The CMO Show: Matthew McKenzie on the challenge with China

China; It’s one of the most crowded and competitive marketplaces in the world. How do you stand up to a challenge like that?

To say Matthew McKenzie, cofounder and director at The Export Group, is a man with a passion for Asian business would be a complete understatement. And with an impressive record working across Australia and Asia for some of the world’s biggest brands, he knows what it takes to make or break it in the Chinese market.

This episode of The CMO Show takes a deep dive into the world of launching new brands to market in one of the most crowded places in the world: China. It’s recognising the sheer size and volume of competition across the many markets within China that sets successful brands apart, says McKenzie.

“If there is no history of your product and your brand and in many instances there’s not a long history of the category in China, you really need to be thinking quite differently,” he told CMO Show hosts Mark Jones and JV Douglas.

“It’s an exceptionally fragmented marketplace from a brand perspective and every brand, regardless of their size and scale back in their home market, comes up here as a junior.”

Tune in as Mark and JV discover what it takes to redefine yourself from market leader to market challenger, how to understand Chinese market demographics, and why to think about these things before you attempt to break in. All that plus plenty of cultural anecdotes!

Listen to the podcast above and subscribe on iTunes and SoundCloud.

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The CMO Show production team

Producers – Megan Wright & Tom van Leeuwen

Audio Engineers – Jonny McNee & Daniel Marr

Got an idea for an upcoming episode or want to be a guest on The CMO Show? We’d love to hear from you: cmoshow@filteredmedia.com.au.

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Transcript:

Hosts: Mark Jones (MJ) and Jeanne-Vida Douglas (JVD)
Guest: Matthew McKenzie (MM)

MJ:   Our very special guest is Matthew McKenzie, co-founder and director at The Export Group.  Thanks for joining us, Matthew.

MM: Thanks Mark.  Good to be here.

MJ:   I want to actually begin with your story because it’s a creative one, isn’t it?  You came to prominence or at least our attention with the work that you did with Weet-Bix in China and it seems to me that was a very creative story.  

MM: I think, yeah, it’s certainly been a long and winding road, my pathway to moving up here to China.  I’ve worked, I’ve worked for a number of major brands out of Australia, you know, bringing their products and marketing their brands here in in China and with Weet-Bix, I was associated with them for a long period of time, you know, we supported launching the brand from a, you know, from basically selling the first box up here to late last year when, you know, it was a, you know, it’s been a great success, a great success story and now it’s handed back to a local office here that is under the stewardship of Sanitarium.

MJ:   What was the, you know, the moment, if you like, the creative inspiration that thought, “If I get this cereal on a TV show [Laughs], it’ll go gangbusters.”  Was it like a – for anybody who doesn’t know the story, maybe you can fill in the blanks for us but ostensibly you seeded it with a program called Ode to Joy.  They had a woman who’s Alyssa Chia and she is a super mum over there, a reality TV star.  She ate the product on the show and the short story is the sales went gangbusters, right?

But I guess that’s the creative thing behind that was like – did you foresee that?  Was it just kind of a passing idea?

MM: Well, I think, you know, China there’s so many things going on at any, at any given time.  It’s such a busy market, such a creative market that really what we focused on is being disruptive and, you know, it wasn’t a matter of just simply putting the product on a TV program and then, you know, waiting for the sales to come in and waiting for a massive reaction, you know, we sort of thought through creatively and actually put the brand name into the dialogue of a TV program.  Then, you know, and then that was sort of followed up on social media up here which is, which is, you know, a phenomenon, particularly with WeChat.  So a lot of people started sharing.  There was, you know, great uplift in interest, you know, purely because we’d put the product there but also it had been sort of built into the dialogue but also built into the storyline of an empowered, strong, you know, young mother/wife, housewife, and a lot of people aspire to being like her.  So it was really – there was a lot of sort of thought that went into putting it on the TV program and I think that the success of that was probably beyond her expectation, to be fair, at the time, yeah.

JVD: And it sounds like product placement in China then doesn’t differ all that much from effective product placement in other countries, like you really need to fit in with the theme of the show, it really needs to be contextualised and you really need to grab a personality that has that sense of zeitgeist, that has that sense of someone people want to emulate and listen to.

