Understand Chinese consumers
Older consumers may Value Price on quality, but the younger generations are increasingly willing to pay a premium for high-end products.
Since China began its “policy of reform and opening” in 1978, its economy has expanded rapidly, and most major retailers and international manufacturers have entered the Chinese market.
Some foreign companies are reluctant to enter the market, however, because they do not understand Chinese consumers and their buying habits. Despite the rapid economic growth of the country, parts of China have developed at different rates, and consumption trends vary greatly between different groups and regions. Understand the preferences and attitudes of consumer groups is the key to successfully growing a retail business in China.
Chinese consumers groups
Over the past three decades, the buying habits of Chinese consumers have changed dramatically as revenues increased and new products and concepts have entered the China market. Consumer habits continue to evolve today and the generations of consumers examination may reveal some buying trends. Planet Retail found that the older generation generally maintains spending habits “traditional” middle-aged Chinese oscillates between tradition and new trends, and the younger generation is becoming more westernized and quality conscious.
Generally, Chinese consumers to develop shopping habits in their youth and keep these habits into adulthood. Although increased wealth can change some preferences, such as preferences for drinks and snack foods, habits of most Chinese consumers are identified by their objective living conditions and limited gains. The population of China’s current consumption can be separated into several groups with distinctive characteristics.
These consumers, who grew up during the Cultural Revolution (1966-1976) and the early stage of the reform period, balance between tradition and new trends. They work in various low-income state enterprises, private and foreign capital and win. These consumers usually save much of their earnings to take care of their children and parents.
These consumers share the same origin as the forties frugal, but they work for the government or large public enterprises and have slightly higher incomes. Although they are also raising children and caring for their parents, they are willing to pay premiums for quality products. In the next decade, consumers in their forties have fewer responsibilities and childcare costs. These consumers will therefore increase spending on entertainment, groceries, travel, and high quality and health care products.
Born before 1960, most of these Chinese consumers have grown up in difficult political and economic times, has not received systematic education, and worked in companies belonging to the state. The difficult environment in their lives soon these individuals frugal and sensitive to changes in the prices of consumer goods.
This group experienced similar difficulties retirees efficient consumers but pensioners wealthy individuals mainly worked in government and government-sponsored enterprises that provided higher wages and better pensions. Although many of these consumers are frugal, they are less price-sensitive and often the quality more than the cost value.
In the next 5-10 years, the spending habits of Chinese consumers who are aged over 50 will change slightly. These consumers will increase spending on groceries the government to increase pensions in line with inflation. Although they will consume health and entertainment products, their children are likely to buy those products for them.
The new generation of consumers (under 20) is the most westernized and open to new products. These consumers pursue individualism and often use the Internet to track global trends. Although most of this group do not earn income, they greatly influence the decisions of their parents about the food, clothing, electronics, and other purchases. Social media is an effective marketing tool to reach this group of consumers (see the CBR, January-March 2011, social media in China: the same but different).
Migrant workers (usually 25-45 years) are rural residents who have moved to cities for jobs starting in the 1990s, they can be even more frugal than older consumers buy only the necessities and save the money to send remittances to their families in rural areas. Many migrant workers are expected to see a strong increase in revenues and move their families to the cities in the future. They will increase significantly expenditure on groceries once they receive the inscription of the city of household, or hukou, status and fully integrate into the life of the city. The migrant workers’ consumption levels are unlikely to match that of their urban counterparts, however.
Many consumers in this group are well educated and have grown up in a more open environment than their parents. Compared to the older generations, the Chinese in their thirties save less, spend more on entertainment, and an online store often. They also continuing value and quality rather than low prices. These people will become the largest consumer in the next decade, the purchase of their parents, children, and themselves.
Consumers in first generation of the child policy have opposed their parents buying habits. These consumers barely save and spend most of their income on entertainment, advanced electronics, and other fashionable products. They often shop online and are looking for products that help distinguish their personalities. They can also be impulsive buyers. As consumers in their twenties age and start new families, their shopping habits can become a little more conservative, but they will always favor high quality and practical products and spend more on groceries than previous generations.
There are more than 1 million Chinese with assets of over $ 1.5 million and the number is rapidly increasing. Rich consumers (usually 20-60 years) are fairly concentrated in large urban areas, with Beijing, Guangdong and Shanghai housing about half of this group. These people are successful entrepreneurs, executives and business owners. They pursue the best available products, especially imports, and are the perfect candidates for marketing new products. Upscale supermarkets have already emerged in China to provide high quality rich consumer products (see Choosing the right retail format).
