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Evolution of Brands in Transitional Economies: The Case of China in 1993-1998 Yigang Pan, David K. Tse, and Xiaolian Li Yigang Pan is Professor and Director of the Center on Global Brand Leadership at Hong Kong University, and Scotiabank Professor of International Business at York University, Toronto, Canada for 2000-2002. David K. Tse is Professor of International Marketing at the University of Hong Kong. Xiaolian Li is a graduate research student at the School of Business, University of Hong Kong. Please address correspondence to Yigang Pan at School of Business, University of Hong Kong, Pokfulam Road, Hong Kong. Tel: 852-2857-8345, Fax: 852-2857-5614, email: [email protected]

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Page 1: Evolution of Brands in Transitional Economies: The … brands/evolution.pdfEvolution of Brands in Transitional Economies: The Case of China in 1993-1998 Yigang Pan, David K. Tse, and

Evolution of Brands in Transitional Economies: The Case of China in 1993-1998

Yigang Pan, David K. Tse, and Xiaolian Li

Yigang Pan is Professor and Director of the Center on Global Brand Leadership at Hong Kong University, and Scotiabank Professor of International Business at York University, Toronto, Canada for 2000-2002. David K. Tse is Professor of International Marketing at the University of Hong Kong. Xiaolian Li is a graduate research student at the School of Business, University of Hong Kong. Please address correspondence to Yigang Pan at School of Business, University of Hong Kong, Pokfulam Road, Hong Kong. Tel: 852-2857-8345, Fax: 852-2857-5614, email: [email protected]

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INTRODUCTION

Brands have long been recognized as the single most powerful marketing asset of the

firm (Aaker and Joachimsthaler, 2000). It takes a huge amount of resources over a long period

of time to build strong brands in the market place (Aaker and Joachimsthaler, 2000; Keller,

1993). Brands such as Sony, Kodak, American Express, Mercedes, Ford, and IBM have taken

dominant market positions not only in the developed markets but also in many emerging

transitional economies. As transitional economies open their markets to global competition, one

of the challenges facing local firms has been how to build indigenous brands. Before we

understand how to build strong brands in a transitional economy, it is useful for us to know how

brands evolve over time in such a market (Batra, 1997).

In this study, our primary goal is to examine the evolution of brands in a transitional

economy, i.e., China over a period of six years (1993-1998). Specifically, we investigate how

consumer’s brand perception and brand purchase behavior change over time. More importantly,

what factors are associated with such changes?

This paper begins with a review of brand equity literature, and the growing literature on

marketing and branding in the emerging markets. It then follows with the characteristics of

transitional economies. Drawing upon these two streams of literature, we propose the research

hypotheses. The method section presents the database and variables. The results are discussed.

The paper concludes by pointing out the contributions of this study as well as its limitations.

LITERATURE REVIEW

Brands are among the most important assets of a firm. A strong brand commands a high

acceptance rate in the market place and a price premium compared to weaker brands. A strong

brand has a loyal customer base that stick to the brand in good and bad times. John Stuart, once

the Chairman of Quaker Oats Ltd., stated, "If the business were split up, I would take the brands,

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trademarks, and goodwill, and you could have all the bricks and mortar-and I would fare better

than you" (Dyson, Farr, and Hollis 1996).

Brand equity has been defined as a set of brand assets and liabilities linked to a brand, its

name and symbol, that add to or subtract from the value provided by a product or service to a

firm and/or to that firm's customers (Aaker 1991). Brand equity thus refers to the differential

effect of brand knowledge as a result of the marketing of the brand. Brand knowledge, in turn,

consists of brand awareness (brand recall and recognition) and brand image/associations (Aaker

1996). One of the most important associations is quality. Brand management thus includes the

key tasks of selecting a viable brand name, surrounding the brand with appropriate symbolism

and associations, and enhancing consumers' perceptions of quality.

