china consumers

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The next generation of consumers in China Peter Cuthbert Marketing Strategist, MulvannyG2 Architecture

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This is the presentation delivered on February 17 for a series of talks entitled China: the next five years

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Page 1: China Consumers

The next generation of consumers in ChinaPeter Cuthbert

Marketing Strategist, MulvannyG2 Architecture

Page 2: China Consumers

Outline:一 . An urban China二 . The four cultural touch

points三 . New vs. Traditional

consumers四 . OCG-led industries

- Technology- Luxury

五 . Things to consider

Rendering by Frank Lo, MulvannyG2 Architecture

Page 3: China Consumers

I. Urbanization in China

Page 4: China Consumers

Rural to urban transition

Traditionally a rural country.Urbanized greatly since 1950.600 million urban population 201070% of the population will be urban by 2030.

Above: The Fujian Power Headquarters nears completion; the developing skyline of Fujian, China.Below: Source: China Statistical Yearbook

Page 5: China Consumers

Density map of China. Source: Wikipedia

Page 6: China Consumers

Urban Vs Rural employment

Urban employment +3.5% Rural employment -0.6% over the same period.Project both figures and we’ll see more urban than rural employment around 2020.These figures indicate a continued countryside to city transition.

Source: China Statistical Yearbook 200810,000 persons

Year Urban employment

Rural employment

2010 32,482 46,7942011 33,456 46,5132012 34,460 46,2342013 35,494 45,9572014 36,559 45,6812015 37,656 45,4072016 38,785 45,1342017 39,949 44,8642018 41,147 44,5942019 42,382 44,3272020 43,653 44,0612021 44,963 43,7972022 46,312 43,534

Page 7: China Consumers

Employment increases by sector

Cities in China are moving away from labor intensive manufacturing.High tech and knowledge intensive industries are become the main economic force.Business, real estate services and info tech are growth industries.

Urban employment index 2003=1.0 Source: China Statistical Yearbook 2008

Page 8: China Consumers

II. The Consumer revolution in China

Within the past 30 years Chinese consumers have changed greatly. From purely priced-based decision making to a savvy, discerning selection. Consumers are much more sophisticated.

They are still driven, however, by traditional cultural dimensions including: lineage, Guanxi, Face, and Position.

Page 9: China Consumers

Chinese cultural touch points

Lineage: Preserving the family.-Investing in children, through school and early adult life- Investing in older generations

Page 10: China Consumers

Chinese cultural touch points

Face and public opinion: Importance of prestige, honor and reputation.- The concept of face is of Chinese origin- It must be continually invested

Page 11: China Consumers

Chinese cultural touch points

Position: Refers to the etiquette that surrounds treating people with respect to their social stature.

China is a top-down country, and protocol is more important than in the US.

Page 12: China Consumers

Guanxi: Importance of social capital. Calling upon others to provide favors or to resolve problems.- The individual in western society is like a leaf on a tree- The individual in Chinese society is like a spider web

Chinese cultural touch points

Page 13: China Consumers

Guanxi (Guan-she) 关系

Self –自我

Page 14: China Consumers

Family – 家

Guanxi (Guan-she) 关系Closest relativesSpouse

Page 15: China Consumers

Familiar – 熟

Guanxi (Guan-she) 关系FriendsClassmatesColleagues

Page 16: China Consumers

Stranger – 生

Guanxi (Guan-she) 关系No particular relation

Page 17: China Consumers

Guanxi Relationship (Guan-she) 关系

Individual

Page 18: China Consumers

Guanxi Relationship (Guan-she) 关系

Guanxi

Page 19: China Consumers

Guanxi Relationship (Guan-she) 关系

No Guanxi

Page 20: China Consumers

Guanxi Relationship (Guan-she) 关系

No GuanxiGuanxi

Page 21: China Consumers

Only Child Generation (OCG) Vs. Traditional Consumers

OCGers – New consumers Traditional

Coming of age in an era of unceasing economic growth.

Came of age in an era of hardship.

