china now - local matters
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LOCAL MATTERS
LOCAL MATTERS
LOCAL MATTERS
4 CHINA NOW . LOCAL MATTERS
Increasingly the world is more connected and
so feels smaller, familiar and more similar.
However, this can be an illusion. What
people do, think and feel, within their own
environment and culture, can be vastly
different, often in surprising ways.
We like to help our clients’ brands build
relationships that really matter to people,
wherever they are.
We recognise that digital technology is
transforming the way we all experience
and interact with brands, allowing different
people to experience different things in
different places.
Meanwhile, new learnings about how people
form relationships highlights the importance
of understanding cultural and social
influences.
We like to uncover what really matters locally,
by watching what people do and delving
deeper into what they feel and think. We
explore beyond individual desires and needs,
to understand cultural context and the power
of social influence. Only then can we build the
most vivid picture of what matters to people.
China Now explores what matters to the
Chinese.
5
WHAT WE SEE
1. BOUNDLESS AMBITION
4. THE TRUST CHASM
3. N
EW E
XPRE
SSIO
NISM
2. N
EW P
LAYG
ROUN
D FO
R CO
NSUM
ERISM
China’s boundless ambition has spurred tremendous
economic growth, creating a new playground for
consumerism and a new expressionism.
Numerous scandals have
created a trust chasm between
consumers and brands.
6 CHINA NOW . LOCAL MATTERS
6. CHINESE WHISPER
S
7. T
HE P
OW
ER O
F FO
REIG
N
10. CREATE, DO
N’T ADAPT
8. NEW CHINESE VOICE 9. REDEFINING GOING GREEN
As a result, consumers have
become detectives, relying
primarily on digital word
of mouth and the power of
advocacy to find trustworthy
information. They are also
looking to foreign brands.
A new Chinese voice is emerging: one where modernisation is more
important than Westernisation. Traditions of the past are evolving to take on
a contemporary flavour, while Western ideas are being reinterpreted with a
Chinese eye. There is, for example, a redefinition of ‘going green’. The new
demand for brands is to create, not adapt.
5. CO
NSUMERS AS DETEC
TIVES
7
BOUNDLESS AMBITIONPresident Xi’s space dream is just one
example of China’s boundless ambition.
In the world of economics and global politics
China, with its 1.3 billion consumers, is a
dominant and powerful player.
The country’s phenomenal economic
growth over the past decades has generated
enormous wealth. It has lifted millions out of
poverty and is propelling them forward into a
new global middle class.
The consumption power of Chinese
consumers is vast and its potential is not yet
fully tapped. Chinese consumers are savvy,
demanding and ambitious.
“The space dream is a crucial part of our nation-building dream. With the rapid development of China’s space industry, a great step forward will be made by Chinese people in the exploration of space.”
President Xi Jin Ping on the June 2013 launch of China’s
5th manned space mission, its longest to date.
Source: CCTV
8 CHINA NOW . LOCAL MATTERS
By 2015, China will represent 1/3 of global luxury spending
ChinaRest of the globe
Source: McKinsey & Co.
123trillion
In 2040 the Chinese economy will reach
nearly three times the economic output of the entire globe in 2000
China . 2040 Entire Globe . 2000
Source: Robert Fogel Nobel Prize winner in economics via Foreign PolicyCurreny = USD
9
A NEW PLAYGROUND FOR CONSUMERISMUnderpinning China’s economic growth is the
continued mass migration of its citizens from
rural to urban areas, to find employment
5 million23 cities with more than
inhabitants by 2025
221citieswith one million plus inhabitants by 2025 (Europe has only 35 such cities today) 1 billion
by 2030
China’s urban population =
10 CHINA NOW . LOCAL MATTERS
Annual per household income will
between 2010-2020 from USD 4K - USD 8K
double Today 85% of Chinese ‘mainstream consumers’, consumers with annual household income USD 15-34K, live in the 100 wealthiest cities. Only 10% live in the next 300 wealthiest cities, but this will rise to 30% by 2020.
Lower-tier cities will become the centre of
China’s future economic growth.
