Remember when you’d see the big tricycles stacked metres high with polystyrene, rubbish and furniture cruising the streets? Or the vividly-coloured Facekinis poolside or on the beach? Or how about the infants with split pants on a cold Beijing day? They were all China novelties that have largely disappeared from the bigger cities. Yet with each disappearing quirk, a new curiosity has arisen to ensure that there is never a dull day in China.
One area that has recently taken on a life of its own is beauty. Fashion, haircuts and even hair colours are becoming more varied and diverse daily. It is not uncommon to see young Chinese spending 40 minutes on a photo editing app polishing their latest selfie, or a young man in a public place diligently applying mascara – not just representing the exponential rise of male makeup, but also that younger Chinese are confidently challenging traditional social norms to be what they want to be, unfazed by state media’s direction on how to behave.
The pursuit of beauty has been important since ancient times in China. In the Tang Dynasty, makeup became a part of everyday culture, with women applying foundation powder, blusher and a dusting of light yellow powder. Bluish black eyebrows, lipstick, painted on dimples and ornamental forehead flourishes were also added. Whilst beauty is a little less novel than it was 11-14 hundred years ago, it is as relevant as ever for Chinese consumers and something that many of us should take note.
China Skinny has compiled numerous pieces of research asking consumers how they would spend extra money if they received it. Beauty always scores highly, often the top way young millennials would spend the windfall. Many Chinese will directly correlate the way they look with their chances of success – in both their personal and professional life.
One of the most poignant illustrations of the importance of beauty in China is the soaring segment of cosmetic surgery. Unlike in the West where patients are older when looking to have work done – more than 75% are over 35 in the US – 54% of Chinese going under the knife are under 28. This is fuelling an industry expected to be worth ¥360 billion ($52 billion) by 2023. Last month’s IPO of plastic surgery app So-Young soared 44% on its first day of trading and has settled to a value of around $1.5 billion. Almost 2 million users are on the app monthly, 79% more than a year ago.
In addition to the obvious beneficiaries of plastic surgery, cosmetics and fashion, many other categories are touched by China’s beauty obsession. For example, health supplement purchasers are often motivated by beauty benefits – even with target markets you may not expect like the 20-year olds buying anti-aging pills. Categories such as food and beverage are heavily influenced by the quest for beauty, with an increase in healthy food demand resulting from how they can improve appearances such as skin and hair. The fast-growing fitness industry is also heavily swayed by the aesthetic outcomes. The good news is that it isn’t just the Pechoins, L’Oreals and J&Js of the world who stand to benefit, with the majority of Chinese consumers showing interest in niche beauty brands.
The free-spending young Chinese in particular often strive to stand out amongst the masses, and looking good is considered a key component of this. When brands are communicating to their target markets, they should bear this in mind wherever plausible. China Skinny can help determine if and how this all fits for your products or services.
In other news, China Skinny has moved its Shanghai HQ to a bigger and better office. We’re still in central Jing’An District, a block from our our office on Jiangning Road. We love visitors, so pop by any time for a coffee, tea or just to say ni hao. You’ll find our address here. Go to Page 2 to see this week’s China news and highlights.
The experience and knowledge that you’re likely to be getting from marketing to Chinese consumers – and from resources such as China Skinny – are hopefully helping you sell more in China. There’s also a good chance that they’re equipping you with expertise that spans far beyond the market. Chinese marketing campaigns are faster, cheaper, and often more effective than traditional Western ones, and in some ways they are better suited to today’s global marketplace, according to a study by US-based academic and former practitioner Kimberly Whitler.
Marketing in China hasn’t undergone the long evolution that many of us have grown up with in the West, and as a result, Chinese strategies are usually without the often-outdated and expensive approaches of traditional marketing. Instead, they’ve grown up with a mobile-first model, where everything is much faster and more data-driven.
As we find at the Skinny, effectively harnessing China’s unique digital ecosystems can garner much greater insights into consumers. This allows brands to build better products and services while improving engagement with consumers because they know a lot more about them.
Many who have marketed in the West tend to approach things from a channel-centric model, whereas successful marketers in China have to be much more consumer-centric, putting them ahead of individual sales and marketing channel-based strategies – online and offline – as much of these have become blurred.
Whitler’s extensive study highlighted the energy and excitement from Chinese-based companies. The size of the prize and growth in China has attracted the best from all over the world, and brought the money with it, creating an incredibly competitive marketplace where you have to innovate, and fast. This was summed up by the Head of Visa for Greater China: when working for companies such as PepsiCo and Unilever in the US, she would sit down with Walmart one or two years in advance to discuss a seasonal promotion far into the future. Whereas in China, she would think about creating seamless content across multiple platforms that is relevant right now, while building systems that are agile, adaptive and fast.
“When you look at China versus the Western mindset, the Western mindset has been really around scale and efficiency. Be slow, risk-averse, create systems, reduce from five plants to one plant, create one global product platform,” says Whitler. “And the China system is a growth mindset. How quickly can we grow our market share? These two contrasting approaches are colliding.”
