Table of Contents
List of Figures and Tables
2 The explanations of the success of Western brands in China
2.1 Empowerment and inequalities
2.2 Cultural explanations
2.3 Segmentation and profile
3 Marketing theory and Findings in the Literature
3.1 Theoretical Explanations about Marketing
3.2 Findings in the literature
3.2.1 Mass market brands in China
3.2.2 Luxury brands in China
4 Real cases of successful Western brands in China
4.1 Mass market brands
4.2 Luxury brands
4.3 Experiences from the successful cases that can be used
4.4 Some strategies to make Western brand successful in China
5.1 Western brands‘ strategies
5.2 Some limitations
List of Figures
Figure 1: Chinese culture’s values
Figure 2: The importance of status
Figure 3: Choice of retail format for luxury purchases
Figure 4: Primary and second tiers cities in China
Figure 5: The most recognized brands in China
China has become a very attractive market for multinational corporations first of all because of its huge population of more than 1,3 billion inhabitants (Boston Consulting Group “ Special report: Selling in China ” ). China has the particularity to be at the same time a big consumer market and the ideal location to manufacture and source products thanks to vast supply of low-wage workers (Boston Consulting Group “ China Report: Studies in Operations and Strategy: China and the New Rules for Global Business ” ). This market offers indisputable advantages for international companies.
But if this market is today so attractive, it is because China has been subject to recent changes in all dimensions. Chinese consumers are at a crossroads (Boston Consulting Group “ Special report: Selling in China ” ). They are just developing new economic ideas and habits and enjoying goods that they could not reach before because it was either unaffordable either forbidden or just unavailable.
Certainly the Chinese market has changed, but it is still quite different than developed countries in terms of culture and economic system. Chinese are getting richer and more status conscious but at the same time huge inequalities has been growing.
The development of a rich elite and a large middle class has been accompanied by a rising strong taste for Western image.
Several related questions are emerging regarding the strategy that has to be adopted by international corporations as asks the Harvard Business Review ( “ KFC's Radical Approach to China ” ): How far should they go to localize their offerings? Should they adapt existing products just enough to appeal to consumers in those markets? Or should they rethink the business model from the ground up?
In this study, we focus on the marketing strategy based on Western image that is followed by multinational companies to win the Chinese market by researches about the 4 Ps: Product, Price, Place and Promotion. Do the companies rely on their Western image to win Chinese consumers by making them adopt it or do they rather adapt their 4 Ps to the Chinese consumer?
We also differentiate the strategy according to the fact that we are on the mass market environment or on the luxury field. We assume that there is a clear difference in the way to use foreign image for communication in the Chinese market for Western brands depending on the fact that they are mass market brands or luxury brands. Moreover, Western image is associated with luxury and so it seems at the first sight that a Western image based strategy is generally followed in the luxury field and that a Chinese taste adaptation strategy is preferred in the mass market environment.
In the first part of this study, we explain why Chinese consumers have developed this attraction for Western image and which facts are important to take in account. We find explanations first of all in the empowerment of the population even if inequalities rose. Then, cultural changes are also a part of Western companies’ success. Finally, we describe the Chinese consumer’s profile and elaborate segmentation.
In the second part, we give first theoretical explanations about marketing in order to describe the principles of the 4ps and how it can be generally adapted to the Chinese market. Then we make an overview of the Chinese mass market and the Chinese luxury market so as to know the key elements of the environments that we address.
In the third and last part of this study, we explore real cases of successful mass market and luxury multinational corporations on the Chinese market. Then, we describe the wining 4 Ps strategy which is adopted by these companies still taking in account the idea of if it is Western image based or Chinese consumer adapted.
Finally, we conclude as well as we give the limits of the study and its future outlook.
