The allure of its enormous 1.4 billion population and rising affluence has seen China become one of the world’s most attractive markets, but also its most competitive. Many international brands have struggled to gain a presence and generate sales. Foreign marketers often battle with understanding the intricacies of the China market, leading to initiatives being irrelevant or even inappropriate for Chinese consumers. Getting the basics right is crucial as the following three challenges reflect:
1. China is Crowded and Competitive
China is already the most crowded market on the planet, and becoming more-so by the day. New international brands continue to enter the space, while local players are becoming more astute at adapting to trends and consumer preferences. With 500 products launching daily in China, it has become clear that brands will struggle to make an impact without a meaningful budget. This is especially true for the digital space such as WeChat, where 14 million official accounts tout for Chinese consumers’ attention. Getting noticed is difficult and resonating with the target market even more so, as only 5% of WeChat users view subscription accounts. Brands with a limited budget have to be smart and employ creative initiatives to stand out.
2. China is Different
Just as Chinese consumers have different motivations and tastes than their western peers, they use different platforms to research and endorse them. Facebook, Google, Instagram, Pinterest, Twitter and Youtube are all blocked in China. The resulting ecosystem of channels Chinese consumers are familiar with can often become confusing for foreign marketers. QQ, Weibo, WeChat, Baidu, Taobao, Tmall, JD are the best-known, but along with these come thousands of channels that might be more appropriate for a brand chasing a specific category or demographic. While the big players boast mouthwatering user statistics, smaller niche platforms can cater to a more targeted customer segment. The channels utilised by a wine brand will therefore differ greatly from those for fashion, cosmetics or mom & baby.
3. Chinese Consumers are Discerning
Various food and product scandals have led Chinese consumers to become some of the least trusting of product authenticity until the opposite is proven. They conduct much more research around a new product or brand, employing an average of 7-10 touch points from official online channels to offline influences like friends or family. With personal opinions being the most-trusted source of information, 70% of Chinese shoppers leave reviews online after purchasing a good. These not only include a product’s quality, but the whole consumer experience from responsiveness to logistics, purchasing process, packaging, safety, speed of delivery, after-sales service and more. Fulfilling this criteria effectively can be challenging for foreign brands, particularly as local competitors have the advantage of being closer to their target market and are therefore able to relate better to their needs and preferences.
However, many foreign brands have adapted smart methods to cater to Chinese consumers, undertaking considered efforts to understand their target market and China’s fascinating and unique characteristics. Smaller brands can even gain a substantial consumer base once an appealing brand strategy is developed.
Are you interested in China and selling to Chinese consumers but don’t know where to start? China Skinny has created a brand new free five-day mini course focused on selling in China and Chinese consumers.
For five-days we’ll break down the China market including:
1. Opportunities in China
2. The various ways to sell in China
3. Chinese consumer segments
4. How to get your product right in China
5. Commonly overlooked aspects of working in China
Get knowledgeable about China! Sign up below for China Skinny’s five-day mini course:
Last week’s four-day Fifth Plenary Session in Beijing saw China’s leaders meet to determine the blueprint for China’s policies over the next five years. Although the full details won’t be released in March next year, below are 13 highlights from the communique published following the session:
1. Lowering GDP Growth to a Switzerland a Year
Beijing has lowered its GDP growth targets to 6.5% a year until 2020 in hope of doubling 2010 GDP and per capita income by 2020. This is more sustainable than the freakish growth of previous years, particularly as the economy has matured and much of the rest of the world is still volatile. In saying that, it is still adding the equivalent of Switzerland’s economy every year, and in absolute dollar terms, that growth is higher than the 10.3% in 2010.
We may be reading something wrong, but the goal to “double 2010 GDP by 2020” doesn’t seem like much of a stretch. Using the World Bank’s measures, 2010 GDP clocked in at $6,040 billion and 2015’s figure is expected to be over $11,000 billion, meaning it would take less than two years at 6.5% growth to reach the target.
Industries affected: All.
2. Increased Urbanisation
One of the drivers of China’s economic growth has been urbanisation. With around 54% of China’s 1.35 billion people living in cities, there is still plenty of room for growth. Urban consumers earn over three times more than their rural equivalents and are much more likely to buy products and services, and build innovative businesses. The wording in the communique is quite dubious: “urbanization ratio calculated based on the number of registered residents will also rise at a faster pace,” which may not mean increased rates of people moving to cities, but a loosening of the Hukou policies, providing basic rights to migrant workers who are currently treated like second-rate citizens. Whichever it is, it will be good for China.
Industries affected: Consumer products and services, tourism, construction.
3. No More One-Child Policy
One of the most talked about changes from the plan is the ending of one-child policy. We believe this is more symbolic than anything else. There have been a number of policy changes over recent years making it easier to have more children, but the increase in birth rates has been much lower than expected. It has become socially acceptable to have one child and the cost of raising additional children is prohibitive to many. If we look to Hong Kong, which has no such policy, birth rates are actually lower than Mainland China. Child-related products and services are already some of the fastest growing categories in China, but don’t go building extra infant formula factories just yet.
Industries affected: Baby & toddler products, tourism, education.
4. Opening Up to the World
China has been steadily opening up since 1979, however this 5-year plan specifically states it will do more. This includes providing clearer rules that apply to foreign investment. It will also adopt a “negative list” which clearly states sectors and businesses that are off limits to foreign investment, which will provide more certainty. We can expect to see the continued drive for more free trade agreements and projects such as the Belt and Road Initiative.
Nevertheless, there have been a number of trends that are contradictory to China’s mandate of opening up. Over recent years there has been a increase in anti-foreign brand sentiment driven by state policy and media. The Internet has also become more closed than before, although Mark Zuckerberg has been posturing the Chinese and allow a censored version of Facebook. In short, we expect it to become more open in some ways, and more closed in others.
Industries affected: All, particularly those making investments into China.
5: Anti-Corruption: Less Golf and Gluttony
Luxury brands who target gifting and Government officials are likely to be disappointed that there is no sign of the anti-corruption drive abating in China. Luxury brands need to adapt to target everyday consumers with less brash and mainstream products that Chinese are increasingly demanding. Golfing and gluttony industries were singled out as additions to the no-go list for ambitious bureaucrats.
Industries affected: Luxury, golf, banquet restaurants
6. The Innovation Drive
Companies such as Alibaba, Tencent and Huawei have pioneered innovation to create world-leading technologies from China. We’ve already seen Chinese brands make an impact in some industries such as smartphones, where Chinese brands accounted for less than 30% of the domestic market in 2011, but now hold more than 80%. 20% of all home appliances sold globally are Chinese brands. China wants to see more of it to push China’s economy up the value chain, and is encouraging systems that nurture innovation and see better allocation of resources including labour, capital, land, technology and management.
Industries affected: All, but those specified are political theories, science, technology and culture.
7. Integration Between the Internet and Traditional Industries
China’s online giants are leading O2O integration with Alibaba buying a host of offline assets to integrate with its online ones, and Tencent & Baidu teaming up with Wanda Group to create smart malls. The Government wants to grow this trend integrating the Internet of Things into a lot more things, which will drive innovation, efficiencies and provide a valuable source of big data.
Industries Affected: All, particularly retail, technology, entertainment and transport.
8. Harnessing Big Data
With a country as large and varied as China, one of the most reliable ways to understand the population is through big data. Any Internet company operating in China already needs to allow the Government access to its data, but expect to see a more concerted effort to interpret and harness those insights. In late 2013, we saw early signs of this, with cooperation between the Government and companies such as Baidu, Alibaba and China Unicom to assist with data collection for Chinese statistics. We are hoping that the reference to the ‘sharing economy’ will mean more of this data will be publicly available, providing valuable insights to businesses selling in China.
Industries affected: Any Internet company or organisation with a lot of data. All businesses can benefit if data publicly available.
