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Topic of PresentationTitle of Presentation
8 Innovation Myths In China
Mitch BarnsThe Nielsen Company
8 innovation myths in China
1) China ≠ Innovation
2) Innovation in China = success guaranteed
3) China ≠Other countries
4) Innovator > Follower
5) Multinational company = Innovator
6) Local company = Follower
7) Local brand = Mass
8) R&D Spending = Success
Myth #1: China is not an innovator
2) Innovation in China = success guaranteed
3) China ≠Other countries
4) Innovator > Follower
5) Multinational company = Innovator
6) Local company = Follower
77) Local brand = Mass
8) R&D Spending = Success
1) China ≠Innovation
No… China is becoming more innovative
# of patents granted ('000) in China
114 132182 190 214
268
352412
582 596
Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008 Y2009 YTDSep10
Data Source: State Intellectual Property Office of PRC
+19% CAGR +32% CAGR
China is projected to lead in patent activity…patent filings in China will outpace Japan and the U.S. in 2011
Thomson Reuters
2008, Coca-cola constructed global R&D centre in Shanghai (90MM US$)
Attracting global giants’ innovative brains
2003, GE opened global R&D centre in Shanghai (64MM US$)
2006, Pepsi set up the 1st overseas R&D centre in Shanghai
2009, Unilever launchedglobal R&D centre in Shanghai (50MM Euro)
2009, Kraft established their Asian biggest biscuits R&D centre in Suzhou
2010, Nielsen set up the 1st global R&D program outside the US in Beijing
2010, P&G debuted global R&D centre in Beijing (80MM US$)
China is 3rd biggest country in terms of innovation testing
Year 2007 Year 2008 Year 2009 YTD 2010Country Country Country Country
1 USA USA USA USA2 UK UK UK UK3 Germany France Germany China4 France Germany France Germany5 Brazil Brazil Brazil France6 Italy Canada China Brazil7 Canada China Italy Italy8 China Italy Canada Russia9 Mexico Mexico Mexico Mexico
10 Spain Spain Spain Japan11 Japan Russia Japan Canada12 Australia Japan Russia India13 Russia Australia Thailand Spain14 Thailand India India Turkey15 South Africa Thailand Australia Australia
Ranking
Data Source: The Nielsen Company
Projected 2nd in Y2011
Client spending on innovation testing with Nielsen by country
迷思二:在中国创新很容易Myth #2: Innovation in China is easy…
1) China ≠Innovation
3) China ≠Other countries
44) Innovator >
Follower5) Multinational company
= Innovator
6) Local company = Follower
7) Local brand = Mass
8) R&D Spending = Success
Business potential in China = 1.3 Billion Population
X 10% PenetrationX Once purchase per year X 10 RMB per purchase
= 1.3 Billion RMB
2) Innovation in China = success guaranteed
1.8 million0.5 million0.8 million# of Handlers
1.8 billion RMB1.6 billion RMB2.0 billion RMBYearly Retail Sales
94% WTD68% WTD88% WTDDistribution
> 100 SKUs~ 100 SKUs~ 40 SKUsProfile
18 years17 years18 yearsExperience in China
ToothpasteLaundry Powder/LiquidShampooCategory
Brand
No… Mega brands require long term commitment
Data Source: The Nielsen Company
2% of ideas are actually successful in market
~ 1000
~ 200
~ 80
<25
Prioritize Concept
Refine Mix
Launch Product
Track Performance
SnapshotPreBASES
BASES IBASES II
20% pass screening stage
40% pass final validation stage
30% sustain in the market
BASESTests in China
InnovationProcess
Data Source: The Nielsen Company
Myth #3: China is different from other countries
1) China ≠Innovation
2) Innovation in China = success guaranteed
4) Innovator > Follower
5) Multinational company = Innovator
6) Local company = Follower
7) Local brand = Mass
8) R&D Spending = Success
3) China ≠Other countries
While China is different in terms of culture and habits
More likely share negative
More likely to share positive
China most likely to share negative opinion online
Chinese take shower at night