Public and private sector investment, coupled
with a rising middle class and the return
of talented migrant workers to cities closer
to home, means that many Chinese are
becoming wealthier.
These ‘mainstream consumers’ will be able to
afford a range of goods and services (such as
flat-screen TVs and overseas travel).
So, a new type of Chinese consumer is
emerging. Hard-working, entrepreneurial and
optimistic about their future, they are the
ones that will fuel further economic growth.
Source: McKinsey & Co.
11
Practice of sending kids abroad to study is increasing rapidly
Number of Chinese studying
abroad from 1978 to 2012
Source: The Chinese Luxury Consumer White Paper 2012
19891978 1992 1998 2001 201020072004 2012
5
by
10,0
00
10
15
20
25
30
35
40
45
50
12 CHINA NOW . LOCAL MATTERS
NEW EXPRESSIONISMBeyond the BirkinExpressing oneself within the family and
society is a long-held tradition. Rising
incomes are enabling the Chinese to project
their status to society and show their respect
(‘give face’) to others through the purchase
of status-giving luxury goods and services.
Some Chinese consumers are becoming even
wealthier. Brands are already responding by
creating new tiers of exclusivity for them.
This new breed - the affluent and super-
elite - already possesses a surplus of status
symbols. These consumers are looking for
more singular forms of status that tie into
their values (such as family and education)
and demonstrate their world view. Sending
their children to elite foreign schools and
universities is one example of this.
The top preference for study is the US, followed by the UK and Canada
of Chinese* plan to send their children abroad
*with assets of more than 100 million RMB
90%
Source: The Chinese Luxury Consumer White Paper 2012
13
So what?Brands need to promote their integrity and demonstrate that they will deliver on their promises.
Brands must cultivate long-term relationships, showing that they value their consumers and their communities.
of Chinese consumers
state that companies
have a responsibility to
create a better society
and environment
of Chinese consumers
state they are willing
to purchase products
from a company that
demonstrates greater
social responsibility
53.9% 58.6%
THE TRUST CHASM
Despite a strong appetite for consumption
and self-expression, the prevalence of fake
brands across all sectors (food, shampoo,
consumer electronics and more) has left the
Chinese distrustful of brands, particularly
domestic ones. This has created a trust chasm
between Chinese consumers and brands.
However, Chinese consumers still believe
strongly in brands and consider brands to
have a responsibility towards society.
Source: N-Dynamic’s National Study
14 CHINA NOW . LOCAL MATTERS
CONSUMERS AS DETECTIVESFacing this deep trust chasm (in the midst of
so much spurious data), Chinese consumers
have developed ingenious strategies to
uncover trustworthy information. They are
extremely pragmatic and will reject products
that fail to either demonstrate real value or
show how they will deliver differently.
Growing reliance on word of
mouth, particularly digital
Looking to foreign brands
Such strategies include:
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Chinese culture emphasises the importance of
personal relationships. Naturally, consumers
value and trust first-hand interactions and
recommendations from real consumers. As
such, peer recommendations delivered via
word of mouth (for example, online and via
social media) have grown rapidly.
China’s digital citizens have taken on a
‘people’s champion’ mentality, exposing
brands that do not live up to their promises
and applauding those they love.
46.5% 77% 57%of Chinese Weibo users will
check reviews posted on Weibo
before purchasing
of Chinese digital citizens
feel that a company
becomes more attractive
when it appears on a social
networking site
of Renren (a social media site)
users recommend products
Source: http://www.alibuybuy.com/posts/78651.html
CHINESE WHISPERS
16 CHINA NOW . LOCAL MATTERS
So what?Consumers need to find a reason to spread positive information about brands: maybe outstanding customer service or some great content that shows the brand cares about broader consumer sentiments.
It is important for brands to invite consumers to participate and even interact with them. Brands therefore
demonstrate not only that they are open and transparent but also that they value their customers’ opinions.
Consumers are adept at navigating different channels to make informed purchase decisions. So brands must integrate all channels consistently to optimize consumer satisfaction.