Categories of rapid growth in consumer products
Rising incomes and the younger generation becomes the main body of consumers, the Chinese will gradually turn to buy the basic necessities only to major modes of comfortable living, high quality. Planet Retail expects the following categories of consumer products to expand rapidly in the next 5-10 years.
The younger generation of parents is more willing than older generations to pay for toys. New parents tend to buy Western brands for their children because they perceive these toys to be sure that Chinese.
The younger generation spends a lot less cooking time than their parents and instead turns to restaurants and convenience foods, such as microwave meals and instant noodles. Many Chinese do not consider the West appetizing convenience foods, but it is generally easier to prepare than Chinese food convenience. Many local businesses are looking how most convenient Chinese food.
Products for pets
Many Chinese consumers own animals-most cats and dogs, but some spend money on pet products, such as food and toys. Instead, they do these things at home. The new generation, however, is richer and has less time to make products “do-it-yourself”. As this generation ages, the consumption of pet products will increase.
Personal care products
Personal care consumer products in China is still low, but that market has great growth potential. For example, most Chinese men do not wear cologne and buy shampoo without conditioner Chinese. As incomes increase, Chinese consumers will be able to offer products, especially non-essential cosmetic personal care and personal care products for men.
Wine and whiskey
Wine and whiskey broke the traditional alcohol preference in China, as the younger generation is looking for alternatives to traditional strong spirits such as baijiu (see opportunities in the alcoholic drinks market in China). Rich consumers often post their status by drinking high quality wine while low-income consumers drink local beer. Although traditional alcoholic beverages will still dominate the Chinese market in most places, big cities and their young wealthy consumers will contribute to a rapid increase in wine and whiskey sales.
The young generation will spend more than their parents on snacks for themselves and their children. Traditional Chinese snacks like roasted sunflower seeds and dried sweet potatoes, are usually made by small local factories. But food crises and safety of newer products have prompted some Chinese consumers to see the food products manufactured by these plants as dangerous or unclean. The market for Western snacks such as chocolate products and potato chips will increase as younger consumers think these snacks more that Chinese Traditional (see Chocolate Fortunes).
Food and health
Although the food and health are still generally expensive, Chinese consumers are more attentive than ever to their health. Most elderly low-income Chinese consumers are turning to natural solutions and Chinese medicine herbal while younger consumers and richer often turn to Western products, which are usually pre-prepared .
Older generations have raised their babies with self-provided products such as cotton layers and generations of food but young babies home will depend on disposable diapers and baby food canned. New parents and grandparents hope to buy the best products for their children, particularly because of recent problems of food security. For example, after the incident of milk contaminated with melamine Sanlu Group in 2008, most of the parents surveyed said they are more local trusted brands of infant formula and buy imported brands if they can afford it . In addition, many new parents are turning to baby western products because the variety of traditional Chinese baby products are limited. Many young parents are already buying baby products online from US and European producers.
Possession of a personal car in China is still low but increasing rapidly. Many Chinese consumers can not afford expensive cars, but they will spend money on products such as coussins-, gadgets, and movies-tinted windows to improve the appearance of their cars. In addition, short car trips are gaining popularity as many Chinese drive out of town on the weekends for picnics, hiking and other recreational activities. Consequently, consumption of related products, such as disposable silverware and convenience foods will also increase.
Nowhere is this broad desire to spend more evident than in the market for luxury goods. Overall, the Chinese are the biggest buyers of expensive items, representing some 29% of purchases last year (see Chart 2). About two thirds of Chinese spending on luxury goods takes place outside the continent; a fifth thereof in Europe. (Harrods of London has seen sales to Chinese buyers, its largest foreign contingent increase of 50% annually since 2011.) consistently favored brands include Lancome, Gucci, Audi, Rolex and Tiffany.
The Chinese are also the world’s largest consumers of Bordeaux and Cognac wine, if sales (like those of Moutai, local grain alcohol) fell in the wake of official campaigns against gifts (see article). In the bonded wine warehouse Berry Brothers & Rudd in Basingstoke, in southern England, where 4.5 million bottles are stored costly, 1m of these are held by oenophiles of the great China. Either, said the president of the company, the Chinese should be represented ruin wine Coca-Cola pouring into it.
Although the government’s crackdown on corruption has crimped sales of the continent, and some luxury companies slowed the deployment of new stores there last year, Coach, Prada and Bottega Veneta continued to grow. Apple has expanded too; it now has more stores in Shanghai in San Francisco, and introduces new iPhones in Beijing when he does California. Mr. Button SmithStreet think brands offering affordable luxury Michael Kors and Kate Spade, says can capture both the mobile and upward elites “post-luxury” in the cities, who want less flashy brands.