9. Entrepreneurism & SOEs
Five years ago, most people in China wanted a cushy Government job. The most desirable spouse was a public servant. The combination of the anti-corruption drive and pin-up entrepreneurs such as Jack Ma has turned the tides, with many of China’s youngest and smartest wanting to start their own business. The Government is pinning their hopes on these types to help drive China up the value chain. Hopefully this is backed up with policies such as easier finance for smaller businesses. At the other end of the spectrum, State Owned Enterprises will be retooled, with less state interventions. Expect consolidation, with fewer, but larger SOEs and potentially outside shareholders. More efficient SOEs and entrepreneurs will provide further competition to China’s already fiercely competitive market.
Industries affected: All.
10. Education for those Who Need it Most
Education has been a key pillar of Chinese society since Confucius and this year’s Five Year Plan continues this in earnest, with the Government striving to improve the quality of education. Core to this plan is enabling China’s poor to attend high school for free, and providing them access to vocational secondary schools through subsidised tuition. This is unlikely to have a significant impact on students studying abroad, however as the general standard of education rises, more students may look to overseas education as a point of difference.
Industries affected: Education in the short term, all industries in the long run.
Health is the top concern across most demographics in China, reflected in a Xinhuanet online poll prior to the Five Year Plan which saw 72.6% of Chinese caring about health. Health was a key component of the 12th Five Year Plan, which saw basic medical insurance rolled out to the majority of the population. The elderly stand to benefit from the latest policy which will see old-age insurance provided to the full population. The critical illness insurance system will also be implemented at full scale. A lot of the increased expenditure on health equipment is likely to be purchasing low-priced medical gear which is dominated by local manufacturers, however the overall trend of improving health standards is seeing increasing opportunities for higher-end foreign medical equipment. Demand for pharmaceutical products will continue to rise, and with it, new innovations to help reduce fakes in circulation.
Industries affected: Health services, medical equipment, pharmaceuticals, old-age care.
12. Modernising Agriculture
One of the main health concerns in China is related to food safety, which is dragged down by an inefficient and often rudimentary food supply chain domestically. Modern China was built on the back of small peasants farming plots, but Beijing is increasingly introducing technology, corporatisation and transparent supply chains to increase safe food produced in China, which it hopes will both improve the self sufficiency ratios and perceptions about locally produced food and beverage.
Industries affected: Agriculture, food & beverage, technology.
13. A Cleaner China
A Xinhuanet online poll into expectations for the next five years found the environment to be the most important subject for Chinese, with 73.8% caring about it. China’s horrendous environment remains the elephant in the room, although increased focus since 2013 has seen some green shoots of hope. In 2014, emissions of five key heavy metal pollutants (lead, mercury, cadmium, chromium and arsenic) dropped by 20% from 2007 levels. Air pollution improved slightly in 71 of the 74 cities recorded last year, but water and soil pollution continues to get worse. Beijing still has a lot of work to do, and we have been promised developments that will be green and sustainable, a further reduction in coal consumption and a ‘more exacting environmental protection system.’
Industries affected: Construction, manufacturing, energy, technology and transport.
China has had an enviable track record of delivering on what it promises in each Five Year Plan, which is why their direction and policies are significant for everyone doing business in China. This Five Year Plan is particularly important given China’s slowing economy and the lead-up to the 100-year anniversary of the founding of the Communist Party of China in 2021. We will be following its progress closely, so stay tuned.
The digital economy has completely revolutionized retail business, especially in China, where offline-online transitions have been adopted particularly swiftly. China’s ecommerce spending craze growth is slowing, but still clocked an impressive 26.8% growth in the first half of 2015, when Ecommerce consumers in China spent US$253 billions about 10% of total retail sales in the nation. The following buzzwords will help you understand the latest ecommerce dynamics and the popular digital means of payments used in China.
O2O (Online to Offline) commerce identifies a business strategy that incorporates element of both online and offline commerce in order to maximize the quality and consistency of customer experience. More precisely, this strategy aims at tempting potential customers from online channels to physical stores using a variety of tools belonging to both online and brick-and-mortar marketing.
This kind of strategy was successfully intiatied by China’s largest website ad alliance, Panshi Network and has become increasingly popular in China since 2013. In August 2014 three of China’s biggest businesses –Tencent, Baidu and Wanda – teamed up in a RMB 5 million ($814 million) partnership that will focus on O2O. The aim is creating an interconnected platform to compete for Chinese customers against Alibaba.
Chinese companies are increasingly understanding the importance of making online services more engaging by mixing them with offline elements. A simple example is the incredibly fast diffusion of QR codes in China, a widely scorned tool in most Western countries, which has taken over Chinese business operations of all sorts, thanks to its ease of use. In 2014 the number of QR codes scanned in China increased by 350% from 2013 to an monthly average of 156 million.
O2O is an ‘umbrella concept’ which may well contain different kinds of business strategies and tools, including click-and-collect and digital wallet software.
Alipay is an online payment platform launched in 2004 by Alibaba in China. The platform has more than 300 million active users and controls approximately 54% of the online payment made throughout China.
Alipay wallet can easily be linked to individuals’ bank accounts given its compatibility with more than 65 financial institution and credit circuits, including Visa and Mastercard. In 2014, Alipay processed more than 80 million transactions per day on average, thanks not only to payments made on online marketplaces but also to brick-and-mortar retailers that offer Alipay as a mean of payment. Alipay is integral part of the Alibaba ecosystem and has gained popularity thanks to the ease of use and security of online payment on Taobao and T-mall marketplaces. Since 2009, Alipay’s expansion included various offline services, handling online and offline payments, including utility bills, ticket booking, restaurant meals, taxi rides and purchases in many participating retailers in China and increasingly abroad.
Alibaba’s plans for Alipay included investing in financial services. Since 2013, Alipay wallet can be connected to Yu’e’bao, allowing Alipay users to invest in a money-market fund and gain interest on deposited money. The popularity of Alipay in China is nowadays undeniable and it is crucial for Western companies to adapt to this trend in order not to lag behind.
WeChat has more than 600 million monthly active users. Tencent, the holding company of WeChat imputes the huge success of the app in China to the investments made to create a whole ecosystem around it. Unlike its Western counterparts, WeChat incorporates several services and more than 10 million third-party apps.
WeChat’s complex architecture combines a messaging app , social media, subscription and service accounts and WeChat payment/wallet, among other services. The wallet can be used in a similar fashion to Alipay by connecting it to a bank account and allowing for fast payment among WeChat wallet users, as well as purchases of related services such as taxi, movie tickets, bill splitting and others.
In order to insure users against fraud and theft, WeChat partnered with PICC, the largest insurance company in China to realize its wallet service. This move has made it easier for subscribers of WeChat to feel confident in their transactions. This move has been clever both domestically and internationally, given that WeChat may become a straightforward substitute to credit cards, especially in areas where the latter are not yet widely used.
Wechat payment has also revolutionized one of the traditional customs of Chinese New Year. On Feb 18 2015, more than 1 billion red envelopes filled with cash, hongbaos, a traditional form of gifting, have been exchanged among Chinese citizens. Of this 1 billion, Chinese ‘netizens’ has sent more than 20 million “WEnvelopes” through WeChat wallet exchanges.
Even though the world of retail is moving towards a constantly higher degree of dematerialization, a new trend is bridging online and offline shopping experience of customers. Click-and-collect is a process by which the consumer orders goods online and collects his merchandise at a local store. It is literally a compromise between online and in-store shopping, a way to maintain the physical shopping experience while allowing the customer to choose among a wider variety of products and streamline the purchasing process.
The main benefits of click-and-collect for the consumer are saving delivery or shipping delays, costs and better fitting into customer’s schedules who maybe unsure if they can be present when the delivery arrives. It also saves time since it prevents shopping in congested stores. Click-and-collect may also enable consumer who are cautious in using the online payment at the collecting point.
This solution is advantageous not only to customers, but also to retailers, whom are able to process orders more efficiently and keep their product offer wide and varied.