Keller (1993) formally introduces the perspective that brand knowledge is a collection of

associations. Brand knowledge is conceptualized as consisting of a brand node in memory to

which a variety of associations are linked. The relevant dimensions that distinguish brand

knowledge and affect consumer response are the awareness of the brand (in terms of brand recall

and recognition) and the favorability, strength, and uniqueness of the brand associations in

consumer memory. Brands exist in the minds of their potential consumers and that what those

consumers associate with a particular brand determines the value it has to its owner. A brand's

foundations are, therefore, composed of peoples' intangible mental associations about it.

Brand awareness is the rudimental first step of building the brand knowledge. It

indicates the strength of the brand node or trace in memory, as reflected by consumers' ability to

identify the brand under different conditions (Percy and Rossiter, 1992). Brand awareness relates

to the likelihood that a brand name will come to mind and the ease with which it does so when a

consumer makes certain purchase considerations. Brand awareness consists of brand recognition

and brand recall performance. Brand recognition relates to consumers' ability to identify a brand

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when given the brand as a cue. In other words, brand recognition requires that consumers

correctly discriminate the brand as having been seen or heard previously. Brand recall relates to

consumer's ability to retrieve the brand when given the product category. In other words, brand

recall requires that consumers correctly come up with the brand themselves from their memory.

Existing research suggests that brand recognition and recall are important for consumer's choice

of brands (Hoyer and Brown 1990).

Brand attitudes are consumers' overall evaluations of a brand. Brand attitudes are

important, because they are related to beliefs about brands (Zeithaml 1988). The overall belief

of a brand thus is the basis for the overall brand image, which is stored in consumer's memory.

The presence of strongly held, favorably brand image will make the brand more readily

accessible and retrievable from the consumer's memory. The strong brand image will help

consumers to differentiate the brand from its competitors and will be more likely to be chosen as

the final purchase item.

CONCEPTUALIZATION

While research on brand equity has gone a long way, research that focus on branding in

the transitional markets has just started (Batra 1997; Tse, Belk, and Zhou, 1989; Schmitt and

Pan, 1994; Schmitt, Pan, and Tavassoli, 1994). In this section, the developments in the

transitional economies that would affect the evolvement of brand equity are examined. Forces

that lead to the upcoming of indigenous brands and the relative weakening of foreign brands are

of particular interest to this study.

Nature of Transitional Economies

Beginning in the late 1970s, the world has witnessed the collapse of the former-planned

economies. Countries such as China, Vietnam, the former Soviet Union, Poland, Hungary, the

Czech and Slovak Republics, and others have embarked on the journey to transform their

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economies to a market economy. The process of transition has been gradual for many countries,

thus, there is a term to refer to these economies as "transitional economies," (Batra 1997).

Before the reform, consumers in China had little to choose from, regardless of daily

necessities or luxury items of that time. The need for branding was nothing more than the need

of tracking which item was sold. When the door was opened to the West in the late 1970s,

waves after waves of Western goods poured into China. Chinese consumers were caught by

surprise by the inflow of so many Western brands, Marlboro, Coca-Cola, Sony, Toshiba,

Chrysler, and so on. They were stunned by the fact that almost all of them were superior to the

local Chinese offering.

Along with the increased exposure of consumers to global media, depictions of Western

lifestyles in local media, and most importantly, the fast rising of living standards, there emerges

a global consumer culture in China (Alden, Steenkamp, and Batra, 1999). Chinese consumers

have increased their desire for quality branded goods and services. Technology and

feature/functionality expectations were rising. Very quickly, many of the old traditional local

brands died out. They were replaced by the global foreign brands. A severe shortage of

competitive new brands from the local firms existed. Further, many of the product categories

that consumers were buying were new to them, and their low levels of knowledge about these

product categories lead them to rely on brand name cues. Many Chinese consumers associated

new foreign products with superior quality.

In short, there are two dramatic changes taking place from the consumer’s perspective.

One is the explosion of product offerings. In the former planned economies, consumers had

little to choose from and thus needed not to spend time to compare goods. Knowledge of

products and brands was at a negligible level. Along with the market competition, dozens of

brands in each product category appear in front of consumers. It becomes a daunting task for

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average consumers to know brands and to assess the best value for their own purpose.

