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GLOBEMIC Flashcards

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1
Q

What is the relation young and old people have to prices and quality in Chinese culture?

A

Old people are more price-focused while the younger generations increasingly value quality and are willing to pay premiums for higher-end products.

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2
Q

What are the Chinese consumer groups?

A
  • Frugal retired: born before 1960 ⇒ Very sensitive to prices
  • Wealthy retired: usually worked in government institutions or government enterprises. Less price-sensitive than frugal retired.
  • Frugal forties: grew up 1966-76. SAVERS
  • Wealthy forties: working for government or state-owned companies (less price-sensitive)
  • Thirties: many well-educated, save less than older generations, first to shop online
  • Twenties: first generation of one-child policy. Barely save. Consume electronics, entertainment and trendy products in general.
  • New generation (<20 years old): the most westernized
  • Migrant workers: rural citizens who moved to the cities in the 1990s. Very poor and send their savings to their family on the countryside
  • The rich: 1 million people with $1.5 million+ in assets. Urban areas on the east coast.
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3
Q

What are some of the most prominent fast-growing consumers product categories?

A
  • Toys
  • Convenience foods (fast-food and frozen meals)
  • Pet products
  • Personal care products
  • Wine and whiskey
  • Snack foods
  • Health food and products
  • Baby products (back in the days babies were raised with self-supplied products)
  • Auto products
  • Products for the elderly (China’s population of senior citizens will reach 250 million within the next 5-10 years)
  • Mid-range products
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4
Q

What are some good tips for retailers in China? (DPPFL)

A
  • Discounts: Small discounts are better than none: price sensitive is strong and most consumers always want discounts
  • Product safety mistakes can be devastating: consumers react strongly to the media’s stories
  • Packaging: “Face” matters: product packaging is very important as it is an easy way for poorer consumers to look like they buy more expensive products
  • Foreign brands: Chinese consumers generally favor foreign brands
  • Localization is key
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5
Q

What can you compare the current situation of changing power of world markets to?

A

What the United States was seen as by Great Britain the late 1800s is how U.S. and Europe see China today.

The Western world can’t really imagine or execute the strategies necessary to do business in a geographical landscape that big and with so many dialects/languages and ethnic populations.

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6
Q

What are traditional characteristics of Chinese consumers? (WCCSP)

A
  • Word-of-mouth: Rely on advice of others
  • Comparing: Spent a lot of time comparing products (younger generations are more impulsive)
  • Collectivistic (young individualistic in their buying decisions)
  • Saving rates are high (average of around 22 %)
  • Price-sensitive (less among younger generations)
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7
Q

What are some of the business implications of the more collectivistic and in-group focused behavior of Chinese people?

A
  • Word-of-mouth is extremely important for consumers buying decisions
  • Guanxi (relationship-based business)
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8
Q

Who are most mainstream in their preferences? (East Asians or Westerners)

A

Chinese are more mainstream and also see themselves as less unique than westerners see themselves.

The compromise effect is stronger among East Asians (picking the middle option)

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9
Q

Who are the most risk-taking of Americans and Chinese when focusing on financial investments and gambling?

A

Chinese are more risk-taking (Macau)

Westerners are more risk-taking with social interactions, sports etc.

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10
Q

What is Tong-culture?

A

Chinese culture with a narrow definition focused on: provincial association (townsmen)

Broad definition: hometown, universities, etc. where social interactions start.

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11
Q

How does the general societal income-class distribution look for China and the Western world?

A

(for business purposes when developing products - China’s middle-low class is as poor if not poorer than the bottom class in the Western world).

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12
Q

Within China, which regions are most thrifty (vs. pleasure-seeking) and who are fashion-seeking vs. traditional?

A
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13
Q

What are the drivers of successful entry in China according to the study from class?

A
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14
Q

What are the 3 main entry modes to the Chinese market?

A
  • Export entry mode
    • Indirect or direct with distributor or subsidiary
  • Contractual entry mode
    • Licensing, franchising, and all kinds of agreements and contracts
  • Investment entry mode
    • New establishment, acquisition, joint venture
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15
Q

How has the choice of entry mode to the Chinese market developed over time?

A

From small-risk entry modes with HK offices, joint ventures, indirect export etc.

to high-risk with local production, subsidiary and in some cases also regional HQs.

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16
Q

How do products in China differ from that of the western products?

A
  • Regulations
  • Consumer preference
  • More colorful packaging
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17
Q

What do Chinese consumers value in products?

A
  • Functionality
  • Sophistication (many features and multi-use)
  • Varieties (many options)
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18
Q

What does the “good-enough” market refer to?

A

The largest segment of Chinese consumers who pursue products of good-enough quality at as low price as possible.