Given the fact that Chinese consumers are more ‘digital-friendly’ than their western counterparts, the relatively low cost and speed of delivery services, and lower car usage, click-and-collect has been slow to catch on in China relative to the US and Europe. However, some big retailer chains are betting on this trend to take off in China. Since 2013,Amazon has been offering pick-up points in China’s main cities, reporting more than 50,000 packages have been collected in Shanghai Amazon points. Walmart also offersclick-and-collect purchases in its main stores in Shanghai, Beijing and Shenzhen, by leveraging the knowledge accrued in other markets. Customers can use a dedicated app to check the availability of products, pay through online wallets and collect their orders in-store avoiding queues.
One alternative twist on click-and-collect that is developing in China are smartphone-linked pick up lockers run by companies such as Gooday and Sposter. By the end of March, Sposter’s 19,558 locations had handled 116 billion packages since the service was launched in late 2012.
Adapting your brand for China is often talked about and for good reason. For China’s unique and diverse market, a solid strategy is required for a chance at success in one of the world’s most competitive markets. Long gone are the days when a brand could enter China and take off due to fact that it was foreign; today a China-specific strategy is needed. Chinese consumer preferences can shift on a dime and understanding what Chinese like about your products, destination or service is vital to understanding how you can better meet the needs of Chinese consumers.
What is often overlooked is how Chinese perceive your brand in its home country. With 109 million Chinese travelling abroad in 2014 – 350% more than in 2005 – they are seeing more of the world and in turn more brands at their place of origin. Take luxury goods, where 25% of all luxury purchases made globally are by Chinese consumers, 60% of which are made outside of Mainland China. Even as interests shift from the traditional shopping to more experience-based activities, shopping is still an important part of Chinese travellers’ trip. How a brand is perceived by Chinese tourists abroad plays an important role in your brand’s strategy in Mainland China and at home.
Understanding the customer journey is vital for purchasing a product or service at home or abroad. With 84% of Chinese travellers sharing the good and bad on social media before, during and after they travel, not only the travellers themselves can see the brand in its home country, but their network of friends and family. This spread of tourists and information creates the need for a smarter strategy including a China-country of origin-world strategy tailored towards Chinese consumers.
Chinese consumers will learn about the true origin and perception of the brand both in and out of China and it is important that the disconnect between the product or service in its homeland and in China are minimal. When Chinese see and experience your brand in its homeland, it is a great way to drive your brand forward both at home and in China. For example, when Chinese travellers have a great experience in your hotel in California, they will be more likely to stay in your hotel in China or Australia. When they get great service from Mandarin speakers at your makeup counter in London, they will expect the same great experience in China.
Understanding the unique, fast changing needs of Chinese consumers, and the perception of your brand in and out of China will assist in getting your strategy right. In addition, tracking trends and perceptions to improving your strategy will give your brand the best chance to stay ahead of the rest. China Skinny can help with initial strategy, current happenings in the market and more. Get in touch today.
The National People’s Congress (NPC) gets together as a full committee twice a year for its plenary session. These meetings are called 两会 (Lianghui) and are the most watched political events in China. During the meetings, China’s premier leads the discussion of the main economic, social and political topics of the year, sets important targets and releases an annual report containing the main statistics, figures and economic indicators regarding growth and development. If you did not have the chance to follow this year’s March Lianghui, the following list of buzzwords is a great opportunity to catch up!
Made In China 2025 – 中国制造2025
Being one of the central issues covered during the Lianghui, “Made in China 2025” (MC25) is a comprehensive campaign that aims at upgrading the Chinese manufacturing industry. Even though the first drafts of this project were presented in 2013, the subject is still really fluid. The central focus of Lianghui 2015 was using technology for manufacturing to increase productivity and automation.
During the last couple of decades, China has based its fortune on cheap labor and low cost manufacturing. However, as the country has rapidly developed, macroeconomic conditions have put upward pressure on labour costs. The MC25 campaign is a way to address various issues altogether. First of all, the focus on innovation in manufacturing is a way to keep China competitive in this field, making the country able to maintain its cost advantage even with surging labor costs. Furthermore, MC25 is a response to the main drawback of the China low cost strategy, namely the huge impoverishment of the “Made in China” brand which is nowadays associated with poor quality and labor exploitation.
Increasing incentives, subsidies and investment in the field of manufacturing is also a way to climb up the global value chain thus concentrating on higher-value-added activities. China’s plan is to increase the percentage of Made-in-China materials and components of final goods to 40% in 2020 and 70% in 2025.
The role of the state will be crucial for the successful implementation of MC25, providing an overall framework, utilising financial and fiscal tools and supporting the creation of manufacturing innovation centers (15 by 2020 and 40 by 2025). However, the plan will also strongly rely on the market, strengthening intellectual property rights protection for small and medium-sized enterprises and making the use of intellectual property (IP) more effective in business strategy. This campaign will directly affect Chinese consumers. Given the low perception of the “Made in China” brand, Western companies have enjoyed over the past decade an “ex-ante competitive advantage”, meaning that, especially in some fields like luxury and automotive, Chinese brands were not taken into consideration by Chinese consumers.
MC25, by attempting to revamp Chinese manufacturing, will increase the level of competition in some fields, making marketing strategy more important for non-Chinese companies to maintain market share.
Maker Culture: 创客 chuangke
The maker culture is a contemporary urban subculture originated in the United States that represents an extension of the DIY (Do It Yourself) culture, with a particular focus on technology and engineering. The Lianghui has refered to this as 创客 chuangke (the maker), a term that features the Chinese character chuang, meaning “to generate” and emphasises a creative and passionate approach to making things. As part of a greater plan of rekindling the “Made in China Brand”, the Lianghui underlined the importance of fostering this kind of approach in order to move away from the common stereotype of Chinese people as “cheap copycats” and reach a status where products are not only made but created in China.
In order to incentivise a more creative and proactive way of life, the Chinese government has directed investment into two main areas. On the one hand, since 2013 the government has started financing “innovation-houses”, spaces in community centres set aside for teaching people to use post-digital tools. There are now more than 75 innovation-houses concentrated in the areas of Shanghai and Beijing. On the other hand, a more ambitious campaign involved the 2013 construction of a 16,000 square metre “makerspace” in China’s most famous engineering school, Tsinghua University in which students are allowed to make experiments with open hardware as part of their degree.
Since 2013, when the Chinese President Xi Jinping came to power, a massive anti-corruption campaign has been initiated with the aim of netting hundreds of corrupted government officials and company executives. The central concern of 2014 Lianghui was the “Operation Foxhunt” by which the NPC decided to start the negotiations for an extradition policy with the United States to punish rich Chinese suspected to have fled abroad to launder money earned illegally in China. This problem has been underlined also at this year’s meeting, with particular emphasis on “smash the tigers and the flies” concern (要坚持老虎苍蝇一起打) stressing the importance of eradicating corruption both from high level members and lower level ones. This campaign is reinvigorating Xi’s reputation as a strong but fair leader among Chinese electors even though international observers point out that the targets of the campaign might be political enemies and opponents.
Regarding the Chinese Market, the anti-corruption crackdown has had profound consequences on markets which were mostly attractive for high net worth individuals. The gambling market has suffered the most, with gaming’s share of revenue in Macau dropping 17.4% in January, extending the run of consecutive monthly falls to eight. Obviously the Chinese luxury market has been strongly affected, experiencing a slow down for the first time in 2014 (-1% growth), a loss of approximately RMB ￥115 billion. Tourism, exotic markets and real estate have all experienced a slow down given the higher prudence of Chinese consumers coming from the fear of becoming suspects.
The Lianghui received extra attention as 2015 is the last year of the 12th Five-Year Plan and the government meeting was a chance for the government to unveil the new 13th Five-Year Plan. Even though the actual 13th Five-Year Plan has not been released yet, the main concerns were obviously economic factors, employment and environment.
