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A newly released study, "Tainted Brands", from All Media Count finds thatmilk consumers have had their confidence in milk brands deeply shaken, butthat there is not likely to be a flight from milk consumption. On thecontrary, the incident has suddenly made most milk consumers more loyal.
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China's major milk brands have spent years investing in productdevelopment and marketing communications, only to have a large chunk of thatequity wiped out almost overnight. San Lu, the brand at the epicenter of thescandal, is probably damaged beyond repair. According to the AMC study of 900milk buyers which was carried out from September 22nd to 26th, over 85% saythey have a more negative impression of the brand due to the incident. Halfof San Lu's former loyalists claim they will avoid the brand in future.Because it was the first brand to be implicated and, according to tests byhealth authorities, the most heavily tainted, San Lu has been a lightening rodfor most of the initial shock in what is actually a very pervasive problem.This is likely to be an insurmountable loss of trust for a brand which mighthave been expected to fare better due to its partnership with New Zealand'sFonterra.
Mengniu and Yi Li, are also both widely known to have been implicated.They were spontaneously named as tainted by about 60% of milk buyers in thestudy. For these brands, the impact of the tainting appears closely relatedto their status. This is the flip side of being a leading brand: when thescandal is industry-wide, the better known a brand is, the more likely peopleare to remember that it is implicated. These leading brands, despite havingresources to manage the impact of the scandal, also have the most to lose bymishandling it. Although only about one quarter of their loyal customers saythey will avoid these brands in future, many more of their customers say theyare open to alternative milk brands. For example, nearly two-thirds ofshoppers formerly loyal to Mengniu now say they are on the move, looking foralternatives.
For a smaller brand, especially "also buy" brands (the second or thirdbrands in a consumer's repertoire), these betrayed loyalists are a hugepotential opportunity. Even minor spillage from a mega brand like Mengniucould make a huge positive impact on the sales of a small local brand,provided these potential customers are already aware of the brand. Forinstance, the number of disgruntled Mengniu customers considering San Yuan(prior to San Yuan also being implicated in late September) was about twice asmany as San Yuan's own loyal customer base.
A crisis can often change the rules of the game. During the melamineincident, some local loyalties became liabilities. At such times, superficialawareness of a brand may be a stepping stone to trial and later lead to trust.A very good example of this is the shift in interest toward Bright Dairy inBeijing versus its home city of Shanghai (see table below).
The trust of many Shanghai milk buyers was betrayed when Bright was namedas a tainted brand. 54% of consumers in Shanghai said they had bought Brightin the past three months, but only 7% said they would consider it after thescandal broke.
Beijing milk buyers, on the other hand, did not feel betrayed by Bright.For them, the brand was peripheral, only 17% had bought it in the past threemonths, though most would have often seen it in the store or in advertising.When popular northern brand Mengniu came under the melamine spotlight, Beijingmilk buyers turned away from Mengniu in droves. They did the same withequally strong national brand Yi Li. That left Bright -- a brand allBeijingers have heard of but few buy -- in an unusual but fortunate position:not close enough to people's hearts to trigger a backlash and not a completestranger either. It emerged unscathed in Beijing, even picking up a couple ofpoints of consideration. Possibly, being a southern brand, Bright was thoughtto be distant enough from Beijing's neighbor Hebei province to be seen ashaving less risk of tainting.
By contrast, national brand Mengniu, with solid awareness levels in allmarkets suffered deep losses of consumer consideration in all markets.
The most important finding from the study according to AMC's ManagingDirector, Mike Underhill, was the immediate transformation of loyaltybehaviour:
"Most consumers who used to buy two or more brands of milk a month, nowsay they will stick with just one. That will mean a lot less brand switching,a lot less sensitivity to price."
With the major brands on a more or less equal playing field with regardsto price, availability and exposure to tainting, the brands that benefit fromthis sharpened degree of loyalty will be those such as Bright who findthemselves with unexpected market openings and any of the smaller brands who,on their home turf, can pick up and hold onto spillover customers from the bigbrands. To do that, smaller companies would need to quickly lift the volumeand standard of marketing communications because it would be hard to make anyfast changes to their product offerings or distribution.
From a branding and strategy perspective, this would be a bad time tostimulate trial through discounts. Although discounting can stimulateimmediate purchase and clear out excess inventory, it often leads to long termnegative side effects such as consumer expectation of cheaper prices in future,sales slumps after the discount ends, and erosion of a brand's imagery. Andbecause the illegal use of melamine was driven by the motivation to cut costs,consumers may be especially suspicious of cheap prices this soon after theincident.
In the longer term, the melamine incident's impact on loyalty is likely tobenefit all milk brands that survive the industry consolidation that occurs.Consumers will have more reason to care about brands and milk will becomesomewhat less of a commodity. The inevitable shake-up in the system ofgetting milk from the cow to the breakfast table will of course result inhigher prices for consumers, but with a better-developed understanding of whatquality means in the milk category and more effective and better targetedbrand communications from milk companies, AMC believe that higher prices neednot lead to less consumption.
All Media Count is a media and advertising consulting firm based inBeijing. The company specializes in cross-media and non-traditional mediaanalysis. AMC's founder, Mike Underhill, has lived and worked in China since1996. More information on the Tainted Brands study and how to buy a copy ofthe report is available at http://www.allmediacount.com/ .Beijing Shanghai Bought in Consider Bought in Consider past in future Change past in future Change Bright 16.7% 18.0% POS. 54.7% 7.3% Very NEG. Mengniu 78.0% 28.0% NEG. 61.3% 31.3% NEG.
SOURCE All Media Count