MM: Oh, totally.  I think, you know, just putting product onto TV programs or onto billboards or have them, you know, sponsored by or have them associated with megastars is very similar in China as it is to in the West where if the brand doesn’t really fit that personality, it doesn’t fit that that person, doesn’t fit that particular space that it’s in, then it kind of just doesn’t make any sense at all. But I think that, you know, there really needs to be a lot of strategic and creative thought around what does this brand stand for and who is my key target audience and will this, will this resonate with them?

JVD: So what are the things that really work when it comes to B2C marketing in China?  What should brands be asking themselves before they move into this market?

MM: Well, I think that – again, going back to the fact that the market is so crowded and so busy, I think what you really need to do as a brand is really understand what’s the essence of your brand, what does it stand for and really, what do you want to be known for or famous for?  And these are the sorts of questions that we ask ourselves with all the brands that we work with up here.  Once you’ve worked out what that is, I think then it’s very important to build communication around that, around that one thing that it, that, you know, to really push that message out to the consumer group.  If you don’t – if you have sort of a bit of a confused message or if you’re not very clear in in in exactly what it is that you’re standing for, it’s very easy to get lost in this market.

JVD: And what took you to China in the first place?  Like how long have you been there and I guess how has it changed during the time that you’ve been working there?

MM: Well, it’s interesting.  I’ve been living up here for a couple of years now but I’ve been coming back and forth for the last 15 years and, you know, dairy – I first started my career in the dairy industry and I was sent up to China as a, as a young sort of enthusiastic export sales guy working for a major Australian business.  I came up here with the job of trying to sell one-litre UHT milk which as we all know is extremely popular and has been a great success in China these days.  But back in the early days, I remember sitting in meetings in China where people would say, “Oh, look, all the consumers here are lactose-intolerant.  There’s no interest in, there’s no interest in dairy” and I said, “Oh, that’s fine.  What about, what about a use for coffee, you know, putting milk into coffee?” to which I was laughed at and they said, “Oh, well we drink tea here and it’s not English-style tea.  It’s Chinese tea.  So we would never drink milk”, you know, and you sort of think about that, those kind of meetings 15 or 16 years ago to where we are today.  Where I live in Shanghai, there’s six coffee shops on my, on my block alone.  Every office building seems to have, you know, coffee everywhere.  Milk has gone through the, through the roof.  The adaptation of Western-style breakfasts, etcetera, you know, all of these things have changed and evolved massively in the last 15 years and I guess it’s been a real joy to watch this country and this market really evolve into, you know, what is now probably one of the more sophisticated markets around the world.

JVD: So what was it that changed exactly?  It sounded like you started off speaking to some very sceptical potential buyers.  Was it – did they change or was there, did some products that have hit the market that forced people into a new realm of thinking?  Like what happened?

MM: I just think it’s been a process of the market opening up and people having access to more information which has really led to the growth of a number of categories here that people 15 years ago couldn’t have envisaged.

MJ:   So Matthew, describe briefly for us your business, The Export Group. So clearly you’ve got an expertise in terms of understanding the local market.  What are you seeing with the clients from an Australian perspective?  What are they thinking about?  What are they coming to you for and what’s that picture starting to look like in this year and beyond?

MM: We’re really a business, basically a local business manager on behalf of our client.  So for example, we’ve a number of clients in Australia that don’t have an office or an operation here on the ground or don’t have necessarily the in-house expertise to develop and execute a strategy on the ground up here.  So we really work hand-in-glove with a number of businesses to execute on their behalf on the ground here in China and also I think to provide that sort of cultural translation, so to speak, of, you know, what may resonate with a consumer group in Australia doesn’t necessarily work in the marketplace up here.  So I guess we are also that bridge between the two, between the two markets.  Companies from Australia now are really I think coming to the realisation that China is very competitive, that China is very sophisticated and that they actually need to be armed with the right, the right strategy and the right execution, the right execution or capability on the ground.  Up until, you know, even probably a couple of years ago, I think that there was a bit of a misconception with China, that with the market so huge and it’s growing so quickly that, you know, simply we put, we put product on the ground and it’s, you know, imported from Australia, it’s clean and green, etcetera and that will be enough, you know, but if we think about it globally, it’s not just Australia with that pitch.  We’ve got New Zealand just across the, across the Tasman, we’ve got the Europeans, the North Americans, the South Americans, everyone – all of these countries have got their eyes on China and so it, it’s actually become exceptionally sophisticated and very competitive and without the right strategy in place, it’s a place we can get lost very quickly and ultimately fail in your market entry.

