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For success in China, focus on emerging consumer niches

Dec 03,2007
China, often called the “world’s factory,” is fast becoming the “world’s market.” Propelled by escalating disposable income in urban areas, the country’s consumer market more than doubled to 7.64 trillion yuan ($1 trillion) in 2006 from 2000. Consumption patterns are now starting to resemble those of industrialized nations, with expenditures on travel, education, telecommunications, entertainment and culture increasing.
Not surprisingly the personal spending spree is fueling responses by both global and local companies. Foreign firms are establishing footholds in finance and insurance and establishing research and development centers in China so they can respond more quickly to changes in consumer needs. Domestic counterparts are shifting their focus from low-end products to higher value-added goods and loftier brand image.
China’s changing consumer market has been accompanied by a middle class that has swollen to more than 20 percent of the population from 7 percent in 1995; flourishing childless double-income couples; greater emphasis on individuality; Sino-centrism; and nostalgia for traditional values. We may summarize these socio-economic movements into seven major spending trends:
“Present-oriented” Consumption: These consumers feel confident about their financial future and have a “spend now” attitude. Young adults especially fall into this group. Mobile IT products are must-have products and big-ticket items are financed by loans and credit cards.
“Good-Enough” Products: Middle-class consumers want more upgrades of low-end product lines and high-income buyers are becoming more value oriented. This has created a new segment for “good-enough” products that deliver better value at reasonable prices.
“Pleasure Trip” Consumption: The rise in incomes and wider adoption of five-day workweeks facilitate a range of trips.
“Green” Consumption: A higher quality of life and safety issues of Chinese goods are putting the focus on well-being and environmentally friendly products. Primarily high-income earners favor safe, healthy goods and organic food.
“Neo-Familism”: Rapid urbanization and industrialization have given birth to childless, double-income couples who have plenty of spending power. A new range of products and services caters to their independent lifestyle such as studio apartments, convenience stores and pet products.
“Cyber Chinese”: The online consumer market is growing with the greater convenience and reliability of online shopping. China’s online shopping market skyrocketed 61.7 percent from the previous year to 31.2 billion yuan in 2006.
“Chinese Style”: The rush toward wealth and modernization has spawned a backlash emphasizing traditional values and Chinese history and culture. New products use Chinese-style designs and artwork. The best example could be “Shanghai Tang,” a clothing brand launched by Richemont, a global luxury goods company. The brand has become successful by reflecting Chinese culture.
In the future, a core success determinant for Korean companies in China will be how effectively a company’s business strategy can reflect the above-mentioned new trends in the Chinese consumer market. Korean firms now need to adjust or refine their business strategies to cater to the variety of consumer segments being shaped by changing values and lifestyles. In addition, Korean companies need to view the Chinese consumer market as a platform for developing and testing products for other emerging markets. If they don’t respond properly to such new trends happening in the Chinese consumer market, they will be lose not only to global peers, but also to local ones.

The writer is a research associate at the Marketing Strategy Department of the Samsung Economic Research Institute. Inquiries on this article should be addressed to syh@seri.org.

By Hong Sun-young



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