Chinese distrust local brands

Warc, 3 June 2014

SHANGHAI: Chinese consumers are distrustful of local brands, with so many seeking out foreign brands, especially in the baby category, that a new business model – dai gou – has emerged.

This trend began back in 2008, when formula milk powder was found to be contaminated with melamine, which had been deliberately added to boost the product's protein content. At least six infants died as a result of consuming the adulterated product and thousands more were hospitalised.

Now some three-fifths of all baby formula sold on the Chinese is from foreign brands, and a younger generation of parents is looking beyond formula to clothes, toys and other products, trusting their reputation ahead of that of domestic brands.

One way to acquire them is to ask friends and family who travel abroad to bring these items back or to shop for them directly on oversea sites; another is to buy them through local sites such as Taobao.

So many shop owners on that ecommerce platform are now selling products they have purchased overseas, Xinhua reported, that the business model has become a popular term in Chinese – dai gou literally means "purchasing on others' behalf".

According to the China e-Business Research Center, the volume of dai gou deals reached 7.67bn yuan in 2013, a 59% leap from the previous year, with baby products one of the major categories of goods being bought this way.

This is part of a broader development in the attitude of Chinese consumers, according to Zhang Hongxia, professor of consumer behaviour at the Guanghua Institute of Management under Peking University. He said that where once Chinese customers bought foreign brands to make themselves look good, they are now spending more sensibly.

"Parents who can afford foreign baby products usually stay away from domestic brands out of distrust in their quality," Zhang stated. "Chinese brands are now mostly consumed by parents with lower incomes."

He added that the best way for Chinese brands to rebuild consumers' confidence was to make quality products, target specific customer groups, and publicise their products to earn public praise.

The government is tightening regulation in formula milk but some companies have developed their own confidence-boosting initiatives. For example, more than 3,000 people have visited the Shanghai Chenguan Dairy to see for themselves how milk powder is manufactured.

Data sourced from Xinhua; additional content by Warc staff