Regarding general Chinese economy, the GDP target has been set at around 7%. Furthermore, policies for the implementation of the new normal policy have been spelled out, including relaxation of the fixed exchange rate policy, the removal of some tariffs and the critical reduction of the industries in which foreign investment is restricted.
With respect to employment, the Lianghui has declared the will to create 10 million additional jobs in urban areas and to avoid an unemployment rate above 4.5%. With the same purpose, the budget allocated to military spending will be increased by 10%.
In conclusion, Lianghui’s considerations regarding environmental issues concentrated on cutting energy intensity by 3.1%, bringing coal consumption to a zero-growth equilibrium and replacing the “green charges” with actual “green taxes” and “green tariffs” in order to further incentivise energy saving habits.
Marketing strategies in China will be mainly affected by environmental considerations. These policies will push Chinese consumers to be more environmentally aware and perceive companies that are “more green” as more valuable. This is a great chance for companies to increase corporate social and environmental responsibility in their marketing schemes.
Few markets have experienced changes in the way that China has over the past few decades.
Just 35 years ago, more than four in five Chinese were living in the countryside, typically tending small, family-sized plots with animals and crops. Now around half of the population live in city apartments, surrounded by conveniences that they could have only dreamt of a generation ago, and earning over three times what they would if they still lived rurally. Since 1990, China’s average incomes have grown more than 10-fold, and those extra earnings usually only need to support one child, unlike the large families a few decades earlier.
China’s social changes are almost matched by its market transformation. There were no foreign FMCG brands in China until 1979 when Coca Cola launched in the Middle Kingdom, although it was only allowed to sell to tourists. Nowadays, China has truly become internationalised with products from Italy’s Moleskine stationary, to New Zealand apples, to Belgian beer all vying for China’s lucrative consumers’ wallets. More than 500 new products launch every day on average in China.
How Chinese learn about products and services has also transformed. Until recently, propaganda messages made up the lion’s share of marketing in China. Most consumers learnt about things through the traditional state-run media channels such as radio, newspapers and later, television. Now the average urban Chinese consumer is bombarded by advertising messages across a wide range of mediums, unrivalled in other markets.
China’s 668 million Internet users have become the most rampant users of social media and ecommerce globally, using online channels more than any other medium for research before and after buying things. In addition, over 100 million Chinese travel and study abroad each year, and together with the networks they influence, have created a massive consumer population that is more aware, astute and internationally-minded than ever before.
Such remarkable social, economic and market changes have created a unique consumer class. Their consumer journey and retail market are unlike the West and other Asian markets. But there are also a number of fads, social habits, fashion trends and food that are a result of this dramatic change and China’s unique culture and history. We’ve listed a few to give you a taste of just how different some Chinese consumer trends are. We hope you enjoy this week’s Skinny.
Buzzwords: Unique Chinese Consumer Trends: Those unique fads, social habits, fashion trends and food that all make China a little more interesting.
4 Strategies For Reaching The Chinese Consumer: As consumerism becomes more entrenched in China, companies will have to 1) segment more and more precisely; 2) extend modern trade channels and distribution networks to reach consumers outside the biggest cities; 3) communicate benefits of products that are unfamiliar to consumers; and 4) develop the products and services that are underpinning increases in consumer spending, and which remain relatively scarce in China.
Italy’s Luxury Firms Set Their Sights On China: On the back of a 44.7% increase in net income for the first half of 2015, high end notebook maker Moleskine will open most of its new stores in China in the second semester, a market it describes as “very interesting”.
19,470 Firms Sign Up For Three New FTZs: Three months since free trade pilot zones were launched in Tianjin, Guangdong and Fujian in April, almost 20,000 firms had signed up.
Big Brands Like Michael Jordan Are Still Losing Trademark Battles In China; Here’s How to Win: If you’re planning to launch a legal challenge against a trademark squatter in China, don’t delay, and register your Chinese brand name if you have one.
Internet & Ecommerce
PayPal Aims to Connect More US Merchants with Chinese Consumers: One of two pieces of research by Paypal studied how Chinese consumers learn about products they purchase cross border. Search engines were the most common way, followed by word of mouth and social media. Alibaba has just recruited a former vice chairman at Goldman Sacks to lead its cross border drive. The company has partnered with Kobe Bryant to sell his documentary and products on Tmall.
Apple Loses Top Market Share In China As Xiaomi And Huawei Take Over: After leading for two quarters, Apple has been beaten out of the top spot for market share in China by Xiaomi at 15.9% and Huawei at 15.7%. Apple’s share was estimated at 12.2%.
Food & Beverage
What’s Going Wrong With Chinese Juice?: After accounting for 61% of global juice volume growth between 2009-2014, the volume of juice sales declined last year, with value only slightly growing. A few big safety scandals didn’t help. There has also been an overall shift to healthier beverage options with better ingredients such as fortified/functional juices and reduced sugar juice.
China’s Top Wine And Beer E-Tailer Nabs $80M Funding To Get Everyone Drunk: Jiuxian adds $80 million funding to take its total funding to $225 million since 2011. It comes at a time when China overtook Japan to be the top consumer of Belgium beers in Asia, with imports growing 140% last year and 850% since 2008.
Ctrip Goes On A Round The World Trip: China’s largest online travel agent faces challenges in expanding globally, in addition to more aggressive domestic competitors backed by the big boys such as Tencent and Baidu. 53% of Chinese travelling internationally book on websites or over apps.
Fakes Are Costing Europe’s Fashion Industry 10% Of Its Sales And Thousands Of Jobs: Two thirds of the worlds fakes are said to originate in China, with Chinese counterfeits are estimated to cost European fashion brands €17.5 billion ($19.2 billion) a year and result in 242,000 lost jobs according to OHIM. Italy is the hardest hit, followed by Spain, the UK, Germany and France.
Chinese Consumers Most Satisfied With Their Looks Among Asians: 9.8% of Chinese consumers are completely satisfied with their looks, while 44% are fairly satisfied, making them the most contented among the AsiaPac countries surveyed by GfK.
China’s Once High-Flying Internet Money Market Funds Are Now Barely Better Than Traditional Banks: Interest rates on Internet funds are less than half what they have been since 2013. In early 2014, Chinese International Capital Corp estimated that online money-market funds could soak up 8% of total consumer deposits in three years. Jack Ma’s Yu’ebao, is the market leader with more than $98 billion in assets and 200 million users to date.
Chinese Consumers More Upbeat On Buying Cars: Despite the slowdown of car sales in China, 20.7% of respondents in an MNI Indicator survey said they were planning to buy a car in the next 12 months – the highest rate since the series began in March 2012.
Luxury Consumer Price Index Falls For First Time In Eight Years: Price declines in luxury properties, overseas trips and products drove the overall luxury price index down 1.8% this year according to Hurun. Yachts and private jets witnessed the largest price drops of 10.5%, as a result of foreign exchange differences.
China is made of many unique markets. Chinese consumers not only vary by geographical location but also by generation. The young in China receive a lot of airtime, and for good reasons; but there is a consumer group in China that many brands, products and services are missing.
In China, the older generation often gets overlooked when it comes to foreign products and services. There are over 200 million Chinese over the age of 60, making China’s elderly population the largest in the world. This number is expected to rise to 243 million by 2020 and 400 million by 2050 according to China’s National Committee on Aging, yet this huge and growing segment remains relatively untapped and often wrongly marketed to. Life expectancy in China has risen from 40 years old in 1950 to around 70 years old today; with indications the trend towards longer life will continue.
The spending power of Chinese over 60 is not something to overlook. In 2014 elderly spending accounted for USD $643 billion or 8% of China’s GDP. This is expected to reach USD $17 trillion by the end of 2050. Well-intended but ineffective marketing highlighting and reinforcing the debilitating effects of aging are not going to make this group want to buy a product or service.
