylor captures this when he reflects that; “We looked at China too much like a developing market as opposed to the most discerning market in the world.”
The power of creating a strong category role in China
To understand how brands can relate to categories, it is useful to consider vacuum cleaner brand, Hoover. The relationship to the category is literally to represent it. Hoover defines the category to the point where the brand name and category are used interchangeably.
In the contemporary world of marketing, achieving the Hoover effect is less likely, falling short of creating technology that creates a new category.
However, in China – where categories have not gone intergenerational and consumers actively include new behaviors into their lives – the importance of defining a clear category role is brand defining, in the short and long term.
Starbucks, for example, has successfully created and evolved the brand as the leader of the café category in China. In the early stages in China, Starbucks focused on education about coffee, adapting their product and retail proposition to local early coffee adopters. As coffee culture has become more sophisticated, and the category more competitive, the Seattle brand then added Starbucks Reserve and a localized platform to capture growing connoisseurship.
Starbucks assumed leadership of the category early, and then successfully adapted their leadership to capture the evolution of local coffee culture.
Apple has also achieved a similar category role in one of China’s most competitive industries. Never the cheapest, Apple presented themselves as category leaders from the outset with a no compromise retail rollout in China. Apple stores presented a culture of experimentation and learning that informed a ‘new category expectation’ and culture that could be owned by the brand. This has been a valuable piece of cultural differentiation to starve off intense international and local competition.
Category Challenge of P&G and FMCG Brands in China
In the context of consumer goods brands in China, we notice that strong category roles are still evolving. Big, early arrivers like P&G and Unilever are understood locally through individual brands rather than through an overarching brand relationship.
Why is this important? Surely if individual brands are performing, this indicates success?
A key strategic issue for larger FMCG brands is to capture local articulation to more premium offerings, this is arguably more persuasive from a master brand with an established and clear category role, acknowledged by consumers.
It is now time to put category insight and the creation of a differentiated category role at the forefront of brand strategy in China.
Taking India as an example, a nation undergoing a similar journey of modernization and increasing premiumization. In this equally challenging market, Hindustan Unilever Limited (HUL) has created a master brand with a clear category role.
Despite owning local favorites such as Dove, Lux and Lifebuoy, HUL communicates these brands with master brand messaging. This way, the halo effect of HUL’s category role, as an innovator and contributor to modern Indian family life, is projected across all group brands – providing the emotional equity to reposition and seize new opportunities in an evolving market.
From this perspective, China’s FMCG market feels more fragmented where category roles have not been established. Perhaps surprisingly, local brands have arguably placed more importance on category roles. Master Kong (康师傅), for example, has established a reputation as the brand closest to consumers. Consistent communication of how the brand supports and adapts for local consumers has cemented the brand’s role as a category challenger.
Recently, to support their instant noodle brands, Master Kong launched campaigns on how urban white collars could include exercise into their hectic schedules. The campaign starred South Korean fitness guru Jung DaYeon interrupting the lives of locals to help them get healthy. The brand also partnered with Dreamworks film Kung Fu Panda 3 to connect emotionally with local consumers facing long journeys home for Chinese New Year.
Despite foreign brands being present in China for close to a generation, the need to shape and contribute to local categories is still not being strategically addressed. P&G is not alone in this challenge, they are simply being the most open about the consequences this is having on their performance in China.
It is now time to put category insight and creation of a differentiated category role at the forefront of brand strategy in China.