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New life for time-honored national brands?
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By staff reporter LIU QIONG

When 45-year-old Yu Li was in her youthful prime in the 1980s, so was the Shanghai skincare brand Maxam. Nowadays Maxam resides in the lower end of a Chinese beauty market flooded with myriad brand names from around the world. For Yu Li though, the local brand is still her favorite. "The best is what fits you personally. I prefer to stick with a product I know and trust instead of venturing into a new product and risk impairing my skin."

Founded in 1962, Maxam reached its zenith at the end of the 1980s, when annual sales exceeded RMB 300 million. Besides its financial might, the enterprise that produced it was a forerunner in China's nascent cosmetics industry in terms of both product development and marketing. It produced China's first hairspray, sun-block cream and hand lotion, opened the first beauty school and beauty salon, and introduced marketing tactics to China such as consultation with a specialist. It even sponsored the nation's first beauty contest, aborted under pressure from the government after the event ignited fierce controversy.

After the enterprise entered a joint venture with SC Johnson Wax in 1991, its fate took a surprising turn. Sales suddenly plummeted to RMB 6 million a year and its products seemingly evaporated from stores overnight. Yu Li recalls for a long time she could only find Maxam in the biggest malls.

In September 2004 the old brand came back into Chinese customers' sight just as abruptly, with commercials across six channels of China Central Television (CCTV), the most viewed media in the nation. It made big news again that November at the station's annual advertising bidding conference by securing two prime-time spots with a staggering RMB 50 million. These moves triggered expectations of Maxam's resurgence after a long period in the doldrums.

Booming Markets, Dying Brands

The golden days for Chinese brands of the 1970s and 80s are gone forever. At that time all consumer commodities could find a ready market as everything was in dire short supply. After the opening up and reform policies progressively abolished hurdles for foreign imports from the late 1970s, many indigenous brands eagerly merged with transnational companies looking to edge into the Chinese market by setting up joint ventures.

In general, however, multinationals have not set up shop with local enterprises to maintain local brands. As marketing expert Li Guangdou explains, "Transnational companies in China have followed a strategy of overwhelming Chinese rivals when they can. If they can't, they buy their brands and shelf them." P & G and Volkswagen are two examples. While drumming up their own brands these companies froze those of their Chinese partners, leaving them to die in oblivion. Many well-known Chinese products were finished in this way, including Power 28, a Hubei-based wash powder brand, and White Cat, a Shanghai-based detergent brand.

Although China had more registered brands than any country in the world by the end of 2006 (27.74 million), the bleak fact is that 90 percent of the nation's joint ventures are marketing their products under foreign brand names. Seven of China's eight top drink producers have been annexed by Coca-Cola and Pepsi. Three of China's four wash powder producers with an annual output above 80,000 tons have shifted to foreign hands. More than 90 percent of the soft drink market is dominated by overseas names. And foreign brands claim 75 percent of the cosmetics market, and 30-40 percent of the food and pharmaceutical market.

Like mothers guilty about watching their children suffer, many Chinese enterprises have begun to try and redeem old local brands. In 1995, for example, Shanghai Jahwa Group President Ge Wenyao decided to buy Maxam back. But the beauty product market had changed drastically during the four years of the brands' relative invisibility under the Sino-foreign partnership. Between 1990 and 1994 China's cosmetics market ballooned from RMB 4 billion to 50 billion, with skincare products alone accounting for RMB 20 billion of sales, a figure growing at an annual rate of 20 percent. Maxam was caught between such big international names as P & G, Unilever and L'Oreal, as well as emerging local companies attempting to capture the mid- to low-end of the market. In the ensuing bitter struggle Maxam had hit a nadir by 2002.

The question for Jahwa at that point was whether it was commercially worthwhile to try and rejuvenate the old brand. Opinions differed within the company, but amongst the opposition to dumping Maxam altogether was Wang Zhuo, deputy general manager of the group. Finally Wang and the other executives came to the conclusion, "Innovation should not be understood as indiscriminately forsaking the old. Such thinking is cowardly and detrimental." Maxam, they reasoned, still enjoyed wide brand recognition and a broad consumer base; although its annual sales had dwindled to hundreds of millions yuan, it was still a decent turnover compared to many brand peers. Having come to an internal consensus, the company kicked off an aggressive advertising campaign in September 2004.

Old Names in a New Era

As Chinese consumers grow more mature, many are showing renewed interest in the old national brands which they once disdained. A rising sense of Chinese pride and patriotism is further bolstering this trend. Native products are now a hot topic on the Internet, reflecting and fueling interest in the real-world market place. But it's far from enough for old native brands to rely on consumers' nostalgia to win back popularity. In fact, in many instances the product's long history is detrimental in shoppers' minds. "Old brands have a weakness in that they are often historically associated with inflexible operations and lackluster products, both of which are obstacles to their revival," says Zheng Danyang, a director of the China Time-Honored Brands Association. Zheng believes the solution lies in an awareness of the current market and skill at pitching the product to the contemporary consumer.

The 150-year-old Neiliansheng Shoe Store once only hired experienced senior designers, for example, but now also employs fresh graduates in a bid to add a fashionable touch to its hand-made cloth shoes. Another example is the 180-year-old Wanglaoji Herbal Tea brand. This Cantonese drink has the medicinal function of expelling heat from human body believed to cause many ailments in traditional Chinese medicine. The drink is now packaged in cans and paper boxes, and has found new popularity as a natural health beverage. The notion of preserving health sells well in today's China.

Other brand names have reappeared on the market after long absences, such as the Warrior sneaker, the "Chinese Adidas" of the 1970s. Even some toiletry items of our grandparents' era, such as Shell Cream (skin cream sold in real shells), and Violet and Xiefuchun blended face powder, have found a new market amongst China's fashion-obsessed urban-dwelling young girls. "Time-honored national brands are a tremendous source of wealth for China," said Professor Huang Guoxiong of Renmin University's Business School. "Old brands have potentially strong cultural and historical appeal. But they won't excel in today's market unless they change with the times and keep renovating themselves." Like the nation itself, China's old brands need to draw on their history while reinventing themselves for the 21st century.

(China Today January 8, 2008)

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