August 24, 2010

China's In-Store Wars

In China, the battle for the consumer is often won — and lost — not in factories or on television screens, but on store floors. As many as 45% of Chinese consumers make purchase decisions in real time, inside shops, according to surveys we have conducted, compared to just 24% in the US. Moreover, 56% of Chinese consumers told us that the information they get at retail outlets is essential to make up their minds while only 41% feel the same way about TV advertising.

Ad spots, online campaigns, and off-line promotions may all be necessary, but to get Chinese shoppers to fork over their hard-earned money, companies must master the lost art of in-store marketing. Successful marketers, we find, do four things to sway consumers at the point of sale.

1. Smart companies prioritize. Many multinational companies, seeking to grow rapidly in the Chinese market, stretch budgets (and supply chains) to cover the large and fragmented retail landscape quickly, and, consequently, distribution costs soon get out of hand. In fact, three years ago, Unilever decided to re-focus its attention and resources on key outlets such as hypermarkets, supermarkets, and smaller stores in high-traffic neighborhoods where it could sell large volumes or high-margin products. Only after it attained scale did Unilever expand aggressively into smaller outlets This tactic allowed the multinational giant to compete better with its well-established archrival in China, Procter & Gamble.

2. They offer numerous incentives for shelf space. In most Chinese retail outlets, products jostle for shoppers' attention with competing displays and fixtures such as coolers. To tackle this problem, the instant noodles and beverages giant Kangshifu offers incentives that enable it to lock in prime shelf space everywhere. For every month that a shop uses the company's branded displays, it gets up to two free cases of bottled water. The company also offers retailers better financial terms if they display only its coolers and umbrellas. These incentives have allowed Kangshifu to become a highly visible brand in China's smaller cities.

3. They offer consistent retail experiences. This allows even large sales forces to delight consumers and strengthen the brand's image. Moreover, Chinese consumers say they greatly trust brands that have standard in-store displays. Cadbury's "Purple Wall", a 2- to 3-meter wide display inside a store, is one reason why consumers in China immediately recognize the brand. Likewise, Coca-Cola has developed and implemented rigorous standards for the sizes and shapes of coolers; in-store fixtures; and promotional displays, and tailors all of them to the type of outlet selling its products.

4. Winning companies use a large number of in-store promoters. Almost a quarter of the Chinese consumers we studied say that in-store promoters or salespeople greatly influence their decisions. One supermarket chain's manager told us that in-store promoters boost sales by as much as 40% because of the propensity of Chinese consumers to make up their minds just before making purchases. Since labor is still relatively cheap in China, the use of in-store promoters is also cost-effective. For instance, the Chinese cosmetics, personal hygiene, and hairdressing products marketer, C-Bons, fights foreign brands with an army of part-time salespeople. Equipped with a toolbox of beauty tips, they urge consumers to "check, listen, and try" the brand before making a choice. By deploying around 15,000 in-store helpers, C-Bons simply overwhelms rivals' salespeople 2 to 1 in some categories, and keeps boosting its share of wallet and mind.

What's the most innovative retailing tactic you've seen or heard of in China?

Max Magni is the head of McKinsey & Company's consumer practice in Greater China, and Yuval Atsmon is an associate principal in the firm's Shanghai office.

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