Is the Brand Still King in the Middle East?15 years, 11 months ago
Some pundits have predicted the death of famous brands in the Middle East through a combination of anti-western feeling and the arrival of flexible newcomers. By Nidal Abou Zaki.
As technology expands, the world shrinks. The Internet, for instance, has revolutionized the way people communicate with each other; from next-door neighbors to continental divides, a simple hello or a complex multinational conference has become a one-click phenomenon.
Fast, reliable and much safer means of transportation has made logistical nightmares a thing of the past. Rapid infrastructure development has given rise to mass production of goods in remote areas, allowing far-flung communities to enjoy the same branded products that used to be available only in certain markets.
These advances have become a boon to both consumers and traders. Consumers now get easy access to the brands they want, whether they are manufactured in the west, in the Far East or here in the Middle East. Companies, on the other hand, can now expand to areas they would not have even considered a few years back.
This had been particularly interesting for the branded products, which had enjoyed enormous success at a time when aggressive, expensive marketing maneuvers and extensive logistical support were limited and most of the time available only to the multinationals that can afford them.
The notion was that the advent of new technology only made life easier for the big companies, whose ability to attract consumers simply through name recall of their prominent brands was multiplied many times over by the tech-enabled ability to reach more places and people. Unfortunately, that has not been the case of late.
In an international toy fair I recently attended in Hong Kong, I met a lot of executives from companies that promote famous brands. I also met quite a lot from companies I’ve never even heard before. These ‘unknowns’ were eager to learn, eager to showcase, eager to grab opportunities. I was not surprised by their enthusiasm.
What struck me most was the sense of panic among the branded names. It took me just a quick glance at the statistics to figure out what was wrong. China-made products are now controlling 70 percent of the world’s toy market that used to be dominated by brands such as US-made Barbie dolls and Matchbox cars. The once rambunctious brands of America and Europe are now at the wrong end of the bargain, while the rest of the newcomers are aggressively challenging their market dominance.
I could not help compare the situation to other markets, where virtual unknowns are chipping at the market share of international brand names. There is Lenovo’s acquisition of IBM’s much larger PC division, there is Google being beaten to the draw in the potentially rich Chinese market, there is Sony’s PlayStation 3 struggling to make ends meet despite being the acknowledged technology leader in the gaming industry.
These and many more leading brands are now heavily under siege. Do they have the power to hold on to their lofty thrones?
The Power to Influence
Branded products rely on their ability to influence the thought process of their consumers. This power to influence was particularly strong in the days when the communication line between company and consumer was a rigid one-way process; companies bombarded clients with loads of advertisement and the poor consumer could only agree.
Not that it was all meaningless rhetoric. Top brands are known to deliver what they promise, which is essentially how a brand name should work. Branding relies on memory recall of good experience, so a sustained promotional stunt coupled with prompt delivery of the brand promise – “grow your hair fast”, “lose weight in 10 days” or “live in a luxury villa” – results into building a strong foundation for consumer loyalty, and thus increasing the brand’s influence and marketability.
Brands may be tangible – strong chairs, fast cars, beautiful chandeliers – or they may be intangible – “eat MY sandwich because you belong with the elite”, “the classic experience”, “feel young with Young drink”. In any case, the successful brands have delivered the brand message or experience at each contact-point with their customers, from the product itself, to advertising, distribution, merchandising, website, even to the way they manage their employees.
Unfortunately, global expansion has not been very generous to many brands. This is mainly because only a handful of international brands are able to adjust to the nuances of the different markets where they are sold. And these setbacks are all the more magnified by a highly interactive environment brought about by the Internet; marketing has become a two-way process with consumers able to advertise their take – good or bad – on anything at amazing speeds and just as effectively as marketers pitch their products.
For example, Internet search giant Google has been getting a sound beating in China against a local competitor, Baidu.com. The prime reason Google has been lagging behind is that its marketing philosophy does not blend well with the local temperament.
While Google ranks search results according to relevance, Baidu treats its search results based on a principle that is unthinkable by Google standards – paid advertisements. Apparently, Chinese regard paid Internet search results more reliable. That is not so at Google.
