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The Allure and Challenges of China’s Changing Consumer Market

ART & CULTURE / BUSINESS / ECONOMY / OUTLOOK / July 3, 2015

Developing Consumer Archetype Strategies To Win With One Billion Urban Chinese Consumers

 

“It is a country so vast and so complex that it can never become hackneyed – so little known that onemay with encouraging frequency enjoy the thrill of the explorer by discovering some new fact.” Carl Crow, an American journalist and businessman, made that observation in 1937 in 400 Million Customers, a book of his insights about the Chinese people and doing business in China. Today, more than 75 years later, Mr. Crow’s words have never been more true.

With a consumer market now exceeding one billion, China is often viewed as a land of limitless opportunities. The country has experienced multiple sea changes that, collectively, have created one of the most appealing business destinations in the world. Decades of economic growth and rising incomes, the ubiquity of digital technology, and the transformation of the hearts and minds of Chinese consumers (evidenced by the meteoric uptick in consumption) all add to the country’s allure. It is simply a market too attractive to ignore. But, as many consumer packaged goods companies and retailers are recognizing, it is also one of the most challenging markets in which to compete, much less win. That’s due largely to the fact that the ecosystem is evolving so quickly. A range of factors — from demographic changes and the breathtaking pace of urbanization to  fluctuating buyer preferences and behaviors — makes consumers in China moving targets.

While it may be impossible to capture a market of one billion, consumer packaged goods companies and retailers can make significant inroads by narrowing their sights. The truth is that China’s consumer market today is actually a collection of many different consumer archetypes, groups of consumers with different preferences and behaviors. In fact, the consumer landscape in China is so complex that companies need differentiating strategies and value propositions that can be adapted to meet the needs of each consumer archetype. By customizing your approach and targeting the unique preferences of each consumer archetype, consumer packaged goods companies and retailers can create a formidable foundation for growth and profitability.

To do this, first you need to know your target consumers. Leveraging data and consumer insights, you can customize messages, offers and experiences to attract new consumers, and retain existing ones. By shaping new business models, you can enable more responsive operations. To help consumer packaged goods companies and retailers understand the composition and complexity of the consumer archetypes relevant in China, Accenture surveyed 3,500 consumers in 27 cities across China. Through detailed analyses of the responses, we have identified four learnings to help inform consumer packaged goods and retail consumer engagement and growth strategies in China.

 

#1: A “Me” Culture Is Prevailing
Urban Chinese consumers now exhibit the consumption patterns of a middle-class lifestyle. This means they are spending money on things and experiences that not long ago would have been considered luxuries. It also means spending more on goods that are perceived to be of higher quality. While three categories of products and services (food and restaurants, clothing and electronics) currently top the consumption list, spending is growing fast on leisure activities such as travel and products related to health. Importantly, these consumers have become more aware of what their purchasing power represents. They increasingly set themselves apart and assert their social status through what they buy.

 

#2: It Is Difficult To Drive Loyalty
Chinese consumers are extraordinarily curious, with more than two-thirds of survey respondents indicating their willingness to try new products. Brand switching is prevalent in all cities and all age groups. Only 10 percent of respondents are unwilling to try new brands. That’s good news for consumer packaged goods companies and retailers that can leverage digital technologies to offer entirely new products, services and experiences to consumers. But it spells trouble for companies that have historically relied solely on their brand or reputation to lure new shoppers.

 

#3: Life Is Digital
Digital channels are pervasive in China and digital consumption continues to grow in popularity. That means it’s no longer sufficient to move consumers through linear purchasing processes. Creating smarter, seamless and secure experiences at every point of interaction is what defines expectations in the digital world. Our findings suggest that the surge of digital channels (and social media, in particular) has done little to eliminate the need for marketing basics in China. Even in the digital space, companies need to know their target consumers and how to reach them – online and offline.

