UNDERSTANDING CHINESE CONSUMERS

By Emma Li and Richard Johnson
10 Dec 2018

Understanding the way Chinese consumers think and act is clearly important in developing market strategies for China, but this is a very broad topic that needs to be approached gradually, from different angles. An article published by the Boston Consulting Group, ‘The Chinese consumer’s online journey from discovery to purchase,’¹ demonstrates differences in e-commerce in China, ‘where customers like to spend time in a discovery-driven online world of energetic chaos where shopping is an adventure.’ Just as in the West, marketplaces such as Alibaba’s Taobao use a consumer’s searches or buying history to offer product suggestions, but they also capture social interaction and location data, and they use analytics, artificial intelligence, and personalisation.

Rather than go to an online store, consumers in China discover new brands and products ‘through an array of digital channels and content’ in China’s integrated digital platforms. If they see something they like, they can buy it straight away through embedded purchase links: discovery goes straight to purchase. For example, on WeChat cybercelebrities promote brands by posting messages to their network, messages that embody a payment button.

While physical retail is less developed in China than in the West, e-commerce is more advanced. Alibaba is experimenting with virtual reality in its Buy+ events. Alibaba has also carried out an integrated online-offline arrangement where a customer ordering items could have them shipped to a physical store in a matter of hours. Shoppers in stores could scan a QR code to have an items shipped to their home. Wumart, a leading grocery retailer has launched a mobile wallet for customers to use to simplify checkout payments in it stores, which is integrated with each customer’s online account. The speed of change is impressive.

‘The Chinese consumer market presents a huge opportunity for companies marketing consumer goods and services,’ Emma Li wrote in her blog dated 9 April 2018. ‘Levels of consumption are being raised by growing numbers of upper middle class and affluent families and omni-channel e-commerce.’

Much as in developed countries, the younger generation in China—aged 18 to 35—have a great appetite for consumer goods. China’s younger generation are becoming more knowledgeable consumers with more specific demands.

Chinese consumers are more and more purchasing not only products but services, including experiences like tourism for example. This is a pattern not only in Tier 1 cities like Beijing, Shanghai and Chongqing, but in Tier 2 and 3 cities, and such megatrends imply changes in shopping behaviours and preferences among distinct consumer segments. Consumers are acquiring preferences for a more diverse range products and services.

Ms Li goes on to offer some pointed advice to foreign companies who want to capture benefits from the Chinese consumer market: A company should relate growth trends to specific changes in Chinese consumer lifestyles, tastes and expenditure patterns. This means focusing on consumer psychology, consumer segmentation, brand structure and marketing strategies.

The catch is however that the consumer segments are becoming more differentiated because of demographic and behavioural changes. A foreign company needs a breakdown of segments so that it can identify optimal targets. It is important for your company to invest time and effort to understand the needs and wants of each target segment. Emma Li puts this very plainly: ‘If you have not identified more segments in China than you pinpointed a year or so ago, your strategies are almost certainly behind. The market is changing rapidly. Your consumer segments need to be updated at least every 12 to 24 months.’ Emma Li offers definite advice:

“As consumer segmentation becomes more precise, brand structure and strategy need to follow suit. Rather than offering a limited variety of products on the basis of being merely acceptable to more segments, you need to understand the increasingly diverse preferences of emerging consumer groups and sub-segments. You then need to review your brand structure and strategy to gauge how well your products meet those needs.”

To return to our theme of understanding the Chinese consumer, in many ways, rapid change is characteristic of China today. Social media are a fundamental part of contemporary life. ‘Platforms like WeChat and Weibo are critical to China’s Internet celebrity economy, in which most major luxury brands participate.’ Key opinion leaders (KOL) may also influence brand awareness and ultimately purchase decisions. It follows that marketing strategies need to be well informed about consumer attitudes.

¹Biggs, C., Chande, A., Chen, L., Matthews, E., Mercier, P., Wang, A., & Zou, L. The new retail: Lessons from China for the West, The Chinese consumer’s online journey from discovery to purchase. The Boston Consulting Group, Alibaba, 1-6.