Throughout the year a hot topic in these marketing articles has been understanding the Chinese consumer, or more precisely: how important it is to have consumer insights when working with marketing and sales, and how difficult it is to obtain good quality consumer data in China. Therefore, this year-end article will look into the Chinese consumers and will be based upon a survey done by The American Chamber of Commerce in Shanghai in cooperation with Booz & Company, a global management consulting firm. 

 

152 companies with extensive sales operations in China were surveyed in April and May 2012. Of the companies surveyed, 41% were Western multinationals, 24% were Chinese state-owned enterprises, 20% were private Chinese companies, 13% were Hong Kong or Taiwan based companies and 3% were other Asian companies. Broken up by industry, the biggest sectors represented were automobiles (20%) and consumer goods (18%). Pharmaceutical, telecommunications, financial services and professional services companies and a number of other sectors each represents less than 10% of the respondents. The survey was conducted through online questionnaires and follow-up interviews. This survey was also done a year ago and references to the prior year's survey will be made in order to see the development.

 

The Chinese consumer market is forecast to become the second largest in the world by 2015; with enough purchasing power to buy 14% of the world’s products – just behind the US. 

 

Nine disruptive consumer trends were identified by The American Chamber of Commerce in Shanghai and Booz & Company, and these nine trends were divided into three broad categories, with the greatest potential to influence Chinese consumer behaviour. (See the figure below.)

 

The survey respondents were then asked to rank these in order of significance. See result below:

 

Three main conclusions were made based upon these findings:
The Chinese consumer market is beginning to evolve and blossom in ways that could not have been predicted a year ago. In Tier-1 and Tier-2 cities, an increasing number of consumers are seeking greater value, quality and integrity in the products they purchase. This represents a significant evolution from what has been a price-driven market. In Tier-3 and Tier-4 cities, price consciousness still rules, but the choice of available products has dramatically increased. This is creating an increasingly competitive environment for companies. 

 

In stark contrast to 2011's results, Chinese companies and multinationals no longer see the consumer marketplace through different lenses. In their strategic approach and the segments they are targeting – as well as in their responses to challenges they face in developing products, marketing and sales – domestic and international companies have converged in their perceptions of the market’s make-up and hurdles. This makes the Chinese consumer market much more competitive. So far it seems that this has benefited the multinational companies the most, and both multinational and Chinese companies believe that the multinationals are the strongest at the moment.

Four distinct capabilities are paramount to success in the Chinese consumer market. Two of them are recruiting and training sufficiently skilled workers to handle everything from product development to marketing communications and devising versatile go-to-market strategies. These two were also identified in the survey last year. However, two additional capabilities gained in significance this year. The first is, creative and aggressive product branding, which includes the appropriate mix of social media, e-commerce and in-store support, marketing and promotion. The second is product innovation to provide sufficiently broad and desirable set of products and product features for the types of consumers being targeted.
 

 
 

As the survey shows in the above figure, value as a differentiator is the number one key trend stated by both Chinese and multinational companies. More and more Chinese consumers are seeking value and are willing to pay for it. This is in sharp contrast to the past when many purchasing decisions were based upon price. So, how is this going to affect the consumer behaviour. Well, 87% of the respondents believed that the Chinese consumers are willing to pay more for higher quality products or services and  83% of the respondents believe that this will increase brand loyalty towards certain brands. Consumers will tend to more commonly be  repeat purchasers of products they like as a result of increased brand loyalty. However, although this kind of consumer is willing to spend for value, they want to be certain that they are actually getting what they pay for, and 81% of the respondents said that Chinese value consumers seek out information before making a purchasing decision. They also want to be treated well and nearly 60% of companies noted that these consumers put a premium on the importance of the shopping experience. About 33% of the multinational companies claimed they are fully prepared to respond to value as a differentiator trend, whereas only 19% of the Chinese companies believed that their firms are prepared. However, in the next few years, it is going to be essential for all companies to pay more and more attention to these value consumers, particularly as people living in Tier-3 and Tier-4 cities increasingly join this category.

 

As the survey shows in the above figure, exponential growth of consumer choice is the second key trend, stated by both Chinese and multinational companies. This trend highlights a vigorous marketplace in which consumers are offered an increasing number of competing products with a variety of features at an accelerating pace. Price points and purchasing channels are also in flux as companies battle to win. The consumer segment most affected by this trend – we can call them the choice consumer – represents a slightly lower social-demographic group than the value consumer, mentioned above when talking about the number one key trend, value differentiation. The choice consumer is found in Tier-1 and Tier-2 cities; however this trend is having a much greater impact in Tier-3 cities and beyond. These consumers are not as brand loyal and are looking for the lowest possible price for similar quality products. They like to shop online, where price comparison is fairly easy.

 

In the survey from 2012, the multinational and Chinese companies are much more in sync on how they view the consumer market challenges and what solutions they need to address compared to previous surveys. (See figure below.)

 

Both multinational and Chinese companies agreed on the top challenge- that their organisational structure, processes and tools are not aligned well enough with the consumer trends that these companies must adapt to. For Chinese companies in particular, shifting from an export-driven model driven by low-cost manufacturing and mass-market product development to a model based on brand innovation and scale for a vast, diverse and growing domestic market in China is akin to defeating  a battleship.  Many large companies feel that they are not nimble enough to achieve this. Furthermore, both multinational and Chinese companies agree that finding skills, retaining and training the right staff members is a top challenge when operating in China.

 

Last year, go-to-market skills and better staff performance were the two capabilities that companies identified as competitive necessities for China. This year, two more critical capabilities are added to the building blocks that companies must embrace: product innovation as a way to provide more unique items with a range of features and price points for both value and choice-seeking consumers and better branding to communicate product features and build an emotional connection with customers in a crowded marketplace encompassing bricks-and-mortar and internet channels.

 

The 2012 consumer survey paints a picture of a maturing Chinese consumer market with distinctive segments that will continue to evolve. As Chinese companies and Multinationals increasingly view the market and its challenges similarly and target the same potential customers, competition among the two will heating up.

 

To succeed in the Chinese consumer market today, a company needs to:

- Clearly articulate the role that each of the four core capabilities – product innovation, marketing and branding, sales and distribution and people – will play in the organisation’s operating and business model.

- Develop detailed strategies within each of the four capabilities and understand, against the company’s strategy, where it is important to be truly great versus acceptable.

- Be agile and use the company’s capabilties to shift strategies as the market transforms.  

 

By Heidi Skovhus