Entering the Chinese Market with Melchers – Interview with Mike Hofmann, Managing Director Melchers Beijing
Interview with Mike Hofmann, Managing Director of Melchers China in Beijing, a retail partner and service provider in China focused on premium brands. [email protected]
1. Could you please provide a brief background into your personal experience in the China market?
I have been living and working in China close to 14 years now. I have worked for both private and multinational companies and have been with Melchers China for the last three years, based here in Beijing.
2. Could you also provide some background into Melchers and discuss a few brands or companies that Melchers has worked with?
Melchers established its first Asian branch in Hong Kong in 1866 and has been doing business in China ever since. We work with our brand partner in a number of different capacities, from representing their entire business in China as an agent to assisting them through selective services to address particular pain points they face in China. This can be, for example, managing their after-sales service network, taking an equity share in the company, or providing corporate services. We cooperate with more than 70 companies in China.
Over the years, Melchers has worked with a wide range of different companies. One of the sectors we focus on is machinery and industrial products. As an example, one brand that we have worked with for over 40 years is Brabender. The company is a technological market expert for laboratory equipment in the food processing and chemicals industry. Products are used, for example, in the quality control systems, and at universities. We are also active in the aviation industry in China, where we work with companies that help outfit planes. One example is Innovint from Hamburg, which develops products such as baby bassinets and onboard wheelchairs.
Another of our business pillars is the retail sector. We focus on premium and luxury products. One example of a brand that we are working with for the China and Hong Kong markets is Tricker’s, a high-end footwear brand from England. We launched Tricker’s at the beginning of this year.
As you can see, our portfolio at Melchers is quite extensive and very diverse. We are a company that does not limit ourselves. We are open-minded and look for different opportunities, and are willing to working with our partners in different capacities.
3. What are some key differences that you’ve noticed when it comes to foreign companies entering the China market as opposed to other countries around the world?
First of all, China is very diverse. It sounds like a platitude, but you cannot treat the entire country as if it is the same when entering its market. The country has a very long history, with much diversity in languages, norms, and culture, which is still reflected today.
In the digital space, China is also very unique. Because of the inaccessibility of platforms such as Google, Instagram, and Facebook, China has developed its systems. Companies need to understand just how different China is when developing a marketing strategy.
4. As Melchers has worked in a number of different industries, are there any in which these differences you mentioned are most evident?
The differences are most apparent in our retail business because different markets have different preferences, consumer habits, shopping habits, and of course, the digital space is entirely different. Everything from how to sell and promote the products to adapting the products to the Chinese market needs to be reconsidered.
5. Have you noticed any misconceptions that brands tend to have about the Chinese market before they enter?
Many companies, especially smaller and medium-sized companies, often underestimate the time, cost, and resources they will need to allocate for China if they want to enter the market. The Chinese market is highly demanding and competitive, so if brands want to be here and succeed, they need to be fully committed.
Often, brands want to copy their sales pitch, brand positioning, or other campaigns directly from what they have in the West, which will not work, and some brands are not so understanding about how they must adapt. So, it is a process they need to go through in changing their perceptions of the country and realizing that campaigns need to be tailored to the China market.
6. Over the past year, COVID-19 has heavily affected commerce. Could you speak about how the situation has impacted some of the brands Melchers has worked with?
One of the most significant impacts of COVID-19 is the travel restrictions, which have affected the brands we work with in different ways.
For retail, COVID-19 meant Chinese tourism is no longer happening. Since Chinese tourists used to be major customers in the retail industry outside of China, the industry is suffering, even while China’s domestic retail industry is growing again. In response, some brands have approached Melchers, wanting to enter the Chinese market and reach the customers directly.
7. How can brands determine which are the most appropriate sales channels, both online and offline, for their category and industry?
China is moving towards omnichannel customer journeys. When online growth was strong, everyone prematurely thought offline is over, but you can see that online and offline channels are working together. Depending on your industry, people want to see your products in person. They often want to try products in an offline location, then buy them online. Before purchase, customers want to test the products, feel the material and see the design in person.
Furthermore, when companies enter China, some think they have to be on the big platforms right away, but I would say that is wrong. Brands need to first think about their brand awareness and develop a digital strategy. Operating on Tmall or JD is very costly, so if the brand awareness is not high enough, the brands will only spend money that does not see any return. Brands need to put money into digital marketing, build up brand awareness, and look at the greater strategy when considering online or offline channels. There are so many platforms in China, and the digital space is changing fast. A brand needs to analyze which platform fits best and may start incrementally.
