One of the world’s most intriguing nations and cultures, China has risen to become a global economic powerhouse in little over 10 years. With a remarkable sheer size and rate of growth – developing at double or even triple the rate of most other western countries, China continues to generate significant opportunities for both domestic and international brands.
Yet in such a large and complex market with 350 million strong and rising middle class, and where over one million people have wealth in excess of RMB 10 million (USD 1.5m or GBP 1m), there has been a long-held simplification of the Chinese consumers. In order to grasp future sales opportunities, brands will need to better adapt to the ever-changing Chinese consumer to increase their market share and improve their competitive position.
But what are those key elements shaping the forthcoming expansion for brands in China?
The evolving Chinese consumer
The Chinese consumer is evolving at an incredible pace. Despite a traditional savings culture, social stratification has influenced people to display their status more openly, driving the desire for premium and luxury goods and an explosion in consumer spending over the past few years.
Consumers are increasingly becoming price savvy – driven by more awareness and travel outside of China. For example, at least 30% of all spending on luxury goods happens outside of China, benefiting from significant price differentials notably in places such as Europe and Hong Kong.
In addition the Chinese are becoming more self-confident and discerning consumers, that are starting to prefer more niche retailers, with 52% of Chinese being more likely to buy understated, niche and low key goods, compared with only 32% in 2008. This is shown by the significant success of Italian luxury brands such as Bottega Veneta and Marni in recent years. This has been partly due to their more niche brand positioning and considered more individual and exclusive, but also they have focused on word of mouth marketing rather than big brand advertising.
With this maturity comes an increasingly more demanding society, expecting better quality, value and less tolerant of poor customer service. As Chinese consumers make up a significant proportion of retail consumers in Europe, a few brands are starting to better cater for them. Selfridges and Harrods have recently installed Union Pay terminals in their London stores to enable Chinese tourists to pay with their Chinese debit or credit cards.
With Chinese consumers now travelling more overseas, brands need to ensure they are maximising the opportunity to share intimate knowledge of their customers across their international store network. However even powerhouse brands like Louis Vuitton have encountered the challenges in achieving this, and one could argue these larger multinational corporations find this issue more difficult to address due to the scale and complexity of their businesses. In fact it provides the niche more agile brands an opportunity to create a distinct competitive advantage.
Digitally connected – Generation Y
The young generation (or ‘Generation Y’ as they are often referred to) are emerging as a major driving force in consumer behaviour in China. Like in other societies, their ability to quickly incorporate new technologies into their habits has rapidly expanded non-traditional communication channels such as e-Commerce, social media and mobile.
With the fast penetration of internet nationwide, today more than 265 million Chinese are engaged in social networking, and over 50% of the population owning a mobile phone, brands have rapidly started to incorporate social media and mobile in their CRM mix as strategic and powerful communications channels to influence consumer purchase behaviour. Despite the ban of Twitter and Facebook, local equivalents do exist. Understanding how the young generation uses information from social media to redefine and validate their lifestyle and how powerful peer to peer marketing is in China, is the underlying question for brands so they can determine what role they can have in these conversations and how they can measure its impact.
Shifting focus towards customer retention
With consumer spending continuing to increase, brands must now start to place a greater emphasis on customer retention. A number of key factors are driving this shift. The increasing intensity of competition (more than 50% of all points of sale within China for luxury goods opened in the last three years) places higher pressure on the ability to both recruit new customers and retain existing ones. Furthermore, with brands increasingly diversifying their product ranges, consumers will find it easier to purchase different products from the same brand, and therefore brands must encourage product cross and up-sell with existing customers. On top of this, with young Chinese consumers’ lifestyle and tastes rapidly evolving, higher expectations are being demanded, urging brands to provide differentiated benefits and recognition to their most valuable customers.
Need for a solid customer-oriented strategy
The increasing knowledge and sophistication of consumers, coupled with increased competition, means that consumers are increasingly shopping around before purchasing. This presents brands with an opportunity to build stronger, more profitable longer term relationships with their most valuable customers.
To capitalise on this opportunity, brands need to adopt a well considered customer relationship strategy based on quality, customer data and insight.
A perfect example of data utilisation within China is Porsche who employ one-to-one communications throughout the ownership experience, from purchase to after sale, to repeat purchase opportunity generation. By leveraging communications and applying a segmented approach, Porsche has been able to ensure a highly relevant and targeted communications strategy. This has significantly improved the generation of prospects and retention of existing customers.
For many brands who want to develop and grow in China, there are often significant business issues to contend with, such as supply chain, training, recruiting, distribution and pricing. However, a solid customer oriented strategy should be a core focus for any brands wishing to increase their penetration in China – and those who get it right sooner rather than later will set the benchmark for success.