The ‘good-enough’ market segment in China

足够好 [zúgòuhǎo] Good-enough I wrote this essay for the subject Advanced and International Marketing in August 2010. For this assignment we were allowed to formulate our own topic and question so I wrote about something I found both interesting and important for marketers in China. Hopefully the recommendations can be helpful marketers in China.

Please feel free to leave a comment.

“The ‘good-enough’ market segment in China is growing faster than both the premium and low-end segments.” (Gadiesh, Leung & Vestring, 2007 p.82).

Illustrate the challenges international marketers face in capitalizing on this growth.

Since the economic reforms begun in 1978, the Chinese consumer market has been roughly structured into two main segments, either low-end local brands or imported premium brands (Li, 2008; Gadiesh et al., 2007). The large low-end segment has served the masses with low quality, low price and undifferentiated products while the global brands, either imported or locally produced, have targeted the small but profitable premium market (Gadiesh et al., 2007). Most international companies entering China are lured by the quick growth and relatively high disposable incomes in areas such as the Pearl River Delta in the south or the Yangtze River Delta around Shanghai (Chen & Vishwanath, 2005; Walters & Samiee, 2002). Magni & Atsmon (2010) illustrate another ten areas around China have a projected growth over 10% per annum and recommend marketers to consider setting up sales forces, distribution channels and supply-chain mechanisms in these areas. In the past few years, a new market segment has appeared which Gadiesh et al. (2007 p.81) describes as the ‘good-enough’ market and this segment is the fastest growing in China.

This essay will illustrate and provide examples of the challenges international marketers face in capitalizing on this market. But first, the essay will introduce the reader to the demographic of this market.

The average urban population, representing 36% of China’s population, have already purchased their basic goods and appliances such as housing, televisions, telephones and washing machines (Sun & Wu, 2004). They are now either upgrading these to newer and better models or moving into other segments such as computers, air-conditioning and cars (Sun & Wu, 2004). According to a research done by McEwen et al., (2006), two-thirds of Chinese consumers say they prefer to buy goods and appliances made in China. This is not because they prefer Chinese brands but rather because they find foreign brands too expensive and of unnecessarily high quality (McEwen et al., 2006). According to McEwen et al. (2006) this ratio has declined over the past few years making way for the young and affluent urban population. Not satisfied with the quality of the low-end products or able to afford the imported or high-profile international products produced in China, they opt for something in the middle (Gadiesh et al., 2007). Simultaneously, high-income consumers seem satisfied with the improved and fair quality of domestic producers and are willing to buy good-enough products (Chen & Vishwanath, 2005).

Foreign marketers face a wide spectrum of challenges when marketing their products in China. There are economic, competitive, technological, distributional, geographical, cultural and political/legal forces as outlined by Cateora & Graham (2007 p.10) that international marketers will not be able to directly control. This essay will focus on the challenges marketers face and what they can do to adjust their organisations’ internal capabilities in terms of price, product, promotion and channels of distribution (Cateora & Graham, 2007) and provide examples of how they can capitalize on this growing market.

By being perceived as too expensive and of better-than-necessary quality, foreign marketers should look for ways of providing lower price products of acceptable quality. Although potentially time-consuming, international organisations can use their economic strength and expertise to re-design their current products (Vanhonacker et al., 2007). A possibly quicker method is to form a joint venture or acquire a local producer where they can inject the necessary technological improvements launch a new product sooner (Cateora & Graham, 2007).

International marketers, although not different from their domestic competition, also face challenges in reaching the good-enough markets due to the still undeveloped distribution infrastructure (Magni & Atsmon, 2010). There is also a challenge in launching product of lower price and quality as they could cannibalize the company’s current products or result in grey products finding their way to other markets (Gadiesh et al., 2007). Although margins can be expected to be low, the opportunities in reaching this new mass-market is the potential of economies of scale enabling lowered overheads and variable costs (Yi & Jaffe, 2007). By competing in the good-enough market segment, the foreign marketer will also gain a better understanding of what their local competition is doing and be able to challenge them before they are able to compete in the profitable premium market (Cateora & Graham, 2007). If successfully selling products in this market, the company can use these as a platform for future exports to countries such as Brazil, Russia and India (Gadiesh et al., 2007).

In terms of promotion, Chan & Cui (2004) found that the Chinese urban population is less critical to advertisement than their foreign counterparts and Tai (2007) posits that television advertisement has high effectiveness in rural and second tier cities. International marketers could also have an advantage over domestic marketers in terms of their financial strength, experience and expertise while extra caution should be paid to the importance of being culturally sensitive (Cateora & Graham, 2007). Research shows good acceptance of advertising but marketers would be wise to work with China experienced multinational advertisement and media agencies that can advise them on their China approach to avoid cultural blunders.

Chen & Vishwanath (2005) point out that a careful combination of pricing, positioning, distribution and acquisition enabled the international brewer Anheuser-Busch to control their cost and pass the savings on to their customers. They were also successful in adding products that better fit the local taste by adding local brands on board through acquisition (Chen & Vishwanath, 2005). Anheuser-Busch have lowered their cost by sourcing local ingredients such as rice instead of barley and catered to the Chinese consumer by offering mainly light draft beer of lower strength.

Similarly, General Motors (GM) were faced with the challenges of meeting the requirements of the Chinese good-enough market (McEwen et al., 2006). Their successful approach can be seen in several examples of recent investments and subsequent product launches. One example is through the acquisition of South Korean Deawoo in 2001 where GM gained small-car technology suitable for Asian consumers (BusinessWeek, 2005). The technology can now be found throughout GM’s product range (Ihlwan et al., 2004) and has enabled GM to enter the good-enough market segment with products that suit their target customer’s needs.

Another example of how GM’s marketers overcame the challenges is with GM’s Wuling brand which sells vehicles for the good-enough micro-van market for as little as US$ 4,000 each (Tian, 2010). The SAIC-GM-Wuling joint venture became the first automaker in China to sell more than 1 million vehicles in a year and represent about 60% of GM’s China sales (Foley, 2010). The Wuling micro-van is directly targeting the good-enough market by having an attractive price, a product that has multiple functions for family or small-business purposes. The Wuling is promoted through television, billboards and dealer promotions throughout the second and third tier Chinese cities.

By using different brands, such as Chevrolet for the good-enough market and Cadillac for premium brand (General Motors, 2010), GM is avoiding cannibalization on their own products. GM has overcome the challenge of small margins by capitalizing on the economies of scale and therefore reducing their overall overhead and positioned them for exports to other developing markets.

Having illustrated the challenges international marketers face in capitalizing on the good-enough market in China, the essay will conclude with recommending international marketers to approach this rapidly developing market by adjusting their product offerings to satisfy the good-enough requirements. This can be achieved through either launching a new product range, acquire or form a partnership with a local company. Marketers should be careful to avoid cannibalization or having grey-products finding their way overseas which can be avoided through re-branding their products. Marketers should target China’s high growth areas and use their marketing expertise and financial strength to reach their target audience. The lower prices required to enter this market should be offset by the lower quality requirements and the potential savings through economies of scale. Marketers should also explore opportunities to export their products to other developing economies by applying the knowledge gained from being successful in the China market.

In the 1970s and 1980s, the mantra for many organisations was that if they could capture the US market share they would capture the world. The mantra for the future may be valid for an organisation if they can capture the Chinese good-enough market.


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