Who do you trust?When it comes to making buying decision, the Chinese rely on
people they know rather than on any marketing or sales channel
Usage
Importance in decision
90%
74%
77%
39%
70%
44%
Word-of-mouthInformation from people I know (family, friends, co-workers)
Social mediaSuch as Twitter, Facebook, Pinterest and user forums
Online reviewsExpert review sites, news sites or product comparison
Source: 2012 Accenture Global Consumer Behaviour Survey
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THE POWER OF FOREIGNChina is adept at decoding countries as brands
The Chinese attach strong emotion and
associations to foreign countries. After
countless scandals, it comes as no surprise
that they favour imported products over
domestic ones and view foreign companies as
superior, innovative and trustworthy.
As their incomes increase, more Chinese
consumers can afford to look abroad for
things they like. For these shoppers, how
they view a foreign country influences which
brands they choose to buy.
BRAZIL
Enthusiastic
Diligent
Interesting
US
Strong
Rich
Creative
CANADA
Friendly
Leisurely
Quiet
UK
Traditional
Noble
Ancient
GERMANY
Steady
Prudent
Creative
RUSSIA
Strong
Artistic
Enthusiastic
JAPAN
Diligent
Creative
Prudent
NEW ZEALAND
Quiet
Leisurely
Pure
ITALY
Artistic
Romantic
Enthusiastic
INDIA
Ancient
Traditional
Mysterious THAILAND
Mysterious
Ancient
Traditional
AUSTRALIA
Leisurely
Young
Quiet
FRANCE
Romantic
Artistic
Noble
Source: N-Dynamic’s Imported Food Study, May 2009
18 CHINA NOW . LOCAL MATTERS
Chinese consumers like to buy from countries they admire
Taking a holiday
Buying durable consumer goods
Studying abroad
Buying fast-moving consumer goods
Buying luxury goods
So what?It is important for foreign brands to be on Chinese consumers’ ‘good list’.
Also, foreign brands should tap into the positive impressions and emotions that the Chinese associate with their country.
However, foreignness is not automatically valued. If a brand is exposed for unethical behaviour or fails to deliver on its promises, the Chinese will turn away.
64%
49%
60%
26%
20%
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The Chinese are aware that everyone is
looking to win the Chinese consumer. They
have a growing sense of pride in themselves,
their country and even their brands.
They are becoming global inventors, creators
and leaders. They are modernising on their
own terms: evolving traditional practices and
redefining Western ones to suit their tastes.
Overall the focus is on ‘modernisation’ rather
than ‘Westernisation’.
So what?Brands should tap into Chinese cultural heritage and habits from the beginning. They need to be nuanced in their approach. There is no one-size-fits-all method.
Brands must understand how Western, contemporary and traditional Chinese cultural values all relate when approaching their category, their products and their services.
THE NEW CHINESE VOICE
20 CHINA NOW . LOCAL MATTERS
Chinese consumers recognise that thriving
local brands have an edge over Western
brands in understanding what they want
and need. Their ‘Chineseness’ is a source of
strength and differentiation.
Brands that incorporate traditional Chinese
medicine, for example, are growing
in importance as health has become a
top priority.
The desire to preserve health, postpone
ageing and enjoy a long life is deeply
ingrained in Chinese culture. This is
particularly important as more Chinese
people are suffering from chronic diseases
due to their diet and lifestyle.
Traditional medicine has always been widely
revered and regarded by the Chinese as a
way to enhance physical fitness, prevent
disease, postpone ageing and prolong life via
spiritual growth.
In contrast, Western medicines are viewed
less favourably by many Chinese consumers
as they often have side effects (such as
damage to the liver or kidneys). They prefer
to use traditional medicine to treat chronic
diseases, but are open to new methods of
delivery: for example, in the form of a pill or
as part of their food at breakfast.
EVOLVING CHINESE TRADITIONS
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76.3%appreciate companies that take environmental sustainability measures
50% motivated to buy environmental products for health reasons
60.2% willing to pay 10% extra for environmentally friendly products
69.5% save water, electricity and food
Source: N-Dynamic 2012
22 CHINA NOW . LOCAL MATTERS
REDEFINING GOING GREEN Another example of modernisation with
Chinese flair is seen in their approach to
‘going green’.
