Inside the Modern Dragon China: A 21st Century Engine of Change

Inside the Modern Dragon

China: A 21st Century Engine of Change

Branding, Consumerism, Sports & Nike

How do you sell goods in China? You either sell them at deep discounts to compete with inexpensive Chinese goods or you build a brand name that people want to identify with at any price.

“When is the last time Louis Vuitton had a sale? As long as it is a status symbol, the company can charge any price it likes,” said Audrey Zuck, a political-risk analyst in London.

The European Business Review names China as the second most important market, next only to Japan, for luxury brands. Luxury goods like Cartier, Gucci, Apple and Rolex sell at higher prices in China than they would be outside the county. Many Chinese are willing to pay for goods that provide evidence of their wealth.

Besides status, brand names give a person a sense of identity. That is particularly important in China, where individualism and creativity are not valued like they are in the United States. A Nike Shanghai representative explains why commercialism matters to the Chinese: “When you reach a certain age, you need stuff to bring your personality out. And that is where consumption becomes important because brands provide a certain statement to help you deliver that personal statement.”

Nike Brand is Strong

Nike has succeeded in China despite a weak sports culture. Nike’s association with sports, play, America and achievement makes the brand strong. But team sports and athleticism for the sake of fun are nearly nonexistent in China. Take for example a typical physical education class in primary schools:

Academic achievement ranks far higher in importance than do sports. Sports are only for elite athletes, not average individuals. Nike is trying to change that culture. To sell shoes and sportswear, it has to sell the idea of recreational sports. It is sponsoring basketball leagues and players and promoting the idea of team sports and individual athleticism.

Meanwhile, Nike’s association with American fun, freedom and achievement sells shoes. According to the Wall Street Journal, Nike aims to double its annual sales in China to $4 billion by 2015. Up until 2010, Nike focused on selling high-priced goods in top-tier cities like Shanghai and Beijing. Now, like its main competitor Adidas, Nike is also selling lower-priced goods in China’s medium- and small-sized cities. The strategy appears be working. Sales grew by 18 percent during the 2011 fiscal year, according to China Retail News.

Domestic Firms Lack Branding Skill

Chinese sportswear retailer Li Ning had given Nike and Adidas tough competition. The company’s prices and its name recognition of its founder—a 2008 Olympic gold medalist—worked well in marketing goods, especially in China’s smaller cities. However, in 2011, Li Ning’s sales growth shrank and its profit margins fell. What happened? Chinese consumers increasingly turned to foreign brands for higher quality products.

The example points to a weakness in China’s ability to effectively brand its products. Financial Times writer Patti Waldmeir asks, “The question is whether Chinese companies are strong enough in branding, marketing, innovation, design and quality to become something more than just copycats.” It is a key question, particular as Chinese incomes rise and consumer tastes develop.