Recently Best Buy, the US electronics retailer, announced plans to close all its own brand stores in China. It will continue to operate the local chain that it has already purchased; "5 star". So what went wrong and what lessons can other business learn from another major Western retailer's rapid retreat from the Middle Kingdom?
Best Buy's failure in the Chinese market can be put down as failure in market differentiation.
Market differentiation is the art of making your offering different (and thus appealing to consumers) from other similar offerings in the marketplace at that moment. Western retailers have failed to understand the Chinese consumer when they begin this process and often find themselves falling into the trap of distinguishing their brand through "quality of service". This is natural because this aspect of the purchasing experience is the key to success in developed nations; Best Buy's strength in the US is that their simple and high touch service makes it hugely appealing to American consumers.
Chinese customers aren't bothered. There are two reasons for this; the first is that money is the central issue for any purchase. Disposable incomes for the emerging middle class are limited and thus they expect the most "bang for buck" right here, right now. Where a Western customer will buy an extended warranty or pay a higher price for service inclusivity, a Chinese customer usually cannot. With "middle class" defined as someone who earns in excess of 3,000 RMB (that's around $400 US) there simply isn't enough disposable income to bet against future problems.
Secondly there is an excess of cheap alternatives, in every major town and city in China you'll be astonished at the ease of access to guys who can fix your electronic issues (or in fact any issue) for almost no money. This is because labour costs are minimal, usually no more than $5 US an hour, and parts are sold with little or no margin as well.
Best Buy's premium offering was way too early an entry in a price obsessed market with an endless supply of skilled low cost labour competing for work. And while the Best Buy brand may be a strong one in the US, it is relatively unknown in China so the "brand cachet" that enables some Western retailers to differentiate their offerings and achieve higher margins wasn't available to Best Buy.
While Best Buy succeeded in differentiating their product offering from the local giants of Gomes and Sunning, they failed to make their difference meaningful to Chinese consumers. Any brand looking to enter China needs to do serious market research that enables them to engage with what local customers want, not what they expect them to want.
Article Source: http://EzineArticles.com/?expert=Nick_Kellingley
Best Buy's failure in the Chinese market can be put down as failure in market differentiation.
Market differentiation is the art of making your offering different (and thus appealing to consumers) from other similar offerings in the marketplace at that moment. Western retailers have failed to understand the Chinese consumer when they begin this process and often find themselves falling into the trap of distinguishing their brand through "quality of service". This is natural because this aspect of the purchasing experience is the key to success in developed nations; Best Buy's strength in the US is that their simple and high touch service makes it hugely appealing to American consumers.
Chinese customers aren't bothered. There are two reasons for this; the first is that money is the central issue for any purchase. Disposable incomes for the emerging middle class are limited and thus they expect the most "bang for buck" right here, right now. Where a Western customer will buy an extended warranty or pay a higher price for service inclusivity, a Chinese customer usually cannot. With "middle class" defined as someone who earns in excess of 3,000 RMB (that's around $400 US) there simply isn't enough disposable income to bet against future problems.
Secondly there is an excess of cheap alternatives, in every major town and city in China you'll be astonished at the ease of access to guys who can fix your electronic issues (or in fact any issue) for almost no money. This is because labour costs are minimal, usually no more than $5 US an hour, and parts are sold with little or no margin as well.
Best Buy's premium offering was way too early an entry in a price obsessed market with an endless supply of skilled low cost labour competing for work. And while the Best Buy brand may be a strong one in the US, it is relatively unknown in China so the "brand cachet" that enables some Western retailers to differentiate their offerings and achieve higher margins wasn't available to Best Buy.
While Best Buy succeeded in differentiating their product offering from the local giants of Gomes and Sunning, they failed to make their difference meaningful to Chinese consumers. Any brand looking to enter China needs to do serious market research that enables them to engage with what local customers want, not what they expect them to want.
Article Source: http://EzineArticles.com/?expert=Nick_Kellingley