*Tmall and JD are two of the largest e-commerce platforms in China
8. For a brand wanting to enter the China market, what are some ways they can assess their market potential?
There are tools that companies can use to see how Chinese consumers perceive their brand. One indicator is whether the brand’s products are already selling in China through Chinese shoppers, known as Daigou, who buy products overseas, then bring them into the country to resell.
Brands can also look on Little Red Book, which is a platform that consumers use to discuss product experiences, to see if they already have a presence there.
Another option is, of course, to go to partners like Melchers. We can help brands determine their market potential by conducting tests in the market, developing marketing trials, looking at how competitors are doing, and thorough market research.
Recently, Northampton Footwear Brand Tricker’s and Melchers signed an exclusive distribution partnership to develop the Tricker’s Brand in China Mainland and Hong Kong.
9. Could you speak about Tricker’s as a brand and their market potential in China?
Tricker’s is the longest established shoemaker in England and was founded in 1829. In our discussions, we reached a mutual understanding of how to develop the brand in China. Tricker’s shoes are handmade and are highly focused on quality and materials. All the materials used are sustainable and from regions of the UK or Europe. The brand even received the Royal Warrant from the royal household, which is a very strong indication of quality in England. Tricker’s shoes are not meant to be fast-fashion type products that go out of trend quickly. Instead, the shoes are timeless and are an investment that can be worn for decades.
The brand already attended trade fairs and had some accounts in China and Hong Kong. The brands’ long heritage, high quality, sustainable and long-lasting materials that fit with the current consumer trends and local responsiveness through our local setup will make Tricker’s stand out among competitors.
10. How is Melchers able to assist Tricker’s in developing their brand, especially in the services that Melchers can provide?
We bring to the partnership our longstanding experience in the retail space, the contacts that we have in department stores, and our general partners in China. On the one hand, Melchers can assist with the wholesale business, which we have integrated Tricker’s existing accounts into and are currently growing out. On the other hand, we are also expanding into e-commerce in Hong Kong and mainland China, which did not exist before. We are increasing brand awareness through strategic digital marketing using several different channels, and once the brand has grown, we will also begin targeting the bigger platforms.
11. What are some steps that brands, such as Tricker’s, can take to raise brand awareness and boost sales?
When brands come to China, they need to know the importance of the digital landscape for raising brand awareness. The online and offline channels are connected, and brands need to think about the Chinese customer journey. Chinese consumers often do much research online and require many touchpoints with the brands before making a purchase. So, brands need to be online to meet the customers, even if the products are sold offline. You cannot always use traditional metrics such as ROI alone for digital marketing because you need to see it within the bigger picture.
When promoting through campaigns in China, brands need to work with Key Opinion Leaders, KOLs, and Key Opinion Customers, KOCs, to talk about the brand, almost as brand ambassadors. There are different levels of KOLs, and the most prominent ones can cost hundreds of thousands of RMB, but there are also more affordable ones. Brands need to know which type of KOL is most fitting. This process is made more accessible if the brands can talk to experienced partners in China, make a brand assessment to see where the channels are, what brands should do to position themselves, and how brands can succeed.
Trade fairs are traditional but are good at providing first touchpoints. Depending on the brand, there are other resources available. For example, for Tricker’s, an English brand, you have the China-Britain Business Council or the Best of British exhibition in China.
Brands should look around at what is available, as there are a number of different opportunities they can use to present the brand and products to Chinese customers. Every brand needs to do this, but they do not need to figure it out themselves and choose to work with partners instead.
12. For brands that are unaware, what are Key Opinion Leaders and Key Opinion Customers, and what are the differences between the two?
In China, Key Opinion Leaders are what would be called influencers in the West. Basically, they have many followers on their social media accounts and can help promote brands or products. Key Opinion Customers are more like ordinary customers with a follower network of friends and family who trust their opinions. In the West, a difference is that influencers often cover a broader range of topics, while in China, they are more focused on a category or topic.
13. For the final question, do you have any suggestions and tips for new brands coming into the China market?
Brands always need to keep in mind that China requires a lot of time and resources to succeed, which I will emphasize again because companies often underestimate it.
Overall, China and the Chinese consumer habits are changing fast, with new trends emerging every year. Last year, during COVID-19, livestreaming became a new trend. Now it is the norm. Who knows what the next big thing will be next year. So, brands need to adapt and be flexible, adjusting their strategy specifically to China and keep up to date with the latest developments.
