China’s rapidly rising middle class is too important for any multinational company to ignore. In 2012, nearly a quarter of the population—or 300 million people—had “significant discretionary spending power,” according to the consulting firm Dragonomics. And to tap into the total financial assets of China’s middle class—roughly ¥1.3 million ($213,900) per capita, according to Forbes China—retailers are paying increasing attention to what China’s middle class wants.
Yet to succeed in China, marketers must keep in mind a few unique characteristics of the country’s middle class. First, they have a strong preference for novelty, which leads them to constantly seek out the newest products available. Second, they are early adapters of new technology and have embraced social and digital media. Finally, while they enjoy the status conferred by luxury brands, they usually lack the emotional ties that would lead to brand loyalty.
China’s digital middle class
China’s middle class has enthusiastically embraced digital and social media. Of the estimated 1.2 billion social media users worldwide, 400 to 450 million of them are in China. It is one of the most socially engaged markets in the world, with 84 percent of its Internet users participating at least once a month in activities such as video uploading, photo sharing, and microblogging. Seventy-six percent of China’s social media users create social media content, rather than just consuming it. (In the United States, only 24 percent of social media users create content.) And the average Chinese Internet user aged 55 to 64 is more active in social media than the average American user aged 25 to 34. These middle-class netizens are eager to share information about brands they like, and those they don’t, making the web an important platform for brand communications.
In addition, ecommerce, including mobile, is likely the sales channel with the greatest potential for reaching China’s middle class. Forrester Consulting forecasts combined business-to-business and business-to-consumer online sales of $315 billion just two years from now.
China’s embrace of digital platforms, especially social media, can work to marketers’ advantage. Conversely, social media can devastate a company’s reputation if conversations about a brand turn negative. For that reason, marketers must establish and maintain constant two-way engagement with customers.
There are best practices for selling products and services to China’s digitally savvy middle class. Here’s a look at some case studies from two key market segments, consumer goods and luxury, that offer insights on what made these marketing initiatives work so well.
Procter & Gamble
Since entering Mainland China in 1988, Procter & Gamble (P&G) has become the country’s largest maker of consumer products. To spur sales of its popular Rejoice shampoo, P&G leveraged a powerful emotion, love, in a Valentine’s Day campaign to connect with consumers in a way that would drive purchases of Rejoice.
Just before Valentine’s Day in 2012, P&G created 18 electronic billboards linked to a website where people could post romantic messages. This was supported by online videos, social networking sites with celebrity participation, banner ads, messages at the end of TV commercials, and promotional copy on product packaging—all designed to build engagement and increase participation. After six weeks, the campaign had generated more than 4 million visitors, including 2.8 million repeat visits, and 21 million page views. In January and February 2012, online sales of Rejoice rose 354 percent from the same period the prior year—a dramatic result showing the power of consumer engagement.
There is power in encouraging consumers to create and share their own content, which deepens engagement with the brand. Successful companies encourage this behavior by combining rich content, such as music, videos, and do-it-yourself ecards, with incentives—in this case, special promotional prices leading up to Valentine’s Day. P&G was able to forge an unusual association between Valentine’s Day and shampoo—and, by using an ecommerce platform effectively, was also able to create a sharp spike in sales.
Tibet 5100 bottled mineral water
Demand for premium bottled mineral water in China has significantly outpaced the mass-market water segment. Tibet 5100 sells premium-brand water via partners such as airlines, rail networks, hotels, and private organizations including golf clubs. To expand its sales channels, the company has begun selling to consumers using pre-paid cards bought online. These online sales allow the company to track sales and build a database of information that helps them better understand their customers’ behavior.
Working with Fleishman-Hillard and iSoftstone, China’s largest provider of mobile apps, Tibet 5100 is integrating its extensive consumer database and customer relationship management (CRM) system to allow behavioral targeting of consumers as they move among different websites. Tracking the consumer’s online journey helps Tibet 5100 get valuable information about what consumers like and want. Using this information, the company can increase the loyalty of its existing customers, target new consumers based on interest and profile, and gather intelligence that helps them adjust their competitive strategies.
Ultimately, the goal is to integrate consumer interaction with brand communications; product marketing initiatives with ecommerce; and customer purchases with other points of contact. Data retrieved from consumer interactions will allow Tibet 5100 to ensure it rewards loyal customers through CRM programs, optimizing those rewards for maximum value in a way that drives repeat sales. The campaign started in mid-July 2013, and so far it has resulted in a 190 percent increase in revenue per order for Tibet 5100.