Whitler noted BMW’s X1 campaign in China as a good example of straying from a traditional advertising-first, promotion-first type campaign to deliver content that consumers wanted to really engage with. BMW worked with WeChat to livestream a concert, amplified by key opinion leaders spanning different generations. Rather than the token ‘brought to you by BMW’ sponsorship, the brand wove its car into the fabric of the experience, offering gamification and allowing viewers to have a virtual test drive with KOLs, and even vote on the drivers. More than 10 million viewers participated.
Over the past few years, product and marketing innovation has shifted from Chinese companies looking to the West for ideas, to a more balanced dynamic where many companies, such as Apple, Amazon and Facebook are learning from and replicating what’s happening in China. There will always be initiatives that are specific to China’s unique consumer and ecosystem, but there is a sizable increase in innovations that the West can learn from China. We’ll aim to continue to keep you across these through our newsletter and client-specific projects. Go to Page 2 to see this week’s China news and highlights.
Since Australia established formal diplomatic ties with the People’s Republic of China in 1972, the country’s fortunes have become increasingly linked to the Middle Kingdom. No Western country’s economy has benefitted more from China’s rise than Australia. Much of China’s unprecedented economic growth has been built with Australian iron ore and powered by Aussie coal and liquified natural gas. In a way, Australia’s resource traders blazed a trail for Australian exporters, teaching cultural lessons about doing business in China, and raising China’s profile as a destination for exports.
Since Chinese consumers have started entering the middle class, Australian brands have been relatively quick to make their goods and services available to them. Over the past couple of Singles’ Days, Australian products have been the third and fourth highest ranking country for product origin, even though Australia isn’t even in the top-50 countries by population.
Australia’s success in exporting to China always had pretty good odds. Australia’s relatively close proximity to China, in both flight time and time zones, makes it easier to get up to the market to do business. And unlike other major western economies, Australia doesn’t have a large domestic base or similar countries close by to send their wares, so it has always had to be a little more adventurous when prospecting for export markets. It is also the often-unthanked Chinese residents in Australia and visiting tourists who have helped promote many Australian things to their friends and family back in the Mainland. No country outside of Asia has more people of Chinese heritage per capita than Australia, on top of the 1.4 million Chinese who visited Australia last year.
In 2017-2018 Australia’s exports to China were $123.3 billion, or 30.6% of total exports. This dwarfs Australia’s number two destination of Japan where exports were $51.3 billion. Over the past five years, exports to China have surged 56%, whereas Japan grew by just 6%. Yet it’s not all Kumbaya and shrimp and steak barbecues, Sino-Australian relations have deteriorated lately, particularly over the past-12 months.
Australia’s position as one of the pioneering, best practice and reliant exporters to China – balanced with its increasingly precarious stance on geopolitics – makes it one of the most important and interesting relationships to monitor in today’s globalised world. That’s why China Skinny was honoured to be back again this year working with Austcham Shanghai on the second annual Westpac Australia-China Business Sentiment Survey which launched yesterday in Sydney. The survey provides a platform to really understand how Australian businesses on the ground in China are faring in light of the geopolitical tensions and slowing economic growth.
To Australian businesses’ credit, we had 211 complete the survey this year – 33% more than last year. Overall, sentiment was down 6.7% from last year but remained largely optimistic – with 71.6% either optimistic or slightly optimistic about the next 12-months; 81.5% in their five-year outlook. The results also pleasingly demonstrated an increase in Australian businesses’ forecasting profitability in 2019 – a strong 78.9%, from 62.5% in 2018.
One of the promising findings from the survey was that Australian businesses appear to be maturing and realising that China is a market that requires tailored initiatives. 61.1% of businesses surveyed will offer unique products and services for the China market this year – and are 32% more profitable as a result.
Domestic consumption was again considered the most important opportunity for Australian businesses and is also being supported by 26.6% investing in market research and development – 10.7% more than last year. 74.9% have a digital strategy in place or in development, with 59.7% having one that incorporated ecommerce. For those businesses already selling online, they are selling on an average of 2.5 platforms, versus 2 last year. Almost a quarter of businesses surveyed are early adopters of New Retail, with 66.0% of these businesses experiencing a 10% rise in revenue and 55.4% benefitting from increased brand and market insights.
There’s many, many more interesting insights throughout the report. The results aren’t just a barometer for other Australian businesses exporting to China; they provide any company working in China with a great benchmark to understand the common challenges and opportunities. We’d recommend you download the report and see for yourself. You can get it by clicking/tapping here.
A special acknowledgement to our own Alexander Kelso and Austcham Shanghai’s Stephanie Smith, who have worked tirelessly behind the scenes to bring the survey to life. Go to Page 2 to see this week’s China news and highlights.
Fancy a tonic favoured by Chinese emperors that cures painful joints, frail kidneys, and weakness and anemia in women? Or how about a milk beverage that will enlarge your breasts from an A-cup to a D? Perhaps a coconut drink that whitens your skin and will make you more buxom?