JVD: So what are some of the classic errors that people keep making?  I mean, you said, you were talking about some of the assumptions companies make.  What are, what are some of the other errors that you see time and time again?

MM: Well, I think leaning too much on your strategy from a domestic perspective.  So, you know, the fact that, the fact that in in Australia for example a brand may have, you know, very high recognition, it may have very strong history and it may be, you know, something which is commonly used in Australia.  That doesn’t necessarily resonate up here.  So I think that that’s one error of really just transplanting a strategy from Australia and expecting it to work in China.  Secondly, it’s probably the old chestnut that we hear very regularly from different companies around the world is, “Oh, if I can just get 1 per cent of the market in China, you know, that’s basically going to emulate our Australian business.  The problem is that there’s generally 500 companies in that, [Laughs] in that space all emulating that 1 per cent market share.  So it just, it just doesn’t play out that way.  

JVD: It sounds like you’re teaching established brands that they’re challenger brands again, that they have to kind of start from scratch.

MM: Well, absolutely.  I mean, if there is no history of your product and your brand and in many instances there’s not a long history of the category in China, you really need to be thinking quite differently.  We recently did some work with a skincare company from Australia and one of the interesting findings was that the market – and skincare is a huge, you know, it’s a huge category up here, the market leader which is a globally-known brand has a market share of 5 per cent and they are far and away the biggest, the biggest brand in the category in which they play in China but their market share is only 5 per cent.  So it’s an exceptionally fragmented, you know, marketplace from a brand perspective and really, you know, every brand regardless of their size and scale back in their home market, they come up here as a, as a junior, you know, starting out from scratch.

MJ:   Just briefly on the macro context, are you seeing more companies really seeing China as a fresh opportunity, and I’m thinking kind of in the recent sort of last 12 months and particularly if we look at sort of the economic cycles and some of the stuff that’s going on in America and Europe, a lot of the economists are pointing to, well, I guess reminding us that it is all about China and India from a – if you were like a long-term growth perspective.  So has that been reflected from, you know, on the ground, if you like, from your perspective?

MM: Look, I think so.  A lot more companies are showing a lot more serious interest in China now and the interesting thing is if you look at also from the macro level, you look at Brexit and the whole situation in Europe at the moment, we’re seeing a huge amount of interest from UK businesses that are looking beyond Europe and they’re looking at the Far East and obviously China is at the centre of that.  Yeah, definitely it’s all, it is all about China, in my view and I believe in it so much that I, you know, sold my house and my car and I moved up here to be a part of it.

MJ:   Amazing.

JVD: So tell me, I understand there’s traditionally been a fair bit of distrust of Chinese brands by Chinese consumers.  Is that still lingering and is that sort of being overcome?  Are Chinese brands reinventing themselves as well?

MM: Look, I think there is still mistrust in the marketplace and it’s not necessarily just of Chinese brands.  It’s just a mistrust of not necessarily all brands but things that aren’t recognised to the, to the consumer here, so new brands that come in, people are always suspicious and they’ll do their research on a brand.  I think that a number of the larger Chinese enterprises have taken some interesting approaches around the world, you know, by either acquiring large overseas businesses, there’s been a number of those down in Australia and also I think emulating Western brands in in market here and in the food space in particular, a lot of the Chinese brands now are actually producing some really interesting, you know, some great quality products and they’re branding which, 10 or 15 years ago was sort of very state-owned enterprise, not much creativity, etcetera.  They’ve really, they’re really quick adopters and learning very quickly from their Western counterparts and Western competitors.  So yeah, I think definitely there’s a, there’s an improvement in what’s happening here on the ground from the Chinese businesses and they are formidable competitors as well.  

JVD: What about demographics in China?  Like we’ve got that classic split of the sort of cashed-up baby-boomers and the no-brand loyalty millennials and things like that that are fairly stable in in Western markets.  What do, what do Chinese demographics look like?

