China has become a huge and essential consumption market. Its enrichment brought a society of consumers where rich elites go alongside a middle class who displays its purchasing power. This population of over 350 million will continue to grow to reach 850 million by 2030. The Chinese consumers of today – and of tomorrow – will not be those of yesterday.
In a time of global economic crisis, most experts consider that domestic consumption is what stimulates the growth of China. For now, China is still the major country where consumption represents the smallest percentage of GDP, less than 50% compared to about 70% in Europe and 80% in the US, while investments represent nearly 50% of GDP vs about 15% in G8 countries, a record in economic history. This shows how much room there is for consumption to grow further.
How to define the Chinese consumer?
Chinese consumers evolve at the same pace as society, it is therefore a challenge to define their profile when it is changing so quickly. After tier 1 and tier 2 cities, it is now the turn of tier 3 and even tier 4 cities to display a completely new landscape shaped by cranes, excavators and cement. Will these cities follow in the footsteps of tier 1 cities? Not necessarily as geographic disparities and fast change taking place seem to lead them to adopt their own development model. In a similar way, the young generations from tier 1 and tier 2 cities are not at all like their predecessors: new motivations of consumption emerge, and a rising education level gives consumers more determination about their choices. “Push” marketing techniques prove to be less and less efficient and “pull” techniques are more and more complex to implement.
Until recently, the Chinese consumer was not much taken into account by brands. Western brands and companies thought that they could easily ship their products to this massive consumer market which just needed to be “educated”. This is an approach which has become completely lapsed.
The examples of perfume and tea
An obvious example is perfume whose market has historically ridden the wave of pure status, with very little adaptation of fragrances to the local market. Purchasing of perfume has long been primarily driven by brand attractiveness rather than by the products themselves. However, the motivations of Chinese consumers evolve and perfume is more and more considered as a mean of differentiating oneself from the mass, to be stimulated, to assert one’s character and socio-economic status.
In a similar way, black tea bags entered China as a statutory product. Considered as a Western beverage, expensive and disposable, it collided with the local culture. Chinese people are in fact used to drinking tea by putting directly the leaves into a container and letting them infuse all day.
The Chinese consumer is finally taken into account
Today, the Chinese consumer has finally become a reality for Western companies, even if many of them continue to approach the market in a uniform manner because of budget constraints or lack of knowledge about the specifics of the local market. Many companies still perceive the Chinese market as sufficiently promising to handle it without distinction. A majority of the research studies commissioned by Western companies are conducted in Tier 1 cities, which represent about 65 million inhabitants. But exploratory tests about the motivations and drivers of purchase are now more systematic; many companies have developed R&D hubs in China in order to adapt their products to local specifics.
The reality about this continent-country is that China is more and more complex. Besides the geographic disparity of about two dozen provinces, each as large as France, other disparities exist as well, which are related to profound changes associated to economic, family and individual developments. This country should be approached as a matrix with multiple entries, all evolving at great speed.
The Chinese consumer generation by generation
Consumption behaviors have evolved a great deal and contribute to the diversity and complexity of the market. People born in the 1950s and 1960s, who lived through the Great Leap Forward and the Cultural Revolution perceive power as originating from the political sphere. This generation marked by history stands out as having a posture of “followers without much creativity”. These people tend to be conservative and to save money, motivated primarily by a concern of not standing out from the mass.
The next generation, born in the 1970s, has witnessed a transformation phase during about twenty years, going from abstinence to superabundance, from collective insecurity to material security. The desire to blend with the rest of the population has been replaced by the need to display one’s success and position in society. Goods coming from the West are a way to project status alongside a way of enjoying life.
The Chinese born since the early 1980s are children of the consumption society. Bombarded with Western advertising and images, status is no longer their main lever of consumption. Hedonism, individualism, personal expression lead to the discovery of brands with more identity, more niche, “smarter”. This generation now purchases products and services with the intent of enjoying themselves. At the same time, these consumers’ posture towards the West has become ambivalent, stretched between aspiration towards the values of glamour, refinement, hedonism and the valuation of Asian and Chinese values together with “China pride”.
What strategies for foreign brands?
In the swirling magma that China is today, it is not as easy as before for a Western brand to elaborate a winning strategy. Prior to entering the Chinese market, it is important to understand the drivers of consumption and product / service selection. Exploring the fundamental motivations of consumers as well as the segmentation of markets is critical to grasping emerging trends. For that, one should be able to listen to the Chinese consumer. This means visiting cities of various tiers, listening and observing consumers, conducting research as well as taking macro-economic and segmentation data into account in decision making.
To be clear in its offering is vital: a brand interested in the China market should define an identity and personality supported by a story and should be able to stick to it. This is even more critical at a time when Asian and Chinese brands gain ground, playing the card of empathy and proximity with local consumers, especially in the new and aggressive distribution channels from the lower tier cities. This is a new aspect of the Chinese market that forces Western brands to not only understand the relationship between consumers and brands, but also the relationship which is developing with new distribution channels.
One must get used to it: already complex, the Chinese market is going to become more and more difficult to “conquer” and it will be more and more challenging to maintain one’s position in it.
Article written by Stéphane Courqueux – Initially published in French in Connexion magazine
