The metamorphosis of Western brands in China

Earlier this year, Coca-Cola kicked off the advertising campaign in China for its vitamin-enhanced flavoured water Glacéau Vitaminwater.

The high objectives of the global campaign, which is to be unveiled in 14 countries including Japan, France and South Africa, is matched in China by the steep price of the drink itself. A 500ml bottle is on sale for the equivalent of US$2, the same price that shoppers in New York would expect to pay.

Compared with most existing beverage brands in China - the price for bottled water in the country is equivalent to just 15 cents a bottle - Vitaminwater is very expensive. This inevitably positions the brand as somewhat of a luxury.

Vitaminwater is not alone in adopting such a pricing strategy in China. Many other brands from the West such as McDonald’s, Starbucks, Pizza Hut and Häagen-Dazs have followed a policy of pricing reflecting that of their home country.

While this puts the products out-of-reach for China’s working class, some argue it enhances the image and desirability of the brand.

“The Chinese equate high prices with higher quality,” says Jessica Lo, managing director at the China Market Research Group. “They also believe that foreign companies bring more prestige, and they trust them more. As a result, in many cases foreign companies intentionally charge more for their products in China.”

A 2009 China Market Research Group survey found 80 per cent of people believed foreign companies were more trustworthy than their local counterparts.

Still, many marketing professionals believe it is smart for overseas brands not to be too greedy.

Dan Mintz, CEO of Dynamic Marketing Group, says that despite the income gap between the average American and Chinese consumer, new products are more likely to enter the mainland as premium, super premium or luxury brands.

“This is, in part, because western brands are desirable to Chinese consumers, but also because it takes such a lot of investment to enter new markets,” Mintz says. “Margins are kept high in order for brands to see short term returns.”

Portfolio brands like Coca-Cola and Pepsi have to ensure that new products do not cannibalise existing ones.

“Coca-Cola is practicing excellent portfolio management in working to establish a higher price standard for Vitaminwater,” says said Justin Billingsley, CEO of Saatchi & Saatchi Greater China.

“They manage a portfolio with as many entry points as possible to capture the volume, but price to capture the value where it exists.”

Coca-Cola declined an interview request for this story but is only distributing Glaceau in high-end restaurants and retail outlets in Beijing and Shanghai. Mintz applauds this. “Trying to be premium and aiming for lots of distribution points will see the brand fail.”

Nonetheless, some Chinese experts warn that as more Chinese consumers educate themselves, a high price policy may be self-defeating.

Last year, an article titled ‘The Most Overrated Western Brands in China’ was circulated on the internet. Brands such as Gap and Mango scored highly and were accused of trumping up their position in China and trying to hoax Chinese consumers.

For this reason, Chen Jing, a beverage analyst at the Beijing-based Orient Agribusiness Consultancy says for Vitaminwater, “the high cost may prove to be a deterrent.”

This article was originally published in the 29 July 2010 issue of Media.