Value for money oriented consumers.

Products don’t have to be perfect to succeed in China - they should be “good-enough” and be offered at fair prices.

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19
Q

What is driving the growth of the “good-enough” market in China?

A
  • Low-income consumers getting richer and thus moving away from low-quality products
  • High-income consumers fleeing away from premium Western brands and instead accepting less fancy and expensive but instead locally produced alternatives of reasonable quality
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20
Q

What is the general trend of Chinese consumers changing view of Western premium products?

A

Western products are still more prestigious and they are still willing to pay more for western products.

However, earlier it was normal that a 70-100 % premium was paid for Western high-end products compared to local products, whereas now the willingly premium paid is closer to 20-30 %.

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21
Q

How big is the e-commerce market in China?

A

721 million according to internetlivestats (more than U.S., Japan and most of Europe combined)

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22
Q

What are two of the key advantages of e-commerce fitting Chinese consumer demands?

A
  • Varieties
  • Price transparency

The opportunity of giving consumers tremendous amounts of different product varieties as valued by Chinese consumers.

Chinese consumers are price-sensitive and the internet provides price-transparency valued by the consumers (TaoBao as leading company for price transparency in the Chinese e-commerce market).

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23
Q

What are four handicaps for MNEs entering China?

A
  • Poor supporting infrastructure and the lack of national distributors in China making it hard to get products out to the mass
  • Global corporate standard that MNEs must live up to thereby limiting flexibility and increasing costs
  • Trade barriers (provincial trade barriers and protection of local enterprises) which increases costs as it is harder to get economies of scale for MNEs
  • Markets in early stage development making MNEs superior products out of reach economically for most consumers (low-cost + good-enough market are the biggest by far).
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24
Q

What are the 3 main advantages of Chinese companies in the Chinese market?