 

#4: Pragmatism Still Rules
Despite their growing focus on purchases to represent their status and online consumption, China’s urban consumers remain very pragmatic shoppers, leveraging multiple channels before they purchase, and expecting an omni-channel experience. They frequent traditional supermarkets and department stores, as well as e-commerce. Our findings confirm that traditional retail and eShopping are not mutually exclusive endeavors. Urban consumers in China, as elsewhere, use both channels and expect a seamless and convenient experience. Consumer packaged goods companies and retailers that ignore one or the other in their marketing and sales efforts do so at their own peril.

Armed with these learnings, we applied advanced mathematical principles to identify eight consumer archetypes, defined along multiple dimensions and with unique consumer profiles. Our goal was to show that an analytics-powered segmentation model can be used to continually refine growth strategies and better understand what it takes to target — and win — with consumers in China.

In a market as complex and fast moving as China, a company’s success is dependent on the quality and granularity of its consumer and customer insights, as well as its ability to act on those insights to drive high performance. As this research demonstrates, those that know your consumers and customers best will have a distinct advantage when it comes to defining and succeeding with your target consumer archetypes.

The surge of digital channels (and social media, in particular) has done little to eliminate the need for marketing basics in China. Even in the digital space, companies need to know their target consumers and how to reach them – online and offline.

 

What You Really Need To Know About The Changing Chinese Consumer
To drive growth and profitability in China, consumer packaged goods companies and retailers must know their target consumers — and use that knowledge to deliver truly outstanding experiences at every touch-point. With such insights, these companies can create more responsive operations and more easily shape new business models.

However, in a consumer market as complex and fluid as China’s, it is exceedingly difficult to generate meaningful insights that hold relevance over time. As with everything in China, the consumer market is continually being shaped by economic conditions, demographics and technological advances. Together, these forces are having a profound effect not only on consumers’ preferences and behaviors, but also on the tactics consumer packaged goods companies and retailers implement to drive demand and brand loyalty. Also, urban consumers in China, as elsewhere, are multi-dimensional. They are affected by trends in different ways. And their brand preferences and shopping behaviors are fluid and often dependent on product categories or specific circumstances in which they find themselves.

Traditional segmentations based solely on factors such as age, location or income, offer momentary snapshots of one’s consumer base. But they do not provide insights that can help companies prioritize their marketing investments for the medium – and longterm. Rather, one must take a number of variables into consideration, including China’s demographic shifts, the impact of urbanization, the country’s adoption of digital technologies and continuing economic growth. Recognizing that these factors continually shape the consumer landscape, Accenture launched its China Consumer Study in 2013. Through detailed analyses of responses to our comprehensive survey of mainstream Chinese consumers, we produced insights that we believe accurately reflect the complexities of the Chinese market.

 

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Meet Your Urban Consumers
The insights gleaned from Accenture’s research and outlined above can help consumer packaged goods companies and retailers begin to craft strategies for growing their businesses in urban China. They provide a broad overview of shoppers’ changing preferences, attitudes and behaviors, and can form the basis of a consumer experience driven blueprint. But to create long-term differentiation in the market and highly targeted offerings, consumer packaged goods companies and retailers should dig even deeper into the attributes of the consumers they are trying to reach.

We applied an advanced analytics powered segmentation model to generate more granular insights of consumer patterns from the perspective of the consumer packaged goods and retail industries. This enables companies to zero in on high-value consumer archetypes or channels. Further, by examining each archetype’s consumption patterns from the perspective of the financial service, communications and hi-tech industries, our analysis also sheds light on emerging preferences or cross sector purchasing patterns. Above all, it distinguishes one set of consumers from others in a way that allows consumer packaged goods companies and retailers to make targeted strategic investments.

A detailed analysis of our survey results reveal eight consumer archetypes for consumer packaged goods companies and retailers to consider targeting in urban China.

At the lower income ranges, two consumer archetypes — aspirational wage earners and price-sensitive families — dominate. Together, these groups make up about 30 percent of the urban Chinese consumer market.

 

Aspirational Wage Earners
This archetype is typically represented by middle-aged women in Tier 3 cities. While they lack significant spending power, they will pay for products that give them enjoyment or make their lives easier. Like other archetypes, they are highly influenced by social networks and online advertising. And the largest amount of their spending is directed toward apparel and household items, which they buy in large measure via online channels. However, unlike other archetypes, they are less likely to follow trends or place much emphasis on the latest product features. They purchase what they need and, as far as they are able, what they want. Point-redemption schemes appeal to this archetype, as do low delivery costs.