The other dramatic change is the explosion of disposable income. In the planned

economies, individuals were given a nominal salary that covers most food. Housing, medical

services, pension, education, transportation and so on were either provided or heavily subsidized

by the state. In the 1970s, a short bus ride in Beijing cost five cents (RMB), now it is twenty

times more. Individuals now get much higher pay, but they also have to take care of many

expenses like consumers in the West. What brand is a best buy becomes an important decision.

As consumers know more about brands, they develop a brand knowledge base.

Brand Evolution in China

The evolution of brands in China passed through four distinctive eras: central planning,

catching up, hyper-competition, and post-industrialism (Schlevogt, 2000). In the first two eras,

firms focused on production and supply, while in the last two eras, firms have paid more

attention to consumer preferences.

In the planned-economy era, production, not market demand, dictated resource

allocation. There was no need to build brands. In the catching-up era, firms began to understand

the importance of product quality, but still lack the true appreciation of brands. In the early years

of reform, companies could sell most of what they produced due to the huge pent-up demand.

By early 1990s, China entered the era of hyper-competition. Market demand began to

slow down. As competition intensified, firms looked towards the high-price and high-demand

that some strong foreign brands command in China. They began to appreciate the value of strong

brands (Pan and Schmitt, 1995). A survey by the Central China Television (CCTV) revealed that

the 38 percent of Chinese consumers who buy Coca-Cola do so because of its famous brand,

while only 19 percent make the purchase based on price. The survey also revealed that television

commercials are the most influential factor in the purchasing decisions of 57 percent of

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consumers. According to a survey by Beijing Meilande Information Co., only 16 percent of the

women in Beijing stated that they do not pay attention to brands.

In their efforts to build brands, many Chinese firms work on improving product quality.

In a Gallup survey, 62 percent of respondents held positive opinions about the quality of Chinese

products. Interestingly, the Gallup survey shows that Chinese consumers began to like Chinese

brands. Local brand names like Bank of China and TV set maker Changhong enjoy strong

recognition. Competition between foreign brands and local brands has intensified. Local-

branding becomes a strategy for foreign firms. Whirlpool Corp. sells its washing machines in

China using Kelon brand name and Maytag uses its partner Rongshida's brand name.

Purchasing Ideal Brand

According to the theory of brand choice, consumers have an awareness set of brands

(Shocker et al., 1991). That is all the brands that they are aware of and this awareness set

comprises the most number of brands. Among the awareness set, there are brands that are

regarded the best in quality in the mind of consumers, such as Sony in the consumer electronics.

However, in the market place, the best quality brand often charges the highest premium price.

Most average individuals can not afford to buy this brand even they are aware of it. Thus, in the

actual deliberation of which brand to buy, consumers often have a set of brands called

consideration set (Lehmann and Pan, 1994). In the actual purchase, consumers would balance

between their financial resources and the price that a brand charges. Often they end up buying

the brand that is not the most ideal in their mind.

As mentioned above, one unique feature of a transitional economy is the ushering in of

market competition. Firms, both foreign and local, invest resources to build brands through the

product quality enhancement and brand image. Consumers, on the other hand, actively engage

in a learning process to acquire knowledge about brands. Within a short period of time, the gap

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between brands widened, and consumers know which brands are ideal in most product

categories. At the same time, the majority of consumers see their disposable income rising in a

much slower fashion than their knowledge about brands. They may know which brand is of the

highest quality, but their income does not allow them to buy that brand. They have to balance

between quality and price to achieve the best value for their money.

At the early phase of transitional economy, there will be more consumers that could not

afford to buy the most ideal brand in their mind. It is hypothesized that as transitional economy

grows, more consumers will be able to purchase the brand that they regard as the most ideal.

Thus, we hypothesize:

H1a. As the transitional economies grow and purchasing power of consumers rises, the percentage of consumers who purchase their ideal brand increases.

