Chinese society is facing evolutions, in particular towards its luxury consumption. Brands have to reconsider the process to approach and satisfy consumers’ interests. Nowadays, it is crucial to observe and understand Chinese customers’ behavior and needs. Today’s top companies succeed by making innovation a fundamental part of their strategy.
Evolution: Identify and exploit new Chinese market Trends
In the expansion, the Chinese market is a key figure to consider in building a marketing strategy; an important number of market shares still have to be acquired. Indeed, the number of Chinese millionaires overstepped any other country in 2018. In addition, the country should host the most powerful households in the world by 2021. In 2016, approximately 7.6 million Chinese families bought luxury goods. On average, they spend 71 000 RMB on luxury goods per year, which represents double what French or Italian households spend each year.
Exploring the habits of today’s “new Consumers” in China
The growing number of luxury consumers is due to the rise in the incomes of households in China. International brands target Chinese consumers because of their spending and purchasing power: they are powerful drivers of this industry. Nonetheless, it is important to reckon with the power of the middle class because of the rapidity of growth. For international brands, this class is at the stake in the future. The price influences the prestige of the product. Therefore the more the product is expansive the more the customers want to purchase it. As price is an indicator of prestige, it has been noticed an increase in product consumption while the price was increasing. It is called “conspicuous consumption”.
Chinese consumers are characterized by their need for consistency and social status. If the figures for McKinsey are to be believed in 2015, 500 million people who bought luxury goods were middle class. By 2022, this number is expected to reach 550 million people.
- Chinese consumers are much younger than their western counterparts
Another relevant characteristic is that Chinese consumers are in general younger than their western counterparts. On average, Chinese luxury consumers are 25-35 years old. This is due to the fact that millennials (Gen Z) and generation Y have access easily to information through digital platforms such as brand websites, webzines, influencers, and WeChat/Weibo/Red book to collect information on luxury brands. Therefore, brands can use an O2O communication strategy (online to offline) through digital exposure.
- Chinese women are more willing to buy luxury goods
Moreover, it has been pointed out that Chinese women are more likely to buy soft luxury (apparel, leather goods, accessories, etc.) and men’s hard luxury (watches, cars, etc.). Therefore, women highly participate in the rise of fashion luxury consumption which remains one of the main sectors. The evolution of Chinese consumers’ mindsets and aspirations has opened barriers in the luxury industry. Chinese customers have a higher demand for disposable income and shifting needs.
Chinese Customers are looking for an experience, a lifetime moment. In their strategy to integrate more customers and enhance awareness, luxury brands are developing human-centered services to retain and attract consumers. For instance, Cartier has developed personalized services such as bridal.
Redesigning your Chinese customer experience
Retail overseas is the main shopping place for Chinese consumers. According to estimation, 60 % of luxury sales take place outside China. Aside from the fact that luxury item is around 10% more expensive in Asia than in Europe, this stems from the fact that Chinese people travel more and more around the world.
Favoring security, visa simplified process, and tremendous landscape countries, Chinese consumers are exploring mainly Europe. Statistics showed their main search for gourmet items and luxury (from apparel to wine) and hospitality experience. Moreover, Chinese customers have highlighted that they were less subject to stereotyping in overseas retail areas. Indeed, China is characterized by “phantom” salespersons. As price and security processes are banned from certain stores, the customer can be often analyzed according to his outfit and followed around the store. Sale policies and practices are different in the European sector.
Adding to practices, it appears that Chinese consumers have a tendency to purchase a lot of items online directly. For instance, recently the Louis Vuitton store closed in Shanghai as the conversion rate was decreasing. Even though luxury is a thriving industry, each brand has to adapt itself and its strategy to its consumers.
What is crucial in understanding Chinese consumption is that it is getting further away from traditional communication, favoring digitalization and searching for experiences.
Mapping The Chinese market Trends
Thinking About Tomorrow to Prepare for Today
Leading a High-Intensity Culture
The growth of the middle class is defining consumption. Over the next ten years, household consumption will grow by an average of 6% annually to reach RMB 56 trillion, with the middle class potentially representing an estimated 65% of households. By 2027, household income will have increased by around 5% annually, with industrial jobs redistributed to service sector jobs. Population movement will occur from rural to urban areas, where incomes are higher, resulting in low- and lower-middle-income households, with more spending advancing from necessities to discretionary product categories. China’s government is supportive of the transition to a consumption and services-driven economy, implementing policies to encourage spending in such areas as health and pensions, discouraging saving.
