There's never been a better time to be a Chinese appliance brand in the west

Western consumers have changed over the last five years. Once, the middle class looked down on value brands as cheap and inferior. Now they are driving to Lidl and Aldi, two discount supermarket chains, snapping up bargains and boasting about how much they saved at dinner parties. Value brands are cropping up all over the home, from food and appliances in the kitchen to the TV and laptop in the living room.

There are several reasons for this. The first is necessity. Median household income in the United States dropped 9.8 percent during the economic downturn. In the United Kingdom over the same period, they fell by 3.8 percent. Countries like Spain and Ireland saw even more alarming declines. Still, people need microwaves, refrigerators and televisions. So, many consumers lowered their expectations, and moved away from premium brands. In our research, we've discovered that they were pleasantly surprised by what they found. The value brands were actually pretty good.

This wasn't always the case. Twenty years ago, shopping for appliances was a tricky balancing act - the cheap stuff wouldn't work that well and it would break sooner than later. If you bought a Miele vacuum, it would cost twice as much but maybe work three times as long as a basic one. Now, that's less likely to be the case. Thanks to better manufacturing techniques and industrial design, it is hard to buy a rubbish product in the West.

Today, when you pay for an expensive appliance, you're not simply forking out for better build quality. Brands like Smeg and AGA justify their margins with distinctive designs, and American manufacturers compete on features like fancy ice dispensers. High-margin TVs must look ultra-cool on a wall and have add-ons like Internet connectivity. Ultimately, some people will always pay for a luxury brand appliance. Chinese manufacturers can leave that market alone for the moment, and go after the middle class consumer who wants more bang, and not badge, for the buck.

But why bother going after this market with your own brand, when you can create original equipment manufacturer products without the headaches of marketing and distribution? In a word, margins. Even the most successful OEM companies in China eventually get pinched by the margins they can command, whereas Western brands own the relationship with the consumer and mark up the product accordingly. Look at Foxconn, for example. It grew 51 percent in the first year it assembled iPads for Apple. In 2012, its revenue grew by 1 percent. Now it is launching its own brands of accessories and mobile technologies in a bid to kick-start growth.

The path from OEM manufacturer to low-end brand to high-end badge might seem like a daunting one, but there are plenty of companies who've made the journey and have the revenue growth to show for it. A decade ago, Samsung and LG sat firmly in the "stack 'em high and sell 'em cheap" end of the market. Through innovative technologies and great design, they elevated their status to become sought-after brands with enviable margins. ASUS and Acer used to make laptops for Sony, Hewlett Packard and others and saw their own computers sell at a fraction of the price. Thanks to beautiful product design, they've started to compete with the big boys. Personally, I'd rather have a lovely ASUS ZenWatch than an Apple Watch.

In the meantime, Sony, which once seemed unassailable, has been crushed as consumers have realized that a great looking, reliable television costs only $600.

Finally, there's the question of origin: Are US and European consumers ready for a Chinese appliance brand? In my experience, it's not a question at all. A quick poll of my office, staffed by a diverse selection of smart and widely read consultants, showed that nobody knew where Electrolux, Beko and Maytag came from (Sweden, Turkey and the US), and only one person guessed Zanussi was from Italy. Miele, Bosch and Siemens play off their German origins, and its association with high quality engineering and efficiency. The rest seem to go out of their way to obscure their roots. For many years, Zanussi claimed its products came from a different planet in its UK advertising. If British consumers will happily buy appliances made in outer space, they're ready for microwaves from Shenzhen.

Chinese brands invented the "good enough" category for consumers in developing economies and it took an economic downturn for them to catch on in developed markets. But Western brands aren't going to stand still - they just don't want to become the next Sony. Many have in fact developed competitive products for Asian markets - the Electrolux range hood for stir-frying is a great example.

It won't be long before they start taking these products back to penny-counting North American and European consumers. There is an opening for companies like Haier, SVA and Hisense to get into this market now. It won't be there forever.

The author is head of strategy at Sense Worldwide, an innovation consultancy company that works with General Electric, Nike, Barclays and others to deliver products and services. The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 02/06/2015 page9)