Many global consumer products companies perceive China as a big, untapped consumer market where they can succeed simply by launching their products into the marketplace. But research by Boston Consulting Group (BCG) among Chinese consumers suggests that the market is not such an easy - or loyal - target.
The company's survey of over 4,000 Chinese consumers found that, although Chinese consumers are ready to spend money, that's not happening the way foreign companies are expecting it to.
Understand the consumer
Too many marketers are looking at China as a "just add consumer goods" early-stage version of the US market. But to succeed in China, marketers need to understand exactly how Chinese consumers' attitudes toward spending are shaped by Communist-era political upheavals, deep-rooted cultural biases, generational splits, and the different economic conditions of China's many local markets.
Over the past 15 years, disposable income in China has risen 3 - 5 times faster than in the developed world, and China is now expected to become the world's third-largest consumer market by 2010 (and the second largest by 2015). But market size is not the whole story, the company warned.
"Overseas companies are treating China as a generic untapped consumer market. They're throwing thousands of promises and products at consumers, who respond by quickly abandoning one brand to try another. Companies need to shift their focus from footprint expansion to much more detailed strategies - based on real understanding of the massive changes in China, and their impact on consumers - to ensure any lasting brand loyalty," explained Hubert Hsu, a BCG senior partner who heads the firm's consumer practice in Asia.
A more cautious consumer
Chinese consumers were also found to be much more cautious than their Western counterparts. According to the survey, almost half of Chinese consumers (48%) said that they would increase their spending over the coming 12 months, but by no more than 20%. Only 11% planned a greater increase in spending, while 32% anticipated no change in spending at all.
The company attributes this caution to Chinese consumers feeling pressured and insecure (particularly those in their 40s, who were adults during the Cultural Revolution). For consumers in their 30s, stress about aging and their work/life balance currently inhibits their spending. And even the so-called "little emperors" (those in their 20s) report feeling pressured to start their careers and marriages on a sound financial footing. Confirming this view, savings rates in China are quite high, due in part to a general need to make up for lack of any social "safety net". Only the Chinese teens currently spend freely, but this group has much less disposable income and does not present such an attractive target for many foreign brands.
Surprisingly, many Chinese consumers (47%) would prefer to buy higher quality goods than they do now, while only 29% of US consumers and 23% of European consumers expressed the same desire. But Chinese consumers are want to "trade up" in different categories to their Western counterparts.
For example, in the US, consumers are most likely to want to trade up to better home appliances while, in Europe, the main desire is for better apparel and footwear. But in China, consumer electronics was the leading category (66% of consumers). In contrast, consumer electronics ranked fourth in the US and sixth in Europe. Personal care ranked third in China, and apparel and footwear was ranked eighth by Chinese consumers.
While marketers tend to think in terms of categories, their planning may need to be more specific when it comes to tapping the Chinese market, the company suggested. For example, food and beverages was the least popular overall category for trading up in China, while more than half of the Chinese consumers surveyed said they would specifically prefer better quality baby food and dairy products, citing concern for family safety.
Chinese consumers tend to hunt for high quality bargains, and their techniques include shopping online, using catalogues, buying cheap imitations of products, and even buying goods wholesale. But they also have some uniquely Chinese approaches, including shopping with friends to negotiate group discounts, and shopping at "parallel sourcing" stores that offer identical goods sourced from lower-cost distributors (often priced at up to 40% below the mainstream competition).
It is China's complex regional distribution systems that create these price disparities and make such bargain hunting possible. In general, China is a country with a market tradition thousands of years old, and many consumers shop for the "thrill of the hunt", and are very skilful bargain hunters.
No real loyalty
To Chinese consumers, the brand is a mark of quality and benefit rather than being something that appeals to the emotions. Chinese consumers are generally willing to experiment with other brands and to shop around, and word of mouth counts for much more than a traditional sales pitch. More than half (54%) said they were interested in meaningful technical differences, and 49% said they wanted products that "give better results".
And when it comes to affluent Chinese consumers' preferences, the group emphasized tangible benefits instead of the brand's image. In consumer electronics, this group wanted convenience, easy storage, reliability, and durability. In the personal care category, they also paid particular attention to health benefits and high quality ingredients.
According to the report, manufacturers that want to tap the potential of the Chinese consumer economy should remember that there's no such thing as a "typical Chinese consumer", and that different generations have had vastly different experiences and therefore have very different attitudes.
Brands should also make sure that their claims are credible - and delivered credibly. Also try to enlist consumers to serve as word-of-mouth brand ambassadors: in the Chinese market they will count for more than celebrity endorsements or company-originated marketing materials. Always focus on tangible benefits, and keep working on innovation and improvement rather than pricing.
BCG also recommends that brands should try to keep an eye on consumers' special, local needs, as well as effective distribution and regional product and service differences. Retailers should stock up on products in common bargain-hunting categories, create in-store opportunities for bargain hunting, and focus on service, not just product selection.