Making Brands Relevant to Chinese Consumers by Understanding Them
It seems there is a new survey every month about increasing China consumer confidence, the latest from McKinsey noting the highest confidence in a decade. The positive responses are mirrored by actual behaviour, which has seen consumption contribute to around two-thirds of China's GDP growth in the first nine months of this year. The news is further sweetened by a recent announcement from Beijing that tariffs will be reduced an average 17.3% to 7.7% on 187 imported consumer goods.
Soaring consumer confidence and subsequent willingness to spend, coupled with lower costs for imports into China are worthy reasons for foreign brands to rejoice, yet they should be taken in balance with the increasing presence of shrewd domestic competitors. The same McKinsey confidence survey also highlighted the perceived difference between local and foreign brands has become less pronounced across many categories - something long-time Skinny readers will have noticed over the past few years.
Part of the reason behind the rise in the perception of local brands is that they understand local consumers and have evolved marketing propositions to better cater to them. The dairy category is a good example where overseas origins have a natural trust advantage, yet local brands still achieve 39% higher prices per litre online and faster growth as they have tailored dairy formats and value-adds for Chinese consumer needs and specific customer segments.
Another area where domestic brands are performing well is understanding different contexts of use and making their wares relevant to them. The importance of this is emphasised in recent research into the soft drink category from Publicis, which highlights the potential of honing in on consumption occasions, refreshment contexts and consumption state-of-mind, such as ‘studying’, ‘out with friends’ or even the heat of summer or depths of winter.
Using these 'moments' to position a product from being a generic 'one-size-fits-all' to one that makes a consumer feel that the product is tailored to their personal needs can be powerful, particularly in the ever-more crowded Chinese market.
Whilst domestic firms are showing savviness at understanding and servicing Chinese consumer needs at a micro level, many are also performing well at a macro level. Chinese companies have become some of the most innovative and nimble in the world, which has prompted JP Morgan to predict that more than a quarter of the world's top-500 companies will be Chinese within a decade.
Last week's announcement that Alibaba will be adding a controlling stake of the largest hypermart retailer in China to its suite of bricks & mortar assets should bring more world-leading innovation in China's retail world, which will drive the overall standard of retail in the market. This will present more opportunities for those brands who understand and tap into these innovations, much like the opportunities from understanding and serving Chinese consumer needs. Agencies such as China Skinny can assist to realise both opportunities.
On the subject of Chinese innovation, China Skinny's Mark Tanner will be in Sydney next Wednesday evening 6 December moderating the ACBC event Insights into China’s Ecosystem and the Business Opportunities in the Digital Transformation Era, with an esteemed line up and fascinating subject matter. If you're in or close to Sydney, it will be well worth attending. Also downunder, Mark will be in New Zealand's beautiful capital Wellington on Sunday 3 December sharing his views at the New Zealand China Mayoral Forum 2017. For our Beijing readers, Arami Zhu will be presenting at the Crisis Management Summit tomorrow (November 30) explaining how to best use social media at crunch time. Tap/click here to register. If you're at any of the events, please pop by and say hello.
Here are this week's news and highlights for China:
Chinese Consumers
Austrade China Podcast with Mark Tanner of China Skinny: Australian Trade Commissioner Dane Richmond and Mark Tanner discuss how foreign businesses can increase their chances of success in the dynamic China marketplace. 20 mins.
China Cutting Import Tariffs on 187 Consumer Goods: Import tariffs for China will reduce an average 17.3% to 7.7% on imported goods such as food, pharmaceuticals and clothing. Examples include infant formula which will drop from 20% to 0%, Scotch whisky from 10% to 5%. “This round of cuts concentrates on products in short supply domestically and will provide more choice for domestic consumers and guide the upgrade of domestic supplies,” China’s finance ministry said.
Chinese Consumer Confidence Highest in Decade: A McKinsey survey of 10,000 consumers found 80% of respondents confident that their household incomes will increase markedly in the coming five years, making Chinese consumers more likely to trade up in the future. The same consumers saw less of a difference between domestic and foreign brands, particularly in personal digital gadgets and personal care categories. Consumers born in the 90s are expected to contribute more than 20% of consumption growth - the highest of any demographic - and are more confident and tended to have strong awareness and preferences about brands. The survey highlighted that Chinese consumers are anything but generic, particularly with their views on health.