Brand Competition

When consumers in the transitional economies know little about brands, they tend to rely

on the image of the brands. Thus, brands that sit on the top of the product category pyramid

often command an overwhelming consumer base. What happens as consumers in the

transitional economies gradually acquire the knowledge about brands? They are able to tell the

differences between brands. They will depend on the actual performance of brands in judging

the brands, instead of relying on the perceptions. At the same time, firms engage in the fierce

competition. The quality of brands tends to improve and the gap in quality between the top

brand and the follower brands is narrowing. As the competition among brands increases, the

ability of top brands to dominate the market decreases. In other words, the differences in the

mind of consumers between top brands and the rest of brands were more visible in the early

phase of transition, but less substantial as market progresses.

Thus, we hypothesize:

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H1b. As the transitional economies grow and purchasing power of consumers rises, the dominance of top brands in the product category decreases.

Effect of Product Category

How expensive a product is to average consumers plays a role. The more expensive a

product is, the more involved a consumer will be in pursuing the knowledge, and searching for

the brand that best fits the needs. As consumers spend more time and resources investigating the

brands in a more expensive product category, they will become more expert in choosing among

brands. In other words, their choice will be less driven by overall perception that exists in brands

only. They will be able to compare the specifications of brands and choose the brand that

satisfies their needs the best. Thus, we expect that for expensive product categories, such as air

conditioner, the role of brands is smaller.

As a planned economy transforms itself to a market economy, consumers will have

access to new products that they have never consumed before, such as motorcycle and

automobile. Even though they learn which brand in these expensive product categories is the

most prestigious, the majority of them have to settle for a brand that is better value to buy. Thus,

due to the limited disposable income, most consumers will not be able to buy the most ideal

brand in their mind for those products that are expensive.

At the same time, consumers in the transitional economies do want to indulge themselves

from time to time in consuming the top brand products. When it comes to less expensive

product categories, most of them can give themselves a treat by picking the most ideal brand.

They don’t want to be left out in the transformation of a society that brands matter. This partly

explains why Coco-Cola and Procter & Gamble enjoy tremendous popularity in China even

though they are more expensive than local brands. In these less expensive product categories,

most consumers can afford to pay for the most ideal brand and they want to have such a feeling

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that they are riding on top of the changes taking place in the society.

Taken together, we expect that

H2a. Consumers in the transitional economies are more likely to purchase their most ideal brands when the product categories are less expensive.

Following the same reasoning, we expect that consumers spend less time and resources

in searching for the best buy in less expensive product categories. They rely on the brand name

heuristics to make the choice decision. As such, it is easier for the top brands to take a lion’s

share of the market, and it is harder for other brands to challenge that market leader position.

For more expensive products, consumers will study and compare the actual performance of

brands in choosing the brand. As such, it is easier for competing brands to be known and

considered. Thus, we hypothesize:

H2b. Top ideal brands are more likely to dominate the market when the product categories are less expensive.

Effect of Foreign Brand Competition

An important part of the reform in the planned economies is to allow foreign brands to

compete in the local market. These foreign brands come in with proven products and proven

marketing strategies, not to mention the powerful resources. When they enter the local market,

they can quickly establish the high brand image in the mind of local consumers (Leclerc, Schmitt

and Dube, 1994). Foreign brands, especially those brands of global firms, come into a

transitional economy with powerful brand image (Shocker, Srivastava, and Ruebkert, 1994).

However, given that they are generally priced at much higher rates, foreign brands are by and

large taking only a small market share. In other words, they may be regarded as most ideal in

the mind of consumers, but when it comes to actual purchase, foreign brands are less likely to be

the best value, holding all factors the same.

Therefore, the entry of foreign brands in a particular product category will lead to a

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clearer brand positioning in which some brands (most likely foreign brands) stand out. However,

most consumers will not be able to afford these top brands. Thus, the gap between most ideal

brands and actual purchase brands is larger in product categories with foreign competition than

without.

H3a. Consumers in the transitional economies are less likely to purchase their most ideal brands when foreign brands compete in the product categories.

Furthermore, the entry of foreign brands will lead to a more fierce state of competition

among brands in the product category. Though it may take some time, local brands will grow

and gradually take on the challenge of foreign brands. This intensified inter-brand competition

means that brand dominance is harder to achieve and maintain. As such, we are less likely to see

the market dominance by top brands in product categories where foreign brands have entered the

local market.

