Table of contents
I/ Global trends of the Chinese Market
II/ Retail markets and regionalisation
III/ Different type of consumers
China´s reform and open up policy initiated in 1978 has contributed to expanding its economy. From 1989 until 2013, China GDP Annual Growth Rate averaged 9.2%. While Europe and the US are facing a decrease of their inhabitant’s ´purchasing power, China´s growth has led to the apparition of a significant middle class which is getting richer and buys more than its elders. China represents a huge potential for multinationals companies that have been trying to break into this market. Thus, understanding Chinese consumer´s behaviours has become essential to the establishment of a successful marketing strategy.
However, China as a country is also very diverse. A simple look at the administrative organization of the mainland part divided into five levels (municipalities, provincial capitals, prefectures, counties and county cities) reveals a significant segmentation which is even broader as soon as you leave the cost to go through the lands. What retail markets and channels should companies choose in order to target those markets?
Besides, as China had to face significant economic and political changes over the past few years, Chinese consumers´ shopping habits have been evolving dramatically. As a result, categorizing Chinese consumers can be very challenging since several factors such as age, localisation (rural/town) or revenue influence greatly Chinese’s consumers habits. In this essay, we will choose to distinguish Chinese consumers revenue wise: affluent, mainstream/aspirants, value, poor according to the categories that have been mentioned in McKinsey Study “Meet the Chinese consumer of 2020”.
What will China consumers buy next?
First, we will analyze the global trends of an evolving Chinese market.
Secondly, we will explain why companies‘retail strategies should adapt to regional differences within the country (City/Rural towns, Cost/Inside, Different provinces)
Thirdly, we will try to understand better Chinese consumer’s mindset by categorizing relevant consumers groups. Also, we will focus on Chinese consumer´s specificities compared to their westernized counterparts in terms of brand loyalty and perception.
I/ Global trends of the Chinese Market
China´s rapid industrialization has contributed to numerous demographic changes such as increasing revenue, better education, greater female power and significant mobility which have participate to reshape the way Chinese people behave and act as consumers. One of the consequences of those societal and economic changes is that, Chinese consumers’ purchase power had been dramatically improved.
According to certain experts, in twelve years, China will take over the US as the world´s biggest economy. However, even if they are well educated and earn higher income than their peers in the past, the new generations of Chinese face a lot of pressure from the society. They often have to work longer hours and be available for their family as China´s one child policy has led to the parents to expect their kid to fulfil most of their life´s ambitions: young Chinese should be respectful to their parents, take care of their elder, be successful at work and marry accordingly to their parent´s wishes. Even if this situation tends to evolve and greatly varies from one family to another, it is still relevant to say that Confucianism tradition mixed up with capitalist principles challenge the young Chinese nowadays.
Besides, female influence continues to grow. Indeed, women´s contribution to the household income has been growing from 20% to 50% in just about twenty years (1990-2010). Furthermore, when it comes to men/women´s purchase power, an exciting trend had been noticed: women have more and more influence on men´s purchases. They often decide of buying things for their husbands or sons and are consequently a key costumer to target for marketers. However, in some segments such as finance or electronics, men still have the upper hand.
Furthermore in order to sustain its economic growth, Chinese government has been trying to boost domestic consumption instead of relying on foreign trade. Incentives have been implemented in sectors such as transportation, food and housing. Also, longer holidays and new festivals have been created, which have contributed to increasing by 253% the consumption.
When it comes to the evolution of the Chinese markets, three main trends can be found: the increasing growth of discretionary purchases, the upgrading buyer´s behaviours as most Chinese people want to buy more quality goods as they earn more money, the emerging senior market. The rising growth of discretionary purchases is good news for Chinas’ economy as it means that Chinese consumers are spending money on new segments of goods that were not available in the past. Travels, Dining Out, Gyms, Electronics devices and new technology have become increasingly popular among new Chinese consumers. For instance, internationals trip have increased 5 times in 10 years. Urban households´ annual discretionary consumption went from 0,64 Billion euros in 2000 to 1, 55 Billions in 2010 and is expected to grow till 4,38 Billions in 2020. Moreover, when Chinese’s consumers’ revenue increase, most of them tend to try to buy goods that would be of a higher quality compared to what they used to buy before. Indeed, Chinese are still seeking social recognition through their purchases. The shopping experience should increase the face of the costumer. Semi necessities goods such as clothes or house furniture are usually representative of this new trend. Besides, China is now facing an increase of its senior population due to failing fertility rates and increasing life expectancy. We can currently count 194 million people over the age of 60 in China and this number is predicted to increase to 440 million by 2050. However, China is also facing the consequences of its uniquely strict family planning policies and massive rural to urban migration of the working adult population. Family is still the biggest support system of old people since 89% of old people that need assistance receive help from family members on a daily basis. So, senior targeted purchases are not only made by old people themselves but by their families which take care of them. Thus this segment has become gradually interesting for marketers.