2. The explanations of the success of Western brands in China
2.1. Empowerment and inequalities
2.1.1. Rich elite and middle class
“China has experienced a relentless surge in consumer buying power since the 1990s” (KPMG & TNS, “Luxury brands in China”). A large middle class is emerging since few years in China (Boston Consulting Group (2011) “Special report: Selling in China”). According to the BCG, there were already between 25 million and 30 million middle-class households in China in 2011 and 8 million affluent homes. “More people are moving into the middle class every year than into the affluent class”. The growth of the middle-class wages has been a key driver for the development of the consumption of some goods that was not reachable before as color televisions, mobile phones or personal computers.
So multinational corporations benefit of a growing market to capture and that from basic goods up to the most luxurious ones.
2.1.2. Social system backwardness
But there the social development didn’t grow at the same speed than wages and some expenses as medical and educational costs carry weight on the households’ budget. Moreover, in China families need to save themselves for retirement. The one-child policy is worsening this fact. Children are supposed to support their parents and grandparents as they get a job. So the one-child policy creates a pyramid according to which one, one child has to support four grandparents. So people have to stock a lot for their retirement what is aggravated by the fact that returns on savings are extremely low in China. Indeed, financial-services sector is still quite primitive in China and consumers’ credit is almost non-existent.
So we can say that middle-class Chinese are both savers and consumers who save money for long periods in order to have enough money to buy the highest quality goods they can afford.
This last fact contributes to aggravating inequalities in China. At the same time than middle-class is improving its wage, richest Chinese are getting even richer, what increases the gap between poor and rich in China. We see today two separated poles in China, what is even more pronounced in richest cities as Shanghai and Beijing. Indeed, despite its rapid urbanization, China is still a country of extremes (Boston Consulting Group (2011) “Special report: Selling in China”).
On the 1.3 billion of Chinese people, only about 400 million live in urban areas. To illustrate the disparity between urban areas and rural ones, in urban areas the income has been growing at the same rate as GDP (10% per year) last years when rural people’s income was only growing about 1% a year. “It’s a land of haves and havenots” says Hong Kong-based Hubert Hsu, vice president and leader of BCG's consumer goods and retail practice for the Asia Pacific region.
As we saw there is a huge difference in terms of wealth between people in the city and the countryside. But within the cities too we can note important disparities in income.
According to Hong Cheng in “Advertising and Chinese Society: Impacts and Issues”, this income disparities have been initiated in 1992 by Deng Xiaoping with the Chinese government policy “letting some get rich first”. Certainly it boosted the country economy but it contributed to stratify the economy and increase the gap between extremes. Most of these rich Chinese are forming clusters on Eastern coastal cities and are easily identifiable “with their slick cars, sparkling diamonds, youth-cool Pepsi, gadget-loaded mobile phones, vertigo-inducing stock investments, and the latest designers ‘garb”. In most of the literatures, we can note the optimist character of this rising middle-class.
But this 197 million upbeat middle-class consumers only represent less than 15 % of the population of China. The 400 million urban mass has not directly benefited as the wealthier middle class from the economic restructuring. Therefore, this 400 million less fortunate urban mass ill constitute a second wave of Chinese consumers to target for international companies.
The rise of Chinese wages indisputably helped the multinational corporation to success on the Chinese market on which consumers can now afford a larger range of products.
These income disparities represent a key fact to take into account for multinational companies which aim to success on the Chinese market: there is a huge market of 1 billion different customers.
2.1.4. Opening policies
As states the Boston Consulting Group in “China Report: Studies in Operations and Strategy: China and the New Rules for Global Business”, gaining entry in China is easier now for multinational companies than it once was, despite the fact that the Communist Party has not yet opened the door completely to Western-style capitalism. The admittance of China to the World Trade Organization has required officials to lift trade barriers and permit to foreign companies to participate in the China boom. As we learn in “Luxury brands in China” of KPMG & TNS, this admittance helped to boost the sales of certain luxury goods by the progressive reduction of tariffs on imported luxury goods since 2005. For example, the 28 % to 40 % tariff that was levied on imported watches until the end of the year 2004 was cut to 12.5 % and has been later reduced to 11 % by the end of 2006.