Believe it or not, these are all advertising claims in China, and not by small fly-by-night operations. The cure-all tonic was a top-seller from Hongmao Pharmaceutical, who outspent P&G in 2016 to become China’s largest advertiser. The breast-enlarging milk drink was the product of China’s largest beverage group Wahaha, and the magical coconut juice comes from the producers of China’s most popular coconut milk.
Reports of such advertising and other headline-grabbing news such as hordes of Chinese tourists lured to Sydney University believing it was a setting in Harry Potter movies may have some believe that Chinese consumers are a gullible posse. Don’t be misled. Whilst some consumers in lower tier cities are making discretionary purchases for the first time and lack some confidence, most middle-affluent class Chinese are incredibly sophisticated. While we’re seeing a rise in impulsive purchases, Chinese consumers typically don’t take things at face value and do significantly more research before purchasing products and services than their Western peers.
Much of this research comes down to an inherent lack of trust. This is confirmed in virtually every project China Skinny works on, in which Chinese consumers’ purchase journey involve an extensive series of touch points across online and offline channels before a purchase is made.
Most readers will be aware of the fake vaccines, fake condoms and even fake zoo animals. Yet Chinese consumers can’t even rely on cross border ecommerce, which is held up as the beacon of trust – supposedly straight from the source from a more dependable origin. In reality this isn’t true; 40% of cosmetics sold through cross border on Singles’ Day ’17 were fake for example.
Although China updated its advertising laws in 2015 to be much more punitive, many false promises continue to slip though. China has the most fragmented bricks & mortar retail landscape of any major economy, and an online sector containing tens of millions of stores that even Alibaba and Tencent struggle to control in light of their advanced data mining and AI. The regular scams have been one of the drivers behind China’s $9 billion key opinion leader (KOL) industry, who are often more trusted than brands even though close to 70% of KOLs have fake fans and engagement. Regardless, over 60% of Chinese consumers are receptive to online influencers compared with 49% in the US and 38% in Japan.
Although China’s marketing landscape is littered with fakes, foreign brands shouldn’t take Chinese consumers to be fools – they are anything but. It is good to be aware of the misleading claims out there, but don’t dare to try it yourself. It will be found out and shared on social media en masse. Chinese consumers are unforgiving to those who disrespect their intelligence, particularly foreign brands. China Skinny can assist to ensure you can still succeed by keeping everything above board.
On another note, we’re hiring! If you’re a native English speaker based in Shanghai who is curious, intelligent and personable and happy working across diverse and fascinating projects, go ahead and apply. More information here. Go to Page 2 to see this week’s China news and highlights.
As China’s urban millennials have become the most sought-after consumers on the planet, marketers have been seeking less contested consumer groups to target their wares. The next growth areas that we often hear about are the rural consumers and those with silver hair.
For the rural folk, many expect their latent demand to step up and fill the gap from the city dwellers – those who already have everything from cars to appliances to smartphones. 577 million Chinese lived in rural areas in 2017, and the big tech companies have been all over it. Alibaba and JD are investing in rural fulfilment centres, marketing and even drone delivery. Interestingly, the latest Internet growth data points to a rural population that may not be as enthused about spending up a storm as many had hoped.
China’s heaving Internet population stood at a whopping 829 million at the end of 2018 – 57 million or 7.3% more than the year before. The segment that has the most room for growth – Chinese living in rural areas, grew just 6.2% to 222 million, indicating a widening digital divide between China’s urban dwellers and those in the countryside. That’s not a great sign for consumption in these areas. The Internet represents the most promising channel for rural consumers to buy things – they can’t just pop down to the local IKEA to purchase a new sofa. Another barrier for sales is that rural consumers make less than a third of what urban-dwellers make and are much less likely to spend it on aspirational foreign brands.
The other well-cited growth opportunity – China’s seniors – by sheer numbers along should be one of the greatest opportunities marketers have ever seen. Last year, the number of Chinese over 60 reached 249.5 million to outnumber those under 16 for the first time in history. Since 2010, the demographic has seen an average annual growth of 2.08 million. At the same time, the under-15 brood has been dropping at 2.25 million a year.
If we look to the Baby Boomers in the West – the empty nesters riding on the back of a lifetime of savings and equity gains on their house and other investments – they have been spoiling themselves while their joints still allow it. Yet most of the seniors in China aren’t such free spenders. They have grown up in austere times, and have an inherent necessity to save for a rainy day and be frugal, even more-so than those who were around during The Great Depression in the West. The rising consumer debt in China can almost be solely attributed to the consumption-crazed youth; people between the ages of 24 and 35 account for more than 70% of consumer borrowers in China.
While there will inevitably be increasing opportunities by targeting China’s silver surfers – there will be a half a billion of them by 2050 – they will remain much less likely to pay a premium for better products and services than their younger peers. They also won’t be as easily wooed by foreign lifestyles, products and services.
In short, millennials and the younger post-95s/Gen-Zs remain the most lucrative consumer group in China. Yet the rules to reach and resonate with them are constantly changing. Companies need to dive much deeper in understanding their emotional and functional needs, what influences them, where they research and buy, and how to make advocates out of them. If a brand can understand and serve those needs, there’s still plenty of legs in the contested younger demographics in the city – particularly the lower-tier cities. China Skinny can work with you to ensure you’re there. Go to Page 2 to see this week’s China news and highlights.
