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MARKETING: Navigating Consumer Preferences and Trends in China
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Navigating Consumer Preferences and Trends in China

By Justin Toy


BT 201502 25 Marketing 1As China's economy continues to grow at a tepid rate, consumers' preferences and tastes are changing at a breakneck pace to match the booming economy. Many international firms of all sizes and industries have flocked to China in recent years to take advantage of the seemingly limitless consumer base whose spending power is constantly increasing. However, as more and more retailers, manufacturers and service providers enter the market they realize the extreme difficulty of succeeding and competing in this economy. Of course there are a number of important factors to consider before entering China (or any other foreign market), but consumer behaviour and preferences should be an important priority for marketers.


Consumer Market

BT 201502 26 Marketing 2China's massive population of roughly 1.4 billion is growing at a slow rate and is expected to level off at 1.54 billion by the year 2040. China has long been known for its incredibly large population and its one-child policy that was implemented in the 1970's to curb population growth. An unintended consequence of China's one-child policy is an abnormally elderly population.


For decades, China's growth was largely fuelled by an abundance of cheap labour and high levels of private savings and public investment. However, as more old people retire and less young people enter the workforce, China's demographic balance is becoming top heavy. Having an increased dependency ratio (the number of people not in the workforce over the total workforce) will have a number of potential negative effects on China's economy including increased retirement and healthcare costs, fewer low-income jobs, downward wage pressure, slower economic growth and job creation, as well as lower tax revenue for the government.


Another effect of the one-child policy on China's population is an imbalance in the number of males and females. According to the latest 2010 census, there were 34 million more males than females. Although the government has gone through several measures to restore balance to the gender ratio (including not allowing couples to know the sex of their baby until birth), in 2010 there were still 120 men born for every 100 women. Recently, the government has loosened restrictions on its one-child policy in order to tackle these issues.

Consumer Expenditure


Increasing consumer spending is one of the main economic goals for President Xi's government. Last year, consumer spending accounted for 36 percent of GDP compared to the world average of 60 percent. In order to achieve a consumption rate more aligned with the global average, the Communist Party must find ways to get Chinese citizens to save less and spend more. According to a survey conducted by Credit Suisse in 2014, Chinese consumers save more than 30 percent of their monthly income compared to 12 percent in India, 11 percent in Brazil, and 2 percent in the USA. President Xi's government has already begun the transition from government and investment driven growth, to a more consumption lead growth. The Chinese government plans to decrease the need for consumers to save money for "rainy days" with reforms and increased spending on healthcare, social security, and education.


BT 201502 27 Marketing 3Meanwhile, wages in China continue to increase as well as discretionary income. An increasing amount of citizens are reaching middle class status, allowing them to spend more on products and services that might have been seen as luxuries just a short time ago. According to the National Bureau of Statistics, in 2013, disposable income saw an increase of 10.9 percent from a year earlier to 18,311 CNY (2,993 USD). Rural areas saw an increase of 12.4 percent to 8,896 CNY, while urban citizens saw an increase of 9.7 percent to 26,955 CNY.


According to a 2014 survey on Chinese Consumer Trends by Accenture, urban consumers are spending most of their discretionary income on these three groups; food and beverage/dining out, apparel, and consumer electronics. At the same time, a majority of these consumers are planning to increase their spending on travel, food/dining out, and consumer electronics.

Brand Loyalty

Chinese consumers are very curious towards trying new products and experiences. More than two thirds of urban Chinese citizens, regardless of age or which tier city they are from, were willing to try new products and switch brands, while only 10 percent said they were not willing to try out new brands and the remaining 20 percent were neutral. The number one reason that Chinese consumers ended up switched brands in 2013 was because of a negative customer experience they had.


BT 201502 29 Marketing 5When making a consumer purchase, Chinese urbanites rely much more on making a brand based decision as opposed to a value based decision. When it comes to grocery shopping, 82 percent of urban consumers are brand conscious, looking for superior quality over value. When it comes to age, younger people, who are more educated and more aware of domestic and international brands, are more likely to be brand conscious. In larger, top tier cities, Chinese consumers were also more likely to be mindful of brands than in lower tier cities where wages are lower and international brands have less influence and penetration.


Although Chinese consumers are willing to switch brands, the rate with which they evaluate new brand poses a strong challenge for marketers. Only 50 percent of Chinese consumers expressed brand loyalty (compared to about 75 percent in the US). These figures were even lower when focussing on older consumers and lower tiered cities. Social media and the internet have helped erode brand loyalty in China (and around the world) through instant access to reviews, testimonials, and product information. To succeed in today's highly connected China, it is impossible to rely solely on the laurels of branding and advertising.


Digital Retail Market

BT 201502 30 Marketing 6Among China's many superlatives is that it is the world's largest digital retail market. Online sales in China grew by a whopping 42 percent in 2013 with baby and beauty products being the top sellers. However, even though online sales have taken a bite out of brick and mortar stores, in store purchases still account for 97 percent of total sales. Despite these numbers, online marketing strategies are extremely important to consider in China, especially for branding and advertising in urban areas where 86 percent are internet users who are generally quite tech savvy.


Of those urban Chinese who do use the internet, 73 percent go online daily while 50 percent visit social media websites daily. The average urban consumer watches 9.8 hours of TV a week compared to 28 hours consuming various multimedia content on PCs (12.6 hours), tablets (8.3 hours), and smartphones (7.2 hours). This extremely fragmented market has posed a number of challenges to marketers who must implement a multi-channel marketing strategy in order get their brands noticed.


Although digital marketing is extremely important and becoming a greater influence in the decision making process of many Chinese consumers, traditional TV advertising remains the undisputed influential champion in Chinese society. Advertising is followed by friend/family recommendations, in store displays, salesperson recommendations, and then internet advertising.


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