Moreover, Chinese government are trying to capture foreign investors, in much the same way that local government officials in America offers incentives to woo industries across state lines.
2.2. Cultural explanations
The empowerment of Chinese acted on their lifestyle. There are more and more two- career people, childless people and middle-class couples in the Chinese population. These new consumers win now more money that they spend on health care, education, cars, homes and vacations. Henceforth, Chinese are more sophisticated and several changes in their culture benefit to Western companies and have to be considered (Kate Gillespie, Jean-Pierre Jeannet, H. David Hennessey “Global Marketing”).
In “ Doing Business in the New China: A Handbook and Guide ”, Birgit Zinzius gives the four major axes for the cultural explanation of Western companies success in China: Chinese consumers have become more quality conscious and safety oriented and branded products, especially foreign ones, offer far higher guarantees than noname products. Chinese consumers are rather status oriented. They want to keep face including in their purchasing behavior. Social adjustment is more important than selfwilled individuality. Chinese tend to emulate others.
Chinese still attach a great importance to nationalism and therefore believe in the equality or even superiority of Chinese branded articles. But in some product areas, foreign goods are still regarded as superior and of higher value, for example cars, personal computers, mobile phones, perfumes, cosmetics and other luxury items.
Chinese companies have learned quickly how to reengineer build-up and market brands. They use Western experience without emulating the West slavishly but there is still few recognized Chinese brands.
There are a lot of different ethnic groups in China but still a certain unity as 92% of the Chinese population are Han Chinese. Moreover, Mandarin is the predominant language in China; it is spoken by 70% of the population. As states Ulrike Rohn in “ Cultural Barriers to the Success of Foreign Media Content: Western Media in China, India and Japan ”, even if there are a lot of different ethnic groups in China, the population stay unified, particularly because they share a strong same history. “All Chinese share the historical exploitation by European colonizers and Japanese invaders, and they are proud to be a sub-continental entity that has an impressive history of several thousand years.” Actually all Chinese share the opinion that Europe and USA are relatively new actors on the world scene.
China is today a very centralized country in which the government strongly encourages nationalism and national culture. The government uses particularly the television to promote national culture by showing parades of people under the Chinese flag, singing national songs, and invoking national sentiments. The National Day of People’s Republic is one great example. There are also a lot of dramas on television as Yearning that promote nationalism. In the latter, the heroine sacrifices her future for her family, expresses self-sacrifice as an important sign of the Chinese nationhood.
This nationalist value impact directly the Chinese perception of beauty. In western countries “beauty is often transformational and edgy with consumers less afraid to stand out from the crowd”. Chinese women seem to like a more conformist style of beauty. Characteristics that stick out are usually not seen as feasible or attractive. In advertising for example, they prefer to see Chinese faces. Still, an emblematic foreign celebrity will also be efficient because Chinese people admire “expertise, power and status” (KPMG & TNS, “ Luxury brands in China ”).
2.2.2. More quality and safety
According to KPMG & TNS, “ Luxury brands in China ”, the increase of the Chinese consumers’ buying power contributed to prompt cultural changes and purchasing behavior evolution. Chinese have become wealthier and also more accepting of Western retail formats. The development from an agrarian society to an industrialized nation changed the Chinese consumer mindset too.
In “ Advertising and Chinese Society: Impacts and Issues ”, Hong Cheng explains that some cultural values are currently dying in China. In 1987, an international network of behavioral scientists called the Chinese Culture Connection developed a benchmark measure of values that would reflect indigenous themes and concerns of Chinese culture (Annex 1). Chinese do not support Confucian precept of harmony and tolerance as they used to do before. They are also becoming less compliant to authority as prior generations were. Chinese are now demonstrating self-affirmation as developing rising aspirations and mounting frustrations. By this fact, Chinese are developing values that bring them closer to Western values.
