How to exploit this consumption boom
Higher living standards and increased choices have fostered a premium product market among affluent Chinese consumers, released by the lasted survey from management consulting firm McKinsey & Company.
The survey found that 15 percent of consumers would like to pay at least 60 percent more for high-end consumer electronic products, and up to 300 percent more for personal care products. Consumers who can earn more than 5,000 yuan are more willing to pay a premium, the report showed.
“We’ve noticed the emerging upper-middle class which have higher demand of goods and service,” said Chen Yougang, principle at McKinsey. “Chinese consumers are getting more sophisticated and confident.”
McKinsey investigated 5,000 to 6,000 consumers for the report, representing 90 percent of China’s GDP, 80 percent of its disposable income and 60 percent of its urban population.
The company came to the forecast that these high earners would take up one third of all urban consumers and half the amount of all consumption by 2015.
However, transnational companies targeting mass-market consumers will face the challenge from more sophisticated and aggressive domestic firms. As most multinationals focus on high-end market, they tried to gear their products to the mass market, and consequently have found it’s hardly profitable.
The bright side is that both groups can gain benefits on the emerging premium product opportunity by setting up a mixed portfolio of products.
“China still represent a gold mine for companies wanting to look for growth opportunities, but competition in China is becoming more and more intense,” said Max Magni, Principle and head of McKinsey’s consumer practice in Greater China.
McKinsey mentioned that the gap between average and premium prices is widening, and if this trend continues, it will forge the polarized consumption pattern existed in the West.
In addition, the premium products not only attracted the wealth, but also the young consumers. Showed by the company’s statistics, one third of 18 to 24 year-olds claim that they “always pay a premium for the most wxpensive and best product”. On average, they are willing to pay a 1.4 times their monthly salary to get the most fashion mobile phone.
Brand loyalty
As a brand-driven society, two thirds of Chinese consumers opt to buy certain brands when they go shopping, compared to less than half of British or Japanese shoppers, although the importance of bands and brand loyalty, is less and less important as consumers are facing more and more choices.
People are increasingly tending to shop based on perceived value rather than on brand. The number of “promotion-driven” increased 37 percent and the tendency to get the best goods regardless of brand is more obvious among lower-income consumers.
McKinsey’s investigation showed that the brand loyalty is declining, with food and beverage companies undergoing the biggest decline. The proportion of respondents sticking to the particular brands has dropped 25 percent for consumer electronics and 53 percent for food and beverage products from the previous year.
The survey also showed that if companies want to keep the customers they should pay more attention on their functional benefits. Compared with Western consumers, Chinese consumers prefer practical benefits rather than emotional factors when choosing products.
But in Chinese consumers’ thinking pattern, big brands are viewed as a synonym for quality and reliability. Big brands are more dominant than elsewhere.
“Big international names in China tend to enjoy more trust than in foreign countries, therefore local brands have to innovative with their products in order to rival multinationals,” Chen pointed out.
Chen added that as Chinese consumers are getting more and more sophisticated, they are also considering the importance of environmental friendly factor.
As Chinese people are getting richer and urbanization continues, regional characteristics are becoming more important than city-tier differences in formulating optimal go-t0-market strategies. This is another major trend found by McKinsey’s annual survey of Chinese consumers.
While city tiers will remain a related factor in determining income-driven differences in consumer attitudes and behavior between regions are much more remarkable than those between city tiers, according to the survey.
Regional differences have long existed in China. And as wealth spreads across China and the regional market becomes bigger, dividing customers by regional will become more important.
Research from the McKinsey Global Institute on urbanization in China suggested that over 1 billion people will live in cities by 2030.
The survey showed that television advertising remains the dominant publicity method, with more than one-half of Chinese consumers surveyed saying that they would not buy particular brand of food or beverages unless they had seen them on TV.
Yet, the emerging new medium has changed the way marketers approach consumers.
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