A newly released study, “Tainted Brands”, from All Media Count finds that milk consumers have had their confidence in milk brands deeply shaken, but that there is not likely to be a flight from milk consumption. On the contrary, the incident has suddenly made most milk consumers more loyal. 

 

China’s major milk brands have spent years investing in product development and marketing communications, only to have a large chunk of that equity wiped out almost overnight. San Lu, the brand at the epicenter of the scandal, is probably damaged beyond repair. According to the AMC study of 900 milk buyers which was carried out from September 22^nd to 26^th, over 85% say they have a more negative impression of the brand due to the incident. Half of 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 by health authorities, the most heavily tainted, San Lu has been a lightening rod for 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 might have been expected to fare better due to its partnership with New Zealand’s Fonterra.

 

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 the study. For these brands, the impact of the tainting appears closely related to their status. This is the flip side of being a leading brand: when the scandal is industry-wide, the better known a brand is, the more likely people are to remember that it is implicated.  These leading brands, despite having resources to manage the impact of the scandal, also have the most to lose by mishandling it. Although only about one quarter of their loyal customers say they will avoid these brands in future, many more of their customers say they are open to alternative milk brands.  For example, nearly two-thirds of shoppers formerly loyal to Mengniu now say they are on the move, looking for alternatives. 

 

For a smaller brand, especially “also buy” brands (the second or third brands in a consumer’s repertoire), these betrayed loyalists are a huge potential opportunity. Even minor spillage from a mega brand like Mengniu could make a huge positive impact on the sales of a small local brand, provided these potential customers are already aware of the brand. For instance, the number of disgruntled Mengniu customers considering San Yuan (prior to San Yuan also being implicated in late September) was about twice as many as San Yuan’s own loyal customer base.  

 

The trust of many Shanghai milk buyers was betrayed when Bright was named as a tainted brand. 54% of consumers in Shanghai said they had bought Bright in the past three months, but only 7% said they would consider it after the scandal 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 three months, though most would have often seen it in the store or in advertising.  When popular northern brand Mengniu came under the melamine spotlight, Beijing milk buyers turned away from Mengniu in droves. They did the same with equally strong national brand Yi Li. That left Bright – a brand all Beijingers 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 complete stranger either. It emerged unscathed in Beijing, even picking up a couple of points of consideration. Possibly, being a southern brand, Bright was thought to be distant enough from Beijing’s neighbor Hebei province to be seen as having less risk of tainting.

 

By contrast, national brand Mengniu, with solid awareness levels in all markets suffered deep losses of consumer consideration in all markets.

 

The most important finding from the study according to AMC’s Managing Director, Mike Underhill, was the immediate transformation of loyalty behaviour: 

 

 

With the major brands on a more or less equal playing field with regards to price, availability and exposure to tainting, the brands that benefit from this sharpened degree of loyalty will be those such as Bright who find themselves 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 big brands. To do that, smaller companies would need to quickly lift the volume and standard of marketing communications because it would be hard to make any fast changes to their product offerings or distribution. 

 

From a branding and strategy perspective, this would be a bad time to stimulate trial through discounts. Although discounting can stimulate immediate purchase and clear out excess inventory, it often leads to long term negative side effects such as consumer expectation of cheaper prices in future, sales slumps after the discount ends, and erosion of a brand’s imagery. And because the illegal use of melamine was driven by the motivation to cut costs, consumers may be especially suspicious of cheap prices this soon after the incident. 

 

In the longer term, the melamine incident’s impact on loyalty is likely to benefit all milk brands that survive the industry consolidation that occurs. Consumers will have more reason to care about brands and milk will become somewhat less of a commodity. The inevitable shake-up in the system of getting milk from the cow to the breakfast table will of course result in higher prices for consumers, but with a better-developed understanding of what quality means in the milk category and more effective and better targeted brand communications from milk companies, AMC believe that higher prices need not lead to less consumption.

 

 

 

Large brands:

 

 

 

 

Small brands:

 

 

 

 

All Media Count is a media and advertising consulting firm based in Beijing. The company specializes in cross-media and non-traditional media analysis. AMC’s founder, Mike Underhill, has lived and worked in China since 1996. More information on the Tainted Brands study and how to buy a copy of the report is available at www.allmediacount.com.

 

 

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