Besides, Chinese workers are much less ambitious and committed than we use to think. Actually they feel like their efforts are insufficiently rewarded and recognized what creates this lack of morale.
The generation Y in China is more receptive to Western influences than other generations but still shows a degree of resistance. These young Chinese people who represent ideal target consumers are influenced by both Chinese heritage and Western brands. But the Chinese culture is still deeply etched in their hearts. Even if they want more and more to express themselves, they often choose to do so “only in a safe, socially acceptable context”.
A study published in the Journal of Consumer Marketing examines how consumers in collectivist cultures like China differ from those individualistic cultures like the U.S. and England. The following values are described as most important in collectivist systems:
- The importance of personal appearance (“Dressing well is important to me”)
- Keeping up with trends (“I like to see movies everyone is talking about”)
- The importance of family (“Children are the most important thing to a marriage” and “I feel guilty serving convenience food to my family”)
- Defined gender roles (“A woman’s place is in the home”, “Men are smarter than women” and “The father should be the boss in the household”)
Some of these values like the importance of personal appearance are of great interest for Western luxury brands that want to succeed on the Chinese market.
On the opposite, individualist cultures attach more importance to:
- Brand names (“I like to stick to well-known brand names”)
- Travel (“I like to visit places that are totally different from my home’)
- Financial satisfaction (“My family income is high enough to satisfy my needs”)
2.2.3. Trade up for best products
As they won more power and improved their quality of life, Chinese are also demanding better quality for the products they buy.
According to KPMG & TNS in “ Luxury brands in China ”, the willingness of Chinese people to spend on big-ticket items is on rise. This fact is related to the importance they attach to the status as well as their comforts and trappings of luxury products. As it is said in China’s new pragmatic consumers (McKinsey), we can observe an interesting phenomenon in the buying decision of Chinese people: “They spend more in categories they highly value, and they generally trade down in less compelling ones.” They are actually more and more behaving like developed countries’ people. They are now demanding and pragmatic and having expectations that go beyond basic concerns about product features. As well as they are willing to pay for better value and quality, they are also spending more time researching and exploring product nuances.
Chinese are brand conscious but one of them specific characteristic is that they focus on value so intensely that brand loyalty is most of the time secondary.
Family is also very important for Chinese. They focus on their family’s needs and interests more than any developed country.
“It’s important for companies to segment consumers and understand where they’re willing to trade up and trade down. Chinese consumers are experimental. They will pay a premium price for a new brand to try it. But if it’s not better, they won’t buy it again.” (Boston Consulting Group, “ Special report: Selling in China ” ).
⃗ More than the basics
KPMG & TNS in “Luxury brands in China” say that Chinese consumers used to consider a product essentially for its functional attributes as the work reliability or the good taste. They still regard this feature today but they are shifting toward more sophisticated criteria. “Flat panel-TV buyers, for example, are now concerned not only with picture quality but also with aesthetic appeal or innovative features. Purchasers of laundry detergent increasingly demand a “good scent” (up to 61 percent this year, from 40 percent in 2008) and “appealing package design” (28 percent today, compared with 16 percent in 2008).” This development shows a transition to an environment where consumers have the mean to ask for more than the basic product attributes and are developing refined tastes as the norm.
Chinese people are operating a prioritization among different product categories by trading off among them. They “maximize their buying power by spending more in the categories they care about most and less in others.” Moreover, because of the huge size of this market, any trend’s impact can vary in China depending on the place and local circumstances. These trends demonstrate a change in the behavior of the Chinese as they are becoming one of the world’s most complex consumers. “China is now the planet’s second-biggest economy, after the United States, and its consumer sector may be the healthiest of any major country. In the past, consumer companies could enter China with their existing products, strip them down to basics, and then sell them at low prices throughout the country, thus hitching their wagons to China’s double-digit consumption growth. Today, local consumers, like those in developed markets, appreciate and demand better products.”