And because of the Internet, this huge setback has been heard throughout the world at great speed, compounding the negative effect on the Google brand. If Google indeed hopes to make significant progress in China, whose 103 million Internet users is second only to the US, I believe it will have to restructure the brand that has made it popular in the rest of the world.
Lessons from IBM
Google may look to IBM’s experience for some guidance. IBM defined its business in the 1980s by pioneering the production of personal computers. But over the past decades, as it has consistently done before, IBM has transformed itself into a services and software company and has taken a keen look at China’s huge market potential. With the shift in focus, perhaps hastened by mushrooming competition, IBM found its PC business increasingly becoming a liability, which led it to sell its PC-manufacturing division to Lenovo.
The Beijing-based Lenovo was founded in 1984 by scientists at the Chinese Academy of Sciences as a distributor of equipment made by IBM and other companies. Six years later in 1990, Lenovo was competing with IBM and selling its own PCs. More than a decade onwards, it bought the PC division of IBM, which is third in the market behind Dell and HP.
Of course, IBM’s decision was not only because it was losing ground to Lenovo. It also was about long-term interests, which is another hallmark of successful branding. By forging an alliance with the Chinese, IBM opened new channels for more software, services and consulting deals in China. I will not be surprised if those big companies I got acquainted with at the Hong Kong toy fair eventually follow IBM’s lead.
For some global brands, especially those in the electronics market, being in the lead also has its own unique hurdles. Take for example Sony’s PlayStation 3 paling in comparison to its mega-hit predecessor, which has sold over 106 million consoles since 2000. Sony recently announced that net profit slipped 5.3 percent to ¥159.9 billion or USD 1.3 billion in the quarter that ended Dec. 31. The company blamed the dip on a large loss in its games division, which posted a quarterly operating loss of ¥54.2 billion, down from a ¥67.8 billion profit a year earlier.
Analysts say that the huge decline in the game console’s sales has to do with very fundamental problems of over-engineering and heavy competition – other companies rushing to the market with competing products to ride on the successful introduction of a new product. The problem with new technology is that when it is applied to simple tools such as game consoles, they have a tendency to create complexities in a rather simple toy.
This is what’s turning off the average consumers, who make up the bulk of the market. Add to that the technology-packed product’s less competitive price because of an abundance of more affordable competitors, and you have a potential market disaster. (Despite setting the price of the PlayStation 3 below the cost of production as a way to bolster market share, the console remains about twice as expensive as Nintendo’s Wii and Microsoft’s Xbox.)
For a brand to succeed globally, it has to adapt and react proactively to the idiosyncrasies of the local markets it intends to invest in. There is a need to create reliable after-sales services and innovative marketing schemes that are suited to the market being serviced. As in the case of the PlayStation 3, brands with a clear edge in technology must likewise use this advantage with the consumers’ convenience in mind, putting the emphasis away from the complexities of a simple product.
In the Arab World, there is another emerging factor that is dousing cold water on the expansionist agenda of many global brands: fear of backlash as a result of anti-Western sentiment in some parts of the region. However, a 2004 Harvard University study on consumer behavior revealed that the recent wars and political bickering did not have a long-term effect on consumer preferences, which means that the reluctance of some major brands from operating in the region is largely built on speculation. Despite the results of the study, major brands continue to have some degree of hesitation from committing themselves to the region.
The difficulties encountered by global giants in local markets have become a window of opportunity for Middle East brands who want to pursue their own expansion programs. Taking advantage of their familiarity of the local business environment, these Arab companies can kick start their expansionist agenda by increasing their presence in the region.
The key is to maintain a strategic view of the global markets while being able to act swiftly on the local level. Another caution for local brands, as the Harvard University study would suggest, is to ensure that quality is never taken for granted. Once consumers realize that a new brand does not live up to expectations and the global brands somehow regain their confidence in the market, the more established brand will not have a problem recovering lost ground.
As quality is still a premium in any market, I believe that having an established brand is still the way to go. But because how people perceive quality is also reflective of the local cultures of different markets, a truly global brand must also learn to analyze, adjust and do away with a “we are superior” mentality to be able to succeed in a global market that is hugely anchored on local sensitivities.
Nidal Abou Zaki, Managing Director, Orient Planet PR & Marketing Communications.mail the author
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