White is perceived beautiful
Child is the king in the family
Chinese prefer indirect expression
…the ingredients behind innovation success are common across countries
Salience
Communication
Attraction
Point of Purchase
Endurance
Distinct consumer proposition
Catching attention
Internalized message Focused message
Credibility
Find in store & on shelf Acceptable Costs
Performance versus Expectations Longevity
Interest
Lack of barriersSubstantial need/desire Unique solution
12 success criteria derived from 78 measures
But the hurdle to reach on these measures is higher in China
Competition is intense
Retail environment is diverse
• 3.3 million outlets in Y2009• Only 2 of top 10 retail chains are multinationals• Huge difference between regions (only 7% retailer chains
operate in both Shandong and Guangdong)
Data Source: The Nielsen Company
Success hurdle of innovation is higher in China
Global Database China Database
+10%
Median CPI-2%
26.3% 29.4%26.8%
US, UK Database
# of Brands contributing 80% sales (Shampoo)
China20
Brazil10
France 11
Myth #4: Innovators are more successful than followers
1) China ≠Innovation
2) Innovation in China = success guaranteed
4) Innovator > Follower
5) Multinational company = Innovator
6) Local company = Follower
7) Local brand = Mass
8) R&D Spending = Success
3) China ≠Other countries
Not always… First mover can have advantage if you are able to…
Create the categorySet high entry barrier&
• Target relevant needs by better understanding consumer
• Be disruptive and provide unique solution
• Educate consumers to adapt to the new category and in the long run change the behaviour
• Promote expert image as the category founder
• Quickly build strong awareness and accessibility
• Plan a long-term investment and sustain the support
23% Hair conditioner : Shampoo 23%15% Fabric softener : Laundry 15%
But there is no guarantee that first mover can win
Listerine came first into China but mouthwash is still an underdeveloped category
Mouthwash is only 4% of toothpaste today in SH, BJ, GZ
Nescafe successfully introduced instant coffee into China and is still the #1 brand in today’s market
Same size as Tea PowderDouble size as Tea Bag
Data Source: The Nielsen Company
Comparatively…
As a follower, simply copying rarely works
Ba Wang Softto
Data Source: The Nielsen Company
National ‐ Value % Share
0
2
4
6
8
MAR05 AUG05 JAN06 JUN06 NOV06 APR07 SEP07 FEB08
Softto
Ba WangBa Wang boomed from Y05Softto launched a similar campaign in Y07
• Quick action: beat first mover before it dominates the market
• Outspend the first mover in terms of distribution and awareness building
Second movers also have a chance to win
For “me too” followers To enter a saturated category
Xiang Piao PiaoMilk Tea L’Oreal Paris
Shampoo
Sales Performance
JAN0
8
MAR
08
MAY
08
JUL0
8
SEP0
8
NOV0
8
JAN0
9
MAR
09
MAY
09
JUL0
9
SEP0
9
Media Support
JAN0
8
MAR
08
MAY
08
JUL0
8
SEP0
8
NOV0
8
JAN0
9
MAR
09
MAY
09
JUL0
9
SEP0
9
Distribution Support
JAN0
8
MAR
08
MAY
08
JUL0
8
SEP0
8
NOV0
8
JAN0
9
MAR
09
MAY
09
JUL0
9
SEP0
9C 100 Hello C
• Be salient to differentiate from the first mover and be an innovator in specific domain
• Leverage on manufacture / parent brand equity
Myth #5: Multinational companies are innovative in China
1) China ≠Innovation
3) China ≠Other countries
4) Innovator > Follower
6) Local company = Follower
7) Local brand = Mass
8) R&D Spending = Success
2) Innovation in China = Success guaranteed
5) Multinational company = Innovator
Import, localize and acquire are three more common ways for multinationals to play in China
Directly import …
Localization…
Home grown innovation …
versus
Acquisition …
ImportMNCNestleBreakfast Cereal
ImportMNCNescafeInstant coffee
ImportMNCLiptonTea Bag / Tea Powder
ImportMNCCokeVitamin Water