In a study of McKinsey (China’s new consumer McKinsey) dated of 2009, three quarters of urban households said they had traded up in at least one product category. This trend represented for half of all consumption growth worldwide during the same years. So Chinese people choose to spend less in products’ categories that are less important to them in order to spend money and increase finance in categories they higher esteem. But some of them also upgrade categories without having trade off any other and this fact can distort statistics. Actually in 2010, 75% of Chinese upgraded but actually only 50% traded off in some categories for spending more in others because the other 24% traded up without any trading off.
The phenomenon of trading off not only occurs in China but there are differences with the other countries’ way of doing it. In Western countries, people spend often more that they can afford thanks to credit whereas in China, consumers are very concerned about financial stability and don’t spend beyond what they earn. So when they want to spend more in one category, they choose to spend less in other ones that they less value. This pragmatic behavior is important to take in account for multinational companies who want to succeed on the Chinese market.
2.2.4. Safety concern
Nonetheless, a local perspective informs purchase decisions. After a spate of food safety scandals, Chinese consumers, like their counterparts in the developed world, have become more health conscious. Much more than elsewhere, fear of possible contamination has driven a broader concern about unsafe products, especially everything used by children (food, beverages, toys, and apparel). As a result, Chinese mothers have become among the most sophisticated in the world at looking for materials or ingredients they deem potentially harmful for their children (McKinsey & Company, “ China ’ s new pragmatic consumers ” ).
2.2.5. Access to media, rising consumer awareness
This changes in Chinese culture and habit is occurring in part thanks to an increase in the access to media, particularly with the rise of internet. Until the end of the Cultural Revolution, most Chinese had only a limited access to goods like basic manufactured products. They can now purchase a wide range of product and also have much more information about it. Recently, Chinese consumers have been asking for products’ higher quality through newspaper and internet as they became aware of the bad quality of counterfeits (The rising dragon: Chinese consumerism, Katherine Toland Frith).
⃗ Status conscious
In “ Luxury brands in China ”, KPMG & TNS add that Chinese consumers are more and more influenced by emotional considerations. The status value given by purchase is particularly growing since 2008, “especially for aspiring or lower-middle-class consumers, for whom the appearance of success is most significant”.
The Boston Consulting Group says in its “ Special report: Selling in China ” that Chinese, “especially the affluent have become extremely aggressive, demanding, high maintenance consumers”. Purchasing brands and showing them as a “badge” seems to be a way to express themselves. We also learn that affluent Chinese purchase brands not only for esteem and ostentatious reason. They actually want to fit in with other people who buy brand-name goods. It has led to a kind of anxiety that is called “consumptive anxiety”. This phenomenon consists for people to buy product in order to not be left behind.
Helmut Schutte, professor of international management at INSEAD in France, says that “hierarchy of acceptance and belonging” is inverted in China when contrasted with the West. “The higher-order needs in China are still collective rather than individualistic. Everyone in China wants to conform to standards in a way that gives them social acceptance. Therefore, symbols become important. People want to subscribe to success. For brands to make a dent over here, it’s no longer a game about creating esteem, it’s a game about creating popularity.”
⃗ Women rise
In “ Advertising and Chinese Society: Impacts and Issues ”, Hong Cheng speaks about the rise of women as big spenders. “Asian women have entered the 21st century as a force the entire world must reckon with”. These women are now well-educated, business-minded and are pioneering new roles that demand full partnerships with men. Women already made up more than 25% of all entrepreneurs in China. This education and ambition have made women more assertive of their role in the economic growth. The place of women is especially high in Shanghai where they are particularly more powerful than men, more than elsewhere in China.
