Recently Best Buy, the Us electronics retailer, announced plans to close all its own brand shop in China. It will continue to operate the local chain that it has already purchased; "5 star". So what went wrong and what lessons can other enterprise learn from another major Western retailer's rapid stepping back from the Middle Kingdom?
Best Buy's failure in the Chinese market can be put down as failure in market differentiation.
Market differentiation is the art of making your offering dissimilar (and thus intelligent to consumers) from other similar offerings in the marketplace at that moment. Western retailers have failed to understand the Chinese consumer when they begin this process and often find themselves falling into the trap of distinguishing their brand through "quality of service". This is natural because this aspect of the purchasing perceive is the key to success in advanced nations; Best Buy's power in the Us is that their straightforward and high touch aid makes it hugely intelligent to American consumers.
Chinese customers aren't bothered. There are two reasons for this; the first is that money is the central issue for any purchase. Disposable incomes for the emerging middle class are tiny and thus they expect the most "bang for buck" right here, right now. Where a Western customer will buy an extended warranty or pay a higher price for aid inclusivity, a Chinese customer normally cannot. With "middle class" defined as man who earns in excess of 3,000 Rmb (that's around 0 Us) there simply isn't adequate disposable wage to bet against future problems.
Secondly there is an excess of cheap alternatives, in every major town and city in China you'll be astonished at the ease of entrance to guys who can fix your electronic issues (or in fact any issue) for almost no money. This is because labour costs are minimal, normally no more than Us an hour, and parts are sold with tiny or no margin as well.
Best Buy's selected offering was way too early an entry in a price obsessed market with an endless provide of skilled low cost labour contentious for work. And while the Best Buy brand may be a strong one in the Us, it is relatively unknown in China so the "brand cachet" that enables some Western retailers to differentiate their offerings and accomplish higher margins wasn't available to Best Buy.
While Best Buy succeeded in differentiating their goods offering from the local giants of Gomes and Sunning, they failed to make their contrast meaningful to Chinese consumers. Any brand finding to enter China needs to do serious market research that enables them to engage with what local customers want, not what they expect them to want.
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