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  • Andrew Thacker

TWO VIEWS OF THE CHINESE CONSUMER.


1/5 : The View Inside China.





To understand the consumer, is to understand their context.


The Chinese consumer. It’s a big topic, impossible to cover in in any real detail in short session but at least we can examine some of their behaviours and drivers.


To understand the consumer, any consumer, is to understand their context… Consumer behaviour, their needs, their wants, their desires, are shaped by their context; the environment they inhabit, the culture they live and work in, where they come from.


This is particularly poignant in China.


Since 1978

=

Extraordinary GDP growth

+

Massive structural changes in society

=

Unprecedented increase of middle-class

+

Tremendous changes in consumer behaviour



Let’s start by taking a look at the context inside China…


Since China embarked on its “reform and opening” policy in 1978, the subsequent extraordinary and rapid GDP growth of the Chinese economy, alongside massive structural changes in Chinese society, drove an unprecedented increase in the size and purchasing power of the middle-class, and with it, tremendous changes in consumer behaviour.



Despite this newly minted wealth, the memories of historical generational impoverishment are still fresh, so China also has one of the highest saving rates in the world at nearly 50% of income – 44% vs 18.2% in the US according to the World Bank in 2019 – preferring to save income for more important uses like buying a house (typically requiring a 30% down payment), raising a child, for education, health.


And with the government shifting the burden of retirement income to households, so the importance of owning a home in Chinese society has grown, and with it, real estate prices.


So far, so Western!



Speed of wealth acquisition

x

impact on shape and structure of society


The world’s 2nd largest economy (GDP)

BUT

the world’s 62nd in terms of per capita GDP


=

Uneven wealth distribution

+

inconsistent regional development

+

varying consumer trends



The difference between here and there though, at least in terms of the conditions that drive that consumer behaviour, can be found in the relative speed in which that wealth has been acquired and the impact it’s had on the shape and structure of Chinese society.


Despite the country’s unprecedented economic rise, from the poor man of Asia to the world’s second largest economy (GDP), it also has a relatively low per capita GDP, which shows how the wealth is distributed, or rather, concentrated. This means that many regions have developed at vastly different rates, leading to consumer trends varying enormously between different demographics across a vast geography.



Different mindset of different customers in different locations

+

Learning to communicate your brand proposition relevantly

=

Difference between possible success or failure in China



Understanding the mindset and preferences of different customers in different locations and choosing the right group as your target audience is important for brands anywhere, but vital in a market of the size and scope of China. And learning how to communicate the brand proposition to them, and planning your resources accordingly, is the difference between possible success or failure in China.


For many living an affluent life, remaining thrifty is an admirable quality…


Most Chinese people like to describe themselves as diligent and thrifty. Many believe this is a core Chinese value, with being frugal a good approach to life, while others argue it's a remnant of the past. Even for those living an affluent life, being thrifty is considered a good rule of thumb, as influenced by their elders, and passed along to their young.



Most Chinese consumers are increasingly discerning, savvy, and frugal about their spending. 60% weren’t interested in spending rashly, even if they felt “rich,” a jump from the 37% in 2017.

McKinsey, December, 2019




Generally, Chinese consumers develop shopping habits in their youth and keep these habits through adulthood. Though increased wealth can change preferences, most Chinese consumers’ habits are identified by their objective living conditions and earnings.


According to Mckinsey, ‘middle class’ is defined as those with annual household disposable income of between RMB60,000 and RMB229,000, a range that – in purchasing power parity terms – is between the average income of Brazil and Italy. Such households are likely to spend 50% on necessities and have quite distinctive consumption patterns from other segments.


As recently as 2000, only 4% of urban households in China was middle class; by 2012, that share had soared to 68%. And by 2022, we expect China’s middle class to number 630 million – that is, 76% of urban Chinese households and 45% of the entire population. China is fast becoming a middle-class nation.

McKinsey, 2016



The “new” middle class like premium products, but still save their money…


The “new” middle class with larger amounts of disposable income and the willingness to pay for premium products, are still accustomed to saving their money, especially for their children’s education, which is often abroad.



This is why promotions and discounts are the most common sales tactic employed in China, and over the years, shoppers have become very accustomed to this type of retail strategy. Especially online, where you there are live stream sales, and you constantly expect to receive discounts, promotions, free gifts, free samples, free shipping, etc, etc, etc.



Stay tuned. Part 2/5 to follow next week...



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