2.2.6. Long time decision and obstacle to consumption
Even if hard work and plain living have been revered virtues in China for generations (KPMG & TNS, “ Luxury brands in China ”), the demand is growing for foreign brands and imported goods. But on the opposite, the propensity to save of Chinese people runs counter this cultural evolution. Most of Chinese still have the social idea of prudent consumption and to not spend more than they can perform.
Another point that differences Chinese from other developed countries’ consumers is their buying time decision. Chinese people do much more researches before purchasing a product. Moreover, even if it their wage has been improved, some things can cost more than the monthly income of Chinese middle-class, as they are looking for high quality. Therefore, purchasing decision of Chinese people takes often a long time compared to Western countries.
Moreover, the consumption of Chinese can be restricted if they have a child. Partly because of the one child policy, the education of Chinese couple’s unique child has become a priority. They will always focus on spending enough to give a good start to their child and so spend less in other aspects (Boston Consulting Group “ Special report: Selling in China ” ).
2.2.7. Inability to develop Chinese brands
In the article “ Why China imitates western brands? ” in Forbes, Panos Mourdoukoutas, states the causes for Chinese to be unable to develop their own brands, what participates to explain the success of Western brands: “A get rich quickly mentality”: Chinese have suffered from the failure of communism during several decades and some have tried to improve their standard of living but they still didn’t understand the meaning of modern capitalism that includes wealth creation with the respect of social norms and other people’s property. “The belief that intellectual property is a social good”: because of the communist system whose principle is to share goods with society, Chinese think that it is the same for intellectual property and even believe that brand name can be shared for free. “Weak enforcement of property rights”: as intellectual property is not much protected in China, there are few judicial proceedings. Nevertheless, Starbucks and Coca-Cola won some counterfeit cases in Chinese courts. “A supply side approach to entrepreneurship”: in Western countries, a brand creation is a form of demand side entrepreneurship which starts and ends with the consumer and which involves a lot of human and non-human resources. That is what makes Western brand so successful. In China, a brand creation is much more a supply side entrepreneurship approach which begins with offer, with mass workers and financing, and few market and consumers’ studies. That is why Chinese brands flip.
The imitation of Western brands in China stands in the way of brands’ development. Beyond the inability of Chinese to create their own brands, this fact demonstrates the attractiveness of Western brands (Boston Consulting Group, “ Special report: Selling in China ” ).
2.3. Profile and segmentation
In order to understand the success of Western brand in China and their strategies, it is necessary to analyze the profile of Chinese consumers and establish their segmentation. We are first going to see the main points in the Chinese consumers’ profile which are common to all of them and then list the different segments.
⃗ Convenience, quality and status
Chinese are today earning much more money than before, but the past is not so far behind and they keep some consumers’ habits. A lot of middle-class consumers still expect for their products to be “practical in nature and function well” (Boston Consulting Group “Special report: Selling in China”). Although, they are starting to look at other aspects than functionalities. As underlines the Boston Consulting Group, it is true that China is a “country of contradiction”. They want practical and work well products but they also want brands in order to convey a success’ image. They want to fit with others but at the same time they want products that make them unique. Middle-class and affluent Chinese spend their income in goods that will help them to raise their status compared to their neighbors. These products have to make them feel and look good or give them social status and which are going to be seen by their friends or neighbors. Therefore, they can spend a lot of money for clothes, mobile phones, fragrances, or cosmetics but they are not willing to pay the same level for house cleaning products for example. According to KPMG & TNS, “Luxury brands in China”, Chinese consumers buy luxury on a similar way than in Western countries and the two strong motivations for this purchase is the status and the self-reward (Annex 2). As they increased a lot their revenue, most of them already acquire basic goods and they are now aspiring for non-first necessary products. They certainly want practical product but the high quality has also become a necessary feature.
⃗ What does fit me?
