This article discusses five conventional assumptions that marketers and brand owners often make when planning their entry to the Chinese market, and the reality shifts that are happening on-the-ground.
Assumption 1:
The emerging Chinese middle class represents the most attractive consumer segment for goods and services.
The growth of the middle class in China has been dramatic in recent years, with McKinsey
estimating that 75 million urban households will enter the middle class between 2008 and 2015. Yet, long-term success will not be delivered by targeting this one consumer segment alone.
Companies need to compete in the lower-end of the spectrum, in the same aggressive way as it does in the higher one. Courting the working class, which comprises the bulk of the Chinese population, is paramount.
Not only is the current working class the future middle class, but they also share the same aspirations for using products and services and good quality. It is a myth that the working class only cares for the cheapest and most practical solution. Their need for beauty and comfort is of paramount importance.
Companies must intimately understand how these poor consumers live, in order to identify their needs, and develop innovative products and services that meet those needs.
Assumption 2:
Location, location, location. Beijing and Shanghai are the key cities in China to set up operations.
The Chinese market is no longer limited to Beijing and Shanghai,or even the provincial cities of Hangzhou,
Dalian and Shenyang. Whilst these cities have the most advanced and wealthiest economies and are home to the most ‘sophisticated’ consumers, they are also among the most expensive and most competitive cities to operate in. For both international and Chinese brands alike, these cities offer mature opportunities for growth. Unfortunately if you are not a first-mover, then you are almost too late to reap any rewards.
The real growth lies in reaching China’s next 600 cities, from Harbin in the north to Fuzhou in the south, Wuhan in the center to Urumqiin the west. This is where the appetite for brands and consumer spending are on the rise. However, consumer tastes can vary widely across these 600 cities. Culture, dialect, cuisine and climate all influence how consumers respond to marketing, their product preference, their sensitivity to price and quality, and even their shopping habits.
Assumption 3:
The young generation, aged 18-35, are the prime consumer target for products and services.
China’s senior citizens are emerging as a highly attractive, stable and profitable consumer group. Yet they
are often overlooked. In 2009, China had 169 million people aged over 60, which represented 12% of the population. That number will swell to 250 million by 2025. And what of their spending power? Chinese seniors account for 300 billion to 400 billion yuan in annual disposable income. Over the next three decades, this figure will rise to 5 trillion yuan.
Chinese seniors are the main grocery shoppers in the family. They tend to be loyal to products and services they know and like. They have wide social networks. They have time on their hands, and are eager to share their opinion when asked.
But they also adapt to the changing times. Chinese seniors are technology-savvy, keeping in touch with friends and family via email, shopping on taobao.com, and even trading stocks online. These senior citizens spend more on telecommunications than on medical bills on a monthly basis. In Shanghai, over 200,000 seniors hit the web every day.
Assumption 4:
Innovation and New Product Development are best done at headquarters, and adapted to the Chinese market.
Companies serious about attracting the Chinese consumer are investing billions of dollars on local
research and development efforts to generate home-grown innovation. And why shouldn’t they? Consumers demand products that are tailored to their needs, tastes and income levels. Chinese universities are producing high-caliber (and low cost!) talented individuals in research, innovation, engineering and design, add to that the thousands of foreigneducated.
Chinese professionals coming back to China to apply their knowledge and experience.
This highly skilled workforce coupled with willingness of Chinese regulators to endorse local innovation is a sterling combination.
Assumption 5:
China´s manufacturing sector is a keysource of its global competitive advantage.
transforming themselves from OEM (original equipment manufacturer) to ODM (original design manufacturer). YLDis a privately owned Chinese sportswear manufacturer based in Quanzhou, in China’s Fujian province. After perfecting the technology to make shoes and apparel for domestic sports brands, as well as supporting its own ‘YLD’ brand, the company decided to transform its own YLD brand with a new fashion lifestyle proposition. Enter ZipZap, a new apparel brand that offers premium fast-fashion at an affordable price.
The Brand Union mobilized its global network to create the brand’s positioning, name, tagline and visual identity for the new brand. ZipZap’s strategy and competitive advantage comes in its retail footprint; focusing on not opening stores in the crowded retail capitals of Beijing and Shanghai.
Long-term success is inevitable for those brands that can continuously nurture creativity and innovation. Local brands, in particular, that strive to relinquish their copycat, ‘me-too’ reputation will be the winners.
The next hurdle remains the delivery of a holistic brand experience with regards to all touch-points, both physical and emotional.
Part of The Brand Union’s ‘Up Close & Personal, March 2012’
