Chinese Consumers: Cave Dwellers or Cartier Shoppers?

by Julian Righetti on January 11,2013 in China Trade ,

Developing an export strategy for one of the largest consumer markets in the world is exciting, but is it easy? We analyze some of the on-going trends in this market and offer real, pragmatic market entry solutions.

Is China transitioning from an export based economy to consumer based economy? Over the last 15 years, China has exported more than it has imported from the United States.

Now, however, the economy is changing. The older Chinese economic model, characterized by a weak RMB, exports, and government fixed investment in large infrastructure projects is evolving as this strategy yields diminishing returns.

Greater attention is being placed on cultivating more consumer spending as a more stable, long-term growth strategy for China. Yet, consumers in China are not like consumers in Europe or the United States.

The average urban middle class consumer’s salary is approximately $12,500USD per year. In China, this demographic is approximately 50 to 100 million people out of 1.3 billion. Consumer spending, as a portion of GDP, is actually smaller

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now than it was in the 90’s. While this salary may seem small when compared to the average European or American salary (~$46,000USD), savings rates are much higher in China. This market segment actually has over half a trillion RMB in savings.

So, what will happen in the future? Will consumer spending remain small relative to infrastructure investment or exports? Not likely.

According to a Mckinsey report, consumer spending will begin to exceed other GDP sectors by as early as 2015. Moreover, the report cites the historical legacy of countries like Taiwan, South Korea, and Singapore as evidence that Chinese consumers have a voracious hunger for consumer products and services.

This data should be taken with a grain of salt though, China won’t be like the US or Europe for quite some time. For instance…….

More than 5 million people live in caves in China! That’s 10% of the urban middle class!

(http://articles.latimes.com/2012/mar/18/world/la-fg-china-caves-20120318)

While consumer spending will increase in China-expect slow and steady growth; there are still hundreds of millions of people who live on less than $2 a day. Therefore, you should be mindful of how China’s different markets are segmented and what strategy will ensure that your product is effectively focused on the correct market. Significant growth outside of the mega-cities of Guangzhou, Shanghai, and Beijing will likely continue while more mature markets will see slower growth and greater competition.

Still, living expenses are much lower in China than in Europe or the United States. Often, a family that makes over $10,000USD a year can save for a Cartier watch or Volkswagen car. So, how do you tap into all that cash?

Developing a Marketing Strategy to Target Chinese Consumers

China is not an easy place to launch a product. The landscape in China is littered with the graveyards of massive US and European busts.

Evaluate Your Product’s Attractiveness to Chinese Consumers

With an unlimited budget, you could run market surveys, develop consumer profiles for your products, and gather some great data, but if you investment budget is more limited, then hire a consulting firm to help you develop your target market. Finding the right distributors for your product who tap into your long-term growth market is the key.

Many products that may seem conventional or easily marketable based on your product’s domestic sales, may be hopeless in China. Think about this……..

If this doesn’t make you think of egalitarian brotherhood, then perhaps, you need to rethink your product’s marketing strategy. In fact, Guizhou Maotai (pictured above), is an extremely popular, LUXURY, alcoholic beverage in China, favored by the Great Party as the official drink of Chinese government banquets. Personally, I think it taste like motor oil, but it sells very well.

So, your entire product may need to be reevaluated and redefined with Chinese characteristics. Your entire business strategy, presenting your product as a Western manufactured product or using a joint-venture partner to assist in developing your branding, might need to be reevaluated.

Limping in: Online Marketing

One successfully strategy that we have used for a number of clients is to develop an online marketing presence in China. Using Taobao or 360buy.com, we can help clients build a smaller customer base with limited investment to help test and evaluate their product in the market. Once we see sales, we can then look at more significant investment strategies. This is a good idea because you

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have the flexibility of refining your marketing and product branding before you invest heavily in launching something that no one might buy.

Regardless of your plans, exporting to China may be essential for your company’s growth strategy in the future.

For more information, contact hammersourcing.com at import@hammersourcing.com

 

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