A
  • Local knowledge: Understanding of local environment
  • Flexibility and low-cost: leaner companies
  • R&D savings/technological catch-up with open global markets: Chinese companies opportunity for catching up on technology by buying it or copying from foreign leaders and thereby quickly building “good-enough” products for the mass market without paying the R&D costs.
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25
**What are the main S&D hurdles in China?**
* Scarce talent and unsophisticated trade partners (promotion to city-lead within a year is common) * Fragmented markets and channels ⇒ Much time spent on managing distribution partners * Top 100 retailers in U.S = 60 % of retail value versus only 20 % in China * Intense competition * Higher costs (HR, IT, administrative, infrastructure)
26
**What is an estimated number of number of logistics operators in China? (2010)**
730,000 = Highly fragmented
27
**How big is the transportation and logistics sector in China as percentage of GDP? (2010)**
Around 20 % compared to only 10 % in the U.S. Most likely higher now as they in 2010 expected yearly growth of 15-20 %.
28
**What is the main difference between Western and Chinese distribution providers?**
In the Western world they are experienced in service and sales, whereas Chinese distributors only focus on distribution ⇒ They are passive sellers in China
29
**When is direct channeling preferable?**
* Information needs are high * customization is important * quality assurance matters * purchase orders are large * transportation and storage are complex
30
**When is indirect channeling preferable?**
* availability is important * After-sales service is important (e.g., automobiles) * One-stop shopping for many products is important to the consumers
31
**How much lower do Chinese companies usually enter the market price-wise when starting a price-war?**
## Footnote **30-50 %.**
32
What can explain Chinese executives use of price-wars?
Grown up in a business environment with growing markets, heterogeneous firms with a wide distribution of cost-efficiencies, and new technologies with significant scale economies. It has simply been profitable to engage in price wars – especially against Western companies with oligopolistic competition.
33
What are the biggest advertising categories in China?
Food, beverage and personal/healthcare accounting for 38.5 % of the industry’s total value.
34
Who are the four biggest advertising companies in China?
* Dentsu Inc. (Japanese company) * Omnicom Group Inc. (American company) * Publicis Groupe SA (French company) * WPP PLC (British company)
35
What is BAT?
* Baidu (information searchers) * Alibaba (shoppers) * Tencent (social networking) Three companies that are essential to success in China’s e-commerce market. All trying to build a complete online + offline eco-system.
36
What is SMM?
Social Media Marketing Creating and distributing content through social networks by some form of viral marketing.
37
What is branding about?
AMA: branding is not about getting your target market to choose you over the competition, but it is **about getting your prospects to see you as the only one that provides a solution to their problem.** Brand = Product + Meaning
38
What do the horizontal and vertical position line of branding show?
Vertical: Luxury/High-end, middle-range, low end Horizontal: functional, image, experiential
39
What are the three types of brands?
* Functional brand: * Tide (cleaning clothes) * Image brand: * Nike (success/winning) * Experiential brand: * DisneyLand, Starbucks
40
How do functional brands distinguish themselves?
* Superior quality * Superior economy
41
What are the most important brand elements?
* Name (Pronunciation and meaning) * Logo (Psychology of shape and color) * Slogan (Positioning and slogan fit)
42
What are the different ways of brand architecture? (presenting the company’s products to the market)
* **Branded house:** all products and services will be subsets of the primary brand (Burberry + Apple) * **House of brands:** branding of multiple sub-brands with little or no attention to the primary brand (P&G) * **Hybrid:** development of sub-brands with the added credibility of the existing parents brand (Google)
43
What is important to note about branding in China?
* Very low brand loyalty: price sensitive consumers * Functional aspect is very important * Reassurance need * Authoritative approval * Key opinion leaders
44
Are Chinese having prevention or promotion focus?
Prevention focus Focus is on safety, responsibility and security needs. They try to prevent bad things from happening while Westerns have a promotion focusing which they try to make good things happen (accomplishments, advancement needs, emphasizes hopes).
45
What is “luxury” in a luxury brand?
“Luxus” Latin: Indulgence of senses regardless of cost.
46
What are the 5 luxury branding elements?
* History * Exclusivity * High quality (excellence, superior) * Global reputation * Convey social status and image
47
What are strategies used of luxury brands in terms of the 4 Ps?
* Product * Scarcity strategy * High quality and strict quality control * Place * Selective/Scarcity * Direct distribution * Price * High price * Increase over time (Very few discounts) * Promotion * Competence signaling (cool, exclusive, cold)
48
Why do people buy luxury brands?
Signaling personal quality * **Public signaling:** consuming luxury brands to signal to others what a quality person he/she is * **Self signaling:** consuming luxury brands to signal to self what a quality person he/she is * **Group signaling:** signaling to a certain group of people
49
What are some of the negative associations consumers of luxury products can be met by?
* Being materialistic * Lack of ethics
50
What is the structure of consumer characteristics? 3 layers
* Culture * Generation * Trend
51
What are some general differences between West and East asian cultures?
* Individualistic vs. Collectivistic * Independent vs. Interdependent * Self-expression vs. Conformity (group goal) * Achievement oriented (self-esteem) vs. Safety oriented (relationship harmony) * Competitive vs. Duties and norms
52
What are some of the implication on Chinese consumer and business behavior coming from the importance of “in-group” and collectivism?
* Word-of-mouth is very valuable * Persuasion ⇒ Hard to change a Chinese consumers mind * Guanxi in business
53
Where is celebrity endorsements and product packaging most important?
China
54
Who are more likely to make impulsive purchases?
The West. Chinese consumers spent more time on product research. They NEED the best deal.
55
Who prioritize the following five things the most? 1. Uniqueness seeking 2. Consistency in preference and choice 3. Likelihood to compromise 4. Receiving gifts 5. Risk-averse
