Apple's Strong Position to Compete in China Where Other Foreign Brands Cannot
Yesterday: 9/9, marked the much-anticipated launch event for the iPhone 6. As the world's largest smartphone market, Apple is hoping its new phones will attract a healthy share of the expected 420 million smartphone purchases in China this year.
Apple has weathered the roller coaster ride of the China market better than some of its international competitors, but there have been some bumps along the way. Back in 2012, following accusations from state media about being arrogant and offering poor after-sales service, Apple's market share slid from 9% to 5%. Apple has worked hard to win back share, such as supporting China Mobile's proprietary network and responding smarter to criticism from the state. But it knows it that can never rest on its laurels.
With a slew of low-cost smartphone manufacturers in China, the market is fiercely competitive. As local brands have become savvier with marketing, design, quality control and service, and consumers are more accepting of them, it's becoming tougher for foreign brands to justify higher price points for a similar device.
Samsung has seen its share eroded by being just another Android device, however Apple is faring better with its exclusive operating system and the prestige that still exists from owning an Apple device. The more difficult your wares are to imitate - both the physical and intangibles - the more sustainable they will be in the China market.
Apple's iPhone 6 designers have catered to Chinese consumer desires by offering larger 4.7 and 5.5 inch Retina HD screens, compared to the current 4 inch iPhone 5. There's the usual higher-res cameras, better battery life and more torque. We'll be watching Apple Pay - the improved integration with payments launching the US next month - and how it incorporates China's standard eWallets such as Alipay and Tenpay. A new smart watch will launch in 2015 offering health and fitness features, which could be particularly relevant to Chinese consumers if localised well. The new iPhones are top trending on Weibo this morning and launches in nine regions on 19 September. China's launch date is still to be confirmed.
We hope you enjoy this week's Skinny.
Chinese Consumers
K-Pop Attracts Louis Vuitton Investment: Chinese consumers' fanaticism with K-Pop would have helped LVMH make the decision to invest up to $80 million in South Korea's YG Entertainment, the artist management powerhouse behind some of Korea's biggest stars. Chinese visitors to South Korea spent $7.5 billion last year, more than double the spend in 2010 - most of it going on perfume, cosmetics, clothing and shoes.
The Strange Cult of M&Ms Obsession has Spread to China: The M&M store in Shanghai is crawling with consumers seeking exclusive products, Selfie opportunities and localised exhibits such as the Great Wall of Chocolate.
Internet, Mobile & eCommerce
Apple Unveils the Watch, Larger iPhones at Star-Studded Event: The iPhone 6 had its launch event yesterday with a focus on Apple Pay NFC payments, rounder corners and the long-promised larger screens. Apple also unveiled a smart watch that tethers to an iPhone combining health and fitness features.
US to Fall Behind China as World's Top 4G Phone Market: China is on track to be the top market for 4G phones in the second half of this year, crowded with 250 devices at an average price of ¥1,000 ($163). Local brand Coolpad leads the market with an 18% share. Samsung is number 2 at 17%.
Alibaba Agrees Crackdown on Fake Goods: With a lot of press about fakes on Alibaba's eCommerce leading up to its IPO, Alibaba has signed a Memorandum of Understanding with the China-Britain Business Council (CBBC) to reinforce the "processes Alibaba already has in place". The agreement will make it easier for CBBC members to notify Alibaba about infringing products and make it easier to remove them.
Food & Beverage
Dissatisfaction With Food Safety Pervasive: 80% of Mainland consumers are not satisfied with food safety in China, with 58% believing production and processing carries greatest risk. 25% are most concerned about the planting and breeding.
Can Smart Chopsticks and Other Gadgets Make Food Safer in China?: Baidu has released its prototype "smart chopsticks", which can tell you if your food is cooked with gutter oil. The next iteration is likely to identify contaminated water. Sales of food safety testing kits were ¥4.4 billion ($716 million) last year representing how serious Chinese consumers view the problem.
“Cloud” Renders Visualization and Traceability, Possible to Watch Pastures by “QR code”: Baidu is working with Mengniu Dairy to allow milk customers to scan a QR code or search on Baidu to see streaming video of cows on Inner Mongolia pastures and milk factories in real time, in a bid to improve trust in local milk.
Penfolds Five: Pressing Issues for Aussie Wine Favourite in China: Australian's rock star premium wine brand Penfolds has a few problems on its plate in China, most notably for failing to register the trademark for its Chinese name. It is now locked in a legal battle with a trademark squatter. Intercontinental Hotels has taken Penfolds off the list due to a fear of liability from the trademark issues, expected to lead to around 5,000 cases of lost sales annually and less exposure in the market.
Health
Doctor Consultation App Gets China’s Biggest Ever Investment in a Healthcare Startup: Chunyu Yisheng, the Chinese smartphone app that lets users remotely consult with physicians and hook up with a series of medical devices for in-app diagnosis, has raised a US$50 million. The app has 30 million active users and 40,000 doctors online, dealing with about 50,000 health issues a day.
Chinese Authorities Search for Whereabouts of Toxic Capsules: Chinese officials are trying to track down 90 million drug capsules contaminated with the heavy metal chromium that were released in the China market earlier this year. 11 people have been arrested.
Finance & Property
Plastic Surge: Household debt in China was 37% of GDP at the end of July, versus 81% in the USA. While credit card debt in China is less than 10% of total household debt, it is a third higher than a year ago. The amount outstanding per card has grown by two-thirds in the past two years. The average Chinese consumer has 0.3 credit cards.
China Home Purchase Restrictions Disappear – The Complete Timeline: Rules once intended to cool soaring home prices have now been removed in more than two thirds of the 47 cities that had them. The move hopes to revive China's flagging housing markets which slid 0.2%, 0.5% and 0.9% from May-July this year. Local Governments rely on land sales for as much as 80% of their revenue. In related news, just 12 property tycoons were included in China's top-100 richest households this year, down from 24 last year.
Auto
Stuck in First Gear?: In the first half of 2014, Chinese auto makers' share of the domestic market fell 3.1% overall, with sedans falling 5.4%. Chinese consumers believe local manufacturers' technology, branding and after sales service is inferior, and cars are prone to regular glitches such as oil leaks. Local brand Hawtai sells less than a quarter of its output in China.
Luxury
A Luxury Brand Thriving in China: While many luxury brands in China are struggling, Comme des Garçons is thriving with sales growing 35% in their Beijing store - their only major outlet in China. The secret: have the courage to buck mainstream fashion and business trends.
Weird & Wonderful
Underwater Hitch - Smile Please, but Hold Your Breath: The latest trend in China's $130 billion a year wedding industry are underwater weddings, complete with waterproof makeup.
That's The Skinny for the week! We'd love to discuss how we could help with your marketing, online initiatives or research to take advantage of China's opportunities. Just email us at info@chinaskinny.com or call us at +86 21 3221 0273 so we can learn more about your objectives and let you know how we can help.
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