Marketing in the Chinese Mainland

Marketing in the Chinese Mainland Leading Discussion CHINA‘S VAST CONSUMERS Julie Jeantot Michelle Chui Mark da Silva Steele Hemmerich Michael Hilscher

Outline VIDEO 1 VIDEO 2 Introduction The Consumer Landscape Evolution of the Consumer Market Risks and Oppurtunities Discussion A new Market Examples of firms Q&A

Video Introduction http://hk.youtube.com/watch?v=iEvOFlpAye8 http://www.pbs.org/newshour/bb/asia/july-dec05/consumers_10-05.html

Questions 1) Where are the risks and opportunities in China’s consumer market today? 2) What are the significant changes in Chinese consumers’ spending patterns in recent years? 3) Who are the Chinese middle class consumers? What are their beliefs, values, and aspirations? 4) How do Chinese consumers differ among themselves in their lifestyles and consumption patterns? 5) How to target the different segments of the market, i.e., the implications of marketing strategies?

CONSUMER LANDSCAPE • Education: -Minimum 9 years of education -rural areas less fortunate • Age groups: - Younger generation the most materialistic - Middle aged consumer spend a lot in investing • Middle Class: -$5,500 RMB (Avg salary in Shanghai) - Holidays and Celebrations is a luxurious time for the Chinese. • Urban vs. Rural: -Urban consumers are much more extravagant in terms of how they choose to spend their money. -Rural consumers have a much different mind set in terms of their spending habits. Overall, they are much more frugal with their money.

LANDSCAPE CONT’D… • Increasing income levels in the Chinese market

Who are the Middle Class Consumers. What are their beliefs, values and aspirations?

LANDSCAPE CONT’D… • The Chinese economy has been growing at an average of 10% these last few years. • Consumers of the 20- 29 age group have seen the most buoyant income, making them a prime target for retailers. • China has a falling Engel coefficient, meaning that as a percentage of income, people are now spending more on non-necessities, i:e Apparel, entertainment, etc: • There is also an obsession with imported, foreign produced products. • The Chinese consumer seems to lean toward modernization rather than westernization. • The Chinese Consumers are focused more on the brand and not the product itself. (Chandler Burr, New York Times, May 08) • The focus is on the richest 5%. • What do you think is most advantageous to business about the Chinese consumer Landscape?

How do Chinese consumers differ among themselves in their lifestyles and consumption patterns?

12% of the worlds luxury goods are bought by China, this is in comparison to 17% to that of the United States • 30% of the Chinese Market can be classified as the middle class, Wal Mart Shopping consumer. • This middle class market is still larger than the population of the United States. • However, as the video stated much of the population remains below the poverty line and relatively distanced from Chinas growth. • China is still one of the hardest countries for a firm to register and sell their product • Taxes are still almost a 100% on imported products.

EVOLUTION: THE MARKET • Social Transition in China -Increasing gap between coast and country side -before and after 1949 • Apparition of Social Classes-before 1970 -Economic Reform in 1978  opportunity for social mobility -Emegerence of Middle Class and Nouveau Riches -Increasing gap of Social Classes • Evolution of the Consumer‘s Envronment-Migration -Government -Economy -Retail Market

Evolution: Cont`d • Evolution of Spending Patterns - Food - Technology - Fashion - Tourism • Evolution of Buying Image - 1980‘s to 1990‘s - Consumption in China - Emancipation of Women • Differences between Generations

YOUR THOUGHTS What do you think are the risks and opportunities in the Chinese consumer market today and how have the spending habits changed in recent years ?

RISKS • Understanding customer‘s buying habits in China • Low Brand Loyalty (non- luxury goods) • Brand‘s National Origin • Logistical Challenges

Oppertunities • Rising Economy i.e. more employees and therefore more disposable income • Less savings, more spendings • New emerging middle class i.e. opportunities for companies to target this market • More metropolitan areas

How to target the different segments of the market, i.e., the implications of marketing strategies?

Marketing Implications Emphasis on the “brand” and not so much on the product description for luxury products. This is the same for foreign products. More emphasis placed on the large middle income group. Use local actors, and localize advertising messages. Localized advertising should have the greatest impact. Focus on the new wants of the Chinese consumer, capitalize on this new consumer freedom.

Establish a New market Historic development Companies from the US or Europe got their start in china by selling goods to the Chinese government. During the opening, they sold goods to the emerging premium segment, but never broadend their focus to include other segments.  The “good enough“ Market ( reliable enough products at low enough prices to attract the cream of chinas fast growing cohort of midlevel cosumers )  domestic and some mulitnational alike recognized the potential

Development of the “Good Enough Market“ Two main reasons:The income of low- class consumers has risen, thus they are able to purchase better quality products. Higher income consumers are moving away from the premium foreign brands and accepting the less expensive products.(locally produced alternatives of reasonable quality) Hence the middle class market is growing faster than both the premium and the low end segment. (analog at the B2B Sector )

Chinas Market for Televisons

Example Firms High Markt Share Good Quality with limited features Priced to undercut foreign brands Targeted to value seeking, midlevel costumers

ENTRY INTO THE “GOOD ENOUGH MARKET“

Example of a foreign firm Attacking from Above: Creation of a line of simplified MRI machines targeted at hospitals in chinas remote and finacially constrained second and third tier cities ( e.g. Hefei, Lanzhou ) - Fast growing market where costumers purchasing habits werent likely to change soon- Only litlle canibalization risks , but higher risk of converging segments

Example of a local firm Burrowing up from below Lenovo entered the good enough market via a joint venture and established ist international brand with the purchase of IBMs PC Divison in 2005 M&A or Joint Ventures

Marketing in the Chinese Mainland