Offering the lowest price is no longer a sure path to success. Quality is becoming more important. Not having a digital strategy equals failure. Health and wellness are taken more seriously and are gaining awareness. If you want to compete in transitional China you will have to be agile, digital and comfortable with change.
A changing environment pivots a new breed of consumer
China recently surpassed the US E-commerce market in size of sales, the top 2% of Chinese account for a third of the world’s luxury sales and the country is transforming from an export-oriented nation to a domestic-consumption driven nation. Rapid changes have in turn affected the lives of many Chinese, of who more and more suddenly have the opportunity to travel abroad and purchase luxury goods. And it doesn’t just stop there.
Chinese citizens are becoming more aware of their country’s pressing environmental problems, food-safety issues and have become more demanding in terms of desired product quality and service. A major change from only a few years ago when quality was the least of concerns and price was the only concern.
The increased connectivity between people through social media has also paved a way for Chinese Internet users to shed light on subjects that were previously ignored or neglected, such as air pollution. But it also provided an easy outlet to share positive or negative reviews about a company and its products.
Not too long ago Chinese companies were hesitant to invest in activities that did not provide a direct pay-off, such as customer service and marketing. Now they are forced too as word travels fast online. This has changed the way business is done; word-of-mouth has suddenly become an important factor to take into account and a company’s reputation online is as important as its reputation offline.
Governmental bodies and companies alike are still struggling to adjust to this new era of information sharing, which offers both opportunities and threats.
Increased wealth, easy access to Internet and traveling abroad have brought forth a new Chinese consumer that is increasingly making purchasing decisions based on value, not on price.
The one-child policy has also produced a dispersed and ageing demographic, which is showing its impact on present day society. Children will have to take care of four elderly by 2020, which will consequently affect the lives and wallets of China’s new consumers.
Five consumer market trends to watch
The following five consumer market trends, researched by Booz&Company and coupled with our own insights, paint a picture of China’s new consumer market and tells you what to expect in the coming years.
Value over price. No longer is price the only differentiator. Instead, more and more consumers are looking for value and are willing to pay a premium for it. For instance, one of the fastest-growing brands is Ru Shi, a new premium yogurt introduced by Shanghai’s Guangming Dairy, a leading yogurt producer. With its emphasis on purity, freshness and natural ingredients with no artificial additives, Ru Shi has been a hit with consumers in Shanghai, who have snapped it up despite a price that is almost double the price of other premium yogurt products. You can witness this trend in almost every industry and sector from foodstuffs to bathroom supplies.
A changing family situation. China is battling an ageing demographic that will gravely affect the nation. Although relaxing the one-child policy is a step forward, it will have little effect in the short-term. Young people in China will have to take care of 4 or more people in the near future, but who is going to pay for their care and how will this affect the country’s domestic labor market? More interestingly, how will companies respond to this problem/opportunity?
Increasing importance of health & wellness. Air pollution, food scandals and a lack of drinking water are just some of the problems the country is currently battling with. Due to the increased connectivity, people are also becoming more aware of how these problems are affecting their health. As a result, the health-industry (think of air-purifiers and pollution-masks) has peaked in the past years. I believe this trend will continue and that the health & wellness industry is still only in its infancy stage.
Digitization and increasing connectivity. The use of social-media and e-commerce is increasingly integrated in the lives of Chinese consumers. Currently 6.1% of total retail activity is online and Jack Ma (owner of China’s largest E-commerce platform Taobao) predicts that by 2020 over 40% of retail purchases will be made online. Although I would take that number with a grain of salt, it does show the growing popularity of e-commerce in China. As a result of social media and e-commerce, consumers from all over the country are increasingly connected. This increase in connectivity provides opportunities for smaller and/or remote companies to compete with established companies. As in many markets, China’s e-tailing has the potential to be a more efficient channel of distribution and I expect to see many more innovations being made online. Is this perhaps the era of China’s Internet entrepreneur?
Exponential growth of consumer choice. E-commerce, a developing domestic market and the availability of foreign products offer an increasing number of competing products and a larger product choice. Competition will get tougher, product value will become more important and competing only on price will no longer be a viable business strategy.
Exciting new changes are waiting for anyone doing business in China and I am personally very curious to see how MNC’s will adapt to the country’s evolving market. Agility has never been this important and your willingness to adapt will depict your success. What is your strategy to compete in transitional China?
Latest posts by Duco van Breemen (see all)
- INFOGRAPHIC: Chinese water pollution - 9th December 2015
- Exhibiting at a Chinese trade fair: 3 things to keep in mind - 16th September 2015
- Food and business scandals in China give rise to foreign brands - 26th June 2015