Marketing in China: Lessons from Starbucks, Uber, and Airbnb

June 19, 2017 Posted by China Briefing Reading Time: 6 minutes

By Femke van Rijt

When entering the Chinese market, some foreign companies attempt to use the same business and marketing tactics that have worked for them elsewhere. Many underestimate the need for market research, which helps localize marketing tactics, prior to entry.

Investors who fail to understand the nuances of the Chinese market will struggle to survive. In this article, we will explore the different ways in which some multinational companies have failed or succeeded in acclimating to the Chinese market.

Starbucks: Targeted online marketing

Starbucks is one of the most popular foreign brands in China, with more than 2,600 outlets at the end of March 2017, representing 10 percent of the company’s presence worldwide. Every day, new stores are opened, and Starbucks expects to have 5,000 stores by 2021.

One of the reasons behind Starbuck’s rapid expansion is China’s rising middle class, who are very interested in Western brands and products. While Starbucks’ product offerings in China do not differ greatly from their other global outlets, the brand has begun to customize some of its menu to reflect local tastes, such as offering scones with the popular red bean flavor.

Starbucks has achieved success in China through its “star member card” offering. This creates exclusivity for the Starbucks brand, as customers have to pay for the card. Since the membership is an effort to reward loyalty, it enhances the company’s reputation. Already, about 12 million people in China have signed up.

Further, to better reach their customers, Starbucks greatly prefers an online marketing strategy as it understands that its target customer base lives in a heavily digitalized environment.

For instance, WeChat, a popular social media app in China, is used for 29 percent of total payments made at Starbucks. Consequently, Starbucks entered into a strategic partnership with Tencent, the developer of WeChat. Together, in February 2017, they launched a social gifting campaign titled, “Say it with Starbucks.” Users could send WeChat friends a voucher for a coffee redeemable at any Starbucks location. In the first seven weeks after its launch, about 1.2 million gift vouchers were sent.

With this campaign, Starbucks was able to reach out to new customers by utilizing the WeChat friend groups of their existing customer base. This marketing strategy also effectively tapped into key Chinese values of community and togetherness, fostering a positive brand association.

Uber: Competition from local players

Uber entered the Chinese market in 2014, and initially avoided the mistakes that foreign companies usually make in new territories. They invested in a subsidiary, Uber China, which was a Chinese entity, thus circumventing restrictions for foreign companies.

Unfortunately, Uber underestimated the local competition. When Uber entered China, local companies Didi and Kuaidi were in the middle of an intense war for market share in the transport service sector. Eventually, the two merged in February 2015, and rebranded as Didi Chuxing.

For Uber, China was their largest market, but also the most expensive one due to competition from both local rivals and taxi businesses that had strong ties with the government. While there was room for a ride sharing company since urban migration had massively expanded the population in cities even as transport had not kept up with demand, there was no room for two giants.

Meanwhile, Didi had already been active since 2012, expanding to 300 cities with 11 million users. In contrast, by the end of 2014, Uber could only secure one percent of the ride sharing market, after spreading to 60 cities with one million users.

Inevitably, Uber lost the price war and merged with Didi Chuxing in August 2016. Uber China kept 20 percent of the stake. Didi Chuxing immediately changed the language of its app to Mandarin, although the app has since reintroduced its English option.

Competitive analysis, particularly from domestic companies, must be a key part of any pre-investment research. Otherwise, foreign investors risk losing considerable time and money.

Airbnb: A rose by any other name

Similar to Uber, Airbnb is a disruptive innovator that has had to face regulatory hurdles as well as cultural obstacles in their entry to China. Culturally, Airbnb faces the difficulty of establishing trust between the homeowners and the renters using its platform. Having strangers stay at one’s house, particularly without direct oversight, is not an easy decision for many homeowners in China.

Tujia, Airbnb’s biggest competitor, dealt with the issue of distrust by managing the property directly or through a third party. This means the company takes care of the due diligence for its listings, and even housekeeping. By doing so, Tujia offers homeowners more security, and provides visitors with a professional experience.

To compete, Airbnb has positioned itself as a platform selling the ‘local experience’. They offer local tours, targeting young and adventurous travelers. However, in an effort to adapt to the Chinese market, Airbnb also chose a Chinese name – Aibiying – that was immediately mocked as ridiculous and hard to pronounce.

Learning from Airbnb’s missteps, companies choosing to rebrand by adopting a Chinese name should consider certain factors. First, the domestic branding should communicate the brand’s story; second, the local name should be easy to remember; and third, it should sound professional. Companies should also ensure that the local name is not misinterpreted in Mandarin, otherwise customers may not be willing to use the adopted name.

Airbnb recently appointed a new vice president, Ge Kong, to oversee the Chinese market. There have been rumors about an acquisition by Tujia, but for now, Airbnb is trying to consolidate its market share and grow in China.

Lessons for new market entrants

Starbucks’ experience highlights the importance of reaching customers online to connect with them offline, while Uber’s experience proves that domestic players can compete with global firms. In the case of Airbnb, it remains to be seen how well the company will perform, and whether it will be able to fend off competition from Tujia by creating and expanding its own niche.

Regardless, it is clear that investors need to study their targeted market consumer base. Lessons can be learned by studying the success and failure of peers within your industry.

Large multinational companies with a track record of success in Europe and the U.S. are not guaranteed to succeed in China as well. Businesses looking to enter China will need to cover all their bases: they must customize their product or service for the intended market base, pay attention to its regulatory environment, and carefully assess local competitors.

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