Liberal spending: low saving rate. Conservative spending: a culture of Savings, with a saving rate of 40%.

No cultural resistance to credit cards. Cash is king.

Psychological complexity behind purchases. Buy for Face, Position, guanshe.

“货比三家” compare three shops mentality- decision making based primarily on price. Buy for Lineage.

Tech savvy, always seeking the latest in technology and fashion.

Will “make-do” with older or outdated products.

Page 22: China Consumers

Population growth and proportion

20 to 44 year olds compose the highest proportion of the population for the foreseeable future.

China Statistical Yearbook

Page 23: China Consumers

What the urban Chinese are buying

China Statistical YearbookOut of 100 families

Page 24: China Consumers

III. OCG-led industries

Focusing on technology and luxury. These are two OCG-led.

Page 25: China Consumers

Internet

Internet penetration is 28% of the total population=US populationExpected to double in three years.Online services are to grow at an annual rate of 50% .Other growing segments are search, ad and e-commerce.

Page 26: China Consumers

Internet

More people are looking on line as a source of entertainment.Economic downturn sped up process. B2C has increased greatly as people are finding e-commerce a good way to find products more cheaply.

Above: Internet bars are ubiquitous in many of China’s back alleys. Below: Typical scene of an internet bar interior. Most patrons use internet bars to play online games.

Page 27: China Consumers

Online gaming

Massively multiplayer online role-playing games (MMOPGs) generate nearly $3bn in China,79% of the country’s online market.Generated $106 mn in exports to China.Major game producers are all listed on the NASDAQ.

Clip from World of Warcraft. MMOPGs are a new cultural phenomenon in China.

Page 28: China Consumers

Online gaming

A few NASDAQ-listed Chinese tech firms

The9 Limited - GamingPerfect World - GamingNetease - GamingBaidu - SearchSohu – News/searchSina – News/search

Page 29: China Consumers

Online gaming

Few western game producers have much of a market in China. World of Warcraft exception.Chinese gamers tend to enjoy games that draw upon Chinese traditional imagery.“Romance of the three Kingdoms” and “Journey to the West”

The cartoon shows a mother calling out for her son in an underground internet bar. Illegally run internet bars are where a great deal of online gamers spend their time.

Page 30: China Consumers

Bulletin Board Services

Still the mainstay of social networking in China.Approximately 3 billion registrants.61%use BBS a source for information prior to purchasing.47% purchased a product directly from a BBS site.

Tianya is one of the most influential BBSs in China.Source: iresearch

Page 31: China Consumers

Bulletin Board Services

Can work with other social networking: Social networking is personal in formatBBS is topical in formatThe two can help each other moving forward.

Discuz! Has a topic for all seasons. The site was founded in a college dorm room. The owner is now one of China’s super-rich OCGers worth several hundred million dollars.

Page 32: China Consumers

Luxury

Chinese are some of the biggest consumers of luxury.Asian market accounted for 80% of the luxury segment growth over the past year.The West has only accounted for 2% of luxury’s growth.

Page 33: China Consumers

Luxury

Apparel and accessories Cosmetics Jewelry Fine wine and liqueurs Autos High-tech

Page 34: China Consumers

Luxury

The vast amount are (OCGers) 20-30’s

White collar office worker Average salary between

$400 – $1,500 (US) Will spend a large portion

of salary on luxury.

Shanghai’s Nanjing West Road. China’s premiere shopping street.

Page 35: China Consumers

Luxury

Super-rich 825,000 >$15m (over a million millionaires)Average age 39 (OCGers)15 years younger that their western counterparts.

Page 36: China Consumers

China is urbanizing at an alarming rate. By 2030 China will have an urban billion=70% of the population.Remember the four cultural touch points: Lineage, Face, Position, and Guanxi (guan-she) when marketing in China.OCG-led industries will rule China’s retail sector

- Online - Market to BBS users- Fashion – Maintain brand quality, selection and choice.

Things to consider…

Page 37: China Consumers

谢谢!Thank You!