Thursday, August 9, 2012

Baby Formula in China: Foreign Brands Coming In, Advertising Going Out

Several months ago I shared a story of a young man who occasionally makes a long trip to Macau from his home in mainland China so he can purchase baby formula produced in New Zealand. He does this because of previous milk-safety scandals in China, and he wants to be sure that his cousin's infant receives a genuine non-Chinese baby formula. He is not alone in his concerns, and foreign brands of baby formula are well aware of the demand in China for their products. In Buy Buy China, Dror Poleg reports that this combined with Chinese taxes leads to significantly higher prices for foreign baby formula:
The brands, in turn, make the most of their captive market [in China] and mark up prices up to 4 times their level in the US or Europe. A tin of foreign baby formula ranges from around RMB 200 to RMB 400. Some high end products – such as Wyeth’s Illuma, Nestle’s NAN H.A., and Mead Johnson’s Enfagrow - cost even more. China now levies a 10% tax on imported baby formula in an effort to promote domestic alternatives. But demand driven by safety concerns is inelastic, meaning Chinese consumers absorb the extra costs while foreign brands continue to grow their market share. Similar, if more moderate, dynamics can be seen in the market for other baby products.
The higher cost of some products in mainland China is yet another reason why the Macau-Zhuhai border is a key point in a grey market sales network.

Chinese brands are of course also aware of the situation and hope to improve their image. But it may seem surprising that one well-known Chinese brand is attempting to do this through advertising not only in China, but in London as well. In fact, Londoners themselves are confused. As reported by Boruo Chen in Asia Society:
Yili, a Chinese milk company based in Inner Mongolia, recently launched an ad campaign on London's iconic double-decker buses that had locals scratching their heads. The ad shows Chinese men and women, none of whom are recognizable celebrities or athletes, alongside the brand's logo, in Chinese. No Yili products are for sale in London, and few clues on the buses hint as to the significance of these people.
Is this a sign Yili has made a huge marketing blunder? Maybe not. Poleg claims in another article on Buy Buy China that Yili's main goal for its London advertising is not influencing British perceptions. Instead, Chinese consumers are the target:
On closer inspection we found the London campaign is part of a broader effort to restore Yili’s reputation back in China, following its implication in scandals involving Mercury- and Melamine-tainted milk formulas. The campaign is orchestrated by Ogilvy & Mather and includes a cooperation with Youku, China’s leading video site, and a domestic advertising campaign as well. The London ads are used to appeal to Chinese Olympic visitors and serve as fodder for a PR push in the Chinese media, trying to portray Yili as an international brand that is well accepted beyond China’s borders (here, for example, in Chinese).
Poleg is skeptical that such a campaign will be successful. However, Darren Wee in the Financial Times expresses reason for optimism (article is behind a paywall but can be read in full if you click its entry on Google, Bing, Yahoo!, etc. -- do a search on one of the sentences below to find it):
Chinese consumers love western brands, so Chinese companies have begun to advertise in the west to build a reputation at home.

Sales of Yili Shuhua milk rose 12 per cent when it featured in the 2011 Transformers  film.

This result suggests that Yili knows what it is doing, even if Londoners are baffled.
It is fascinating to consider how advertising in a far away country may prove valuable at home for Yili. And not only does it suggest some of the ways in which businesses based outside of China can profit even when a Chinese company is targeting Chinese consumers, it is also an example of how evaluating the quality of a design, whether a marketing campaign or a mystery beverage vending machine, requires understanding its purpose.

If the campaign proves to be a success for Yili, it is possible even more Chinese companies will attempt a similar strategy. Could Londoners soon find themselves regularly puzzling over Chinese ads?

At least for the short term*, London's advertising sales agents probably hope so.

*The question of whether it would be good for them in the long term raises some interesting issues I would want to further consider before commenting.

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