Even during the global financial crisis the economy of China continued to boom, causing many global companies to increase their investment in here. Global retail brands aim to penetrate deeply into this attractive market, and thus require an effective brand strategy that takes into account brand localization.

After Chanel's Paris-Shanghai Métiers d'Art Collection, American coffee retailer Starbucks launched green tea drinks and recently KFC added soya milk to their menu . As we have discussed before, brand localization is a balancing act between localizing too much and refusing to localize enough.

Brand localization in China can offer many advantages: firstly, it can expand a brand’s customer base to boost market share. Secondly, supplies can often be purchased at a lower cost and contribute to increased profitability. Thirdly, the action of localization demonstrates a brand’s commitment to local consumers and builds a strong connection with them. A diverse product range can also increase customer satisfaction.

But, as every coin has two sides, localization can be a baffling problem for global brands for a number of reasons:

1. The Pricing Dilemma:
Generally speaking, the international brands price their products higher than the local company, especially retailers. For example, a cup of soya milk is about 1 or 2 CNY from a local retailer, while in KFC, it costs 5 CNY. The price of green tea at Starbucks is 20 CNY, about 3 to 5 times higher than the local offer. However, if a global retailer’s price is too low their profitability will suffer, and often the higher price reinforces the premium positioning of the international brand.

2. The Brand Image Dilemma:
The change of the brand image from international to local may represent the biggest challenge for these international retailers. As we know, prior to localization, global retailers have clear brand images as international, are associated with Western culture, etc.; a brand image totally opposite to local brands. Furthermore, the brand’s positioning defines its target customer; for example young and well educated, having a good job, attracted to Western culture. Brand localization can confuse consumer perceptions of the brand and could result in the loss of the original target consumers.

Mass market consumers may complain that the local food from an international retailer is not as authentic or flavorful as those of local vendors. On the other hand, consumers who value the international or Western brand attributes may not appreciate the change in brand image and end up choosing another global brand instead. In the end, neither group will be satisfied. 3. The Marketing Dilemma:
The higher price and non-localized offering can result in mass market consumers not being attracted to an international retail brand such as Starbucks or KFC. However, when the brand does localize the new target consumer group often has a less purchasing power than the original niche segment. In order to gain an additional 20% turnover, the company usually spends 80% of the marketing budget to capture market share from local competitors and the lost customers due to the change in brand image. Here, more money must be spent to attract consumers, but those consumers usually spend less, so profitability can be affected.

Conclusion:

From the analysis above we can see that brand localization is neither good nor bad for global retailers in China—there are advantages and disadvantages to every approach. However, taking a long term vision of building brand equity, rather than a short term view to maximize sales revenue, can benefit any brand. Brand localization decisions require an in depth knowledge of consumer segments, competitor positioning, and market trends, which can be realized by conducting brand research. This market knowledge is used to formulate brand strategy, which then becomes the guide for all future branding initiatives to build both local and international brand equity.