Connecting with the new Chinese consumer
By Dr Chris Baumann, senior lecturer in business, Department of Marketing and Management, Faculty of Business and Economics, Macquarie University
China has become one of the most dynamic markets in the world, having seen some strong growth in the past 30 years.
China’s open-door policy in 1978 transformed the Middle Kingdom to the world’s manufacturing hub, but in essence, China has also become a booming domestic market. It is now the world’s largest car market and has the world’s largest base of mobile phone subscribers. Consequently, product design, while previously targeting the Western consumer, is now focusing on the Chinese customer.
While marketers are now looking at China and seeing 1.3 billion potential customers, Western brands face challenges in China since the market is, in fact, more complicated than that.
The market is very dynamic and constantly changing. While there is still importance placed on ‘face-consumption’, that is, to buy luxury products to improve or keep face, some consumers are moving away from this trend. Traditionally, Chinese people placed high value on the reputation of a brand, but a study I completed with Dr Hamin, lecturer at Macquarie University, shows that now customer loyalty is dropping and the population is focusing more on value for dollar and functionality.
Chinese consumers are smart and the market is a lot more complex than people realise, making the shift from brand-focused to more value-focused consumers difficult for Western companies since now they have to compete on price. Of course, the cost structure for American and European brands is much higher than for competing Asian brands.
When marketing a product or service in China, there are the seven different geographical areas to be taken into consideration: South, East, North, Northeast, Central, Southwest and Northwest. These have been well documented, but there is now the emergence of varying types of consumers, each with different sets of needs and wants based on the region’s economic stage of development.
There are the commercial consumers who now have increased brand awareness and compare products before purchasing, but also the pragmatic consumers who are after function and value for money. On the other hand, social consumers aren’t big purchasers, but when they do decide to buy something, they ask their friends opinions first. Conservative consumers are not big spenders and are more frugal with their money, often influenced by traditional Chinese and Confucian values.
The changes in the market place are only set to continue and have been influenced by a number of factors, including a higher level of education and income, migration and travel, plus accessibility to global media through technology.
Combining the large, complex and dynamic market has led some foreign companies, and even domestic companies, to struggle to gain market share in China and generate, let alone sustain, profitability. Initial enthusiasm for the large emerging Chinese market resulted in homework not being done, and thus overlooking the complexity of the Chinese market. As not every Western consumer is alike, not every Chinese consumer is the same. And the differences in China go beyond a rich East and a poor West.
When marketing to Chinese consumers, there are a lot of factors to take into consideration, including their ingrained thriftiness but also taking into account their culture of saving a high percentage of their wages, ‘face-consumption’ and differing consumer profiles depending on a myriad of factors from geographical location, an over-aging population, increased levels of education and income, but also migration within the country and migration overseas to Australia or North America.
Interestingly, my own study with Professor Tung in Canada has shown that the overseas Chinese have values and behaviour similar to what we observe in China itself, showcasing that differences among ethnic groups not only make China a challenging market, but also Western markets with substantial Asian immigration have become much more complex in terms of market segmentation and subsequent target group promotion
There is never going to be a ‘one size fits all’ approach and marketers need to be aware of this. While from the outside China may seem like a potential goldmine for sales for fast moving consumer goods, durables and also services, if your brand doesn’t have what the customers are specifically looking for, it will not create a strong, unique and positive brand association, and subsequently will not be successful.
Before marketing a product or service in China, marketers must ensure they truly understand the market, and evaluate in what geographic location and for which market segment their brand will be competitive against the strong local Chinese and Korean brands.