The lure of WeChat for brands is clear; last year it drove $32.9 billion of information consumption and $52.4 billion of traditional consumption including travel, food, shopping, hotels, and tourism, according to a report from the China Academy of Information and Communications Technology released this month. 34% of China’s data traffic happens on WeChat, versus the 14% on Facebook in North America.
There’s no denying WeChat’s enormous impact into everyday life in China as it has progressed to become a near unparalleled marketing tool. Yet its popularity has also made it hyper competitive. Official Accounts now number 20 million, with 3.5 million of those active, raising the bar for any brand hoping to make an impact on WeChat – seeing consumer expectations surge with it.
Last year over half of WeChat Official accounts saw less readership than in 2016. Whilst the way consumers use WeChat is continually becoming more sophisticated, many brands’ WeChat strategies haven’t done much to keep up. Few provide genuine value through entertaining and educational content. Even less build communities that engage and resonate with their target market and potential advocates. And many brands still see WeChat as a one-way communication stream to push content out to followers, and are yet to tap into the plethora of interactive functions available in the WeChat ecosystem or integrate offline touch points.
In most cases, WeChat initiatives do cost money. Many brands realise this and allocate a material budget for WeChat marketing. China Skinny gets many approaches from brands wanting a ‘WeChat campaign’, but often haven’t even defined their target market, positioning or what makes them unique from the thousands of other brands in their category. Without having these foundations, investing in WeChat will often be throwing good money after bad.
Although we hear so much about marketing opportunities on WeChat, in some cases an Official WeChat account isn’t appropriate for a brand. Take a small tourist attraction overseas for example. For many Chinese tourists, they are likely to only ever visit it once – and it will be just one of many places they’re seeing on their holiday. So few travellers will go to the effort and care enough to follow something that will fill their WeChat account with content that isn’t very relevant. Nevertheless, even if the attraction doesn’t have an Official Account, WeChat can still be very effective for that tourism business using less traditional advocacy initiatives or payments.
Brands shouldn’t blindly just invest in a traditional WeChat account just because everyone is talking about WeChat. They would be wise to ensure that they have the foundational strategy defined first and then consider the context of WeChat with regard to their product or service and positioning. Agencies such as China Skinny can assist with this.
For our British and European-based readers, China Skinny’s Mark Tanner will be in London at the Clavis Insight 2018 EMEA eCommerce Accelerator Summit on June 6 sharing ecommerce industry trends and case studies alongside GSK, L’Oreal, Unilever and PlanetRetail. More information here – we hope to see you there. Go to Page 2 to see this week’s China news and highlights.
Earlier this month JD launched its first 7FRESH, a 4,000 square metre grocery store in Beijing that follows many of the new retail concepts from Alibaba’s Hema stores. JD heralded the supermarket the first of 1,000 stores that could open in the next three to five years. Hema also plans to significantly ramp up its presence, with 2,000 stores planned over the same period.
The focus of 7FRESH is a “personal and educational” hands-on shopping experience including “magic mirrors” that sense when customers pick up a product, and display product information such as nutritional facts and origin. JD also plans to introduce smart shopping carts allowing consumers to shop hands-free, which will be particularly helpful for shoppers with kids in tow. Facial recognition allows shoppers to check out and pay using the technology, able to walk out directly with the purchases or have them delivered within 30 minutes.
It is part of the growing new retail trend in China which has seen online giants shake up the bricks & mortar scape by creating richer, more convenient shopping experiences which drive significantly higher sales than traditional retail stores. Much like Alibaba’s Hema, JD is using big data from its 266.3 million shoppers to help craft the experience.
Physical stores still account for more than 80% of China’s retail overall and well over 90% of grocery sales, so JD and Alibaba’s battle for supremacy will be interesting to watch. Unlike the pure ecommerce world, where Alibaba has significantly higher margins by farming out most marketing, stock holding, fulfilment and customer service to brands, in the physical world it will be operating a more ‘full service’ model like JD.
Whilst JD’s market cap is just one-seventh of Alibaba’s, it has some very powerful organisations behind it. Tencent is the largest shareholder of JD, owning a fifth of the retailer. Its super-app WeChat leads China’s o2o and social media spheres, which will provide valuable data and influence to assist in the success of 7FRESH. Tencent’s new retail grocery ambitions will also be supported by the stake it purchased in Yonghui in December, yesterday’s investment in Carrefour’s China business and Saturday’s launch of its first unmanned WeChat store in Shanghai.
Walmart – the world’s largest company by revenue – owns 12% of JD and is likely to provide insights and support to 7FRESH from its wealth of retail experience including 22 years in China. It will not only help Walmart gain traction in China’s previously elusive ecommerce and new retail segments, but it will also provide plenty of learnings to roll out in its Walmart stores in China, and potentially to its stores in the US and globally.