Chinese above 60 want to live their lives fully, and opportunities exist for well-marketed brands that can speak to these unique consumers. Whether it be about health products, health care, travel, investments, FMCG or fresh food and beverage, reaching and communicating with this target market is quite different than addressing the young and affluent.
In research China Skinny completed for a dairy product targeting elderly, one recurring theme was how to best reach this age group. Not as active online as their younger counterparts, and often times less trusting, makes many traditional digital marketing tactics less effective. Getting smart about targeted online channels and influencers can be effective. With this group not as familiar with foreign brands, Chinese brands have a foot up as of now, but there are ample opportunities for foreign goods and services.
One positive caveat is that like younger Chinese, older Chinese are becoming more aware of, interested in, and proactive about their health and are choosing products for health reasons. Products meeting these needs are often imported as they are usually trusted to be safer. Emphasizing this point from the younger to older Chinese is pragmatic but these are two different demographics that vary not only by age, but also by geographical location and a number of other factors. For example, Mintel research found that 96% of Shanghainese 55 and older planned to eat more healthily compared to only 33% in Beijing. That’s a huge variance and doing due diligence to fully understand your target market by both age and location will go a long way. If China Skinny can assist in market research or marketing execution be in touch today.
Women power is nothing new in China. From Empress Cixi, ruler of the Qing Dynasty to Chairman Mao proclaiming that “women hold up half the sky,” females have long contributed to all aspects of life in the Middle Kingdom. In modern day China, their influence is ever-increasing. Supporting the growth of female power, Alibaba is currently hosting their inaugural Global Conference on Women and Entrepreneurship in Hangzhou. And rightly so, unlike many male-dominated tech companies globally, 40% of Alibaba’s employees are female.
As China’s women receive more equal employment and education opportunities, the playing field is flattening. Today’s ladies have come to expect more than their predecessors. Their influence is being felt on all levels including the consumer market.
Women’s average contribution to household income jumped from 20% in 1980 to 50% in 2013. 86% of Chinese mothers believe the future holds new opportunities and financial stability for their daughters, according to Nielsen. With this blooming confidence, women now have a louder voice in financial decisions. Women have become the CFO’s of the household, handling the purchasing decisions for everyday goods like family groceries and to big ticket items such as finances, electronics and even automobiles.
Of China’s huge population, 640 million are women consumers. Not only are they shopping, but also creating change and driving China’s economy. Whether it be dancing grandmas or online entrepreneurs the “She-era” is the backbone of the China century. Capturing these women is going to take more than just being a foreign brand or feminine branding – slapping a pink label on a product doesn’t mean it will resonate with Chinese women.
Marketing to the modern woman in China is communicating with someone who is balancing work and family – which often consists of their parents and children. Women in China, as elsewhere, are looking to streamline their lives and online shopping is one example of how they’re doing this. 86% of China’s internet users access through mobiles with women browsing and buying on their way to and from work and picking up the kids.
Consumers are not the same from province to province and of course vary even more between gender. Whether you are targeting consumers from tier-1 cities or specific demographics such as young urban females, without understanding and speaking to consumer needs and desires, there is little chance of standing out in China’s fiercely competitive market.
Kudos to Alibaba for bringing women into the spotlight and raising the profile of women in China and abroad. A stronger and more confident female market in China is good for the country, and for Alibaba.
If China Skinny can assist you in understanding or reaching a specific China market whether females, or another consumer segment, be in touch today.
WeChat or Wei Xin (微信 or wēixìn), the wonder kid of Chinese apps, is a major part of the ever-evolving app and social media landscape inside Mainland China. WeChat is now seen as one of the dominant ways to reach and interact with Chinese consumers, particularly on a personal level. A WeChat strategy is a vital part of an overall China marketing plan.
International Accounts vs. Mainland China Accounts
WeChat is not only a China phenomenon – it is aiming to become as ubiquitous worldwide as it is in China. In an effort to internationalize, WeChat now allows foreign companies to submit a proposal to apply for an Official WeChat account. The submitted proposal should outline how the company intends to use the official account. There is a big catch though: an Official WeChat account set up outside of Mainland China is only viewable to International WeChat users and is not viewable to WeChat users in Mainland China.
For foreign companies, setting up an Official WeChat account outside of China means that their account won’t be seen inside China. If any group of the changing and diversifying Chinese consumers are your target market then setting up an Official WeChat account outside of China won’t do. To reach your target market you must be where they are.
Both International and Mainland China WeChat users can view official WeChat accounts set up inside Mainland China. This is another heads up for Chinese brands who are strengthening their brands and experiencing a growing acceptance from Chinese consumers.
Applying for an Official WeChat Account in Mainland China
To apply for an Official WeChat account inside of Mainland China one must first have a legal Chinese entity such as a Wholly Foreign Owned Enterprise (WOFE) or work with a trusted partner who has a Chinese entity and is willing to apply for an official WeChat account on your behalf. Once the Chinese entity or WOFE is settled the initial step to getting an official account requires business documentation and a Chinese staff ID, among a number of other items.
Setting up an Official WeChat account inside Mainland China is just the first step. Deciding whether to use a subscription or service account, creating shareable content that portrays your brand’s message without shouting, developing dialogue and interaction among your fan base and possible customers, and creating a seamless online and offline experience are among a number factors to take into account after you have set up.
A well thought out strategy on how WeChat can fit into your overall China marketing and sales is necessary. If you’re interested in how China Skinny can help you develop a great China strategy including the essential Chinese social media for your company, be in touch.
Happy 2015; we hope the year has started well for you. Unfortunately it wasn’t that way for some – our hearts go out to the friends and families of the 36 young Chinese who died during the New Year’s Eve celebrations on the Bund here in Shanghai.
With every New Year comes the slew of forecasts for the next 12-months. One prediction that hasn’t gone amiss is the continued rise of mobiles as an integral part of Chinese consumers’ lives. Just look to the 83% of online Chinese using their smartphones, the 468 million active WeChat users in Q3 2014 and mobile shopping accounting for 54% of transactions on Alibaba’s Alipay.
However, if we dig a little deeper, there are some notable variations in mobile habits between different regions. Mobile commerce – the next evolution of online shopping – is actually much more popular in China’s developing cities than in the sophisticated Tier-1 cities. Shanghainese consumers used mobiles for less than a quarter of online shopping purchases in the first 10-months of 2014, whereas consumers in Shaanxi province bought 60% of their goods online via smartphones.
The variances illustrate how much mobile shopping has penetrated the fast-growing ‘smaller’ cities of China, largely due to limited fixed broadband infrastructure and slim pickings in high street stores. It also represents how dissimilar the customer journey can be in different parts of China.
Looking beyond China’s biggest and most saturated cities to grow sales, and having different regional marketing tactics are two of the five points China Skinny recommends considering when making your 2015 plans for China. As always, China Skinny can help ensure your plans maximise the opportunities in China – contact us today. We hope you enjoy this week’s Skinny.
5 Key Points for China in 2015: Five points to keep in mind when refining your China plan for 2015.
The Power of the She-conomy: Chinese women have the largest amount of independence in handling their finances, with 76% of them having their own bank accounts, much higher than other Asian areas surveyed by the Economist Intelligence Unit. 69% of Chinese women prefer shopping online to physical stores. 63% bought products from abroad because they considered them better than those produced domestically.
Captive Audience: IKEA Lures Sleepers With Showroom in Beijing Airport: Nice brand building from Ikea, showcasing their products while providing Chinese consumers some real benefits.
Kingfisher Sells B&Q China Stake as DIY Fails to Take Off: B&Q’s 39 outlets in China are now 70% owned by Beijing-based Wumei Holdings. Cheap labour to do odd jobs around the home, a lack of interest in DIY from Chinese, and not adapting to the Chinese market has seen B&Q struggle in China.
China’s Best Ads in 2014: 46 minute vid: Three creative directors share their thoughts on the best ads of 2014 for China.
