Any company that starts doing well will attract competitors. They will come in with a lower price. The company needs to either lower its prices or raise its investment in product improvement and brand building. I prefer maintaining the price and improving the value offering. The main caution is that a successful company must not become complacent and do nothing. Then it will be too late.

Starting your own business now becomes a trend in China. The small startup companies must take a different marketing approach because it can't afford the million-dollar mass advertising campaign. What are your suggestions on the marketing strategy for small companies?

Startup companies do not need to spend millions on advertising. They need to start much smaller and prove the new concept in local areas. They need to learn how to borrow funds when they want to startup and expand. I wrote a book called Attracting Investors to help start-up companies tap into different sources of funds, including relatives, friends, angel investors, and even venture capital firms. The brighter the idea, the more capital it can attract. But even then, the entrepreneur must not give away the whole story or else someone with money will start the business on its own.

The Chinese people are very entrepreneurial. We know this from the successes of the overseas Chinese and Hong Kong. The Chinese seem less inclined to build huge scale businesses and instead have their hands in several smaller businesses. Entrepreneurs are not necessarily born. There are skills in being an entrepreneur such as sensing your customers, managing your cash flow, maintaining consistent quality and performance. Even the best idea will fail if not backed by the mentioned skills.

Besides borrow money, market research and marketing information collecting are also crucial to startup companies. What are the best ways to collect data and conduct surveys?

Smaller companies rely on observation, random interviewing, and focus groups for their information. Larger companies use these approaches and in addition carry out surveys and market experiments. The principles of good market research are described in every textbook. A company needs to balance cost against risk.

I have always thought of market research as "insurance" against the risk of making the wrong decision. As for information systems, they require investing in IT software. I am an advocate of customer data collection and management software. Armed with this information, companies can achieve much finer delivery of the right messages to the right prospects and customers.

As a Chinese saying goes "You have to decide how much you can spend based on your income." This question is to explore the connection between finance and marketing. Generally speaking, how much percentage of the total revenue should be spent on marketing?

It all depends. A branded perfume company will sometimes spend 40 percent on advertising and 30 percent on packaging with the perfume being a minor part of the cost. Auto manufacturers may spend 3 percent of their cost on advertising. The best thing is to estimate what your competitors are spending on the average and not stray too far. If you can spend more efficiently, then you can spend less than your competitors to get the same impact. The real question is how do you set the advertising budget for a new product? Here one must start with the estimated target market size, decide on the appropriate ad reach, frequency and impact, and then cost it out. Scientifically speaking, the objective and task method just described is the correct way to set the advertising budget.

A Chinese executive once said, "Distribution is the biggest competitive weapon you have. If you can solve the distribution puzzle, then you will be successful in China." What is the limitation of the current distribution and retail channel in China?

Except for Wal-Mart and a few giant retailers, most retailing is small scale in China. Consumer product companies in China find it extremely expensive to get their products into every city and village in China. Wholesalers and jobbers are critical in moving supplies throughout the country and replenishing empty shelves. Companies that have a strong distribution reach have a distinct advantage. But ultimately, retailing in China will fall into the hands of large-scale retailers and this will make distribution more efficient. Then the challenge to companies in China, large and small, will be to get their brand carried by these mega-retailers.