In short, there is no better player than JD to take on the mighty Alibaba in the new retail game. Two hungry, data-focused, well-funded and well-oiled players, and a host of other competitors, will ensure the rate of innovation in China’s retail segment will continue to dazzle. It will also create another segment where China is likely to lead the world and possibly export its systems globally. New retail in China is happening, and happening fast, and brands that best understand and embrace it are most likely to succeed in the years ahead.
Who are China Skinny? We are a marketing agency on the ground in Shanghai conducting research, building strategies, and executing them for over 100 multinational brands both big and small, across 20 categories. What’s your biggest China problem? Contact us to see how we can help. Go to Page 2 to see this week’s China news and highlights.
Happy 2018! The year has started off on a positive note with China’s premier Li Keqiang announcing last year’s GDP growth is expected to roll in at 6.9% – north of the 6.5% target and the first acceleration in seven years; a time when GDP was less than 40% of today’s value. Consumers’ enthusiasm to shop continues to drive this growth accounting for almost two thirds of the 6.9% with retail spending growing 10%.
Although consumer anxieties persist and concerns around food safety and the cost of health and education are common, the signs are pointing to 2018 becoming another bumper year of the Chinese consumer. Whilst well-marketed foreign brands still hold significant appeal across many consumer categories, brands should be aware that shoppers are less inclined to view foreignness with the same awe and curiosity as they once did.
Chinese are showing increasing pride and interest in Chinese heritage and nostalgic themes. 2017 wrapped up with some gleaming examples such as CCTV’s show about Chinese antiques receiving millions of views, rave reviews and social posts from Chinese millennials. Even more widespread was a New Year fad which saw Chinese cluttering their social media feeds with old photos of themselves.
Few things inspire, influence and indicate preferences more than cinema. Last year five of China’s six most popular movies were domestic productions, including the overtly nationalistic Wolf Warrior which broke all-time box office records for the country.
Chinese consumers’ increasing interest in their roots was always going to happen as they matured, but it has been accelerated in light of a strong, confident and consistent China leadership and wavering heads of state in the West, amplified by the all-powerful state media.
So does this all mean that the foreignness of imported brands is becoming irrelevant? Definitely not. Foreign brands should promote the characteristics of their origin and heritage that make them special, but not with the blind swagger that some have portrayed in the past. They should also consider the opportunities to tap into the growing resonance of the Chinese renaissance through thoughtful communications, promotions and product development. Agencies such as China Skinny can assist with such initiatives. Go to Page 2 to see this week’s China news and highlights.
Earlier this month Beijing released a discussion draft of its Ecommerce Law that has sent China watchers and businesses searching earnestly for some clarity. It promises to dramatically tighten up the cross border commerce opportunities that make up one of the most important and fastest growing channels for foreign brands exploring the China market. Like many government mandates, it strikes a confusing contradiction; adhering to the trend of increased control over China’s online consumer space in the face of all the talk of China opening up to the world from its helmsman.
Whilst some details of the discussion draft are uncertain, it will send shudders to some imported brands selling in China. Foreign retailers will be unable to sell online in China without going through a platform controlled by a Chinese-owned entity with the relevant licenses. Whereas the vast majority of online sales currently go through these channels anyway – Taobao, Tmall, JD, etc – it doesn’t look positive for Amazon’s ecommerce business in China, who this month sold their China-based cloud computing hardware due to the new cyber security laws. It also provides little hope for foreign brand.com stores.
The draft also seeks to shut down online sales as a way to import illegal products into China. If ‘illegal’ includes products currently not allowed to be sold in Mainland China, it will dramatically impact the most popular cross border category: cosmetics and skincare, where foreign products can’t be sold in China if they aren’t tested on animals. Only approved products will make it through the gate so it is likely to affect many categories.
As the China Law Blog eloquently put it, “the plan is to funnel all cross-border e-commerce through a limited number of processing centers, all of which are controlled by the national government”. Daigou traders are unlikely to be tickled pink by the rules.
The unfortunate reality of the draft regulations is that they will make the already dominant platforms such as Alibaba and JD even stronger. As their listing and support fees can be a prohibitive expense for smaller brands and the platforms are getting more crowded by the day, it is becoming increasingly harder to even get a listing on the platforms, let alone be noticed.
The wonderful thing about China’s current cross border commerce environment is how sales are spread across many more channels – Alibaba’s platforms account for just a third of sales, versus three quarters of China’s ecommerce overall. Although most of the other cross border platforms are Chinese entities and won’t be negatively affected by the new rules, those foreign-based sites may not fare so well – a real shame given many successful foreign brands now in China first sold into the market from their own foreign-based sites.
Like many previous ecommerce-related laws in China, the devil will be in the finer details and enforcement, but the draft should send a clear signal about the direction of ecommerce in China and highlight the importance of not relying on one precarious sales channel. Agencies such as China Skinny can ensure you are best prepared for such a risk. Go to Page 2 to see this week’s China news and highlights.
Here’s some further encouraging news for China’s consumer market: in the first eight months of this year more babies were born into families with multiple children than those without – some 52% versus 45% in 2016. That will hearten the folk in Beijing who are seeking solutions to support its top-heavy population demographics, and should be music to the ears of brands peddling everything from infant formula to shared accommodation. During last weekend’s enormous Singles’ Day festival, baby products were among the top-selling categories.
