China’s Consumer Markets

The Pyramid of China’s Urban Consumer Market

Changes in Consumer Market Rapid economic growth of 9% per year ↑Income/disposable income

↑Purchasing Power (From 1997 to2003, per capita disposable income of urban Chinese increased 64.2%)

↑Population Larger market ↓Collectivism ↑Self-satisfaction ↑Education ↑Consumption Change in consumer preference Change in life style and consumption pattern

Where are the opportunities in China’s consumer market?

Consumer Spending

Savings and Housing

Per capita household savings is increased, it rose 123.9% from 4.6 trillion RMB to 10.4 trillion RMB

To maintain a stable living standard when they are old Spending on healthcare and for big ticket items such

as housing Under the rule of WTO, foreign banks has the

opportunity to take the Chinese deposit starting in 2007

These foreign financial institutions will fully participate in the Chinese financial system

The government encourages home ownership

Smaller initial payments for obtaining a home mortgage is required

Mortgage interest payments is tax deductible Save less, buy more

Automobiles

Large reduction in import tariffs on automobiles following China’s entry into the WTO.

1998stock of passenger cars (per 1000 people)

2.3

new passenger car registration ('000) 508

2003 %change

5.4 135

2083 310

Under the WTO, the automotive financing will be further opened to foreign participation Increase the competition for domestic financing

institutions Reduce down-payment requirements Expand the market

Apparel and Fashion

In 2003 Chinese spent roughly US$56 billion on clothing

Many global brands are undertaking a multi-channel approach to the Chinese market (licensed , franchising )

E.g Gap (US), H&M (Sweden), and Zara (Spain)

Apparel and Fashion

Tourism and entertainment

Foreign brand

Highly brand-conscious Quality is perceived as highly important Preferences for domestics goods has

dropped from 78% to 67% Preferences for foreign goods has increased

from 19% to 22%

Foreign brand

Small stores:purchasing apparel such as footwear, jewelry, or cosmetics

E.g Louis Vuitton, Bally, Gucci and Ferragamo.

Large stores : electronics, furniture, and other home related goods

E.g Carrefour, Metro, Wal-Mart, Auchan, Ikea, and B&Q

Attitudes to luxury brands

The majority of them regard owners of luxury brands as being successful and having good taste

Over half of them said they longed to buy luxury goods, even if they could not afford them at present

Attitudes to luxury brands

Attitudes to luxury brands

2. How do Chinese consumers differ in their lifestyles and consumption patterns?

Lifestyles of Chinese consumers

Demand for trendy and innovative products curious to fashion and fresh products

Demand for quality of life enjoy good quality and luxury goods

Less inclined to save and a strong propensity to spend confidence in their long-term earning potential,

higher qualifications, growing purchasing power

Like to show off individuality build up own image by different brand name goods

Spending according to own interests freedom and independence to spend

Buying products through the internet convenient and popular channel

Lifestyles of Chinese consumers

Consumption Patterns (Products) The need of durables are mostly satisfied in urban ci

ties Color television, washing machine and refrigerator

Desire for life enjoying goods Traveling (48%↑), houses (38.5%↑), mobile phones (35.9%

↑), luxury goods (20%↑), automobiles (15%↑), cosmetics (8%) and laptop computers

Emphasize fashion over function MP3 players → iPod TV games → PS2

Consumption Patterns(Distribution Channels) Department stores became less popular New purchasing channel:

Internet Convenience stores Hypermarkets, shopping centers and warehouse-

style supermarkets

Different approaches of Segmentation

1st Geographic- Coastal (urban &richer) vs. interior region (rural

&poorer) e.g. Shanghai—1st in 「 China Development Index 」 ,

highest GDP per capita in 2006 Gansu—the lowest level in 「 China Developmen

t Index 」 , poorest in China→ urban vs. rural: 3 times higher in consumption

expenditure- sub-segments emerge e.g. Xi’an, Wuhan, Nanjing

Different approaches of Segmentation2nd Demographic: size, density, age, gender, race, occupation, education

etcChina:- changing age and sexual structure of Chinese

population e.g. elderly ↑, 7.7% of the people reached 65 in 2005 &

around 12% in 2010-↑educational level -- > 50% post 80s have secondary lev

el-↑female labours -- > Women purchasing power

Different approaches of Segmentation

3th Income- Working poor—paid more on daily necessities

like food, domestic brands- Salary class—idealistic, willing to pay for brands- Little rich—brand conscious- Rich (yuppies)—prefer foreign goods &brands

Different approaches of Segmentation

4rd Behavioral- Life philosophies: market rejecter, conservative,

pioneer- lifestyle activities: entertainment—reading,

travelling, movie, dinning out etc- Media usage: newspaper, radio, TV, magazine,

internet, mobile phone etc- Consumption attitude: consumption pattern

China’s Vast Consumers1st Post 80s Generation Generation Y aged 18-24 Love entertainment more than household items eg. DVD players 7%(1997)52%(2004)

Mobile phones 10%(1999)48%(2004)

eg. Nokia > Motorola due to emphasis on fashion

Have more access to media eg. TV, magazines, the Internet

Use computer > Watch TV

China’s Vast Consumers

2nd Affluent Group Coastal Urban regions High desire for buying with high purchasing power Love high technological products, especially mobile

phones, pc etc. Willing to pay higher price for higher quality Emphasis on Brand name products

China’s Vast Consumers

3rd Women aged 19-30 (in big cities) Buy products on image Care about themselves and love beautifying

themselves High aspiration and are interested in ownership and

leisure Do not care about price even if they have low

income Favor foreign-invested department stores

3/ How to target the different segments of the market, i.e. the implications of the marketing strategies?

Marketing strategies

1st Undifferentiated marketing Base on largest numbers of buyer Ignore market segment differences Target the whole market with one offer

2nd Differentiated marketing Target several market segments and design

separate offers for each e.g. Gap (clothing) 3 different retail stores format Gap, Gap Banana Republic, Old Navy

Marketing strategies

3rd Concentrated / Niche Marketing Focus on a large share of one or a few segments or niches Used by companies with limited resources – capture more marke

t share e.g. Tetra ( fish supplier 80% of the world’s tropical fish food)

4th Micro marketing 1/ local marketing e.g. CitiBank different services in different bran

ches 2/ individual e.g. Dell Focus on product tailoring Satisfy the needs and wants of specific individual and local custo

mer group

Marketing strategies

For Generation Y Use Concentrated Marketing Online > TV advertising Product design & packaging Suitable celebrities e.g.

李宇春

周杰倫

蔡依琳

F4

Marketing strategies

For Women (aged 19-30 in big cities) Use Concentrated Marketing E.g. Cosmetics & skin cares Foreign brands e.g. Max Factors, Shiseido Fashion – International Brand Name

Marketing strategies

For Affluent Group Use Individual Marketing High class brand name Provide direct experiences E.g. Rolls Royce - Personal selling satisfy specific needs of

customers

Conclusion

Nowadays, the disposable income

lifestyle and consumption pattern changed

purchasing power

Business opportunity If we want to start a business in China

Concentrated on specific segments We need to realize what China’s Vast

Consumer specific needs and wants