Challenges Related to Marketing and Branding in the Chinese Beer Industry
Challenges related to marketing and branding in the Chinese beer industry:
Source: Loizos Heracleous (2001)When Local Beat Global: The Chinese Beer Industry. Business Strategy Review, 2001, Volume 12 Issue 3, pp 37-45. Available at: http://onlinelibrary.wiley.com/doi/10.1111/1467-8616.00182/pdf.
In spite of the fact that the level of taxation on the beer retail price in China was one of the lowest in the world at 19% (as compared with South Korea at 53.5%, Australia at 52.8% or the UK at 44.6%, for example), beer producers in China found it hard to make a profit, generally operating at capacity utilization levels of just
50-65%. The problems faced by foreign entrants can be summarized under four heads:
_ The high price-sensitivity of consumers.
_ A high level of loyalty to local brands.
_ The difficulty of converting brand awareness into actual purchases.
_ The notoriously underdeveloped distribution systems. Price Sensitivity * In effect beer is a commodity product * Beer is sometimes sold cheaper than soda * In the 1990s the average price of beer was US$0.20-$0.30 * Foreign brands were priced about 400-500% more than local brands * The leading local brewers appeared to be consciously using their volume efficiencies to engage in predatory pricing to exploit consumers’ price sensitivity
Local Loyalty * Beer industry had an intensely local nature with patriotic feelings attached
Difficulties converting brand awareness * These included building global brands through expensive advertising campaigns aimed at differentiating premium beer in the eyes of consumers and loading the product with emotional associations. In China, such campaigns mostly proved a waste of time and resources. They created significant awareness but not the desire or the ability to pay the premium price for the beer. * Locals also displayed a strong sense of loyalty coupled with a lack of desire to actually purchase these new brands. As one local
Source: Loizos Heracleous (2001)When Local Beat Global: The Chinese Beer Industry. Business Strategy Review, 2001, Volume 12 Issue 3, pp 37-45. Available at: http://onlinelibrary.wiley.com/doi/10.1111/1467-8616.00182/pdf.
In spite of the fact that the level of taxation on the beer retail price in China was one of the lowest in the world at 19% (as compared with South Korea at 53.5%, Australia at 52.8% or the UK at 44.6%, for example), beer producers in China found it hard to make a profit, generally operating at capacity utilization levels of just
50-65%. The problems faced by foreign entrants can be summarized under four heads:
_ The high price-sensitivity of consumers.
_ A high level of loyalty to local brands.
_ The difficulty of converting brand awareness into actual purchases.
_ The notoriously underdeveloped distribution systems. Price Sensitivity * In effect beer is a commodity product * Beer is sometimes sold cheaper than soda * In the 1990s the average price of beer was US$0.20-$0.30 * Foreign brands were priced about 400-500% more than local brands * The leading local brewers appeared to be consciously using their volume efficiencies to engage in predatory pricing to exploit consumers’ price sensitivity
Local Loyalty * Beer industry had an intensely local nature with patriotic feelings attached
Difficulties converting brand awareness * These included building global brands through expensive advertising campaigns aimed at differentiating premium beer in the eyes of consumers and loading the product with emotional associations. In China, such campaigns mostly proved a waste of time and resources. They created significant awareness but not the desire or the ability to pay the premium price for the beer. * Locals also displayed a strong sense of loyalty coupled with a lack of desire to actually purchase these new brands. As one local