 

Price-Sensitive Families
Also known as “wise shoppers,” this archetype is very rational when it comes to making consumer product purchases. Like the aspirational wage earners, this group is predominantly middle-aged and female, has low spending power, and values promotional discounts and incentives. The lion’s share of their spending on consumer products is directed to personal care and household items. They spend little of their disposable income on “impulse buys” or items or experiences they might simply want to have. These wise shoppers are experienced in online shopping. But they ultimately base their purchasing decision on where they can get the best price advantages.
Among middle-income urban Chinese consumers, another two archetypes emerged. Internet civilians and thrifty householders make up about 40 percent of the urban Chinese consumer market.

 

Internet Civilians
The largest of any of our identified archetypes, this group comprises younger, ambitious, middle-income wage earners — primarily men from Tier 3 cities. These consumers are more emotional about their purchases and are willing to spend more than, say, members of the “price-sensitive family” segment, for whom spending is more restrained. The Internet civilians do not buy out of necessity; rather, they are motivated by the opportunity to enjoy leisure and, to a slightly lesser extent, trendy pursuits. They are heavily influenced by social networking and allocate a significant part of their spending to online purchases across a wide range of areas. Interestingly, they prefer physical channels when it comes to purchasing books or electronic products. They can be impulsive shoppers, and they react positively to shopping experiences that deliver personalized service and convenience. Importantly, their buying intent is very high. But, at this point in their lives, their buying power is relatively low. In other words, they are dreamers, with wallets not yet large enough to meet their purchasing aspirations.

 

Thrifty Householders
Like Internet civilians, thrifty householders tend to have medium-level incomes and live in Tier 3 cities. That is where the similarity between these two groups ends. Thrifty householders are middle-aged and quite conservative in their purchasing practices. They prefer to pay cash, and spend their money on practical things such as home appliances and health care. When they buy things, price and quality are often the determining factors. They care little about an item’s appearance or what it might say about the owner’s social status. This segment generally has no online shopping experience and is, therefore, not influenced by social networking or online advertising. Instore promotions and attentive sales people make the difference.

Accenture’s segmentation model revealed four distinct archetypes among higher-income urban consumers. Fashion-forward consumers, yuppies, exclusive service buyers and conservative middle income shoppers, combined, make up approximately 30 percent of the urban Chinese consumer market. Members of these archetypes have the highest buying power in urban China.

 

Fashion-Forward Consumers
These young professionals are clearly part of the digital generation —   a fact borne out of their strong propensity to purchase digital and electronic products. Mostly male, these individuals tend to live in Tier 1 cities. They are far trendier than any other archetype and seek out high-quality goods that can help them assert their  individualism.

Not surprisingly, the appearance and features of an item hold great sway, and price is a less important consideration. These Internet-savvy consumers use multiple devices to navigate their online shopping experiences. They are strongly influenced by online product information and the chatter on social networks. Given their exposure to the digital world, it makes sense that they are also more concerned about issues such as online fraud.

 

Young Urban Professionals (Yuppies)
Like the fashion-forward consumers, yuppies are young with money to spend. However, whereas fashion upstarts tend to reside in Tier 1 cities and be drawn to electronic goods, yuppies are more likely to be seen in Tier 3 cities, buying books, personal care products and travel-related items and exper iences. For yuppies, the overriding concern in making many of their purchases is the status that such a purchase will convey. In fact, yuppies’ self esteem is closely linked with their ability to buy products that reflect their desired social status. Their brand awareness is extremely high. Yuppies are also one of the most digitally savvy archetypes, with 85 percent having online shopping experience and engaging in e-commerce quite frequently. Approximately 40 percent make purchases via their smart phones. Given their digital connectivity, it stands to reason that social networking plays a big role in shaping their preferences. But yuppies don’t spend all of their money in the online world. They also make regular visits to branded stores and internationally renowned supermarkets.

