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Post-Entry Marketing Strategy in Chinese Market

Post-Entry Marketing Strategy in Chinese Market

wa mj ar pearls wholesaleAfter a foreign enterprise enters the Chinese market following after a process of tough negotiations and approval tests, its success will depend, apart from sound business relations with its JV partner, on various marketing strategies. While the theories of marketing applicable elsewhere can be replicated by and large in the case of Chinese consumers, certain structural characteristics of the market and traditional and typical habits/customs of the average Chinese consumers need to be kept in mind for any successful business venture. This is especially true for luxury products like jewellery.

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Pricing practices
Most Chinese consumers are sensitive to price and will usually choose less expensive products. Price competition is the practice most frequently employed by enterprises to compete for market share. There have been ‘price wars’ on VCRs, microwave ovens, television sets and food products such as packaged milk. Jewellery industry is characterized by low-level price competition, thereby affecting at times the overall development of the industry and cutting into the profits. Many Chinese companies believe in the strategy of Bo Li Duo Xiao, which means low profit margin and volume sales.

This belief has lead to a diverse range of pricing practices, including Shi Dian Li (10 per cent profit), ex-factory price, zero wholesale mark-up, etc. All of these tactics are based on the assumption that lower price will increase the speed of turnover and eventually generate high profit. While low price strategy is widely adopted, some marketers use a high-price strategy, taking advantage of the conventional wisdom that Pian Yi Wu Hao Huo (cheap is no good) and Yi Fen Qian Yi Fen Huo (each additional cent paid is associated with additional value). This strategy is often associated with prestigious products or products that are intended to establish reputation. Foreign branded products or imported products are generally high-priced and perceived as superior products.

Other pricing strategies common to developed markets are also used by Chinese marketers including ‘price lining’, ‘skim-the-oil’ pricing, ‘odd-even’ pricing, ‘was-is’ pricing, ‘special event’ pricing and so on. Some Chinese people have a superstitious belief in lucky numbers. Marketers price their products in such a way that the numbers denote good luck. For example, a piece of jewellery may be priced at 1199 to indicate Chang Chang Jiujiu (long and lasting), or 4451 meaning Shi Shi Ru Yi (everything is as you wish). Other examples include: 518 (Wo Yao Fa, meaning I will have a fortune), 888 (Fa Fa Fa, meaning fortune, fortune and fortune), 1688 (Yi Lu Fa Fa – endless fortune down the road), etc.

Advertising practices

Advertising is an important means of marketing. Many Chinese enterprises in one way or another believe that advertising will automatically generate sales. Terms such as gross rating point (GRP) or cost per thousand (CPT) in advertising theory seem to be unknown to most advertising decision makers. Consequently, few have given thought to an integrated and holistic approach to communication. For many years, most advertising dollars have gone to television media, as they are seen as the mosteffective channels of communication to create product awareness among potential consumers in China.

Over 50 per cent of the media have agency agreements with advertising companies and nearly half their business is given to advertising agencies as a result of the agency agreements. Advertising agents normally receive 15 per cent commission on advertising sales. The majority of the media requires advance payment, while advertisers are left with little recourse if the advertisement is not aired or published at agreed times. The lack of reliable ratings data is another problem that makes it difficult for advertisers to make decisions and evaluate the effectiveness of their advertising efforts.

Comparison advertising is not permitted under the Advertising Law, nor is the use of superlatives. All advertising copy must be reviewed and approved by the regulatory authority, the State Industrial and Commercial Administration, before going into media. Claims such as ‘No 1’ or ‘Top selling’ need to be supported by documentation, such as certificates issued by the relevant government agencies or authoritative survey organizations. Higher prices used to be charged to foreign companies but this price discrimination has been removed and all companies, both foreign and local, now pay the same price. Advertising rates are reviewed and published on an annual basis.

Promotion practices

Both retailers and producers use consumer-oriented promotion techniques. These practices range from coupons, premiums and deals to prizes, lucky draws, contests and sweepstakes. When employing promotion techniques, it is important to develop appropriate consumer insights which are extremely critical in a market that is large in territory, diverse in consumer preferences across regions and rapid in its pace of change. Some research results have indicated that consumers are pragmatic in their attitudes toward promotion exercises. Buy one and get one free, price reduction or discount, discount coupons and premiums seem to be favored by consumers.

However, marketers need to be very careful when designing promotion strategies and extreme situations should to be taken into consideration. The practice of free product offers against advertisement slips from newspapers has caused chaos in some instances when unexpected numbers of people besieged the site to claim free products that could not be offered. The guarantee of 100 per cent refund for unsatisfied consumers needs to be carefully thought out to prevent exploitation of the guarantee.