Creating value by seeing what’s next
China’s urbanization rate will continue to increase over the next decade, from 57% in 2016 to around 70% in 2027. The Chinese government is taking a different approach to urbanization by moving the focus away from megacity centers toward newly established economic clusters. This has been made possible by advances in technology in the transport and information sector. High-speed trains and drones will make logistics cheaper and faster. High-speed Internet connectivity has a number of possibilities, including the lack of necessity to physically leave your home.
With this tactic of spreading urbanization throughout the country rather than focusing on already established urban areas, people all over China will be able to enjoy a lower cost of living, more recreational space, and less pollution.
Lead The Way: Think Different campaign
The sharing economy, which took hold so easily in China, was estimated to be worth about RMB 3.45 trillion ($520 billion) domestically in 2016, a sum that included spending both by consumers and businesses. Chinese consumers already have a culture of paying for access rather than ownership, and by 2027, this model of consumption will become a routine part of their lives. China is home to more sharing economy start-ups than any other country in the world. Technology is shrinking the convenience gap between sharing and owning.
By 2027, technology will dramatically reshape the retail industry in China, such as the IoT Internet of Things) and AI (Artificial Intelligence) digitalize real-world actions (widgets to digits) and augmented reality has changed the shopping experience. The retail sector will benefit from the integration of data and the customer’s journey between offline and online shopping, which will deliver an upgraded experience.
The role of physical stores will transform. Most small-format offline channels will be digitalized and linked to online platforms, and overcome the barriers related to economies of scale. Throughout the customer journey, most successful retailers will engage with customers via online or offline channels. Cashless transactions and ubiquitous traceability of consumption will become the norm.
In the future, almost all daily transactions will be on mobile devices and digitally traceable, giving companies the means to generate invaluable consumer insights that will help them develop better-tailored products, services, and delivery options.
Lean on customers
Corporations that control data will have great influence and substantial competitive advantage. Data is the new top currency. By 2027, China may have less than five companies in control that will extract, process, refine, value, sell and buy consumer data. Emerging technology that makes data more usable, such as machine learning, will resolve this challenge that differentiates owning data and integrating it across platforms.
Rapid technological development is creating both opportunities and risks for consumers and society. Digitalization and privacy are major concerns in China, especially if a small group of companies owns billions of consumer data points privacy infringement is a big problem. It may pose a serious problem unless a regulatory framework protecting Chinese consumers’ privacy is put in place.
Another concern is the inequality of inclusive growth. The digital gap between those who have access to technology and its benefits and those who do not will widen as technology advances. Solving this requires understanding and serving the different needs and aspirations of people across all demographics.
The rising toll technology takes on the environment and sustainability, must also be addressed. On November 2017 Singles’ Day online sale in China, overall orders from major e-commerce platforms summed up to 850 million RMB, according to China’s State Post Bureau, requiring at least 331 million packages to be shipped from one day’s purchases. Packages and vehicles required for delivery create major environmental and infrastructure challenges that will become more problematic as the industry grows.
Innovation involves creating new options
Personalized content in media and personalized marketing is leading the way in China. By 2027, the personalization of products and services will become a necessity for businesses. The emergence of AI, robotics, 3-D printing, and other technologies has reduced the cost of personalizing product design, manufacturing, and consumer communications.
Over the past decade, two influences have come to shape Chinese consumers’ attitudes toward culture and lifestyle. Firstly, consumers are more affluent and have greater access to Western culture and lifestyle, thanks to China’s open policy and technological development. Secondly, the government encourages strengthening China’s cultural heritage by incorporating it into national education.
The split in consumers’ lifestyle preferences is almost evenly divided across income groups, generations, and geography. It is also visible in consumers’ chosen sources of trusted information.
Steps to an Effective Innovation Process in China
Picking what you will pursue, and knowing when and how to reinvent yourself
The following smart guide can help you navigate the process and get you on a smooth path to succeed in China.
Observe Your Chinese Target Customers to Uncover New Problems and Opportunities
By building an understanding of your Chinese customers’ problems or pain points, you can think of ways your brand can provide innovative solutions. Try creating a customer experience to know what your customers are doing, thinking, feeling, and experiencing during every stage of the shopping, purchasing, and consumption process.
Managing a high-performing team during digital transformation
After, exploring your customer insights to better know the new ways to make a profit, you can adapt it with some effective marketing strategies for visually plotting and identifying these opportunities.
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Creating connected experiences
In order to reach your final goal, you have to adhere to the principles of lean development: introduce your product or service to the market as a basic offer first. This enables you to learn continuously from customer behavior and change the offer quickly if it is not working.
Embracing the digital process as a permanent marketing strategy gives you the flexibility to try out new business possibilities and refine the process. This is the best practice for growth companies in China.
If you want to get into the luxury market, our agency will provide you the accurate services thanks to our expertise.
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