II/ Retail markets and regionalisation
As China´s growth had been quite unequally distributed nationwide, retail markets vary significantly. While establishing their penetrating strategy, one should take into account those regional differences.
In Deloitte report “Winning the Wallet of Today´s Chinese Consumers”, marketers have suggested to divide China into four tiers of cities sorted out by size.. The first tier counts four cities: Beijing, Shanghai, Shenzhen and Guangzhou. The second tier is composed of thirty four cities: 2 municipalities: Tianjin, Chongqing, 26 provincial cities, 6 sub provincial cities having good logistics, infrastructures, and relative economical autonomy. Tiers 3 cities are formed of 249 cities under provincial government. Tiers 4 refers to 368 county level cities. This approach is interesting since it enables companies to get a better understanding of how different size cities consumers react to their offers. Indeed, if major cities such as Shanghai or Beijing represent a huge pool of consumers, new opportunities can be found in lower tier cities. In an article published by China Daily: Economics Special :Nielsen: 'Lower-tier' cities beckon retailers in 2011-06-01 , Peter Gale, manager director of the retail services of Nielsen in Asia Pacific, Middle East and Africa said that "The new growth opportunities are now the lower-tier cities and this is where retailers are investing more in new stores, the leading chains have already switched their attention and have more than 60 percent of their stores in smaller cities.
Besides, the Chinese market can be analyzed from an urban/rural perspective. Since the very beginning of the open up policy in 1978, urban areas have been more opened to the rest of world and consecutively attracted the large majority of foreign investment and wealth in China. Consumers located in big cities have benefited from this concentration of wealth and development and have become richer. Indeed, According to AC Nielsen research, tier-one cities had a disposable income value of RMB 1 trillion, while second to fourth-tier cities had a combined disposable income value of roughly RMB 8 trillion. This trend is still legit since the value growth rate of urban areas in China is still far more advanced than the one of the country itself: 22 instead of 12% in 2012. However, it has been noticed that the rural markets still need to be explored as rural consumers that are now acceding to the middle class are numerous. Nielsen surveys have found that most of the first time car buyers were located in rural areas. According to McKinsey survey “Meeting the 2020 Chinese consumers”, half of China’s 100 largest cities will experience at least 50% growth in consumption between 2008 and 2015, and 25 will double their consumption.
Administrative Map of China, Nations Online Project.
Another differentiation can be found while comparing coastal and inner China.
Regional markets in the South and East represent China’s ""growth markets"". They are more advanced in economic development and have more affluent consumers than inner provinces East China is formed with the municipality of Shanghai and the provinces of Zhejiang and Jiangsu This regional market is densely populated and highly urbanized.
The ""emerging markets"" in North, Central and Southwest of China have become increasingly attractive to global companies. North China including Beijing, Tianjin, and the provinces of Hebei and Shandong, historically has been the geopolitical base of this country .This regional economy has been growing fast over the last few years and attracted investment from many countries.
Southwest China including Yunan, Guizhou, Guangxi and the most populous province of Sichuan has always been of interest to foreign companies.
Northeast and Northwest remain the ""untapped markets"", still waiting to be explored by foreign firms. Northeast China refers to the three provinces of Heilongjiang, Jilin and Liaoning, with the port city of Dalian. This region emphasizes heavy industries such as mining, automobile and machinery manufacturing found in its old industrial.
Given this segmentation of the Chinese markets, how companies should implement their retail strategies?
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