Despite the increases, Chinese mothers continue to have one of the highest workplace participation rates globally, with 63% of females in the workforce versus 56% in the US and 50% globally. This is the result of a generation of the one-child policy, differing family structures which see grandparents caring for young ones and an admirable cultural belief that “women hold up half the sky.”
Even with the spike in those procreating, many Chinese remain uninformed on the subject. For example, more than 80% of adults in China have misunderstandings about contraception. This is the result of limited sex education and ‘birds and bees’ chats between parents and their kids. Sexual references are taboo in mainstream media and other channels. It was in 2015 when the big budget empress TV soap was taken off air to have Fanbingbing chest shots photoshopped out. Homosexual references are completely banned and even leggy models were even banned from car shows as Beijing does what it can to keep its population pure and innocent. This is reflected in consumer tastes and confirmed in numerous China Skinny research projects which has found an aversion to certain images deemed too sexy, with distinct preferences for the cutesy.
Yet behind the Hello Kitty knits and gaming youth, sexual innuendos are becoming more commonplace in China. Any visit to the local convenience store is a testament with battery operated devices, lubes and contraceptives taking prime real estate in point of sale displays by the counter. In a movement that represents greater self-confidence towards previously frowned upon areas, lingerie has become one of the fastest-growing fashion categories in China growing 20% annually for almost a decade.
There are much less subtle indicators of a trend towards an increased liberalness. Durex is leading the revolution by tiptoeing around the sensitive subjects to create engaging and timely communications that resonate with consumers online and get shared en masse. And while Durex and other foreign brands lead the category, a host of local condom makers are coming up with new innovative products to break into the fast-growing category.
Like everything in China, what appeals and is acceptable to consumers is constantly shifting. Hit the mark, and a brand can attain a cult-like following. Miss it, and there can be an anti-following. Agencies such as China Skinny can assure you are on the mark. Go to Page 2 to see this week’s China news and highlights.
If you believe the press, there is only one show in town for selling your wares in China – ecommerce. Yet behind the hype, ecommerce accounts for just 15.5% of retail overall, and an even smaller percentage for categories such as food and luxury. That leaves over 80% of goods bought through the good old brick and mortar stores – albeit a very fragmented network, and one growing at less than half the pace of ecommerce. Even Mr. Ecommerce himself, Jack Ma has said “pure ecommerce” will soon vanish, replaced by more holistic retail strategies.
That’s not to discount the influence online shopping and China’s overall digital sphere is having on traditional retailing. 61% of online consumers start their product research on an ecommerce platform according to PWC and it is a vital touchpoint in the customer journey of both online and offline shoppers. Yet it’s about time the downtrodden shopping centre got some rightful airtime.
One of the positive outcomes from ecommerce’s disruption is that it has forced traditional retailers to up their game. That, with a host of other factors, has seen China’s retail space evolve to something unrecognisable from as recently as 2013.
China’s most successful shopping malls have become ‘lifestyle centres’, drastically changing their tenant mix and crafting a much nicer experience for shoppers to maintain a point of difference over the oft-cheaper and better ranged screens of the ecommerce stores. A typical centre in China is up to one-half food and beverage and can have cinemas, ice skating rinks, spas, gyms, children’s play places, language schools, bowling alleys, horse riding centres on the roof, indoor beaches, and amphitheatres and other areas devoted to public events.
The most savvy physical retailers also integrate online strategies to attract shoppers to their stores. One example is the popular utilisation of key opinion leaders to help build buzz for physical stores through their digital channels, be present at stores to wow shoppers and offer incentives to fans that can only be redeemed at the stores.
Distributors can often be incredible assets to get products into stores. Whilst they are likely to reassure you that they offer full digital marketing strategies and services, few have deep literacy in digital marketing and nouse to fully capitalise on the opportunities the channel brings. Many don’t even have a true view of what consumers are seeking, as some recent Australian research into the common nectarine recently discovered.
Any retail, tourism or services brand selling in China can learn from the way successful brick and mortar retailers have evolved to understand current Chinese consumer preferences. The moral of the story: physical retail should be a key pillar in most China strategies. Yet few bricks and mortar strategies will be successful without a robust and differentiating digital strategy to support it. Agencies such as China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
Welcome back to our China-based readers; we hope Golden Week panned out well.
China’s dynamic startup scene typically takes a consistent path. New ideas usually follow innovations that have been successful overseas, then quickly morph to serve the unique needs of Chinese consumers; capitalising on the distinct ecosystem of embedded mobile payments, devout smartphone usage and lack of privacy concerns.
Any sniff of success and a slew of others will follow. Close to five million Chinese graduate with science, tech, engineering and mathematics degrees every year, many who are optimistic about becoming the next Jack Ma. Most who launch startups will fizzle, but a select few will get funding, followed by more, and more capital, often from one of the big gorillas Alibaba, Tencent or Baidu – bringing the crucial support and channels to scale up to the next level.