Unlike their Western counterparts who
adopt eco-friendly behaviour because of the
environment, for the Chinese ‘going green’ is
very personal and local. It is about improving
one’s own health (not everyone else’s) and
one’s own status.
High pollution levels in Chinese cities have
brought health concerns to the fore. Affluent,
educated consumers who have accepted eco-
friendly products are ‘going green’ to show
their status. Of course, many realise that
adopting eco-friendly habits can save them
money too.
So what?Brands should play up their sustainability credentials in launching new products and services. It is important to ensure that brands enable the Chinese to flaunt their ‘green status’ in real life, as well as on social media platforms.
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24 CHINA NOW . LOCAL MATTERS
CREATE, DON’T ADAPTTo reflect their new voice, the Chinese have
a new demand from brands: to offer genuine
creativity, not adaptation.
In the past, many brands have offered
imitations (shanzhai), or products which
have been made for other markets and then
adapted for China.
Today, Chinese consumers have more
exposure and access. They are no longer
content with adapted Western brands. Nor are
they happy with imitations.
Instead they want inside-out development.
The expectation is for products and services
to be personalised to their specific Chinese
tastes. This is evident in their creative use
of existing technology for new purposes (for
example, Haier washing machines repurposed
to wash potatoes, process yak butter, etc.).
So what?Brands need to listen carefully to Chinese consumers before assuming they have a product to launch. With the exception of a few brands such as Xiaomi, this is still surprisingly rare in China.
The Chinese will gladly welcome a chance to co-create. They are very innovative and keen to join the creative process, contributing with their own ideas and vision.
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Consumers in lower-tier cities are not like
their higher-tier city counterparts. They have
grown up with fewer opportunities and are
less educated.
Because lower-tier cities are less developed,
there is a dearth of professional jobs. From a
young age, workers have aspired to become
savvy and creative entrepreneurs in order to
to escape poverty and gain success.
CREATE, DON’T ADAPT
Map of lower-tier cities in China
Haikou
DongguanFoshan
Huizhou
XiamenQuanzhou
Fuzhou
NingboShaoxing
NantongZhenjiangYangzhou
Xi’an
LuoyangZhengzou
Lanzhou
Urumqi
Heifei
Qingdao
Yantai
Jinan
Taiyuan
Hohhot
Harbin
Changchun
Shijiazhuang
Tangshan
Zibo
WuxiChangzhou
KunmingNanning
ChangshaGuiyang
Many ‘internal’ migrant workers are also
returning home having tired of soaring living
costs and being treated as second class
citizens*. They are ‘coming back’ to lower-tier
cities to start their own businesses, bringing
with them both funds and newly-learnt skills.
These changes are inspiring new levels of
creativity in these cities.
* Migrant workers are not entitled to the same benefits as
locals due to China’s household registration system (hukou).
26 CHINA NOW . LOCAL MATTERS
So what?For international brands looking to crack China’s lower-tier cities, the opportunity is to learn from, and even partner with, local entrepreneurs.
The success of local entrepreneurs demonstrates that local knowledge, creativity and a physical presence are important to the Chinese.
peoplemillion
In the next 12 months
In 2011, second to fourth-tier cities had a combined disposable income value roughly eight times bigger than tier-one cities
The consumer classes in the second, third and fourth-tier cities consist of approximately
of China’s potential car buyers will come from third and fourth-tier cities
of the potential buyers will be first-time owners
RMB 1 trillion RMB 8 trillion
One-tier cities Second to fourth-tier cities
Source: AC Nielsen 2011
Source: Nielsen & China Association of Automobile Manufacturers
Source: Ogilvy & Mather via CKGSB
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Ensure your brand expresses the new Chinese voice in inventive and imaginative ways.
Make sure you offer real benefits that deliver under the scrutiny of the savvy shopper.
Find innovative ways to demonstrate openness and transparency.
Encourage people to participate: give them things to do and ways to contribute their own ideas.
Seamlessly integrate all your channels.
Create for the Chinese, don’t adapt.
SO WHAT MATTERS FOR BRANDS IN CHINA?
28 CHINA NOW . LOCAL MATTERS
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