MM: Well, what I find with the Chinese people is really you’ve got your sort of millennials who never really grew up not having access to being able to purchase things, you know, the older generation are very fickle, the people that grew up through the cultural revolution and had lived through that period of, you know, major upheaval and uncertainty in China.  They hold onto their money and they’re very, very careful in how they spend.  The younger the, the younger the person gets, you know, what we’re finding is that they’re open to new brands, they’re very open to spending, they’ll try new things, they’ll eat out at fancy restaurants, they’ll buy nice cars, they’ll travel overseas and they’re actually very much in the mould of Western, their Western counterparts now.

I mean, if I look at myself compared with my parents, you know, obviously there was a difference in in, you know, the Australia that we grew up in.  There’s a difference in technology, there’s a difference in what’s been available to us.  I would say that’s amplified at least tenfold here in China, just the changes and, the changes that have occurred over the past 30, 40 years are just hard to get your mind around.

MJ:   Just going back to the Weet-Bix example and influencer marketing, how are you seeing that really taking off this year?  I know that in Australia, influencer marketing is still very much on the radar as a strong growth area.  What role will it play in China, do you think?

MM: Look, I think, I think like everything in China, it’s evolving.  It’s continuing to evolve.  It’s not a static thing.  What I’ve started to notice this year is – we call them KOLs, so Key Opinion Leaders up here and what I’ve noticed with the KOL market now is it’s really evolving into – from, you know, sort of a static picture of people or people using products, etcetera in advertisements to – a lot of now livestreaming.  So over WeChat, for example, there’s a lot of, you know, livestreaming and if I go back to the skincare example or the skincare company that that I’ve been talking to, you know, they’re really looking at the possibility of getting some not superstar sort of level KOLs but people that actually resonate with their brand, resonate with their core consumer target group and also that believe in, believe in the brand and believe in the product and then they do sort of live streams where they may have, you know, potentially 100,000 viewers and they’re talking about the product they just – they show people how it’s to be used, etcetera.  So I’ve noticed a real interactive sort of development of that that whole KOL/influencer piece in China.

MJ:   Amazing.  And on the money side of things, how is that being worked out?  How mature are they when it comes to, you know, negotiating prices based on, you know, audience size, etcetera?

MM: They’re very savvy.  The one thing I’ve learned about the Chinese is they’re exceptionally savvy and where they see an opportunity to exploit for profit is, they will do that.  One of the interesting pieces with the KOLs now with the livestreaming is that not only are they describing and explaining and sort of exploring a product and a brand with their audience, but you can also actually sell the product at the same time.  So it’s almost like a large sales pitch and so where we’re really trying to move towards now is rather than paying big upfront fees, is negotiate with some of these KOLs to say, “Look, you know, you sell, we pay.”  

MJ:   Commission?

MM: Yeah, absolutely.

MJ:   This is like sort of daytime, you know, cable…

JVD: [Laughs] TV.

MJ:   …TV, you know.

MM: Yeah, exactly.

MJ:   Reinventing that whole online sales thing, right?

MM: Oh, absolutely and this is all done via, pretty much via mobile device now so it’s almost next generation compared to, you know, the TVSN-type model that I was quite familiar with when I was in, back in Oz.

JVD: And tell me, some of those sort of global trends, do they hit very hard in China?  Like I’m thinking of the unboxing and the, I don’t know, I guess bottle-flipping and things like that.  Do you see those move their way through sort of the Chinese community as well?

MM: Absolutely.  Absolutely.  See, one of the things to remember is that there’s been a massive diaspora over the past, you know, couple of generations where people from mainland China have, you know, emigrated to Europe, to Australia, to America, to South America, all over the world and so now with sort of social media and the ability to communicate and interact on a global scale, what you’ve got is millions of Chinese people now communicating back to their cousins and their families and their relatives back in China so anything that – any sort of trend or happening which is large around the world is by default coming into China almost at the same time as it is everywhere else in the world.

MJ:   And how do you, how do you go about bringing all of these threads together because I think one of the things that many people still try to get their heads around is just the sheer size of the market if you think about the number of cities and provinces and the complexity that’s associated with that from a cultural standpoint.  How do you go about pulling together a marketing strategy from ostensibly a standing start?