H3b. Top ideal brands are less likely to dominate the market in product categories where foreign brands have entered to compete.

METHOD

Sample

The sample comes from an annual large-scale survey of brands in China. Since 1993,

China Enterprise Management Association, in collaboration with other institutions and with

approval from State Planning Commission, has conducted an annual nation-wide survey of

brands. The survey questionnaire was published in a national newspaper from which ordinary

people can fill in and mail in. Respondents are entitled to lucky draw of prizes. For instance, in

1998’s survey, respondents can win 1 prize of RMB 3,000, 2 prizes of RMB500, 100 prizes of

RMB100, and 1,000 prizes of small gifts. Thousands of people participated in the survey every

year.

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The survey lists 50 categories of consumer products (34 categories for 1993), such as

electronics, household appliances, food and beverages, personal hygiene products, and so on.

The survey asks each respondent to name (unaided self-report) one brand as the ideal brand and

one brand that he/she purchased for that product category. After the survey, China Enterprise

Management Association publishes the results of the survey. That is where our sample came

from.

For each product category, the top three ideal brands were listed along with the

percentage of respondents identifying the brand as their ideal brand. For instance, in 1998, the

top three ideal brands for PC were Legend (29.90%), Great Wall (17.52%), and IBM (8.45%).

Also for each product category, the top three purchased brands were listed along with the

percentage of respondents buying the brand. In 1998, the top three purchased brands for PC

were Legend (24.35%), Great Wall (15.80%), and Hai Xin (8.29%). These percentages are

market share statistics based on the people participating in the survey.

Dependent Variable

Purchase ideal brand. We focus on the top purchased brand. If the top purchased brand is

also the top ideal brand, this variable is coded 3. If the top purchased brand is the second top

ideal brand, it is coded 2. If the top purchased brand is the third ideal brand, it is coded 1. If the

top purchased brand is not in the top three ideal brands, it is coded 0. This dependent measure is

called Likelihood of Purchasing Ideal Brand.

Brand dominance is measured in two ways. First, we measure the dominance of the

single top brand in each product category. We calculate the advantage enjoyed by the top brand

in both ideal preference and actual purchase. For both ideal preference and actual purchase, we

calculate the percentage difference between top brand and the average of two follower brands in

each product category. Therefore, we have the second dependent measure called, Top Brand

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Advantage in Ideal Preference, and the third dependent measure called, Top Brand Advantage in

Actual Purchase.

Second, we measure the dominance of top three brands in consumer’s actual purchase in

each product category. This is precisely the market share of top three brands in each product

category from consumer’s purchase information. This fourth dependent variable is called Market

Share of Top Three Brands.

Independent Variable

Level of Consumption. The annual total consumption in China (excluding consumption

by governments) was used as the indicator of level of consumption. We borrow from China

Economic Almanac (1999) for the six years of 1993, 94, 95, 96, 97, and 98.

Expensiveness of Product Category. It measures how costly each product category is.

We measure this in two ways. One is to estimate the product category price based on expert

opinion. For instance, the price for air conditioner is 2500 RMB and that for soda is 3 RMB.

The other is to group product categories into four subgroups of most expensive, moderately

expensive, slightly expensive, and inexpensive.

Foreign Brand Competition. It measures the extent foreign brands compete in each

product sector. It is coded 3 if all the three top brands were foreign brands, 2 if two of the three

top brands were foreign brands, 1 if only one foreign brand, and 0 if all three were local brands.

Analysis

The sample was analyzed using multivariate analysis of variance (MANOVA) and

univariate analysis of variance (ANOVA). The analyses test the significance of the relationship

between the four dependent variables and three explanatory variables. The MANOVA results

show that gross consumption affect the four dependent variables significantly at

[F(5,273)=21.51, p<.001], category price is significant at [F(4,270)=20.68, p<.001], and foreign

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brand competition is significant at [F(4,272)=9.76, p<.001]. The univariate ANOVA results are

reported in the following.

FINDINGS

Level of Consumption

As reported in Table 1, as the level of consumption grows along with the rise of

disposable income, more consumers choose their ideal brand to purchase. The ANOVA result

shows that level of consumption has a significant relationship with the increasing purchase of

ideal brands (F=3.33, p<0.01).