Branding practices

The lack of well-known brands is considered to be one of the weaknesses of Chinese consumer products manufacturers, most visibly in jewellery, where products lack distinctiveness. A ‘famous brand strategy’ has been advocated by the government in a bid to improve the brand images and marketability of locally produced products. Painstaking efforts by local marketers have yielded some results, with some brands having established national recognition. The majority, however, has not yet made much progress in breaking away from the images of a local brand. Worse still, many brands are still unknown to their intended consumers.

Creating brand image and brand equity is an essential element of market entry in the jewellery segment. Even though China has emerged in a relatively short period of time as a major player in the gold jewellery market, her products often lack distinction. Brand marketing has only now started in China, and the Chinese consumers are more aware of foreign brands in China than their own domestic brands. Thus, brand promotion through advertising, information dissemination and innovation in design are essential to establish brand image in a market, where the concept has just started in practice and thus, the potential remains high.

Local marketers have a tendency, as they do with numbers, to favor brand names that convey goodness, luck, happiness, longevity and prosperity. In some cases, brand names are associated with historical events. Few have tested their brand names before affixing them to their products. Because of the reputation of foreign products as premium quality, many local marketers even go so far as to give brand names that read and sound foreign. Local brands are often unrelated to product content or attributes, and therefore brand communications tend to be weak. In fact until recently, little effort was invested in developing a name or product image using integrated and holistic approaches. Clever marketers skipped brand name testing by putting out advertisements inviting consumers to give names for their products, but whether the arbitrarily chosen ones are liked by consumers is still unknown. While some local marketers are trying to use brand names that have a foreign touch, foreign marketers are struggling to find a proper Chinese name for their brands. Indeed, it is often very difficult to translate a western brand name into Chinese. The usual approach is either to take on a new name and create new meaning, or give a similarly-sounding phonetic name.

Whichever way you go in adapting your brands to the local conditions, it is important that the Chinese brand names should be easy to read and to remember, and not too long. Brand names longer than four Chinese characters will be difficult both to read and remember. The name chosen should be commonly used words. Strange words will cause difficulties in brand recognition. For example, the last word of the two-Chinese-word brand for Del Monte is difficult to find in a regular dictionary. Another factor that should be taken into consideration when adopting a Chinese brand name is the diverse dialects. A brand name that reads well in Mandarin may be read very differently in different dialects meaning very different things. A normal exercise of brand name testing would cover at least three cities such Guangzhou, Shanghai and Beijing to make sure that the name does not carry undesired meanings.

However, a good brand name does sell itself on the merit that it has a good meaning. Effective branding means more than Chinese labelling. A brand image manifests itself in many ways: in a memorable brand name and well-designed logo, attractive packaging, in the quality and services associated with the brand, and, importantly, in integrated marketing communications.

Retailing Practices

Several changes have taken place in retailing since the start of reforms and opening-up in China, and jewellery retailing is no exception. Domestic jewellery sales, apart from in the materials trading centres based in Shanghai, are mainly conducted through two channels: large and medium-sized shopping malls, and franchise stores. Shopping malls are usually located in city centres and attract large number of customers; they are also better known. Promotional activities can also be better conducted in the malls, where the demand base can be expanded. However, the cost of entry into the market is prohibitively high, and includes various charges. Moreover, the practice of offering discounts in the shopping malls based on sales volume is increasing, thereby cutting into the profit margin of the producer or processor. Thus, only the biggest enterprises and large foreign jewellery firms have taken to the shopping malls option. Second, a certain time lag is involved between sales and settlement of accounts, thereby affecting the flow of funds. Third, once a product is committed to the shopping alls/departmental stores, no independent promotion is possible. The interests of the producer and the management of the shopping mall are not always identical, thereby giving rise to principal-agent problem. This also affects brand-building, and all products look the same. Therefore, sales through departmental stores and malls should be only an interim or additional measure.

In contrast, franchise stores retailing products are of great help in brand promotion. Management charges are also comparatively fixed, and enterprises can choose the location and scale of their franchise stores in the light of their financial strength. Those retailing through franchise chains are the most advanced forces. As brand consciousness increases and consumers become more and more mature, the prospects for marketing through franchise stores, by foreign enterprises either on its own, or through a reputed Chinese partner with existing network, becomes more promising and is worth giving a consideration to.
Articles source: Gems & Jewellery Industry in China, Embassy of India, Beijing
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