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The Chinese Consumer Fast Becoming A Little Less Mysterious

The Chinese Consumer

The Chinese consumer. The enigma for many Western companies, because – despite the well-documented rise of China’s middle class – little is understood about their spending and buying habits. It’s commonly accepted that the Chinese middle class consumer may have an increased brand awareness, but that this has not resulted in a brand loyalty. That the majority will still be the first time buyer. Yet amidst all this coming of age hype, backed by already being the world’s largest e-commerce market, telling signs start to reveal behaviors that in turn will shape the trends of China’s new shoppers.

Yes, these will largely be value buyers, but it will be less and less from a ‘saving money’ foundation. Seeking the best deal and value is quite simply engrained in the Chinese mindset. Today it is evolving to how that value is being discovered by them. The search for and research of the best product offers will be coupled to the socializing of these insights and this process is done more intuitively and less conscious. Where before the need to be frugal and aware of spending defined the Chinese consumer as being low-value shoppers, the new consumer – across both high and mid level incomes – will redefine themselves as value-finding shoppers. There is a reason why social media consumption in China is a light year ahead of the West. This is the market where brands can both capitalize and experiment on cracking that elusive nugget.

Within the middle class consumer, the segment that will continue to shape the new Chinese brand attitudes will be the high earners. In China’s Tier1 cities (Beijing, Shanghai, Shenzhen) the emotional impulses and the individual needs of their wealthier consumers are of game-shifting influence to shopping decisions. Instead of merely showing off expensive brands, they now seek to both express and enjoy more personal indulgences – in both product and services. That change in attitude almost came overnight, as only one or two years ago the projected status of a big brand defined the purchase. These days, as McKinsey’s 2012 Chinese Consumer Report illustrates, over 21% of wealthy Tier1 consumers is selecting brands as to ‘show and express their unique taste’. In other words, the shift is towards design value and emotional expression. And as this segment is a highly aspirational and inspirational one to mimic by middle class consumers, it is a sure sign of an increased sophistication of the Chinese consumer, and a higher sensitivity to express individuality.

This evolution is happening much faster here compared to the West. That is not a surprise, the consumer here is being carpet-bombed by a multitude of brands, all seeking to cash in on the world’s next largest middle class market. This abundant offer of choice will continue to allow Chinese to experiment in trying different brands. It is almost a fashion trend to change according to the latest buzz. I believe that this is again changing fast. Not only because of the more discerning purchase decisions by the wealthy, but by the consumer’s original nature of value-seeking.

As they gain knowledge through research, discovery and socializing their experiences, the buyers will very soon be more selective and demanding, resulting in finding their favorite, preferred brands. With the mass adoption of smart phones, their access to the internet, which in turn feeds the social media fires, this change will happen fast. Already the same McKinsey report signals a dramatic increase in preferred brand selection, with dramatic rises in consumers stating to “only buy their favorite brands”.

That was expected, sure, but companies need to realize today that China’s consumer of tomorrow will have brand loyalty expectations not just equal to those in the West, but much deeper because of the borderline OCD-ness of their research gained product knowledge.

Now, here is the kicker: all this is applicable to the handful of Tier1 cities only. And while that still nets tens of millions of people into a (now saturated) market, the promise of China’s middle class economy pot of gold is inland. Tier3 and below hold the mass consumer market that is ready to move beyond the basic daily need consumption. Here you find a much more traditional, pragmatic market, where price and functionality – and the compromise of the value these two variables will offer – are the main sensitivities. Same country, different market.

Reliability and practicality is what stirs the inland consumer to spend its hard-earned money. McKinsey’s 2012 Chinese Consumer report illustrates a stark divide between consumers of T1 and T2 cities (usually coastal cities) and those with similar incomes living in smaller inland cities. Where over 36% of the coastal middle class shoppers consider ‘emotional needs’ as their main purchase decision vector, barely 6% does in smaller cities. The report uncovers that only about one-third of the smaller city middle class consumer would be willing to spend money to reward themselves, contrasted by half of the coastal city shoppers readiness to do so. This remarkable difference in attitude within the same income segment is what makes it crucial for brands to understand their market segments in an almost granular level. And then use that understanding to nuance its product portfolios and communications so it can resonate with the right relevance in the right market.

A direct example of this strategy is visible with the Head&Shoulders marketing. Where in coastal cities the sales slogan is “Gives new life to your hair”, the same product is sold in inland cities under the “Kills dandruff” sign off. Emotionality versus functionality.

How will this play out for brands when they take the stage in not just the biggest e-commerce, but one of the biggest retail markets in the world. Increasingly so, China is becoming the must-wine battleground for brands will gain global success. Gaining a foothold and keeping traction in the world’s largest middle class consumer market will require companies to deliver innovative products as well as brand strategies that can organically adapt to the nuances of the Chinese consumer. And where as the first decade of this century saw only a dim light highlighting the potential of this market, the next decade will see a rapid adolescence and maturity.

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