By Claudia Suessmuth-Dyckerhoff, Jimmy Hexter and Ian St-Maurice
April 4, 2008
As the burgeoning Chinese economy puts more and more disposable income into the pockets of China's growing middle class, foreign marketers are stepping up their efforts to woo the Chinese consumer, especially in anticipation of the upcoming Summer Olympics with all its attendant marketing opportunities.
But even as Chinese consumers grow wealthier, winning their hearts and minds is becoming more challenging for foreign companies. According to an annual survey of more than 5,000 Chinese households conducted by McKinsey & Company's Shanghai-based China Consumer Center, despite dramatic increases in affluence, product availability, and exposure to global lifestyles and cultures, there appears to be a resurgence of interest in traditional values and beliefs among Chinese consumers. Our research shows that this shift is having a pronounced effect on their preferences for brands and buying behavior.
There are distinct differences between Chinese consumers and those in the West. These differences are not diminishing as Western influences proliferate—in fact, they are increasing. This is a surprising development as it contradicts the widespread Western assumption (and, perhaps, bias) that the more a population is exposed to Western products, marketing, and culture, the more its values and behaviors come to mirror the West's.
Some multinational marketers are well attuned to these subtle differences in consumer attitudes and behavior, and as a result, have captured sizeable market share and profits. But many others are trying to compete by following the same playbook they used when they first stepped foot into the Chinese market in the 1990s. Without understanding how this turn toward traditional Chinese values and beliefs impacts consumer behavior, companies risk missing the mark, no matter how great their investments in product development, marketing, or supply–chain processes.
There's no doubt that China's economy is booming and wealth is increasing at a steady rate. China's real GDP has risen by a reliable 10% annually from 1999 through 2006, a rate that is mirrored by the growth in total urban consumption (projected GDP growth forecasts for 2007-12 range from 8% to 12%). The number of urban households with annual incomes between 40,000 yuan to 100,000 yuan (around $5,714 to $14,285) is projected to increase annually by 36% between now and 2012, while the percentage of households with incomes greater than 200,000 yuan ($28,571) is projected to increase by 14% during the same period.
But Chinese consumers do not open their wallets easily. Chinese consumers are saving an increasingly large percentage of their monthly household income. Overall, self-reported household savings have risen to almost 28% of monthly household income in 2006 from 21% in 2005, a dramatic rise for just one year, and substantially higher than the number reported by households in the United Kingdom, where monthly savings run slightly above 3%, or in Canada, where households save a little less than 2% of their monthly income.
Chinese consumers are also more cautious toward consumer credit. This appears to be a reflection of the traditional aversion that Chinese consumers have toward taking on debt, as well as their penchant for setting aside cash to fund medical care, education, and a host of other big–ticket household expenses, items that were once provided for by the state. Today, only 50% of the entire population is covered by public-health insurance.
This attitude is reflected in the rate of take-up and usage of credit cards. For instance, even though credit–card usage among Chinese consumers grew between 2004-07 (especially among the more affluent consumers in tier 1 cities such as Beijing, Shanghai and Guangzhou), it still lags far behind the other countries we studied. The credit–card penetration rate per urban household in China is roughly 4%; by contrast, in Japan, it is 78%; in the United States, 75%, and in Germany, 91%. There's also a huge difference in how the Chinese manage their cards. In short, they pay off their balances. Across all income levels, Chinese credit–card users almost always pay off their full balance every month. Less than 6% of Chinese credit–card holders use their revolving credit line at all.
Chinese consumers are also notoriously price sensitive, an observation supported by the findings from our survey. Compared to consumers surveyed in other markets, a higher percentage of Chinese consumers rate price as the most important factor they consider when they buy a personal computer – as opposed to other factors such as brand, hardware specifications, or appearance. Around 80% of Chinese respondents cite price above all other factors versus only 46% of American computer buyers, 50% British buyers, and 39% percent of Japanese buyers.
When asked if they would pay a higher price for a product or brand to which they are currently loyal, roughly one-quarter of respondents flatly said "no" across all product categories, from beverages to appliances to pharmaceuticals. More than half of respondents say they would switch to another brand if the price rose any more than 5%. This hypersensitivity to price changes makes it especially challenging for marketers trying to increase profit margins.
Chinese consumers are also resistant to new products and new brands, and are significantly more conservative than their counterparts in the other markets surveyed. For example, in response to the same question in our latest survey, almost twice as many (51%) consumers in Taiwan are willing to experiment with new packaged foods, as are 47% of American consumers and 43% of British consumers. Conversely, while only 11% of Japanese consumers in the latest survey say that they "like to stick to the brands they have used in the past," one third of Chinese consumers agreed with this statement.
But even as foreign marketers get their minds around the fundamental attitudes driving Chinese consumer behavior, another, more recent phenomenon is adding to the challenge marketers face – the recent resurgence of traditional values and beliefs in China.
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This article originally appeared in the Far Eastern Economic Review.
