China is a huge opportunity for brands, but to see meaningful success there, marketers must evolve the way they approach these consumers. While they’re more affluent, today’s shoppers are also savvier and more discriminating.
In the report “Five Profiles That Explain China’s Consumer Economy,” Boston Consulting Group and Alibaba’s AliResearch project the growth of the Chinese consumer class, identifies the key growth factors and profiles five main shopper archetypes.
As home to the second largest consumer market behind the U.S., China is the go-to for brands looking for organic growth opportunities. And while economic growth there is slowing, there seems to be no stemming the tide of consumption. Currently, the country’s GDP is growing at less than 7 percent a year but consumption is increasing at more than 10 percent. BCG projects China will see almost $2 trillion in new consumption by 2021. That number represents 27 percent of the total consumption growth globally in that time frame, according to the report. Put another way, the growth would be comparable to Germany’s consumer market.
What’s likely to fuel this growth?
The report lays out three main factors. First, rising income levels that are resulting in more upper-middle class and affluent consumers. Their increased discretionary spending means three-quarters of the expected expenditures will come from these two groups.
“Moreover, consumers in these households are not just buying more, they are trading up: buying higher-quality products in certain categories, such as electronics, food, apparel, and children’s products,” BCG said.
The second factor heating up this sector is younger consumers’ appetite for consumer goods. The projected growth rate for consumers ages 18 to 35 is 11 percent through 2021 compared to 5 percent for those 36 years old and older. Total spending is expected to hit $2.6 trillion in 2021, up from $1.5 trillion in 2016. The youth in the country will account for 69 percent of overall consumer growth.
“At the same time, younger consumers in China are becoming more savvy and more demanding, with more specific and granular needs and wants,” the report notes. BCG illustrates the point by pointing to the skin care market in China. Where consumers used to be content to have one or two products, almost a third of 18-to-35-year-olds buy five now.
The third and final main driver of consumer growth is e-commerce. China is the most connected country, with 70 percent of purchases involving at least one digital touch point in 2016. That number is expected to leap to 90 percent by 2021. The result is a fragmented purchasing path that will require brands to engage consumers in as many ways as possible.
Who are these shoppers?
As BCG said in the report, it’s not enough to just know the numbers, marketers must understand the shopping behaviors and motivations of these consumers if they hope to capture their dollars.
The five profiles the report highlights are: the savvy shopper, the single person, the eco conscious consumer, the passionate trend seeker, and the connected consumer.
The Savvy Consumer has the advantage over past generations of being exposed to more. Where their exposure was once limited to the products in their home cities, international brands all have a foothold in China and the Internet has brought the world to them. And, the report said, the more they see, the more they want. Consequently, the more they want (and buy), the more brands offer. It’s a never-ending loop.
The number of singles in China is growing, with 21 percent of people older than 35 unmarried compared to just 5 percent 10 years ago. For marketers that means they have to think differently about the products they offer this Single Person. “In general, single people seek smaller volumes, greater convenience, and higher-quality goods,” BCG said. Think single-serve meals and smaller appliances.
Environmental awareness has given rise to the Ecoconscious Consumer, who is looking for products that are good for them and the planet. And it seems they’re even willing to put their money behind their ethics, with the study showing they’ll spend up to 33 percent more to ensure their purchases are healthy and responsibly made. AliResearch has seen interest in this area rise in just a few years. In 2011, just 3.4% of shoppers bought five or more green products. By 2015, the percentage had increased to 16.2% or 66 million people.
In addition to looking for natural products like cotton or linen apparel, they’re paying attention to how businesses operate. “They are also more willing to support environmentally friendly companies—for example, those that reduce their packaging, encourage recycling, and take other steps to mitigate their environmental footprint,” the report noted.
The Passionate Trend Seeker is discovering more leisure activities than generations past. Chief among these new interests is travel. While Japan and Korea have been big draws, these consumers are expanding into Africa, the Middle East and the North and South poles. Along with these broadened horizons, they are also taking up extreme sports as well.
Finally, China boasts more than 900 million mobile users, according to Quest Mobile, who avidly use services like WeChat for communication, Alipay for transactions and KuGou for streaming music. This Connected Consumer shops online primarily for convenience and are open to new mobile technologies. The report says “consumers in China are also particularly open-minded about the early adoption of new products and technologies,” like smart home devices. With their social lives and entertainment in their pockets, their lifestyles are evolving.
[Read more about China’s online sales boom: E-commerce is Big in China. Really Big.]
While these five profiles identify key consumer groups in China today, BCG said brands need to constantly update their learnings, as the market is changing so rapidly. Only through understanding potential shoppers can marketers hope to create products that offer value and forge the emotional connections that drive sales today.
“Rather than offering a small number of products that are merely acceptable to most segments, you need to understand the increasingly diverse preferences of emerging consumer groups and subsegments and review your brand structure and strategy to gauge how well your products meet those needs,” the report said.