Internet, eCommerce & Mobile
Alipay Report Shows Mobile Commerce Booming in China: 54% of transactions conducted over Alibaba’s Alipay were made on a mobile for the first 10-months of 2014, up from 22% in 2013. Mobile payments had the highest penetration in remote Western regions Tibet (62%), Shaanxi (60%) and Ningxia (58%), whereas the lowest mobile penetration was in the Tier-1 cities: Shanghai (24%), Guangzhou (27%) and Beijing (29%).
China’s Startup Sector is Effervescent With Peculiarities of its Own: Interesting analysis of China’s domestically-targeted startup scene versus India’s international focus. 109 Chinese companies are now listed on Nasdaq or the New York Stock Exchange versus eight Indian firms.
Food & Beverage
Eight Officials Sacked After Pork from Diseased Pigs Sold for Food in China: Another food scandal for those who saw in the New Year with smoked ham or sausages – they could have been sourced from the estimated 70,000 diseased pigs processed each year in China.
Costco ‘Shocked’ by One-Day Sales of $3.5M on Alibaba’s Tmall Site: Costco will expand further into China after selling $3.5 million worth of goods online on Singles’ Day. Five of the top-10 European supermarket chains and more than 100 global merchants are lined up to join Tmall according to Alibaba.
A Glimpse Inside Hershey’s Innovation Centre in Shanghai: Although its Innovation Centre doesn’t look overly sleek, Hershey’s ensures it chocolates are localised to China’s unique preferences. With the average Swiss consumer eating almost 1,000 times more chocolate the average Chinese consumer, there is plenty of room for growth.
Top 12 Chinese Outbound Travel Trends to Watch in 2015: A good roundup of trends in China’s tourism market: 1) A broader destination spread; 2) Visa-free access goes global; 3) Chinese firms buy more tourism assets; 4) A surge in strategic agreements; 5) The rise of the Chinese hotel brand; 6) Secondary airports take centre stage; 7) Big year for Brand USA; 8) Cruising at high speed; 9) Keep an eye on Africa; 10) Better profiling and market analysis; 11) Travel niches ready for take-off; and 12) Consumer marketing extends beyond UnionPay.
InterContinental Rolls Out New Hualuxe Hotel Brand for China: InterContinental Hotels Group, the world’s largest hotel group, is opening its first China-specific brand, Hualuxe, with hotels in more than 100 Chinese cities plus overseas locations planned over the next 15-20 years.
Shiseido Aims to Double China Sales With More Local Execs, Ecommerce: “China store sales are expected to rise between 5-10% but it’s in e-commerce, that we see an extraordinary opportunity,” Masahiko Uotani, CEO explaining how Shiseido will double sales in China by 2020.
Surging Chinese Investment Overseas Has Widespread Global Impact, Especially For The Hospitality Industry: How things have changed in a year for Chinese investment – particularly in the tourism and hospitality, real estate and food industries.
Exclusive, Mobile, And Global: The China Luxury Market’s Top 5 Trends of 2014: How the luxury segment panned out for the year: 1) China’s luxury consumers more global than ever; 2) “New normal” domestic growth here to stay; 3) Individualism in high demand; 4) Brands worked to prevent overexposure; and 5) Luxury consumers go mobile.
China Skinny wishes you a happy 2015; we hope you saw it in with a bang! The beginning of the year is often a time to plan ahead for the following 12-months. Whether you are already in China, or entering this year, here are a few points to keep in mind:
1. Strive to Understand Chinese Consumers
Understand who your consumers are. Where do they shop? What will catch their attention? How have businesses been successful with similar products and target markets? In addition to the answers to these questions, understand that Chinese consumers are becoming more sophisticated and diverse each day. Just because a foreign business is present in China does not mean they will succeed, especially with the growing competition – not only from foreign brands but also from homegrown brands
2. Be Bold
Entering China with an online-only strategy has worked nicely for some but it is not going to work for everyone, especially those with low to moderate brand recognition. How are you going to make a splash and get noticed? Chinese consumers are not limited in their options as more imported goods and services attempt to attract their wallets. How will you stand out? Not every organisation or company may have the means to open a store, but how about a pop-up store? Or can you join a road show to exhibit your goods? Combining offline efforts with digital efforts is one way to smartly and efficiently capitalise on opportunities in China. There are ways to make a buzz beyond store openings, one just has to be smart about it.
3. Venture Out
First and second tier cities are fun and exciting, with their bright lights and big malls, but they’re becoming very crowded. Is there a place for your goods or services outside of the major cities – the most landlocked province in China was the number one seller of bikinis online per capita! Provinces in China differ enormously so trying to tackle a population as large as China’s with a single countrywide strategy can be difficult, if not impossible. Geographical differentiation needs to be taken into account and regional strategies should to be considered to maximise available opportunities and provide consumers with relevant products, services and messaging.
4. Be Committed and Flexible
China changes fast. Entering China and getting setting up is only the first step to tackling China. To succeed in China you must not only be committed but also informed on the constant changes that happen in China. A long-term strategy that is flexible is fundamental when entering China.
5. Keep it Real!
Stay true to your brand. In a low-trust society such as China it is vital to stick to your foundation. Attempting to change your brand to satisfy someone’s notion of what appeals to Chinese shoppers often backfires in the medium term. Understand your market, the available opportunities, and how your products or services best fit into that market. There are ways to localise and appeal to Chinese consumers while still remaining true to your brand. Presenting your brand as authentic and retaining your roots while taking a China-fied approach has a more sustainable chance of success than changing your brand’s identity.
China isn’t easy by any measure, but keeping these five points in mind will ensure your business is well placed to maximise the opportunities that China presents. All the best for 2015 in China!
Last week in Beijing, free Wifi was rolled out across 12,000 of the city’s buses. It’s great news for the millions of Internet-obsessed commuters in the capital, but also relevant for tourism operators in the West.
Imagine you were a tourist arriving at a hotel in say, Boston or Brisbane, having just come from China where free Wifi is the standard in hotels and even free on bus rides which cost less than 50c. The smiling clerk at the check-in desk tells you that Wifi costs $15 for one hour to $30 for 24 hours. As a value-focused Chinese tourist, your first impression of the hotel may not be great. And once you’ve cooled down, even if you did like the view from your room or the food at the restaurant, you’d be much less likely to share it with your friends given the extortionate cost of doing so. That’s a big opportunity missed.
One of the most powerful way hotels and tourist attractions can promote their services to Chinese is through user advocacy on WeChat and Weibo. 84% of Chinese travelling internationally share the good and bad experiences from their trip on social media. For the under-35s, who account for two-thirds of outbound tourists, 42% consult social media when planning a trip away.
Hotels around the world are upping their game to woo the lucrative Chinese traveller. Slippers and kettles, Chinese TV beamed in, Mandarin speakers and Chinese porridge are important to offer, but that’s where most stop.
As a tourism business, by understanding a Chinese visitor’s journey – from planning to reminiscing, the role online channels play – and how best to utilise them, you can win the hearts and wallets of Chinese tourists, and create an army of authentic marketers for your services. We hope you enjoy this week’s Skinny.
Transparent Brands, Demanding Consumers: 22 min vid: 79% of Chinese consumers view transparency and honesty as important, versus 65% who think price is key, according to Cohn and Wolfe. Chinese consumers are more likely to follow brand issues and news than their Western equivalents, and are much less cynical of those brands. Chinese rate Western brands highly, whereas consumers in other developing markets typically trust local brands more.
Australia and China’s FTA: The Long Game: There has been much celebration in the media about the Australia-China Free Trade Agreement, but it is no panacea. What does it mean for you?
China Just Knocked Off The Range Rover Evoque: Chinese auto maker Land Wind revealed its X7 at the Guangzhou Auto Show – a spitting image off the popular Range Rover Evoque. The X7 is expected to retail for ¥135,000 ($22,000) versus $80-109,000 for the original in China. In other fake news, the Chinese Government is lending its hand to certify authentic Buddhist and Taoist temples due to the proliferation of fake temples and monks trying to pry cash out of tourists.