Alibaba Bets $2.9 Billion It Can Take on Wal-Mart in China: Following long-time rumours, Alibaba will buy a controlling stake in Sun Art Retail Group, the largest hypermart operator in China with 400 stores under the Auchan and RT-Mart banners. The 36% stake cost Alibaba $2.9 billion.
Expect a Huge Rise in Global Influence by Innovative Chinese Companies Over Next Decade, says JP Morgan Asia-Pacific Chief: JP Morgan expects China to have at least a quarter of the world’s top 500 companies, and account for 20% of global GDP within a decade from its current of around 14%.
Why China Is Emerging as a Tech Superpower to Rival the US: The roaring success of Chinese drone maker DJI has seen it capture an estimated 70% share of the world drone market, causing a few Western competitors to fall by the wayside. It is a metaphor for a new confident, driven and innovative China. Last year Huawei, for example, filed more patent applications than any other company in the world. Between 2014 and 2016, China attracted $77 billion in venture capital investment, compared with just $12 billion in the preceding two years, with Chinese companies accounting for 43% of the value of the world's unicorns (startups valued at over $1 billion).
Asia's Consumers Snubbing Global Brands for These Products: China market leader L’Oreal is losing share to a domestic skincare brand Pechoin, favored by President Xi Jinping’s wife as many homegrown brands are considered more affordable and tailored to local tastes.
Food & Beverage
Soft Drinks Brands Can Tap 'Moments' in China: Research into a spectrum of moments including food consumption occasions, refreshment contexts and consumption state-of-mind, such as ‘studying’ or ‘out with friends’ or even the heat of summer, depths of winter, allows brands to have opportunities to target their marketing ‘moments’ at different times across the day according to Publicis.
It’s Fewer Sugary Sodas, as Health Conscious Chinese Consumers Opt for Energy Drinks, Premium Waters: Bottled water and sports drinks both registered double-digit value growth, whereas carbonated drinks have been essentially flat. Unlike some categories, there are no major difference in consumption patterns between northern and southern China, as both regions are showing a preference for healthier drinks.
Chinese Consumers Become Smarter About Buying Avocados: Whereas previously only large-scale distributors and high-end restaurants paid attention to the ripeness of avocados, the Chinese public now also has a better understanding. This has prompted suppliers such as Supa Fresh Food to offer multipacks of avocados with various stages of ripeness.
Digital China
Debt: The Secret Sauce of Alibaba's Singles Day Success: Alibaba's microfinancing arm Huabei raised its credit limit to almost 80% during the promotional activities before Singles' Day this year allowing users to spend an extra ¥2,200 ($333) on average. It also introduced a function allowing users to solicit their Alipay friends for contributions to help repay their shopping debt. 86% of users are born in the 80s and 90s and 60% have never owned a credit card. Ecommerce is the most common use of loans, but also commonly supports rail tickets, bike and taxi rides and even plastic surgery.
New SF Express Verification Service Tackles China’s Widespread Counterfeiting: SF Express is targeting the booming cross border commerce sector by launching its “SF Certified International Shipping” verification service, validating that packages are being handled by SF Express, from their origin overseas to the end recipient in China to prove 'imported' products are indeed sent from overseas.
Chinese Tourists
Harrods Expands its Ecommerce Options, In Effort to Lure More Chinese Shoppers: Harrods plans a £200 million ($267 million) revamp - the biggest in the store’s 180-year history - which includes a digital and payment overhaul, aimed partly at attracting more Chinese visitors. China is currently the store's biggest international market with £1 of every £5 spent in London by Chinese tourists spent in store.
Luxury
Luxury Brands Jump on Experiential Marketing in China: 'Authenticity' is a key draw for Chinese young and wealthy, with spending focusing on the “experiential” and their surging interest in fitness and health. The breakdown of millionaires’ consumption looks like this: travel 25%, watches and jewelry 20%, fashion 14%, food and entertainment 13%, beauty 10%, art and electronics (an unusual grouping) 14%, and health 4%.
That’s the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing strategy, research and digital advice and implementation.
