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Seeking a Balance between Tradition and the Trendy by Cao Hong 07-12- 2012

Traditional brands face a number of challenges in the course of market development today. Yesterday the Shanghai Creative Industries Demonstration and Service Platform, an arm of the Shanghai Economic and Information Technology Commission, in collaboration with IDEO, organized an event to explore the development and future of heritage brands in Shanghai and China. ■ Shanghai Entrepreneurs Meet with Experts in Search of Brand Regeneration Models “The Butterfly brand of sewing machines can be traced back to the year 1919, when it was established by a private business entity. Originally called ’Invincible‘, the brand name eventually became ’Butterfly‘, as ’Invincible‘ sounded just like ’Butterfly‘ in the Shanghai dialect.” At the “Shanghai Traditional Brands Seminar” held on 11 July, SGSB Group Co., Ltd. (600843) Chairman Zhang Min became emotional as he traced the history of the brand. “From its founding right through to the mid to late 1990s, the brand turned in an excellent performance and was well-received by Chinese consumers. However, with the mass design and manufacture of clothing, the home sewing machine as a tool rapidly faded from the market at the end of the 1990s. Once a source of pride, the Butterfly sewing machine ceased to exist. It took more than a decade until June last year when the brand was resurrected, but those of us my age have not yet forgotten it.” Zhang Min told fellow attendees that he had been championing the return of the Butterfly sewing machine since the merger that created SGSB eight years ago. Today, after the acquisition of the Germany sewing machine maker Durkopp, the Butterfly line of sewing machines is flourishing in overseas markets, yet remains neglected by Chinese consumers.

In truth, the Butterfly sewing machine is not alone in its current predicament. Professor Xu Mingyang, Head of the Brand Research Center at the Shanghai Jiaotong University cited existing data which indicates that out of 12,000 traditional brands in China, only 1,500 are still in business and a mere 150 of these brands are doing well. Just 10 or so brands are top performers, some of most familiar being “Wang Lao Ji” [herbal tea] and “Quan Ju De” [Peking roast duck]. To tackle the myriad of issues traditional brands face today, the Shanghai Economic and Information Technology Commission’s SCIESP organized an event entitled the “Shanghai Traditional Brands Seminar”. The focus of the seminar discussion was on the value of traditional brands, possible growth strategies for these brands and models for brand resurrection. Return of the Butterfly Zhang Min continues to hope that the Butterfly brand may flutter back into the Chinese market. For this reason, he went through three General Managers for the company before finding one able to come up with some effective strategies. “If Butterfly’s products don’t cater to the current needs of the market and the customer, the quality of its products does not matter.” Zhang Min is also fully aware of the crux of the problem: In Butterfly’s heyday, ready to wear clothing in China was scarce, but today, with an average household size of only 2.5 persons who are all busy making a living outside of the home, sewing may not be a good use of time and resources. Clearly, there is no demand for the home sewing machine in this respect. Zhang Min’s overseas trips have convinced him, however, that “the opportunities are still there.” Zhang

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multifunctional sewing machines designed for the home is about 10 million units annually, with about 80% of demand coming from the European Union (particularly Western Europe), the United States and Japan. Further enquiries revealed that overseas buyers mainly purchase multifunctional sewing machines for leisure purposes; in other words, to indulge in a hobby. On the other hand, domestic buyers are typically still using their machines to make clothes, or for alteration / mending purposes. Based on this understanding, Zhang Min realized that the function of the machine had to be changed, from a utilitarian tool to one used for recreation and leisure. Georgia Guo, Marketing Director (China) of world-renowned design consultancy IDEO pointed out, “We all know that it [the Butterfly sewing machine] is a strong leader in the industrial machine market. But they have realized that there is this great gap between the Chinese market and established markets for its domestic sewing machines. And that’s where their future lies, and they are very clear about that.” IDEO has also participated in a survey of Shanghai’s traditional brands conducted by the SCIESP. Headquartered in America’s Silicon Valley, IDEO is a global design consultancy firm with 11 branch organizations worldwide. The firm’s China arm has been in operation for the past nine years. “What they need to do is to transform the sewing machine from a money-saving appliance into a lifestyle choice for consumers who enjoy lifestyle pleasures, which means that they would need to target a new consumer niche. There is ample room for such innovation but the challenge is that their potential customer has changed: they are no longer cost-sensitive housewives in their 40s and 50s,” said Guo. Zhang Min noted that since the previous year the company has

