When it comes to a brand’s China strategy, the goals of many brands I work with are no longer limited in finding distributors. They are looking for partnership opportunities, joint venture structures or even equity investors to bring their brand to a new level in China. The business model ProSupps and Muscle Tech have in China definitely contributed to this strategy shift. I’m very fortunate to know several Chinese sport nutrition business owners who are actively looking for investment opportunities with U.S. or European brands. Unlike distributors, they have different criteria and standards when it comes to investing instead of distributing. Here are four tips which can prepare your brands to attract Chinese investors.
It’s very clear to many investors I talked to that trademark issue can be a deal breaker. Trademark squatter are a huge issue in China’s sport nutrition industry. The legal process for brands to regain their trademark can be time-consuming and expensive. A recent case which was successfully resolved took 18 months, which is considered quick according to the attorney.
For brands with unresolved trademark issues cross-border eCommerce is a channel they can use to conduct business without any legal issues, but the growth potential is limited and most investors want to see long-term multi-channel growth. Moreover, trademark squatters usually take advantage of situations when a brand plans to form a partnership in China. They see there might be a paycheck waiting for them. They would either approach the brands trying to sell the trademark (which actually is not the worst-case scenario), or they might file claims with platforms like Taobao and Tmall to remove products from other distributor’s stores as an effort to request larger sum of payment from the brand.
You can learn more about trademark protection at https://www.tigersocialchina.com/blog/sport-nutrition-china-trademark-protection-and-registration
Flexibility in Creating Special Formula for China
Cross-border eCommerce is the legal gateway for many sport nutrition brands to sell products to China. This is especially the case for brands whose product category and formula can’t be easily registered and imported to China through traditional channels. However, the volume a brand can do solely through cross-border channels will max out at certain level. Domestic channels are critical to bring a brand from 7 figure to 8 figure dollar annual volume. The only solution is to create special labels and formulas for China. If your brand is less flexible in term of customizing formula and can’t allocate R&D resources to expedite the product development process, it can be a challenge to meet a Chinese investors’ expectations.
As China’s regulations on sport supplement and functional food continue evolving, policies on cross-border eCommerce are subject to change, which is happening this year. Chinese investors see the customized Chinese formula as a security for their long-term investment.
Moreover, Chinese investors see the customized Chinese product as the ultimate solution to pricing control. As many unauthorized distributors import products from different channels overseas and are not subject to pricing policies implemented by the official distributor, Chinese investors see secured margin and pricing control with customized product skus.
Unique Selling Proposition
Chinese investors will evaluate how your brand is positioned in China. I want to emphasize China, because a brand can have totally different unique selling propositions in the U.S. and China. Before you approach any Chinese investors, it’s important to identify your brands’ market positioning strategy and unique selling propositions.
Chinese investors are looking for brands that can differentiate from dominating brands in the market. It can be in the form of product innovation, category leader, design and packaging, target consumer demographics, brand ambassadors, etc. Again, this means your brand needs to do market research and identify key selling features which can stand out from competition in China.
Secondly, Chinese investors, especially those from non-sport nutrition industries, are looking for brands that appeal to a broader consumer base. For example, your brand might be targeting hardcore weightlifters who compete at certain amateur and professional levels. If you take the same laser focused approach to China, the investors might see it as a limiting factor. China’s professional bodybuilding community is small and saturated with many supplement brands. On the contrary, functional food like nutritional bars, diet products, nutritional drinks, and whey protein have a larger consumer base. Chinese investors generally favor those categories.
Content Creation and Brand Ambassadors
It’s not so much about how popular your athlete is outside China, but how much the athlete is willing to be actively involved in marketing activities in China. This includes content creation, fan engagement and market visits. You might have spent expensive sponsorship fees to use a top athlete’s images for your brand but a few sponsored social media posts can no longer work their magic as it did 5 or 6 years ago. Chinese health and wellness consumers have become savvier, especially when brand and product options are plenty. They read online reviews, research the credibility of the athletes and the manufacturers, watch any videos they can find online. The more information brands and their ambassadors can provide, the more attention will be paid to your products. Brand ambassadors who dedicate time and effort to engage with Chinese fans will build a loyal followers base, which will help to enhance brand loyalty.
China’s influencer marketing has exploded in the past two years. Many local fitness influencers are getting paid 40k USD a year in sponsorship fees while some are in profit share programs with different brands. Thus, Chinese investors see the value of influencer marketing and original content creation.
If partnership is your strategy to enter China market, it’s imperative to identify your brands’ strength in attracting Chinese investors.
Even if finding an investor is not your business goal at the moment, proactively address your trademark issues, understand China’s regulations, identify your brand’s unique selling proposition, leverage social media and athletes to put out content and engage with consumers, your brand will have a competitive edge to succeed in China.