This spring, the video of bloodied David Dao being dragged down the aisle of a United Airlines flight went global. It became news everywhere but it was the reaction in China that was probably the most surprising for United Airlines. There are lots of opinions as to why the Chinese reaction was so strong – but the simplest explanation is that it looked like an Asian man (of then still-unidentified origin) being abused.
Regardless, Chinese netizens jumped into action almost immediately.
- The video was viewed online between 200-300M times in China.
- It resulted in over 100,000 comments, most all negative.
- It became the top trending story on Weibo.
- Petitions calling for a boycott of United Airlines went viral on Wechat.
- Chinese media jumped in and it became a top news story everywhere in China. The People’s Daily ran photos of the man’s bloodied face and openly criticized the airline.
- Prominent Chinese began lambasting the company. JD.com CEO Richard Liu said “…United is the worst airline, not one of the worst.”
It took a few days until United Airlines seemed to recognize the scope of the problem. CEO Oscar Munoz more or less reversed his earlier statements and made a serious apology. How much of this was in response to China’s big reaction is not clear. Certainly there was outrage globally. But it was nothing like the pure volume of outrage that was happening in China, which is now United Airline’s second largest market.
Looking back, there are some important lessons in this for companies.
The first “China scandal” always comes as a surprise
The list of companies that have had China incidents or scandals is long and prestigious. It includes McDonalds, KFC, Wal-Mart, Glaxo SmithKline, Starbucks, and lots of Japanese companies. In each case, China had already become a major, if not critical, market for the company in question. In each case, an incident or media report sparked an online response that grew very rapidly, often within hours. And the first time it happened, the company was taken by surprise.
The consequences of such a China incident or scandal can be serious. For example, KFC, which prior to its had over 50% of its revenue in China, lost significant global revenue following its China food scandal. In other cases, like Starbucks’ pricing scandal of 2013, consumers ended up brushing it off almost immediately. We don’t know how serious this will be for United yet. But 6% of United’s revenue is coming from China. And US-China routes are a priority for the company.
What we can conclude is that United Airlines was caught by surprise. Yet another multinational has suddenly realized that not only are Chinese consumers a big economic phenomenon, they are also a demographic that is paying close attention. This huge middle class is watching and listening all the time. They know what happens in the USA and can react within minutes. And this is not limited just to famous companies like United and KFC. If you have a bed and breakfast in Vermont, I guarantee you there are Chinese reviews and discussions about your hotel.
Chinese Consumers are increasingly shaking the World
I write about the increasing impact of Chinese consumers on businesses and markets around the world (one particularly popular article here). My standard points are:
- Chinese consumers have arrived as a massive economic force. They are increasing in both number and wealth.
- The mechanisms by which this group can impact markets and businesses around the world are increasing.
- When this group changes its mind about something, it increasingly ripples out into the world. And if they get upset about something, they will make themselves felt, usually very quickly. Company after company seems to have to learn this the hard way the first time around.
I also make the point that this China consumer phenomenon works in both positive and negative directions. If you have a popular in-vitro fertilization center in Los Angeles or lavender farm in Tasmania, you can find yourself literally overwhelmed by Chinese tourists. Right now, there is a small town in the UK called Kidlington that has become over-run with Chinese tourists, for no reason that anyone can figure out. Chinese tour groups just decided they like stopping there to take pictures. Also recently, avocados are becoming popular in China for the first time. According to Produce Report, avocado imports to China jumped 375% between 2014 and 2015. And so on.
These types of surprise China consumer stories happen virtually every week, in both positive and negative directions. When Chinese consumers change their mind about something in significant numbers it now ripples out into the world. As United Airlines has just discovered.
The best approach is smart offense and fast defense.
For multinationals and other companies, the reactions and changing preferences of Chinese consumers create a challenge. You can no longer wait for an issue to happen and then try to respond. You need to proactively engage with Chinese consumers all the time. The best approach I know of is “smart offense” and “fast defense”. And the best example I know of this is McDonalds.
McDonalds in China (and Japan) has been hit by a couple of food scandals in recent years. This is an expected event given the rampant problems in the food supply system of China. If you are a famous restaurant in China, you are going to have a widely reported food quality issue at some point (whether real or fake).
McDonalds does a very good job of smart offense in this situation, especially on social media. They pro-actively market themselves as safe food for Chinese consumers virtually every day. They widely publicize the quality of their ingredients on their webpage. And they are known for giving tours of their kitchens to show how clean they are. If you’ve ever been in a typical Chinese restaurant kitchen, you can see how effective that would be. That’s smart offense.
And when an issue does happen (or is fabricated or charged), they play “fast defense”. Social media can whip accusations into a frenzy within hours. When McDonalds was the subject of a food quality expose (not the 2014 one), they responded on their Weibo account within 1 hour of the report. And they closed the outlet in question within 24 hours. That’s fast defense. And the speed of their response actually reinforced their reputation for caring about customers and food quality. Compare this to how United Airlines responded.
Final Point: This is just the beginning
Air travel is prone to conflict. People are tired. There are security concerns. Everyone gets frustrated at some point. It is inevitable that major Western airlines are going to have incidents with Chinese passengers at some point. In fact, such conflicts and incidents happen all the time in Mainland China. So United Airlines should have been playing smart offense and fast defense already. They should have been ready.
But this was the first time they got a big reaction from Chinese consumers and they didn’t see it coming. And to be fair, it took McDonalds several earlier problems before management got prepared for future incidents. There is a learning curve. But every international airline should take note.
Finally, it is worth pointing out that we are still just at the beginning of the age of Chinese consumers. Seven or eight years ago, nobody really talked about them outside of Asia. They weren’t impacting tourist numbers everywhere. They weren’t the world’s largest car, smartphone and gambling markets. Hollywood executives didn’t kowtow to them.
But in the past 5 years, Chinese consumers have emerged as a major economic phenomenon. So imagine how important they will be in 2025. China 2025 is a subject I spend a lot of time researching. I think it is going to be a massive change from today. Here some final facts for you to consider.
- Chinese outbound tourists already exceed 110M per year and constitute over 50% of tourism in Asia. By 2025, even at conservative estimates of 4% growth, Chinese outbound tourism will exceed 150M people per year.
- By 2025, there will be over 1B Chinese living in cities. At that point, Chinese urbanites will be larger than the populations of North and South America combined.
- By 2025, there will also be 200-250M Chinese middle class families. This is really the number to remember. This rising Chinese middle class is going to change most everything.
What this means for markets and businesses around the globe is that they can now be directly impacted by what is discussed at dinner tables, in offices and especially online in China. My recommendation is to start paying closer attention to those conversations.
As for United Airlines, Chinese consumers gave them a surprise beating. As United prides itself on having more direct US-China flights than any other airline, they will probably re-assess fairly quickly. Welcome to the new normal.
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I write (and speak) about how rising Chinese consumers are disrupting global markets. (#ConsumerChina). This also includes work on:
- “China 2025″ – what a region transformed by Chinese consumers, companies and capital is going to look like. (#China2025)
