Foreign companies in china typically position their brands higher than back home. does the strategy work?

When Harry Tan bought the Asia-Pacific management rights for Days Inn in 2003, the US-based hotel chain was hardly known in China, save for a token budget hotel that had limited occupancy and a 2.5 stars rating.

Nine years later, the hotel chain is bursting at the seams in China with more than 100 properties in various cities and regions, 30 of them having come up in 2011, and still more in the works. Operating under various names like Days Inn, Days Hotel or Days Hotel and Suites, and providing a wide range of amenities, the chain is no longer synonymous with budget hotels, but rather represents higher-end comfort.

Tan says the makeover was necessary to succeed in China as the changing economic conditions had brought about a sea change in the perceptions of Chinese consumers.

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"When people move up the economic ladder, they often aspire for high-value products and services. For Chinese people, the foreign brands were always the symbols of high-end luxury and quality," Tan says.

Realizing that the challenge before him was formidable, Tan decided that the chain needed a major re-branding in China, one that would propel it into the upper echelons with ratings of four stars and above, unlike the three-star budget hotel rating it enjoyed in the US.

Like Days Inn, other global brands have also encountered similar problems in China. Though the market challenges were varied, the underlying motive was always the need to cater to the Chinese consumer with products of higher value and better brand positioning.

Such opportunities abound in many sectors like hotels, food and beverages, textiles and automobiles. Though positioned as a street-corner cafe in the US and Europe, Starbucks is perceived as a high-end meeting place in China. Similarly, the mass market and affordable furniture provider from Sweden, Ikea, is considered a fashion icon in China. Levis, the affordable jeans brand from the US, is a status symbol among Chinese youngsters. The list of products that enjoy higher social status in China is endless.

Moving up

"It is normal to position a Western brand a little bit higher in China, as 'foreign' stands for good quality in people's stereotype," says Tan, chairman and chief executive of Days Inn China.

"The higher positioning gives us more flexibility in the hotel industry. When the economy is good, those who usually stay in three-star hotels will reward themselves by moving up to four-stars. But if the market goes down, five-star people will also come to us."

Tan says that when he made the decision to move up the ladder, there were several other motivating factors. "I realized that if I continued to position Days Inn as a budget hotel, it would be harder and harder to do business in China.

Property prices were also soaring, along with higher labor and utility costs. If we remained as a budget hotel, we would have to keep our prices low, thereby leaving hardly any room for profits."

Dale Preston, managing director of retail measurement at Nielsen, Greater China, says: "There is no doubt that other developing countries are also going through the same process, which we call 'premiumization'."

Preston says that while it is normal for people who are getting wealthy to have higher aspirations, they also need to back it up with good market research.

Chinese consumers are not at all savvy when it comes to the branding strategies of the Western brands, says Preston, adding that they often get carried away by the name.

"When the brand drops to the next tier down, a lot of people cannot really tell their status unless they go online and do thorough research. But unfortunately, they are not doing the research yet," Preston says.