Over the past few years China has been awash with investment capital, and with so much money sloshing around these startups can shower consumers with subsidies, discounts and freebies ensuring they get hooked. What follows is a war of attrition, where startups fiercely compete with incentives, burning through cash with unprofitable business models until the less-resourced competitors fall away or are swallowed up by a better-funded player. Mergers and consolidation always follow with the winner usually taking all.
When just one dominant player remains, the sweeteners lessen. We saw this with Meituan and Dianping in 2015, which provided an estimated ¥58 billion ($9 billion) worth of discounts and subsidies for restaurants and movies in 2015 combined. Since announcing a merger late that year, incentives have dropped off. Similarly within three months of the ride hailing apps Didi-Kuaidi-Uber merger, a typical ride that cost ¥8 climbed to ¥13. If we look across almost every online category in China – much like other places – they are dominated by a single player. Ctrip-Qunar control around 80% of the online travel market, Alibaba accounts for a similar amount of ecommerce, likewise Tencent and social media.
We’re starting to see similar consolidation for the latest hot sectors in China’s tech world. Baidu recently bowed out of the food delivery space selling its Xiaodu subsidy to Ele.me. And on the bike sharing front, where over 30 companies vie for pavement space, riders and critical mass, players are starting to drop off. Market leaders Mobike and Ofo are already said to be in merger talks.
Fortunately China’s tech scene isn’t just evolving to one big network of monopolies. Some areas are still passionately contested driving innovation and deals for consumers. In what would be a surprise to many, Baidu isn’t the leading search tool in China for products. In mature categories such as online travel there are flourishing niche sites that can be better-targeted than the leader. In ecommerce, less price-sensitive and more sophisticated consumers tired of trawling through the expanses of Alibaba’s platforms often swap to niche platforms in areas such as luxury, food and cross border, where Alibaba accounts for just a third of sales. Brands would be wise to consider them.
On the subject of cross border commerce, China Skinny’s Ann Bierbower will be sharing advice about effectively reaching and selling to Chinese consumers at the Reach Global Customers Through Ecommerce seminar in Los Angeles on October 24. More information here. Go to Page 2 to see this week’s China news and highlights.
China Skinny works with clients across 17 industries which has given us a well-rounded perspective of Chinese consumer behaviour. It’s been a helpful way to identify what works in one category, how it can be applied in others and any affinities between them.
One of the most dynamic industries we work in is food & beverage, which has welcomed some of the most innovative and exciting marketing we’ve seen in China. There are mega-brands with annual marketing budgets exceeding a billion dollars, to niche players that cleverly hone-in on specific target markets. Costly celebrities and KOLs are a regular feature in campaigns; 39% of Chinese food & beverage ads have celebs in them, versus 10% in the UK and US, according to Millward Brown.
Premiumisation has become a commonplace buzzword in China and its effect is seen at every level. Even rice saw 25% of consumers trade up between 2011-2015 versus 3% who traded down, according to McKinsey. Premiumisation and health concerns have also led sales of the workingman’s favourite instant noodles to drop by billions of tubs. Buzzwords such as healthy, natural, organic, GMO-free, functional and probiotics are increasingly making their way onto Chinese labels and with it, heftier price tags. Between 2012 and 2016 the portion of high- and middle-end product sales grew from 26.2% to 34.4% on Alibaba’s retail platforms.
The one thing almost all successful food brands have in common is their adoption of digital channels. Food & beverage has become the fastest growing ecommerce category and will continue doing so following significant investment in cold-chain and cross-border logistics. 60.5% of fresh food is now available online versus 26% in 2014. What makes the online food & beverage category interesting is that it is much less dominated by Alibaba and JD, with niche food-specific platforms accounting for a larger share of sales. With ecommerce now as much a marketing channel as a sales one, food & beverage brands are embracing it and the diverse opportunities it brings.
Traditional offline food brands are also embracing technology. China’s giant ¥3.5 trillion ($507 billion) eating out industry is taking to mobile payments. 45% of McDonalds China’s sales are now paid for through a smartphone. China’s insatiable appetite for food delivery has seen a storm of food delivery apps surface, which prompted KFC’s parent Yum China to buy a controlling stake in Sherpas this month. Apps developed by food brands provide a host of useful tools and are now used by 60% of Chinese consumers, according to Kantar.
No mention of online channels would be complete without the good old fashioned Daigou purchasing agents promoting their wares through WeChat, Taobao and other niche platforms. Although the fear of regulations was circulating again online in China last week, enthusiasm doesn’t appear to be waning for the grey channel. Countries like Australia, New Zealand and the US have seen an army of Daigou on their shores. A NY Times article earlier this month reported that as many as eight in 10 of the 136,000 Chinese students in Australia are involved in Daigou businesses in some form.
Food & beverage is abound with opportunities in China, particularly for brands that embrace China’s unique and exciting channels. Agencies such as China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.
If “The Belt and Road” still sounds unfamiliar, it won’t be for long. A colossal trade network is currently taking shape, weaving through continents with China at its core powering the expansion. Officially denoted the Silk Road Economic Belt and the 21st Century Maritime Silk Road, this project’s ambition is unparalleled. Xi Jinping’s pet legacy project aims to revitalize the trade routes which formerly shrouded the country in glory.