---------------------------------------------

Insert Table 1 about here

---------------------------------------------

With respect to brand preference, Top Brand Advantage in Ideal Preference is

significantly associated with the rise of gross consumption (F=12.03, p<0.001). The percentage

difference between the top brand preference and the average of the two follower brands shows a

decreasing pattern with the exception for 1993. Specifically, the highest was in 1994 at 26.62

percentage points and down to 14.39 percentage points by 1998. This supports that hypothesis

that as transitional economies grow and consumption rises, the dominance of top brand in the

product category decreases.

With respect to actual purchase, Top Brand Advantage in Actual Purchase is also

significantly associated with level of gross consumption [F=5.75, p<0.001). Similar to the brand

preference, the lead of top brand in actual purchase diminishes as gross consumption rises with

the exception for 1993. The highest lead was 19.85 percentage points in 1994, and down to

11.97 percentage points. This supports that as consumption rises, the dominance of top brand in

the product category decreases.

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Market Share of Top Three Brands is significantly associated with changes in the

consumption level [F=14.77, p<0.001]. However, the relationship appears to be less monotonic.

In 1994, 60% of correspondents surveyed said that they had purchased one of the top three

brands, and only 34.12% said that they had done so in 1993. For other years, this percentage

fluctuates between 54% and 60%.

Taking together, it appears that the rise in consumption is associated with a decrease of

the top brand in each product category. Evidently, as competition gets tougher, it is harder for

the top brand to hold on to the top position. As with the total of top three brands, the pattern is

less clear, again suggesting the fierce competition among brands.

Expensiveness of Product Category

For ease of reporting, we group the product categories into inexpensive, slightly

expensive, moderately expensive, and expensive in Table 2. The finding is that as the product

category becomes more expensive, few consumers choose their ideal brand to purchase. The

ANOVA shows that the expensiveness of product category has a significant relationship with the

decrease of purchase of ideal brands (F=51.11, p<0.001).

---------------------------------------------

Insert Table 2 about here

---------------------------------------------

With respect to brand preference, Top Brand Advantage in Ideal Preference is

significantly associated with the expensiveness of product category (F=10.40, p<0.001). The

percentage difference between the top brand preference and the average of the two follower

brands shows a decreasing pattern. This supports that hypothesis that as product categories

become more expensive, consumers spend more time knowing about brands and will be less

depending on the overall brand name.

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With respect to actual purchase, Top Brand Advantage in Actual Purchase is also

significantly associated with the expensiveness of product (F=4.93, p<0.05). Similar to the brand

preference, the lead of top brand in actual purchase diminishes as products become more

expensive.

Market Share of Top Three Brands is significantly associated with the expensiveness of

the product category (F=128.57, p<0.001). For inexpensive products, 62.80% of correspondents

surveyed said that they had purchased one of the top three brands, but only 43.77% said that they

had done for expensive products.

Taking together, the findings strongly support that for inexpensive products, like Coco-

Cola, consumers like and buy top brands. They are less motivated to spend time learning about

other brands. They also want to indulge themselves in consuming the best brand when they can

afford. But, when the product category becomes expensive, like a PC, consumers are less likely

to rely on the brand name alone. The dominance of top brand diminishes rapidly as product

category becomes expensive.

Foreign Brand Competition

As reported in Table 3, as the level of competition from foreign brand increases,

consumers are less likely to purchase their ideal brands. The ANOVA result shows that level of

foreign brand competition has a marginally significant relationship with the purchase of ideal

brands (F=2.25, p<0.08).

---------------------------------------------

Insert Table 3 about here

---------------------------------------------

With respect to brand preference, Top Brand Advantage in Ideal Preference is marginally

significantly associated with foreign brand competition (F=2.16, p<0.1). With respect to actual

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purchase, Top Brand Advantage in Actual Purchase is not significantly associated with foreign

brand competition.

Market Share of Top Three Brands is significantly associated with foreign brand

competition (F=6.76, p<0.001). However, contrary to our hypothesis, the increase of foreign

brand competition is associated with a higher level of dominance by top three brands.