MM: Yeah.  Look, I think that’s a really great question and I think that what we really, what we really focus on is I guess chunking it down.  So what are we looking to achieve in the first six to 12 months?  What are we looking to achieve in the, in two to three years’ time and then longer term, what is the brand looking to achieve?  And I think once, once you’ve sort of got that long-term directional piece and, you know, why is this brand coming to China, what is this brand looking to achieve in China, then it’s down to really chunking down, do we focus on, you know, the region around Beijing and sort of the satellite cities around Beijing?  Do we do an east coast focus, the Tier-1 cities down through Shanghai and the basin here?  Or do we actually skip that and go straight into sort of a second or third tier market where it’s not quite as sophisticated as yet but we see, we see the future there.  China is huge.  China is highly fragmented and due to its size and scale, I think it’s, it’s almost multi-markets within the one country.  

MJ:   That’s right.

MJ:   And it sounds like you might do a local test and learn so, “Let’s just trial it in an area, etcetera and then see if it has resonance.”  

MM: Absolutely and I guess what then you can also overlay with that is a whole ecommerce strategy and the thing with ecommerce which is fascinating is that it’s very difficult to control geographically.  So if you for example put a whole lot of effort and attention into, you know, building a brand in, let’s use Beijing as an example, so you spend a lot of effort, time and money in doing that, it’s interesting because a lot of people travel in and out of Beijing or a lot of people – a lot of key influencers in Beijing so they start seeing, they start seeing, they start posting, people start showing interest in cyberspace and all of a sudden, you’ve got people from Guangdong Province, you may have people from Hunan Province that are interacting socially with a campaign which is, has been successfully run in Beijing and then they’ll start researching a brand or a proposition and then at the click of a button, they can, they can jump onto any of the major ecommerce platforms and provided you’ve got your distribution in place, they can then purchase the product.  So there’s a lot of positive rub-off I think of having a bigger splash in a single market because that can then actually influence far beyond where it could have previously done.

JVD: Awesome.  I tell you what, that’s a nice place to wrap up and we might switch over to 21 questions.

MM: Sure.  Fire away.

JVD: What are you grateful for?

MM: Grateful for my parents and the support they gave me.

MJ:   Do you like, do you like rain?

MM: Love rain.

JVD: In the movie of your life, who will play you?

MM: I’d like it to be Leonardo DiCaprio [Laughs].

MJ:   What’s your greatest career fail?

MM: Not coming to China earlier.

JVD: Beach or mountain?

MM: Mountain.

MJ:   Best ever career advice?

MM: Not right, not wrong, just different.

JVD: I love that one.  Summer or winter?

MM: Summer.

MJ:   Who is your hero?

MM: My dad.

JVD: If you weren’t a marketer, you’d be a…?

MM: Airline pilot.

MJ:   [Laughs] Chocolate or strawberry?

MM: Oh, definitely chocolate.

JVD: What did you have for breakfast?

MM: Two Weet-Bix and milk.

MJ:   [Laughs] Nice. What would you rather have had?

MM: I’d rather have had coffee and a croissant.

JVD: What was the last conversation you had with your parents?

MM: Good question.  I’ll see them soon.

MJ:   Scrunch or fold?

MM: Fold.

JVD: If you could change one thing about the marketing industry, what would it be?

MM: What would it be?  Wow.  I’d reduce the number of wankers in the industry.

JVD: [Laughs]

MM: Can I say that [unclear 0:26:46]?  Yes I can.

MJ:   Moving along… [Laughs]

JVD: [Laughs] What’s your greatest frustration?

MM: Greatest frustration?  Being separated from my son.

MJ:   Touch, taste, sight, hearing and smell.  Which would you sacrifice to save the rest?

MM: Smell.

JVD: Dogs or cats?

MM: Cats.

MJ:   Favourite book?

MM: Favourite book, Poorly Made in China.

JVD: [Laughs] And if you had to change your first name, what would you change it to?

MM: I’d change it to, I’d change it to Matthew because Matthew is not my first name.

JVD: Ah, there you go.

MM: Yeah. [Laughs]

JVD: [Laughs] This – we’ve actually had that response a few times.  What is your first name?

MM: My first name is Donald.

JVD: Well, Donald or Matthew, thank you so much for joining us on The CMO Show.  It’s been a great chat, really insightful.

MM: My pleasure.  Thank you very much for having me.

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