worked on all fronts to update the image of the Butterfly sewing machine. For instance, the machine is now multi-functional, and comes in electrically-powered rather than pedal-powered versions. While the traditional product required the craftsmanship of the user in order to produce a quality work, today’s version has become as user-friendly as a point-and-shoot camera; all the user needs to do is to make a quick scan of the manual. SGSB also hopes the product can link up with the Internet, so that ladies of leisure who wish to own their personalized handicraft items can go DIY with the support of the net. Traditional Brands Should be Heritage Brands There is a long list of Shanghainese traditional brands with illustrious histories that rival Butterfly’s. However, merely focusing on the brand’s history can become a superficial endeavor. “For traditional brands in China today, too much marketing probably goes on the word “old”, without much effect in terms of really appealing to the consumer on an emotional level or promoting innovation”, said Tina Chen, IDEO China Executive Director for Business and Strategy, as she pointed to a photograph of a Shanghai local pharmacy named “Lei Yun Shang”. Chen noted that in their long periods of operation, traditional Chinese brands have upheld and integrated the best of Chinese culture and therefore possess a distinctive geographic cachet and history. Together with unique processes and business models, these companies have won widespread social recognition and forged strong reputations and brand associations. In other words, cultural traditions, a distinct cultural imprint and historical background are important components of a traditional brand. However, from the point of view of IDEO, traditional brands should also innovate from their foundation of historical value and cultural heritage in order to position the brand well for the future. Put simply, traditional brands need to better transform themselves into heritage

brands which continue to innovate while preserving their historical standing. “The traditional brand has to be the original brand, which retains something extra from all those years compared to newer things. What kind of effect these extra things can produce depends on the brand owner coming up with very good concepts and design,” said Qu Jianning, General Manager of Jahwa United Co., Ltd. at the event. According to Qu, Jahwa United launched the Herborist range of beauty products in 1997 in a calculated attempt to combine cosmetics with the recognition of Traditional Chinese Medicine by consumers. A bigger challenge lies in wait for Jahwa United in reviving another traditional brand, Shanghai Vive. “Shanghai Vive [was so good], it even received a gold medal at the Panama World Expo in the early 20th century. So our shaping of the Shanghai Vive brand lies in how we recreate it. When we talk about Shanghai, we talk about a process of the East meeting the West. The city has been influenced by the West during its history but has also retained its Oriental characteristics. In our considerations of how to resurrect the brand from an East-West fusion perspective, we think about product design, including appearance, distribution channels and advertisements”, said Qu. At the event, Qu also stated: “To really do product branding well, putting it simply there are three areas you cannot ignore. First, the quality of your product must be acceptable to consumers; second, from a brand perspective, communication is also very important; and third, your product must be distributed through the appropriate channels.” Qu told our reporter frankly that the re-branding of Shanghai Vive has not been an easy task and sales channels have yet to be established on a large scale. Under such circumstances, an emphasis on the brand’s story would not have the intended effects.