Thus, it seems that the entry of foreign brands means more competition among brands. It

also means that consumers are more eager to learn about brands and hence rely less on the brand

image alone to purchase the brand. It also means that when the top three brands are taken by

foreign brands, the top three brands’ market share increases, indicating the possibility that local

brands are having a hard time surviving in such product categories.

DISCUSSION

In this study, we explore the nature of evolution of brands in a transitional economy,

China, for a period of six years (1993-1998). We found that as the level of consumption grows,

consumers are more likely to purchase the brand that they deem ideal. We also found that as the

level of consumption grows, the level of competition among brands also increases. This is

explained by the possibility that as consumption grows, consumers learn more about brands and

thus know what each brand offers in terms of best value.

We also found that the expensiveness of a product category is correlated with brands. For

inexpensive product categories, consumers are more likely to purchase the brand that they deem

most ideal. Apart from the income effect, our explanation also comes from the fact that

consumers in a transitional economy often like to indulge and have a feeling that they are part of

the booming brand economy. As such, it is easier for top brands to dominate inexpensive

product categories. For expensive product categories, consumers are less like to purchase the

most ideal brand, because other brand may be able to offer better value for money. It is also less

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easy for top brands to dominate expensive product categories.

Finally, we found that foreign brands brought in a high level of competition into the local

market, and there are signs to suggest that by the time foreign brands have taken the top three

position, they can master a total of 61.6% of market share. Foreign brands pose severe

challenges to local brands.

This study has its limitations. First, it does not have in-depth information about

consumers given that it uses published archival data. The lack of consumer side of information

prevents us from gaining insight into why and how they purchase brands. Second, the period of

time of six years might be short to portrait a true pattern of evolution of brands in transitional

economies. Third, the lack of information on what firms do or didn’t do with regard to their

brands severely limit our ability to understand how to build a brand in a transitional economy.

We point out these shortcomings with the hope that they can be addressed in future studies.

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Table 1

Longitudinal Tracking of Brand Preference and Purchase Across 50 Product Categories

Variables 1993 1994 1995 1996 1997 1998 Purchase ideal brand 0.44 1.54 1.88 2.64 2.58 2.69 Ideal brand leadership 7.85 26.62 21.72 19.33 18.71 14.39 Percent brand leadership 7.30 19.85 15.63 16.30 14.58 11.97 Top brand dominance 34.12 60.53 54.51 55.65 59.71 57.49 Annual gross consumption US$ 191.2 253.8 328.6 390.1 425.1 450.3 RMB 1568.2 2080.9 2694.4 3215.2 3485.5 3692.1 Note: Purchase desired brand is coded 3 if the top purchased brand is the top brand preferred, 2 if it is the second top brand preferred, 1 if third top brand preferred, and 0 if it is not in the top brand preferred.

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Table 2

Expensiveness of Product

Variables (Inexpensive) 0 1 2 3 (Expensive) Purchase desired brand 2.49 1.88 1.59 0.35 Percent of preference for top brand over two followers 22.68 13.99 18.01 12.02 Percent of purchase for top Brand over two followers 18.29 10.55 13.85 8.36 Total percent of purchase for top three brands 62.80 46.81 48.81 43.77 N 139 88 39 17 Note: Purchase desired brand is coded 3 if the top purchased brand is the top brand preferred, 2 if it is the second top brand preferred, 1 if third top brand preferred, and 0 if it is not in the top brand preferred.

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Table 3

Competition from Foreign Brands

Variables Number of foreign brands in top three brands in each product category 0 1 2 3

Purchase desired brand 2.59 2.09 1.77 1.11 Percent of preference for top brand over two followers 17.76 18.93 18.65 21.51 Percent of purchase for top brand over two followers 13.87 16.23 14.84 15.28 Total percent of purchase for top three brands 52.61 54.36 54.81 61.60 N 111 33 103 36 Note: Purchase desired brand is coded 3 if the top purchased brand is the top brand preferred, 2 if it is the second top brand preferred, 1 if third top brand preferred, and 0 if it is not in the top brand preferred.

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