In the past, the Chinese have shown little interest in Western art. This is beginning to change, and can quickly change with the opening of a new museum of western art in Shanghai. The richest man in China has just paid $ 28 million for a Picasso, but it was condemned as “unpatriotic” on Sina Weibo. Ms. Potter also notes that two-thirds of affluent consumers are eager to know the history and the cultural context of foreign brands. So they like to buy Piaget watches in Geneva and Zegna suits in Milan, but reject the bid as unconventional German watches or bags of Japanese leather.
Products for the elderly
In the next 5-10 years, the population of the elderly in China will reach 250 million, almost the entire population of the United States (see CBR April to June 2011, China Can Be aging a Rising China?). Although the revenue from these older consumers will not increase significantly, their children will care for and buy the food and health care products for the elderly.
Due to the strong consumer demand for low prices, many retailers in China stocks cheap products and have little space for mid-range or high-end items. Although retailers have attempted to fill the gap with private labels, some did so successfully. Consumers are concerned about the safety of cheap goods and are willing to pay a little more for safe food, but many buyers think that private brands and other mid-range products, they tried not worth high prices, according to a 2009 China chain store and franchise inquiry Association. Retailers must use effective marketing, price accuracy and consistent quality to establish trust between consumers and sell more items at higher price.
Interior once dull and Mao adapted from China are not that far behind. In Mianyang, poor city in Sichuan Province, a huge sign with Miranda Kerr, an Australian supermodel, draped in Swarovski crystals welcomes guests from Parkson Shopping Centre. It is one of half a dozen shopping malls upscale town. Luxury sales explode it. Local dealers Audi and BMW sell over 100 cars each month; Land Rover, Jaguar and Cadillac just muscled in on the market.
Thirty kilometers (20 miles) Luxi, a city of 57,000 people, online shopping is hot. The first express-delivery office opened just three years ago, and handled maybe ten packs a day; Today, five years ago, the treatment of each 100 packages a day. Even at 60 km in the rural Santai County where farm workers are the customers a modern shopping center was born and another is under construction. “Customers are changing very quickly on the low-end market in the middle and high end,” said Yang Shuiying, CEO proud of Zizhou mall.
In the 1950s and 1960s, the world economy has been transformed by the emergence of the American consumer. Now, China seems set to become the next superpower consumption. In all likelihood, it just surpassed Japan to become the second largest world consumer economy. Its approximately $ 3.3 trillion in private consumption is about 8% of the world total, and it is just beginning.
“The future of the world will be profoundly marked by China’s rush to the consumerism,” says Karl Gerth, an expert on Chinese consumption at the University of California, San Diego. Although the investment has contributed the most to growth in China last year, and although the share of private consumption in production, currently at 36%, dropped between 2000 and 2010, this trend is unlikely to last, for several reasons.
First, stimulate people’s desire to consume is a stated objective of China’s leaders. The increase in government spending on health care and pensions can encourage households to save less for such things. Higher interest rates may paradoxically discourage savings if people achieve their savings goals faster. Rising wages and an aging population will also tip the balance toward consumption rather than saving. And while household debt is growing rapidly, China has still relatively few.
In addition, consumption has not decreased in absolute terms. It has, indeed, grown strongly, just not as fast as the overall economy. In dollar terms, China has contributed more than any other country in the growth of world consumption in 2011-13, according to Andy Rothman of CLSA, a broker. In addition, China’s official statistics highlight some consumer spending on housing, for example.
A massive push to urbanize is also underway, which should produce tens of millions of wealthier citizens seeking retail therapy. McKinsey, a consultancy, expects consumption by Chinese urban households will increase by 10 billion yuan in 2012 to nearly 27 billion yuan in 2022 (see Chart 1).
How much China spends is striking. More so is the way it spends. This is now one of the most sophisticated consumer markets in the world, strongly skewed toward expensive goods. Local land barons are now building half of new shopping centers in the world in China, many of them in small towns, because even without great revenues bettors are bigger buyers.
That points to another difference from previous consumption booms elsewhere: with the largest e-commerce market in the world at your fingertips, Chinese buyers are from the start line. As a result, what was once the imaginary world of a foreign fierce battle is now marketing the world for brands.
Sanford C. Bernstein, a research firm, called “Chinese consumers increasingly ambitious and conspicuous” that routinely exchange up fancy labels even on staples. Newly types of the middle class in the cities of the interior are willing to try new products, especially those they have seen on foreign television broadcasts. Jeff Walters of the Boston Consulting Group (BCG) emphasizes that even louts consume the world media, thanks to the wild popularity of online video services premises. Chinese consumers, he said, watched the last season of “Downton Abbey” on Youku, a video sharing site, long before he was released in America.