UK Rolls Out Red Carpet for China’s Tourists: The UK’s Great China Welcome initiative has attracted almost 200 hotels, restaurants, attractions and other hospitality businesses to become “China-ready” since launching this year – we’re surprised more haven’t signed up given it is free. Tourism Great Britain has also just launched a $2.5 million campaign asking Chinese to name 101 British landmarks. Similarly, the USA is wooing Chinese tourists with social media, fried dough fritters and a quiz.
Tourism Australia’s Plan to Whet China’s Appetite: Australia is spending $10 million on a marketing campaign to woo Chinese tourists. Food and beverage is central to the campaign, projected on big screens in subways and shopping malls, with 86 food bloggers, writers and critics coming to Australia. 28% of Chinese consumers who have not visited the country think Australia offers good food, wine, local cuisine and produce, whereas 76% who have visited the country think it has great food and wine, ranking Australia top for culinary experience.
China Online Travel Market Grows to ¥72 Billion in Q3: Between July and September, Chinese travellers spent ¥72.6 billion ($11.8 billion) online buying products such as air tickets, hotels and vacation tours – 20% more than in Q3 2013. Ctrip accounted for 55.9% of the OTA market, followed by eLong at 9.7% and TongCheng 6.3%. Ctrip’s mobile app downloads grew 75% in the last quarter to 350 million.
Internet, eCommerce & Mobile
Four Reasons Why Chinese Consumers Go Online: 98% of Chinese use the Internet to explore new subjects such as brands, products and services. 88% use it to connect with family and friends and 89% to express opinions and be heard (versus 38% in the USA).
How Companies Use Wechat Official Accounts: There are now 5.8 million official WeChat accounts, with ecommerce, catering, finance, auto, real estate and hotels being the top industries.
Consumers Find Delayed Gratification Of Ecommerce More Rewarding: 82% of Chinese consumers are more excited about online purchases than in-store buys.
Food & Beverage
Sprouts and More – China’s Food Unsafety: The latest food scandal to hit China – 20 tonnes of toxic bean sprouts uncovered in Beijing containing poisons that can cause premature puberty, disrupted menstrual cycles and osteoporosis. Similarly, more than three quarters of the rice fields in central Hunan province have been contaminated with excessive levels of heavy metals or chemical waste.
Heinz Opens State-of-the-Art Infant Cereal Factory in China: To coincide with its 30th anniversary of having a presence in China, Heinz is opening its largest infant cereal production plant in the world in Guangdong.
Chinese Demand for Dairy Products Spurs U.S. Exports: U.S. milk exports to China were up 35% in January from a year earlier. Tetra Pak’s analysis found China to be the world’s largest flavoured milk market. UHT makes up 76% of milk sales, with lactose-free products filling an important need given such high levels of lactose intolerance. Most milk in China is sold in single serve packs.
Companies Take Note: Consumers Trust Climate Change Warnings : 82% of Chinese believe that the world’s climate is changing due to human activities – the highest rate of 18 countries surveyed by National Geographic. 53% of Americans agree – the lowest rate in the world.
China’s Rich Want to Send Children Abroad for Education: 80% of China’s wealthy plan to send their children abroad for education according to Hurun. Just 1% of Japanese do. The U.S. and UK are the top spots, with Australia, Canada, Switzerland, New Zealand, Singapore, France and Germany attracting most of the rest.
China Motorists Exceed 300 Million as Cities Struggle: China now has as many drivers as there are people in the U.S. It took just four years to add 100 million new drivers in China, and 35 of its cities now have more than 1 million vehicles.
Alibaba’s founder Jack Ma has been on a big Single’s-Day-style spending spree over the past week or so. He’s dropped more than a billion dollars on brick and mortar stores and a financial software company, and penned a deal with some local newspapers. His recent purchases and partnerships represent some important current trends in the China market.
Some may find it unusual that an eCommerce company is investing $692 million in a partnership deal with Intime Retail, who operate a chain of department stores and supermarkets. However, it reflects just how integrated offline and online channels are becoming in China.
China’s Internet shoppers often investigate products in a physical channel before buying them online. Likewise, many consumers on High Streets and Malls will research extensively online before pulling out the wallet. Tencent are already doing some innovative offline-online integration such as the WeChat trial with Beijing’s Wangfujing Department Store. Walmart, the world’s largest retailer, has traditionally focused on its 11,000+ physical stores, yet it realises the importance of being online and offline in China; hence, its majority ownership of the online supermarket Yihaodian. This presents plenty of opportunities for synergies. In a way, Alibaba is playing catch up, but we can expect to see some exciting integrated innovations from the Intime deal.
Further enhancing Alibaba’s offline presence is its partnership with 12 newspapers in China, including QR codes in the rags which consumers can scan to purchase Taobao products.
Ma’s $532 million stake in financial software company Hundsun Technologies, should provide some interesting analysis for his finance empire. Yu’ebao now has over 80 million ‘investors’, more than the Shanghai and Shenzhen Stock Exchanges combined. Through Alipay, Ma already has some valuable insights into potential borrower’s creditworthiness, which will only be enhanced with the analysis that Hundsun brings.
Fortunately, Jack Ma isn’t the only one in China spending up – just look at the $43 apples below. On the subject, China Skinny’s founder Mark Tanner will be presenting about China’s Pollution, Contamination and Food Scandals: How they are Altering Consumer Behaviour in Shanghai next Thursday, 17 April in conjunction with the Swedish, Swiss and Canadian Chambers of Commerce. More information here. We hope you enjoy this week’s Skinny.
Alibaba to Spend $692 Million to Partner With Intime Retail: Alibaba is following Tencent’s lead in ramping up online to offline integration, by investing in Chinese department store and supermarket company Intime.
Global Trading Tips: 7 Ways Small Businesses Can Sell Their Brands to China: 1) Stay true to your brand; 2) Don’t treat China as one market; 3) Build an e-commerce sales channel; 4) Use the Internet to promote your brand; 5) Educate your customers; 6) Know which imported products work; and 7) Demand for niche products is growing.
Marketing and China: How Brands are Changing Their Approach to Creativity: Businesses should move from transactional-focused marketing to campaigns that enhance the long-term customer experience around brands. In China, Coca Cola is improving its response to consumer preferences by continually testing and researching customer experiences to build actionable insights.
Shanghai Disneyland to Add China’s Biggest Outlet Mall: Following the imminent launch of its Suzhou outlet mall, Value Retail is launching a 50,000 square metre collection of luxury outlets scheduled to open in Autumn 2015, just ahead of the resort’s opening in December.
Finance and Investment
Alibaba’s Ma to Pay $532 Million for Stake in Hundsun: Jack Ma’s spending spree in China continues with financial software firm Hundsun Technologies. The purchase will see him receive even better insights for credit analysis, further strengthening his position in China’s finance market.
Central Bank Tells Companies to Delay Issuing E-Credit Cards: Alipay and Tencent have been told to delay the launch of their electronic credit cards due to security concerns, and handling payments through QR codes has been stopped.
Rich Chinese Overwhelm U.S. Visa Program: Chinese investors have established a virtual monopoly on US EB-5 investor visas, receiving nearly 6,900 visas in 2013 – more than 80% of the total number issued, up from just 13% a decade earlier.
Zillow to Give Chinese Homebuyers Access to U.S. Listings: US residential home listings on Zillow will now be available for Chinese buyers through Beijing-based real estate portal Leju. Chinese buyers spent more than $11 billion on U.S. real estate last year, paying an average of $425,000 per property.
Internet, eCommerce, Mobile & Social Media
Qualcomm’s 4G Gambit in China Could Be Big: Chinese consumers are expected to buy 420 million smartphones this year, up 27% from the 330 million in 2013. 4G phones are expected to make up 39% of smartphones this year and 61% next year.
