The Power of Word-of-Mouth in China

You just can’t stop the word from spreading in China — as McDonald’s recently discovered. In March, the American fast food chain invited people who had discount coupons on chicken wings from any restaurant in China — including rivals like KFC — to use them to buy McSpicy Wings at a discount. Building on the buzz, McDonald’s promised that if one million people in China were to pledge their love online for McSpicy Wings, it would hand out free chicken wings for seven days at seven restaurants. In just four weeks, more than two million people signed the pledge and McDonald’s happily handed out 10,000 free wings. Because of these word-of-mouth promotions, sales of McSpicy wings shot up by 10% in March over the previous month.

Physical or virtual, word-of-mouth is an essential brand-building tool for companies in China. Sixty per cent of Chinese consumers say friends and family members (F&F) are a major source of product information, based on which they make purchase decisions. For instance, according to one study, 66% of consumers said they would consider F&F recommendations when choosing a moisturizer compared with just 38% of respondents in the US and UK.

China is still a land of consumer firsts, with several products launched fairly recently and few brands having been around long enough to inspire loyalty. Consumers are also trading up to brands that are more expensive for the first time, so seeing a friend use a product serves to reassure them. The less a consumer knows about a product or the more conspicuous the choice, the more they are likely to care about others’ opinions. Anxious not to lose face, they reason: “The more people I know that are using a product, the more confident I can be that it will not fall apart, malfunction, or otherwise embarrass me.”

What many marketers don’t realize is that people in China live close to friends and family, so word-of-mouth is often a local phenomenon. For instance, 97% of consumers in Chengdu and 87% in Hefei have heard of the beer brand Snow, but only 4% of consumers in Nanjing and 9% in Guangzhou are aware of it. In fact, beer brand shares touched double digits in just two of the 22 regional clusters we track. Similarly, there are over 800 motorcycle brands in China, but most people will know only the two or three brands sold in their area. No motorcycle brand sold more than 10% of the roughly 20 million units that consumers bought last year in China.

For these reasons, successful companies in China cluster investments in a few geographic markets. This allows them to gain a market share after which network effects kick in, accelerating growth and improving profitability. Companies that thoughtfully sequence their investments are better prepared to wage the battle for other regions. The head of a multinational food company that has been successful in building a frozen dim sum brand told us that he resisted pressure from headquarters to accelerate a national roll-out, insisting instead on expanding region by region.

To build brand awareness, companies often slug it out for mindshare in those retail outlets and shopping centers at which key social groups shop. For instance, C’estbon, which is a bottled water brand, has a very small national share, but a 25% to 30% market share in southern China. Most of its sales are to small stores and restaurants in that region, where the brand has a dominant 45% to 50% share.

Some multinational companies have focused on wooing influencers or persuaders, usually through events. For instance, after Sony offered free photography classes, attendees said they were more likely to recommend the brand to friends. Interestingly, sales of camera accessories more than paid for the cost of organizing the events. Sure, the rising sophistication of consumers may reduce the reliance on word-of-mouth in future, but no marketer can afford to ignore it today in China.

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

Source: Harvard Business Review (April 30, 2010)

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posted on April 29, 2010
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