$100 billion worth of deals with 61 countries have already been inked, with a further $4-$8 trillion expected to be invested over the project’s unspecified lifetime. The development strategy signifies immense investment into infrastructure. Whether it be rail, port or road, capabilities are surging to connect and heighten cooperation between China, Asia, Europe, East Africa and Oceania.
For many recipients of this investment, new infrastructure will increase both China and global trade. Greater wealth will flow to these countries and the global economy will boost as a result. We’re already starting to see an improved flow of goods across Eurasia; trains now link 12 European cities to 16 Chinese cities, creating trade connections that are far faster than ship, and much cheaper than air. Rail freight leaving London can be in Beijing 18 days later. Even then there are still train swaps along the way due to different track gauges, leaving room for greater expediency.
However the project has not been all smooth sailing with some trade routes passing through volatile regions. Notably, investment and cooperation hasn’t always been welcomed either. Last month Australia rejected a deal to align a $5 billion AUD state infrastructure fund with China’s Belt and Road initiative over fears it could damage relations with the US and induce a domestic political backlash to growing Chinese clout.
As an integral trading partner for many regions and the biggest export market for 43 countries (including Australia) China has much to gain from these initiatives. Reliance breeds compliance and The Belt and Road will only make more countries reliant on China for trade.
We are increasingly seeing the entanglement of China’s growing trade and its political goals. K-Pop celebs, Korean cosmetic brands and workers at Hyundai have seen their sales in China halve surely must be weighing the benefits of the THAAD defence installation. The Japanese saw the geopolitical effects on trade in 2012 and we may even see it with Trump, although the meeting with Xi Jinping in Florida over the weekend may have tempered that somewhat. One of the few concrete notions stemming from the ‘Citrus Summit’, a 100-day plan was agreed upon to help lessen the widening US trade deficit with China.
It will be a long time, if ever, before China holds the soft power that the US does. Hollywood, music and sport fuel powerful influence over ideals and brand preferences. And yet unlike superpowers before them, China hasn’t implemented its rule through war – a tough feat in today’s interconnected world. Their near unfathomable trajectory to the top of the world stage stems from the much more passive, yet equally as powerful approach of becoming the integral cog of global trade. The resulting effect has seen countries quick to appease China, from dropping their territorial disputes to avoiding hosting the Dalai Lama.
Love it or hate it there is no denying China’s influence in the world will only grow, especially in the wake of The Belt and Road initiatives. The ability of brands exporting to China to alter this is minimal, yet it is a good idea to be aware and plan for situations where it may influence trade issues in your country. Go to Page 2 to see this week’s China news and highlights.
The curious Chinese consumer has many facets, with wary mothers distinctive among them. Motherhood in China is steeped in culture and tradition, high digital engagement, ingrained family structures and an excessive lack of trust. This ensures this consumer group is unique amongst its foreign counterparts, but one worth learning about. Mother and baby products grew 256% from 2010 to 2015 according to Mintel, and are expected to grow 15% a year until 2020.
However it shouldn’t just be infant formula and diaper brands taking notice. With the lucrative and free spending Millennials now entering the child rearing age, new families are driving growth across many categories.
The tradition that new mothers do not leave the house for 30 days after childbirth means they spend a considerable amount of time on their mobiles. Because of this, online sources of information, influencers, and WeChat groups are incredibly powerful in their ability to sway purchase decisions.
It’s well known that China’s 4-2-1 family structure (four grandparents, two parents, and one child) means that the child is pampered by six doting adults who are becoming more affluent by the day. This structure allows the mother to return back to work soon after birth, with grandparents or an ayi (aunty/nanny) assuming much of the caregiving responsibilities. It has contributed to just 27.8% of Chinese mothers still breastfeeding when their child is 6-months old, versus the global average of 38%. It has also reduced gender income disparity seeing parents have a higher income overall.
Mothers returning to work early means they are more impacted by colleagues and friends without children than if they were to return later. Influenced through both personal interactions and their smartphones, they are hearing about inspiring holiday destinations, new food, health issues, alternative education and even fashion.
We only need to look at fashion, where children’s apparel is one of the fastest growing segments, or tourism which is seeing explosive growth in family holidays. Recent Alibaba research found online shoppers with babies spend significantly more on fresh fruit and veges online, driving fresh food to be the fastest growing ecommerce category.
With only one child, Chinese consumers take no risks with their precious tot, particularly with the wounds of the 2008 Melamine scandal still raw. They do even more research than the average 7-10 touchpoints Chinese consumers engage with before making a purchase. That lack of trust, coupled with busy lives is driving mothers to shop online, particularly from abroad. Baby care accounts for around 15% of all cross border products and, more importantly, 66.5% of China cross border eCommerce shoppers have children – a big contributor to overseas online purchases which grew 86% last year.
In short, young families can be one of the most lucrative segments in China for imported goods if brands understand their customer journey and drivers. Go to Page 2 to see this week’s China news and highlights.