This passion for fashion is theoretically good news for multinational merchants. Unlike, for example, in Japan, where consumers strongly prefer local brands, Chinese consumers of foreign brands hold in high esteem. Torsten Stocker AT Kearney, a consultancy, notes that foreign brands are doing well in areas they presented to China (chewing gum, chocolate); those remedies “heritage” (high-end cars, luxury goods) and those where local brands are not approved, such as milk powder for baby. Fast food and consumer goods giant Procter-World & Gamble, Pepsi, General Mills and so on-are also high in China, but they are increasingly pursued by local rivals. A recent study by Bain, another board, found that while foreign brands still lead in some areas (biscuits, fabric softener, bottled water), local brands are surging in others (toothpaste, cosmetics , Juice).
Brand-hopping, however, is omnipresent. Having grown up with the radical economic change, Chinese buyers are “very fickle and elusive to strong brand loyalty,” says Mintel, a market research firm. Yuval Atsmon of McKinsey estimates that brand-switching between Pepsi and Coca-Cola, Colgate and Crest, KFC and MCDONALD’S-common is “much more than in most markets.” Swarovski, the crystal-maker, found that more than three quarters of Chinese customers are eager to try new brands, a figure much higher than elsewhere. A recent study by Bain found that the top five brands in ten categories have lost 30-60% of their customers between 2011 and 2012.
This creates many problems. With two or three times as many brands on the shelves that are found in other countries, competition is fierce. This makes the advertising and vital marketing, but the cost of advertising is booming. In addition, companies that thought they enjoyed a “first-mover advantage” found that their brands are now seen as stodgy or old. Olay, a brand of cosmetics, skin care defined in China for a Potter generation, but Carol BBDO, an advertising agency, believes that “the new generation think it is a mark of yesterday.” She adds that, while Louis Vuitton in china once symbolized good and expensive taste in China, a new generation to the different research, subtle luxury.
The empty suitcase
Another complication for traders is that many Chinese buyers have a global perspective. When previous middle class rose to prominence in America and Japan, the Internet did not exist. The people could not Google the latest European fashions or see discounts on Amazon. The arrival of the Travel Cheap air also made the most demanding Chinese buyers. Mr. Stocker argues that these factors “tablet in the discovery process,” which Japan took 30 years to less than ten.
The Chinese are already the world’s largest buyers abroad, but a report released Jan. 20 by CLSA expects the number of Chinese outbound tourists will double to 200 a year by 2020 and that their spending will triple over this period. James SmithStreet button, a consultancy, says a well-established piece of the label: “You have to let friends know when you go abroad,” and take an empty suitcase.
Many Chinese also use online sales agents, which include applications and bring foreign products. Sales by buying agents overseas came to nearly 50 billion yuan in 2012, an increase of over 80% over the previous year; they jumped by half of last year to 74.4 times. billion yuan. Foreign sites, including Amazon, now offer direct delivery to China of certain products, and local e-commerce giants such as Alibaba execute cross-border services.
Buy abroad saves money, since margins and heavy taxes are the rule in China. Many ordinary people not travel just to Hong Kong, the most convenient place, but at Jeju Island in South Korea (where they can visit without a visa and a duty free shop) to supply cosmetics that cost much more at home. Price, however, is not the only motivation. Another is to avoid counterfeit products so common on the continent. More importantly, consumers say, is the variety and freshness of the products available abroad.
It is not only in the luxury goods that Chinese buyers are leading the way. China has become the largest e-commerce market in the world, with spending expected to reach $ 540 billion next year. On Singles Day, an annual show online marketing took place on November 11, Chinese 400m spent $ 5.7 billion just on Tmall, an e-commerce platform operated by Alibaba; Americans, on their Cyber Monday a few weeks later, spent only about $ 2 billion. China is the largest manufacturer and consumer of smartphones in the world, and will soon be the largest market “mobile commerce”, too.
Perhaps because they are wary of official information, the Chinese rely heavily on peer reviews. Research by BCG showed they write, and act on, online reviews of products and much more than Westerners services. A recent study of moisturizer purchases found that two thirds of Chinese buyers relied on recommendations online by friends or family; the comparable figure in America was less than 40%. Millions of online shoppers follow the thoughts and MiuMiu Viviandan, industrial Chongqing long legs twins, who began publishing photographs of themselves in the latest fashions, with ironic comments on trends and prices , a decade ago.