China’s Mobile Commerce Spending to Surpass $50 Billion in 2014, Nearly Double Last Year’s Total: Infograph with some interesting stats about mobile shopping. 69% of Chinese consumers have purchased a product or service through their smartphone versus 46% in the USA. Purchases on a mobile are 67 seconds faster than on a PC. Some stats appear a little off, with inconsistencies for smartphone shopping on Single’s Day, and 4/5 of mobile purchases on Taobao made from iPhones and iPads – which is hard to believe given Android devices account for over 80% of China’s smartphone market.
Food & Beverage
Chinese Supermarket Appeals to High-End Fruit Consumers: Looking for a good apple in China? How about ¥266 (US$42.90) for the Japanese “World” variety at Olé supermarket. 70% of the goods in store are imported and fresh produce accounts for about 40% of the supermarket’s offerings.
Italian Wine Producers Join Forces to Reach Chinese Market: Italian wine producers will work together on a US$3.7 million joint project over the next three years, aimed at informing and educating Chinese consumers about Italian wine.
Health & Beauty
Chinese Health And Wellness Market Set To Expand: A Boston Consulting Group survey found Chinese consumers to be the most health conscious in the world, with 73% prepared to pay a premium for products they deemed healthier. Health care and nutritional products rose to become the second most likely product category consumers were prepared to pay a premium for.
Victoria’s Secret Makes Its Move on China: Victoria’s Secret plans to open its first Mainland store this year, the first step of a grand plan to have its stores as “ubiquitous as Starbucks” in China.
Hilton and Shangri-La are Best at Making Chinese Consumers Happy: Hilton and Shangri-La took top honours for “meeting needs, being easy to do business with, and being enjoyable to do business with,” in the eyes of Chinese consumers.
Chengdu is the Darling of Luxury Retailers: “We don’t consider Chengdu a second-tier city anymore. It is a first-tier city,” said Andrew Keith, the president of Hong Kong-based Lane Crawford and Joyce boutique. Chengdu provides shopping for at least 250 million people who live in nearby provinces.
Chinese Wealthy Consumers are Not Leaving Mega Luxury Brands Behind: 42% of Shanghai consumers interviewed spent more than $1k on handbags in the past 12 months versus 11% in NYC. 29% spent more than $1k on high-end clothes, 8% in NYC, and 14% spent more than $1k on shoes, 5% in NYC.
That’s The Skinny for the week! We’d love to discuss how we could help with your marketing, online initiatives or research to take advantage of China’s opportunities. Just email us at email@example.com or call us at +86 21 3221 0273 so we can learn more about your objectives and let you know how we can help.
If you’ve missed earlier news or need to learn more, there’s a library of information about Chinese consumers in prior China Skinny Weekly’s right here. You can have this delivered to your inbox each week by subscribing for email updates, or if social media is more your thing, please follow us on Twitter, Facebook, Linked In or Google+, or subscribe to our RSS feed. If you have any feedback or suggestions for future articles, please let us know.
China is growing at an exponential rate, both in terms of the middle class population and their purchasing power. However the majority of this growth is coming from China’s lesser known cities. A blanket approach for China isn’t feasible in most cases, so it is important to identify which cities are best to focus your marketing efforts. As the City-Nator illustrates, there’s plenty of cities in China to choose from.
Our friends at Fashionbi have evaluated the buzz on Weibo as a way to pinpoint locations where Chinese consumers love certain brands and their potential for physical store openings. For example, 19.1% of Forever 21’s Weibo page engagement came from Guangdong province, exceeding Beijing’s 13.8% and almost as high as Shanghai’s 19.7%. Forever 21’s only two Mainland China stores are in Beijing and Shanghai, but it appears that there could be enough buzz to look into an increased physical presence to service Guangdong’s large population.
Coach is just another brand where there’s a lot of buzz on Weibo in Tier 2 and Tier 3 cities. In August, 43% of buzz on Coach’s Weibo page came from minor cities, with consumers from cities in Sichuan and Jiangsu being particularly vocal on social media. Just 7% of Coach’s engagement came from Beijing and 15% from Shanghai. There are countless examples of consumers in the lesser known cities creating more buzz than the traditionally targeted markets like Beijing and Shanghai.
As the middle class continues to emerge and grow in China, we will see emerging cities that are buzzing about brands from the Luxury segment to the mass-market segment. Now is a crucial time for brands to understand which locations present the greatest opportunities for expansion in China, and they may not always be where you thought or in places you’ve even heard of.
Any business with a presence in China or thinking about one, should be identifying which cities are best to target. China Skinny and tools such as Fashionbi are a good place to start to better understand consumers’ behavior and gage the potential growth of cities that will provide the most potential growth for your brand. By 2020, 75% of China’s 220 million affluent consumers will be living in China’s ‘smaller’ cities, so it’s a good idea to start planning for them now.
See how your city compares at chinaskinny.com/tools/city-nator.
Outside of China’s once-every-four-year Olympic gold medalists, China is starved of global sports stars. When one of their own does make it, the patriotic Chinese are quick to elevate them to Messiah status, with the riches inevitably following. Much of the NBA’s runaway success in China can be attributed to Yao Ming’s presence in the league, which helped him become one of China’s youngest yuan billionaires. When Li Na won her first Grand Slam title at the 2011 French Open, almost overnight, sponsorship deals saw her become the 2nd highest paid sportswoman in the world and tennis’ popularity soared in China.
Golf in China is looking like it could produce a lot more international stars than basketball and tennis. Last month, 14-year old Guan Tianlang became the youngest player in PGA tour history to qualify for the final two rounds of the Masters – two years younger than anyone before him. Barely a teenager, he already has 183K Weibo followers. Ye Wocheng, at 12-years old, recently became the youngest to play in the European Tour. 14-year old Andy Zhang gained entry to the 2012 US Open. But the real depth of golfers from the Far East was on display at the Junior World Golf Championships. Last year, 11 out of 12 age groups were won by Asians or players of recent Asian descent. In 2011, it was nine.
Golf is ideally suited to the Chinese gene pool. It doesn’t require the fast twitch muscle fibres of a Jamacian sprinter, brawn of a Polynesian rugby player, flair of a Brazilian footballer or the mongrel of a Mexican boxer. Golf is less about physical attributes and more about constant practice, dedication and commitment, much like playing the piano, memorizing Chinese characters or the general way Chinese kids learn from a young age.
As an individual sport, golf is suited to the one-child generations who don’t take as well to team sports as some cultures. And with parents treasuring their one-child, the non-contact nature of the sport holds a lot of appeal.
Some would say Chinese golf is being held back by its inaccessibility. Although a new golf course opened every 10 days in China last year, developing golf courses is expensive and plagued with red tape. There are less than 600 courses in China; more than 2 million people per course. New Zealand’s 4.4 million people, by comparison, enjoy almost 400 golf courses.
However that inaccessibility translates to exclusivity. In the same way Chinese are ravenous consumers of luxury goods and services as a way to demonstrate their success and status, one of golf’s biggest strengths in China is that it is an aspirational sport. There are already one million golfers in China, and with the fast-growing affluent classes and more international successes, that number will grow.
Growth will be further helped by China’s Citic Bank, one of Golf’s biggest supporters in the land, who together with Forward Group, sponsor a golfing project called “Stick for Kids”, offering free golfing lessons for 30,000 kids. Golf will also be an Olympic sport again in Rio de Janeiro in 2016. China invests in Olympic sports where it stands a fighting chance at bringing home golds, and the recent results of China’s rising golfing stars will see some money channeled its way.
Although the expansion of golf courses in China has slowed down from the frenzy a few years ago, we expect golf to be one of the fastest growing sectors in China in the coming years. The market for personal golf equipment is expected to be worth $1.4 billion in China by next year, but that’s just the start of it. Everything from golf tourism, to merchandise, to brand association through sponsorship, to smartphone games and apps is on the rise. Expect a China golf explosion.