1. Uniqueness seeking = Westeners want uniqueness (and overestimate their own uniqueness) 2. Consistency in preference and choice ⇒ Westerners. Chinese take in-group members’ opinions much more into account. 3. Likelihood to compromise = Chinese ⇒ Camera example with pricing. The middle option. 4. Receiving gifts = Westerners appreicate it, Chinese feel indebted and are thus less appreciating 5. Risk-averse = Chinese (in all other domain’s than financial)
56
What are the 3 socio-characteristics of Chinese consumers we focused on?
* Tong-culture * Being a townsman (provincial association to hometown, uni etc.) * Family structure * Often one child * “Rich” * Responsible * Female-male ratio * Quite low around 48.5 % (historically, rather having boys)
57
What are the 3 econ-characteristics we focused on?
* Growth * 5-10 % (real GDP growth) * Economy now more than 10 times the size in 1978 * Expected to quadruple from 2009 to 2030. * Savings tendency * Super high due to concerns of * Health and education * Retirement * Habits and tradition * Investment share of GDP around 40 % (super high) * Wealth distribution * Low end market is huge
58
Which four focus areas did we have under the title “The Changing Nature of Chinese Consumers”? (the landscape and consumer group characteristics)
1. **Increasing inequality** 1. 1 % of households hold 70 % of national wealth 2. Regional inequality (Pearl delta + east coast) 3. Urban-rural inequality 2. **Urbanization** 1. 15 mio. more urban consumers yearly 3. **Greying population** 1. Very large share of China’s population is in working age group but soon retiring 4. **Rising national pride** 1. Buying Chinese more and more 2. Many don’t know that Pepsi, Dove, LG etc. is foreign (thought it was Chinese)
59
What are the 7 main regions of China?
60
Which regions of China are most thrifty and which are most traditional in their consumer behavior?
61
What are characteristics of the top 1 % richest in China?
* Average income of RMB 500,000 equal to 250,000 USD in purchasing power * 80 % are below 45 years old * 50 % live in the four tier one or top six tier two cities
62
What are the key successful factors in Chain/franchise business?
Achieving consistency in customer experience and expectation * Standardization in operation * Precise replication (of knowledge and practice) * Accuracy in implementation * Tight control to prevent negative externalities
63
What is KFC’s strategic logic in China?
* In-house logistics ⇒ Competence stretching * In-store training ⇒ Experienced employees not available * Local sourcing ⇒ Nation’s best quality vs. world’s standard * Penetration ⇒ all the way to 5th tier cities * Localized menu ⇒ Disciplined innovation * Easier break-even ⇒ Profit margin 25 % (vs. McD 8 %) * Aggressive expansion ⇒ Strategic commitment \> P&L analysis
64
What can we learn from the case of KFC in China?
* To view global operation as multi-centered by recognizing regional differences * To develop a replication-innovation-standardization loop to balance the global consistency and local adaptation requirements * Use learnings from Chinese market in refining global business model
65
What are the main decisions to be made in terms of location in China?
* How much do we wanna penetrate? * First-tier, second? third? fourth? fifth? * Which regions/provinces * Coastal vs. inland? * Focus on special economic zones, open cities, hi-tech parks etc.
66
What affects one’s location decision?
* Cost factors (transportation, availability of land and its cost etc.) * Tax factors * Resource factors (supplies, raw materials, labor, logistics) * Demand factors (market size and growth) * Competition (local and foreign firms)
67
What are the pros of being a first and second mover?
* First mover advantage * Technological leadership * Pre-emption of scarce resources ⇒ especially government relations but also real estate and local business partners * Switching costs * Second mover advantage * Free rider effect * Resolution of market and technological uncertainty * Shift in technological and customer need
68
What are the 3 different ways in which you can make price discrimination?
* Subjective value based * Product quantity based * Attribute based (location and segment)
69
What are the overall different ways you can price a product?
* Demand oriented * Skimming (Apple, Luxury and fashion brands) * Penetration - internet services * Prestige * Cost oriented * Standard markup (cost-plus) * Profit oriented pricing (I wanna earn xx %) * Competition oriented pricing
70
What are the strategies to win in a price sensitive market as China?
* Price war * Price war is not feasible for international brands in China but it is a very common practice in China * Cheap or cheaper strategy * Reference price effect * Price expectation (the rush to purchase) * The appeal of “free price” (Video-games)
71
What should be noted about Chinese consumers online shopping?
* Around 350-400 million purchasing stuff online in China (700-750 million internet users) * Of online shoppers 75 % of Chinese shop online weekly, compared with a global average of 21 %. * Normal to shop from the mobile (more than desktop) * 25 % of Chinese consumers (of ALL) say they shop with a mobile phone at least once a week. Global average is 9 %
72
Which 3 types of services does Baidu offer?
* Search services * Transaction services * Video service
73
When was Alibaba founded and when and at what valuation was its IPO?
1999. September 19, 2014 ⇒ USD 25 billion. Biggest listing ever.
74
What is Alibaba’s main business areas?
* China Retail marketplace. Tmall.com, Taobao.com, Juhuasuan.com (group buying) * Global consumer marketplace: Aliexpress * Global wholesale marketplace: Alibaba * China Wholesale: 1688.com * Transaction service: Alipay * Online marketing services: Alimama * Alibaba Cloud Computing * China Smart Logistics (information system) * Taobao Travel * TutorGroup (E-learning) * Weibo (micro blogging) * Xiami (music streaming)
75
Where does Alibaba’s revenue streams come from?
76
How does Tencent make money?
77
What is the advantage of the way the BAT corporations have built their portfolio?
Diversity gives them information on: * **Space** * Geographical distribution + internet of things ⇒ Regional characteristics * **Time:** Dynamic change / Mobile Terminal / HPS ⇒ Dynamic evolutionary rules * **Connections:** Social network / Meida ⇒ Social media characteristics **EXTENSIVE INFORMATION OF BEHAVIOR**
78
What is the 90-9-1 principle?
Inequality of the web.
79
What are the six principles of contagious and what are they used for?
Making things go viral online.
80
What is interesting about Durex in China?
* +50 % of sales are online vs. 20 % on global average * Super good at social media * Humorous and always with pictures * Good at using the stories / events trending to create content * Fx. Durex condom on the feet when Beijing was flooded by rain
81
What are the 3 different forms of Key Opinion Leaders in China?
* Experts * Wang Hong (Individuals getting famous on social media and turning it into a business) * Celebrities
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