Another fast-growing key buying factor is the “what fits me” (or “what’s good for me”) category emerging in China’s younger (and more affluent) mass-market demographic. These shoppers are less concerned about following the crowd or the way what they buy defines them in the eyes of others than about how specific products fit their real-life needs. This factor is the main reason for which consumers trade up when their circumstances change and also explains why they tend to be more satisfied with better products. The “what fits me” mentality, prominent mainly in major cities such as Shanghai, will probably grow in significance nationwide as incomes rise throughout the country (McKinsey, China’s new pragmatic consumers).
⃗ Emotional factors for younger people
Young Chinese start to be more and more influenced by emotional factors in their consumers’ behavior. This fact can benefits to Western companies as they can so follow same strategies than in Western countries by creating emotional consumption occasions or promoting brands aimed at satisfying emotional needs as self-indulgence or rewards.
⃗ Brand consciousness and loyalty
One point that explains a lot the success of Western brands is that Chinese are really brand concerned. Still according to the Boston Consulting Group, 45% of Chinese people think that higher prices mean better quality whereas they are only 16% in United State and 8% in Japan. Chinese people are so more willing to buy the most expensive branded products than elsewhere.
Besides, we can observe that innovativeness and brand loyalty, especially in the luxury field, are inversely correlated (Michel Chevalier, Pierre Xiao Lu “Luxury China: Market Opportunities and Potential”).
The more sensitive are consumers to innovation, the less brand-loyal they are. This fact has important implications in luxury because most of Western luxury brands have a long history. Some classic models have become legendary like the perfume Chanel n°5 and the monogram design of Louis Vuitton. So people who are highly influenced by innovativeness, even if they like a lot luxury, may not be attracted by the traditional models. According to McKinsey researches (China’s new consumer) and we said before, Chinese consumers are extremely pragmatic even if they take their purchasing decision depending on the brand image. But the fact that Chinese are brand-conscious doesn’t mean that they are necessarily brand-loyal. “While consumers tend to gravitate toward the biggest brands, the assessment of relative value offered by a handful of competing products is often the basis of choice.” The study of NcKinsey shows that 23% of Chinese consumers change their shopping places for shops which offer de prices, when they are only 18% in USA and 12% in Japan. Although quality is still a critical consideration, value is the most important one.
⃗ Shopping as a leisure and a whole activity
In “To Reach China’s Consumer’s, Adapt to Guo Qing”, Rick Yan underlines another interesting fact about Chinese consumers’ behavior. For most of Western people, consumption and shopping is a question of routine sometimes seen as a duty. Companies have to catch the interest of consumers with televised adverts, cents-off promotion or supermarket shelves. On the opposite, Chinese people consider shopping as a leisure and a very important part of the day. “And in pursuing this pleasure, they do not hesitate to spend the bulk of their newfound “wealth”.
KPMG & TNS in “Luxury brands in China” talks about the “Mall culture” which arrived in China and the fact that shopping is more and more seen as a leisure activity there. Retail Asia magazine thinks that China will be ranked among the world’s seven malls by 2020. This increasing popularity of malls is helping to develop the luxury market by improving brand awareness and aspiration.
⃗ Buying decision
Chinese people have their own process for shopping. First, they establish the purchasing budget, then make a list with specific brands, and finally they make a “beauty contest” for the most appealing product. They often make a lot of researches before taking their decision and a long window-shopping. Since consumers take generally their final decision in stores, promotion and advert in shops are still an efficient way to attract consumers. Moreover, promotion often lead consumers to make impulsive purchases as they look for maximizing value by stocking up on perishables (China’s new consumer, McKinsey). As we said before, Chinese are looking for a lot of information before buying a product. The influence of the media also participates to make the Chinese purchasing behavior unique.
