Chinese consumers are eager to spend, but it pays to know how.

Uncertainty is affecting many markets, tempting international marketers to consider looking at China, hoping that the country’s consumers might just be able to speed up and lift the economy out of recession.

Take the luxury goods sector. Research by McKinsey shows that by 2015 China will be home to the world’s fourth largest population of wealthy households. McKinsey also reports that about 80% of China’s 4.4 million wealthy people are under the age of 45 (versus 30% in the US).

Not only are Chinese consumers eager to spend, they are doing so in great quantities and will do so even more in the future. A typical example concerns the luxury goods sector, which according to Bain & C°, a research consultant, reached an astonishing $ 9.6 billion in sales representing not less than 27.5% of the global market in 2009. In fact, China is expected to overtake the US as the world’s nr 1 luxury goods market by 2015 with forecasted sales of $ 14.6 billion. This figure matches the one disclosed by Ruder Finn Asia in their 2009 China Luxury Forecast report claiming that in Greater China at large, more than half of the respondents declared to intend increasing their purchase of luxury goods. The good news is that Chinese consumers appear to be remarkably brand loyal, with nine out of ten sticking to their preferred brand. Among the most preferred global (luxury) brands, veteran names like Louis Vuitton and Cartier have been joined by many other entrants since they first tapped the market in the early 90s. Audi for example witnessed a jump in sales of 42.5% y/y in 2008 and that same year, China was the largest outlet for Hennessy brandy.

But such achievements don’t come easy. China-expert Jeanne Boden (www.chinaconduct.com) in her book “Mindmapping China” implies that building expectations on flourishing marketing data is one thing, implementing a successful approach of the Chinese market is a totally different ball game. Building a brand position in the country is a matter of patience, trust building and a healthy amount of prudence. Indeed, marketers dealing with Chinese businessmen have learned to approach their counterparts with utmost carefulness. Whilst it takes two to tango, realising that being considered outsiders doesn’t contribute to a long-standing relationship, if only because of cultural divergence. Nevertheless, showing an understanding of Chinese cultural attitudes – and making it clear to be committed to doing so – often helps to be taken seriously.

Another word of warning: trying to catch a piece of China’s $ 1.153 billion retail sales (measured during the first 8 months of 2009 only) mass market can be tricky. Purchasing power of the large majority (in particular those living outside of urban areas) remains low compared to international standards and even consumers with above average spending power will do so in a rather conservative manner.

This being said, benchmarks to judge the Chinese market in terms of advertising investments are difficult to assess. According to J.Walter Thompson, the importance and impact of the Chinese marketing communication scene is distorted because of heavy discounting. In reality, the market is polarised between people trying to build a price premium for a brand and commoditised players frenetically competing on price. Consumer media investments are believed to exceed the level of $ 20 billion (2008) and growing at double-digit rates. According to all the main forecasts, the Asia-Pacific region is expecting to reach a full quarter of global media investments by 2012 and China is expected to overtake the UK advertising media investment level in the course of this year.

Another remarkable factor is the role of the internet in China which has lagged both to a relative scarcity of access and the lack of a trusted payment system. But with the introduction of local electronic trading & payment platforms (Taobao and Alipay), the growth of e-commerce has been stunning. According to Nielsen, two-third of nearly 310 million consumers connected to the internet bought an everyday item online in the past 6 months. Surveys suggest that Chinese internet buying patterns differ from Western ones: 10% of baby gear for example or – even more surprisingly – substantial volumes of Lipton’s tea are sold online. Unilever matched offline advertising to online promotion, cleverly convincing Chinese consumers who often remain hesitant purchasers online since they like to be able to touch and inspect the goods before ordering. Goods are sold online at an even greater discount, which, according to a survey by Credit Suisse, reached an average of 21%.

Rules for addressing the Chinese consumers are complex and advertising claims and content generally need to be approached with extreme care. Jeanne Boden has some recommendations: 1) it’s nice when brands have a tradition to vouch for, 2) Chinese are enthused gamers (contests in shopping malls are popular), 3) be careful when ‘translating” brandnames in Chninese script (BMW is bâo mâ meaning costly horse, Adidas’ tagline in Chinese becomes: “Go for the challenge, show our families that we thrive”), 4) admiration for all thing Western is gradually becoming a thing of the past, 5) Chinese love rankings as “the best” or “the first” - but be aware that this may be subject to censorship by the authorities.

Jeanne Boden’s “Mindmapping China” is published by ASP Academic & Scientific Publishers (ISBN 9789054876908).
Interpartners Asia/Pacific contact points: Chiu Liu Chian in Singapore (lcchiu@pacific.net.sg) and Ben Elvy in Sydney (ben@oneforall.com.au).

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