Lao Feng Xiang to Open First Overseas Store in Sydney, Australia Next Month Of all the traditional Shanghai brands our reporter encountered yesterday, the most astonishing resurrection story belonged to “Lao Feng Xiang”. “We were elated when we arrived at Lao Feng Xiang’s office and saw from a wall chart that the brand’s sales had grown from 700 million yuan to 20 billion yuan. Lao Feng Xiang is incredibly strong in economic terms,” Georgia Guo told our reporter. Guo observed that the jewelry and precious metals markets are highly competitive markets, a fact that Lao Feng Xiang is also keenly aware of, judging from its eight product categories, each with very clear-cut profit margins. Lao Feng Xiang is well-versed in the differences between Chinese designs and foreign designs, but instead of blindly following foreign designs, the brand has sought to innovate on its fundamentals, showing its clear understanding of the Chinese consumer in the process. The brand’s latest ventures have it bringing the Lao Feng Xiang brand to overseas markets. Come August, the first overseas Lao Feng Xiang store will be opened in Sydney, Australia. Zhang Jingyang, Lao Feng Xiang’s Chief Designer, told our reporter that the Sydney store is in a good location, being in a relatively up market area frequented by ex-pat Chinese. Further, traditional Chinese gold objects and ornaments such as Eight Immortals figures and silver accessories such as wine sets are also very popular with overseas consumers. Another traditional brand that is pushing for new channels is Shanghai Baixin Stationery. In 2005, the privately-owned enterprise Zhejiang Fuyue Holding Group Co., Ltd., acquired the Meriful Group and the four traditional brands in its stable in order to create a business focus for Shanghai Baixin Stationery. The Baixin Group, formerly known as the Baixin Bookstore, was founded in 1912.

Following the Liberation, the Fuzhou Road main store was transformed into a stationery business. Hu Zhenhai, Managing Director of Meriful Shanghai (Group) Co., Ltd., observed that although the stationery industry is worth over 150 billion yuan annually, to date there is no leading brand on the market. Meriful has plans to list Shanghai Baixin on the stock exchange within five years. According to Hu Zhenhai, Baixin’s student stationery brand “Boxue” is now available in Xinhua Bookstores in Zhejiang, Jiangsu and Anhui Provinces, while the company is also in the course of establishing a “lifestyle stationery” brand network. Balancing Tradition and Innovation – How Much Sugar in the Coffee? From IDEO’s perspective, in a consumerist society like China the potential of traditional Chinese brands should not be underestimated. “We have found that when choosing brands to purchase from, the Chinese consumer no longer merely seeks to buy a status symbol. Instead, the Chinese consumer is now more interested in selfactualization, a more refined way of consumption and the pursuit of taste. So why haven’t China’s traditional brands caught up with this development?” Charles Hayes, IDEO China Managing Director, asked. “Culture is of prime importance to a traditional brand. Generally speaking, the brand’s culture is where the brand’s value lies. Even if we might not realize it, the brand’s culture is in fact the spearhead of product differentiation and represents the product’s unique consumer appeal,” said Charles Hayes. “When trying to tell the story and background of your product, it presents a motivation, a potential. It lets you know how to maintain your core values even as you make changes. If you don’t invest in changes, you’ll have to pay the price.” A delicate balance is needed between Change and No Change.

Yu Mingyang told us that for a brand, there are only two choices available: one is to change with the times, and the other is to take the route of the classic and remain unchanged. This is often a difficult choice for brands. If the brand does not change, it may run the risk of becoming relevant only to older customers. If the brand does make changes, what is essential to the brand may be lost in the process. “How to find the balance is a question that every brand must contemplate. Do you wish to follow the trends and go down the road of embracing mainstream consumers? Or, do you wish to risk becoming irrelevant? In fact, luxury brands have also faced a whole host of issues in China in recent years”, said Yu. Yu Mingyang told us that he had once asked the Chairman of Louis Vuitton how the brand managed the relationship between heritage and innovation. The response he received was that the issue is an eternal problem, rather like how much sugar to put into a cup of coffee. Too little sugar and the coffee would be bitter; too much sugar and the coffee would be too sweet. “This is a real dilemma for traditional brands. The key question is, how much do you keep, and to what extent do you innovate?”, Yu said. “The unchanging rules are: new positioning, a strong presence, an emphasis on innovation, using ideas from outside your company, and creating systems.”