Companies must build deeper relationships with customers who already buy online, while driving repeat sales among consumers who may not yet buy online but are nevertheless willing to share their feelings about the brand. Tibet 5100 accomplished these goals by building a mobile app that provides a rich multimedia content platform. Music fans can learn about the brand’s sponsorship of ethnic dancers from Tibet, while sports fans can learn which private Chinese golf clubs stock Tibet 5100 mineral water. Consumers can get this information and buy a card for Tibet 5100 online, which can be used by the buyer or sent as a gift. Customized information, delivered in the right format, is key when marketing to the middle class. It helps marketers communicate effectively with online shoppers, who are focused on making traditional price and quality comparisons, as well as with browsers of owned media, in this case the company’s website, whose broader interests the brand must address in a more personal way.
As their incomes rise, middle- and upper-middle-class consumers buy more luxury goods. Today, luxury brands earn a significant portion of their global revenue in China. Consulting firm McKinsey estimates that Chinese consumers will account for 20 percent of luxury purchases worldwide by 2015.
Chinese luxury buyers are younger than their counterparts elsewhere in the world. An estimated 45 percent of Chinese luxury consumers are age 35 or younger, while the average Chinese millionaire is 37, compared with 57 in the United States. Over the long term, these demographics favor luxury marketers, since younger Chinese will have longer customer life cycles. At the same time, however, generational differences in buyer psychology present marketers with numerous challenges.
Because China’s government is sensitive to the country’s widening income gap and how it might affect social stability, authorities tightly regulate the luxury market and maintain strict controls on advertising. In early 2011, the Beijing Administration for Industry and Commerce forced companies to remove words such as “luxury,” “royal,” and “high-class” from all outdoor ads. In February 2013, all luxury ads were banned from official television and radio stations.
While Chinese consumers enjoy the status conferred by luxury brands, they lack the emotional ties that would lead to brand loyalty. Appeals to tradition and brand heritage, which tend to work well in other countries, may fail in China. Some luxury marketers have responded by appealing to local tastes. For example, Louis Vuitton knows that luxury buyers in lower-tier cities enjoy being treated like VIPs. The company creates “a VIP experience” by closing selected stores for half a day and arranging private showings for customers who spend more than ¥200,000 ($32,000).
There is also a growing trend toward creating a dedicated space in which to “curate” a luxury experience. British drinks company Diageo opened the Johnnie Walker House, a “brand experience space” in Shanghai designed to foster appreciation of Scottish whiskey and encourage Chinese drinkers to associate it with a sophisticated lifestyle. Also in Shanghai, Miele, a maker of high-end home appliances, has created Miele House, a combination store/showroom that sells a luxury lifestyle by displaying Miele products in a household context to help consumers imagine living in such an environment.
Looking toward tomorrow
As marketers focus on China’s middle class they will also have to prepare to serve an even more affluent upper tier of that demographic which, in many cases, will be located outside of China’s first-tier cities. According to consulting firm McKinsey, China will soon undergo a shift from its current “mass middle class” to a new category of upper-middle-class Chinese consumers. Calling this cohort the “new mainstream,” the firm identifies them as consumers with household incomes between ¥106,000 and ¥229,000 ($16,000-$34,000). Perhaps even more striking, their numbers will swell from just 14 percent of urban households today to 54 percent by 2022, according to McKinsey’s estimates.
Newfound affluence will lead to new behaviors in this group. Like western consumers, upper middle class consumers respond more strongly to the emotional dimension of products and services, in contrast to those in the mass middle class, who focus more on purely functional product attributes, such as durability. These new mainstream consumers will also begin to exhibit more brand loyalty than they have in the past.
Consumption patterns in the generation of Chinese born after the 1980s, now in their teens or early 20s, will also likely change. Having grown up in an environment of non-stop economic growth and abundance, they are more confident that their personal incomes will rise. They also tend to be more brand loyal, more adventurous in adopting new products and services, and more willing to trade up to premium products, according to McKinsey
At the same time, another trend is well underway: the geographic center of middle-class growth is shifting to China’s Western and Northern regions. For the past 20 years, economic growth has been concentrated in first- and second-tier cities in the coastal regions. Within 10 years, however, third-tier cities will be the main drivers of growth. Further, the new rich in third- and fourth-tier cities are much likelier to spend their disposable income online: 27 percent compared to 18 percent in first-tier cities.
These trends strongly suggest a need for a dual marketing strategy that lets retailers capture the middle-class and upper-middle-class consumers that will be spread out across the country.
[author] Li Hong ([email protected]) is senior partner and president of the China operations at FleishmanHillard, a public relations firm. [/author]