Create BrandLocalWang Lao JiAsian Traditional Tea
Create BrandLocalNutri ExpressJuice Yogurt
ImportMNCPampersBaby Diaper
Create BrandLocalJojosLiquid Hand Wash
ImportMNCListerineMouthwash
ImportMNCNiveaToner
ImportMNCNiveaMale Skin Care
ImportMNCNiveaDeodorant
Way of InnovationMultinational / LocalInitiatorNew Category
There are few “true” China specific innovation from MNC’s
MNC’s should initiate more China specific innovation
。 Immersion Better understand Chinese consumers, not only the superficial behaviour
but needs and culture in depth
Co-creation Develop concept and product locally with
the end users
Execution Be prepared for great investment and long term
commitment
Myth #6: Local companies do not innovate
1) China ≠Innovation
3) China ≠Other countries
4) Innovator > Follower
5) Multinational company = Innovator
7) Local brand = Mass
8) R&D Spending = Success
2) Innovation in China = Success guaranteed
6) Local company = Follower
No… Local companies can be innovative thanks to superior consumer understanding
Apple Peel
Electric Racket
Nutri-Express
Myth #7: Local companies cannot play in premium segment
1) China ≠Innovation
3) China ≠Other countries
4) Innovator > Follower
5) Multinational company = Innovator
6) Local company = Follower
8) R&D Spending = Success
2) Innovation in China = Success guaranteed
7) Local brand = Mass
Demonstrate the advantage by using Chinese elements•Ingredients: Yun Nan Bai Yao, Ba Wang, •Origin: Telunsu (Inner Mongolia), •Emotion: Vive (Shuang Mei)•Nationalistic feel: Wang Lao Ji
Wrong… Local companies can also be successful in premium by playing the “Chinese card”
Yun Nan Bai Yao
Price index = 400
National ‐ Value % Share
02468
SEP07 FEB08 JUL08 DEC08 MAY09 OCT09 MAR10 AUG10
Data Source: The Nielsen Company
• WTD reaches 66% and still increase• Sales per store is continuously growing
Heavy support by leveraging strong relationship with retailers and media channels, especially
•Local retail chains•Sales network in traditional trade
Leveraging on domestic brand recognition
Myth #8: Success of innovation heavily depends on R&D spending
1) China ≠Innovation
3) China ≠Other countries
4) Innovator > Follower
5) Multinational company = Innovator
6) Local company = Follower
7) Local brand = Mass
2) Innovation in China = Success guaranteed
8) R&D Spending = Success
No… Success of innovation is a combination of knowledge, process, engagement and talent
Talent
Process
Engagement
Market Knowledge
• Long-term plan• Continuous support• Responsibility of consumer
education
• Strong leadership• Creative team• Innovation mindset
• Consumer understanding• Category knowledge• Forward looking
• Systematic• Rigorous• Speed to market
Success = Knowledge X Engagement
X ( Process + Talent )
Voice ControlBluetooth
Touch Screen WifiMulticolorScreenWheelMini HD
Y2009Y2008Y2007Y2006Y2005Y2004Y2003Y2002Y2001
iPodTouch
3G
iPodTouch
2G
iPodTouch
1G
iPodVideo
iPodNano
iPodPhoto
iPod3G
iPod2G
iPod1G
Apple is recognized as the most innovative company with all 4 qualities
Windows System
iPodMini
Photo Function
iPodShuffle
Video Function Voiceover
Innovations
New Functions
Find your own innovation strategy
Nutri-Express(Juice Yogurt
(VC Juice)
Ji Huo – “Activate”(Functional Drink)
Smoothie(Juice Milk)
You You(Milk Tea, Milk Coffee)
Pi Er Cha Shuang(Beer flavoured Carbonated Tea)
(Hair Care) (Deodorant)(Hair Care)(Skin Care)
Feicha Cola (Coffee Cola)
)Shuang Wai Wai
(Yogurt for Children)
8 innovation truths in China
1) China = Land of innovation
2) China = Opportunity + Investment
3) China ≌ Globe
4) Innovator <> Follower
5) Multinational More localized China innovation
6) Local Be bold to innovate
7) Local Break the boundary of price barrier
8) Successful Innovation = knowledge X engagement X
( Process + Talent )
Topic of PresentationTitle of Presentation