 

Exclusive Service Buyers
For this group, which makes up about 6 percent of China’s urban consumer market, service quality and convenience are exceptionally important factors. Members of this archetype are quite demanding when it comes to service excellence and receiving a highly personalized experience. This is understandable, given the high levels of spending made in the service-dominated areas of tourism and healthcare. Women outnumber men in this archetype. They tend to be young, live in Tier 1 cities, and pay special attention to product performance and the efficiency of the consumer experience. All exclusive service buyers are experienced in online shopping and use social networks and websites as their primary sources of product information.

 

Conservative Middle-Income Shoppers
Along with exclusive service buyers, conservative middle-income shoppers have the greatest buying power in urban China. Yet despite their relatively high levels of disposable income, these individuals adhere to more conventional purchasing  practices. Typically older, these consumers are very pragmatic when it comes to making their purchasing decisions. Quality and brand recognition are important product considerations for them. Home appliances, household goods, and healthcare products and services account for most of their consumer product purchases.  interestingly, the conservative archetype is the only upper-income archetype with relatively few online shopping experiences. These individuals prefer to shop in large, well-known stores, and are greatly influenced by TV advertising and word-of-mouth channels when making their purchasing decisions.

 

A Winning Consumer Strategy In A Changing Digital Market Place
Winning in China has never been more challenging. Consumers are savvier, more socially connected and more demanding than ever before. Disposable income differences are narrowing. Loyalty is fleeting. And competition from multinational and home-grown companies is becoming ever more intense.

Fortunately for consumer packaged goods companies and retailers, the challenges associated with operating in China are offset by the tremendous opportunities for growth. Digitization and industry convergence hold particular promise. They are the new frontiers of growth, innovation, differentiation and competitive advantage. But seizing these growth opportunities requires deep knowledge of consumers and an ability to act on that knowledge to drive high performance.

Fortunately for consumer packaged goods companies and retailers, the challenges associated with operating in China are offset by the tremendous opportunities for growth.

 

To win consumers in a changing digital market place in China, consumer packaged goods companies and retailers must implement strategies specifically designed for urban consumer archetypes. Before you can do that, however, there are four things you need to do:

• Invest in technology platforms that will enable you to gain and integrate consumer data from different sources.
• Invest in building analytics capabilities so that you can truly understand changing consumer behaviors and the path-to-purchase journeys of the consumers you want to reach.
• Develop a consumer engagement blueprint that will guide you in delivering the most satisfying and valuable consumer experiences. For consumer packaged goods  companies, this blueprint should be focused on building brand loyalty. For retailers, the goal of the blueprint should be to provide a seamless and personalized shopping experience.
• Identify opportunities for unconventional growth. China remains a land of tremendous opportunity. Consumer packaged goods companies and retailers that take your claims in digitally contestable markets will be the ones to succeed.

Accenture research and experience suggest there are additional actions consumer packaged goods companies and retailers can take to further differentiate yourselves in the urban Chinese market.
For consumer packaged goods companies, these actions include:

• Pursuing consumer-driven innovation by engaging consumers, encouraging collaborative design or crowd-sourcing.
• Eliminating the complexity, cost and time inherent in analog processes and channels.
• Building new marketing and sales capabilities based on a digital foundation.
• Rethinking and adapting to a new digital operating model.

For retailers, the actions include:

• Integrating operations through seamless, cross-channel merchandising, stocking, marketing, inventory management, pricing strategies, management scales and incentives.
• Investing in seamless connections between various technology platforms.
• Collaborating with technology, data, analysis and process partners to deliver a seamless shopping experience.

 

About the Authors
Till Dudler is the Managing Director of Global Strategy – Consumer Goods and Services. ([email protected])
Rajat Agarwal is the Managing Director of Consumer Goods and Services, Asia Pacific. ([email protected])
Woolf Huang is the Managing Director of Consumer Goods and Services, Greater China. ([email protected])

About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with approximately 289,000 people serving clients in more than 120  countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. Its home page is
www.accenture.com.

Copyright © 2014 Accenture All rights reserved.











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