McKinsey study (“China’s new pragmatic consumers”) shows that’s internet in China is growing and changing fast. It is already an important buying tool that Chinese use in order to find information about the products they plan to buy or to hunter good deals. It constitutes now a real part of everyday-life. Internet is far replacing the TV as a way to communicate with consumers. A lot of Chinese don’t even consider brands that they didn’t see first on TV, because they think that an expensive TV adverts mean that a company is successful. In 2009, TV spots were credible to 55% of Chinese consumers while internet ads o only 26%. Internet is gaining influence in other ways too. One in four Chinese will not be willing to pay a product before having looked for it online. Besides, social networks are gaining more credibility and is a growing factor in the purchasing motivation for a product or a brand.
Another important fact is that Chinese consumers trust companies’ websites when they look for information and more than any other countries’ consumers. 66 % of Chinese consumers doing researches before purchases are consulting the companies’ websites. In United States for example, consumers are rather consulting other consumers’ comments. In 2010, 56% of Chinese consumers declared that they consider online adverts as credible while they were only 29% in 2009. Likewise, 70% of Chinese find manufacturers’ websites credible? When in Western countries consumers prefer the opinion of third-party websites. The fact that online information is so considered in China makes of internet a very important tool to influence consumers’ opinion. In average, 25% of Chinese consumers affirmed that they never buy a product without having first checked it on internet compared to the half of this percentage in United States. In China, the more expensive is the product, the more this percentage is high, it is for example about 45% when we speak about cars. Compared to the average Chinese citizen, internet users are younger, more educated and wealthier. On Chinese internet users from aged from 15 to 65, 70% are less than 34. Most of the companies’ target is already online. Among Chinese middle-class for example, 88% of people use internet. “While 47 percent of Chinese aged 35 to 44 are online, Internet penetration rises to 84 percent (in the same age group) among people with a middle-class income and a college degree.”
⃗ Words of mouth
Word of mouth is also really powerful in China, much more than in Western countries. For example, a survey about moisturizer cream has shown that 66% of Chinese consumers rely on family and friends’ advice, while they are only 38% in the United States.
⃗ Online sales
Online sales are fast growing in China but they are still limited. McKinsey esteems that they represent 2% of the total of sales, yet numbers are difficult to track. The research company iResearch esteems that the online detailed market has almost doubled in 2009, to 39 billion dollars from 19 billion in 2008. That is why China is the second biggest e-business market in the world after the United States (156 billion dollars). The Chinese e-business market could be even bigger: only one third of internet users buy online (2 thirds in the United States). Apparel is the more popular category which represents 36% of Chinese consumers’ online expenses, we have then digital products with 29%. For food and beverages, e-business is relatively new and only 8% of consumers buy online. It only represents 2% of online sales and 0,2% of total expenses. But even if the online channel represents only a small percentage of sales, it is the fatest growing one. Brands need to have a strong online shop, which can be operated by e-retailers like Tmall and 360buy. (Yao Jing, China Daily 11/23/2012, “Brushing off a slump”).
There are though some disparities that qualify this profile. Companies have to be careful about the Chinese way of doing shopping. For some products, they more often to shopping than for other ones but they spend less. “It is a very complicated picture”. The demography will also act on the rate at which they adopt some goods, and Chinese consumers have very different attitudes regarding price points and brands. (Boston Consulting Group “Special report: Selling in China”). Companies have already understood that we have in China huge geographical disparities in terms of segmentation and that Western China is really different than Eastern. But there are so many nuances that it is almost impossible to generalize and things can change very quickly. For example, if we take the example of luxury, we see that there are significant differences in the four principal cities: “there are more luxury lovers and luxury followers in Guangzhou (50%) and in Shanghai (39,1%) than in Chengdu (36,6%) or Beijing (31,1%)”. Moreover, the heaviest concentration of intellectuals is in Beijing (42,2%) while the heaviest concentration of laggards is in Chengdu (Michel Chevalier, Pierre Xiao Lu “Luxury China: Market Opportunities and Potential”).
- Quote paper
- Isabelle Idrac (Author), 2013, How to make a Western brand successful in China: should it rely on its Western image or adapt to its products’ market?, Munich, GRIN Verlag, https://www.grin.com/document/231771