China E-Commerce: Be Careful of the BellCurve

 

Frank Lavin

 

One of the more common questions I encounter inChinae-commerce is how to model the success of a product in the market.

 

Will my product work or not, and to what extent? There are probably several valid approaches to answer this, but there’s also a potential problem with one of them. The flawed methodological approach I see frequently when discussing prospects for a brand in Chinae-commerce is typically something like this: A certain category is “X” large or growing at “Y”%, therefore Chinais an attractive market for your product.

 

So, we will hear that women’s face cream is a $4 billion market or pet food is a $1 billion market inChina, to illustrate the point with some made-up numbers. Therefore, the faulty argument goes,Chinais a good market for your face cream or your pet food.

 

But the logic is faulty for at least three reasons: the competitive map, brand strength and Say’s Law.

 

When you look at competition, the success of a category probably has little to do with your brand’s ultimate success in the market. It might make sense to keep away from the middle of the bell curve (where the market is strongest), because that is likely where competition will also be strongest. What matters more than the strength of the category is the overall competitive map.

 

What if you produce shampoos, and the most-popular scented shampoo inChinais strawberry, which accounts for 30% of the market (again, making up data here to illustrate). Lime shampoo, on the other hand, accounts for 3% of the market. So strawberry is what you launch, right?

 

Not so fast. First, take a look at the competitive map. Every shampoo producer sees the same data you do, so you may well face a problem if you simply follow the herd. While the lime shampoo market segment is one-tenth the size, that also means competition could be tamer. Remember, your brand will be deeper into the premium space inChinathan you are in your home market. It might make sense to play for the edges of the bell curve, rather than the middle.

 

Brand strength is the second reason. Are you following the market or are you shaping it? If you are a strong premium product, you are shaping the market. Consumers seek you out, and they will insist on your particular brand. If you are a commodity product, you’re following the market. Many consumers might not know who you are, but you represent good value for money, so they are comfortable with your offering.

 

One key test here is social media. If consumers want to discuss your product and want a conversation with your brand, you have a strong brand. If they are indifferent to your brand and don’t discuss it on social media, chances are you’re considered more of a commodity.

 

The somewhat-related third reason is there is a little Say’s Law in every brand. Named after the French economist Jean Baptiste Say, this law of economics holds that supply creates its own demand. It’s not always true, but there’s probably at least a little truth in it for every successful brand.

 

For example, Procter & Gamble did not wait for consumers to write asking for mint- or lemon-flavored toothpaste. They introduced them into the Crest brand family, to roaring success. The supply of the product induced demand. Some consumers have a penchant for experimentation, and many of us are willing to be educated.

 

The best recent example inChinamight be Starbucks. There was not much in the way of intrinsic demand for coffee when Starbucks launched. People were unfamiliar with the product and it was not readily available. Supply helped create demand. And let’s give Starbucks credit for shrewd marketing, as well.

 

So, maybe the lack of demand for lime shampoo reflects as much that there are many more suppliers selling strawberry and pushing that market segment.

 

Sure, look at category trends. But remember, if you’re a premium brand, you are in the market to shape those trends. If you are a mass brand you are simply riding the wave.

 

Evaluate the competitive map, measure the strength of your brand, and remember Say’s Law.

 

In China, it is not as important to compete in the largest market segment as it is to dominate the market segment in which you compete.