LOCAL MAT TERS
LOCAL MATTERS
LOCAL MATTERS
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CHINA NOW . LOCAL MATTERS
Increasingly the world is more connected and
Meanwhile, new learnings about how people
so feels smaller, familiar and more similar.
form relationships highlights the importance
However, this can be an illusion. What people do, think and feel, within their own
of understanding cultural and social influences.
environment and culture, can be vastly
We like to uncover what really matters locally,
different, often in surprising ways.
by watching what people do and delving
We like to help our clients’ brands build relationships that really matter to people, wherever they are. We recognise that digital technology is transforming the way we all experience and interact with brands, allowing different people to experience different things in
deeper into what they feel and think. We explore beyond individual desires and needs, to understand cultural context and the power of social influence. Only then can we build the most vivid picture of what matters to people. China Now explores what matters to the Chinese.
different places.
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WHAT WE SEE China’s boundless ambition has spurred tremendous economic growth, creating a new playground for consumerism and a new expressionism.
ION
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1. BO
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EXP R
ESS
2.
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AY GR O
4. THE TRUST CHASM
Numerous scandals have created a trust chasm between consumers and brands.
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CHINA NOW . LOCAL MATTERS
As a result, consumers have become detectives, relying of mouth and the power of advocacy to find trustworthy information. They are also looking to foreign brands.
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E, AT RE .C 10 T AP AD
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ME
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N REIG O F F ER O W O HE P 7. T
primarily on digital word
AS S
IVE
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DE PERS
WHIS ESE N I H 6. C
8. NEW CH INESE VOIC E
GREEN G IN O GG EFININ 9. RED
A new Chinese voice is emerging: one where modernisation is more important than Westernisation. Traditions of the past are evolving to take on a contemporary flavour, while Western ideas are being reinterpreted with a Chinese eye. There is, for example, a redefinition of ‘going green’. The new demand for brands is to create, not adapt.
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“The space dream is a crucial part of our nation-building dream. With the rapid development of China’s space industry, a great step forward will be made by Chinese people in the exploration of space.” President Xi Jin Ping on the June 2013 launch of China’s 5th manned space mission, its longest to date. Source: CCTV
BOUNDLESS AMBITION President Xi’s space dream is just one
enormous wealth. It has lifted millions out of
example of China’s boundless ambition.
poverty and is propelling them forward into a
In the world of economics and global politics
new global middle class.
China, with its 1.3 billion consumers, is a dominant and powerful player.
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The consumption power of Chinese consumers is vast and its potential is not yet
The country’s phenomenal economic
fully tapped. Chinese consumers are savvy,
growth over the past decades has generated
demanding and ambitious.
CHINA NOW . LOCAL MATTERS
By 2015, China will represent 1/3 of global luxury spending
Rest of the globe
China
Source: McKinsey & Co.
In 2040 the Chinese economy will reach
123 trillion
nearly three times the economic output of the entire globe in 2000
China . 2040
Entire Globe . 2000
Source: Robert Fogel Nobel Prize winner in economics via Foreign Policy Curreny = USD
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A NEW PLAYGROUND FOR CONSUMERISM Underpinning China’s economic growth is the continued mass migration of its citizens from rural to urban areas, to find employment
221 China’s urban population =
1 billion by 2030
cities
with one million plus inhabitants by 2025 (Europe has only 35 such cities today)
23 cities with more than
5 million inhabitants by 2025
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CHINA NOW . LOCAL MATTERS
Annual per household income will
double
between 2010-2020 from USD 4K - USD 8K
Today 85% of Chinese ‘mainstream consumers’, consumers with annual household income USD 15-34K, live in the 100 wealthiest cities. Only 10% live in the next 300 wealthiest cities, but this will rise to 30% by 2020.
Lower-tier cities will become the centre of China’s future economic growth. Public and private sector investment, coupled with a rising middle class and the return of talented migrant workers to cities closer to home, means that many Chinese are becoming wealthier. These ‘mainstream consumers’ will be able to afford a range of goods and services (such as flat-screen TVs and overseas travel). So, a new type of Chinese consumer is emerging. Hard-working, entrepreneurial and optimistic about their future, they are the ones that will fuel further economic growth.
Source: McKinsey & Co. 11
Practice of sending kids abroad to study is increasing rapidly
50 45 40
abroad from 1978 to 2012
30
Source: The Chinese Luxury Consumer White Paper 2012
25 20 15 10 5
1978 12
1989
1992
CHINA NOW . LOCAL MATTERS
1998
2001
2004
2007
2010 2012
by 10,000
35
Number of Chinese studying
NEW EXPRESSIONISM Beyond the Birkin Expressing oneself within the family and
This new breed - the affluent and super-
society is a long-held tradition. Rising
elite - already possesses a surplus of status
incomes are enabling the Chinese to project
symbols. These consumers are looking for
their status to society and show their respect
more singular forms of status that tie into
(‘give face’) to others through the purchase
their values (such as family and education)
of status-giving luxury goods and services.
and demonstrate their world view. Sending
Some Chinese consumers are becoming even wealthier. Brands are already responding by
their children to elite foreign schools and universities is one example of this.
creating new tiers of exclusivity for them.
90% of Chinese* plan to send their children abroad
*with assets of more than 100 million RMB
The top preference for study is the US, followed by the UK and Canada Source: The Chinese Luxury Consumer White Paper 2012
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THE TRUST CHASM
Despite a strong appetite for consumption and self-expression, the prevalence of fake brands across all sectors (food, shampoo, consumer electronics and more) has left the Chinese distrustful of brands, particularly domestic ones. This has created a trust chasm between Chinese consumers and brands. However, Chinese consumers still believe strongly in brands and consider brands to have a responsibility towards society.
53.9%
58.6%
of Chinese consumers
of Chinese consumers
state that companies
state they are willing
have a responsibility to
to purchase products
create a better society
from a company that
and environment
demonstrates greater social responsibility
Source: N-Dynamic’s National Study
So what? Brands need to promote their integrity and demonstrate that they will deliver on their promises. Brands must cultivate long-term relationships, showing that they value their consumers and their communities.
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CHINA NOW . LOCAL MATTERS
CONSUMERS AS DETECTIVES Facing this deep trust chasm (in the midst of
Such strategies include:
so much spurious data), Chinese consumers have developed ingenious strategies to uncover trustworthy information. They are
Growing reliance on word of
extremely pragmatic and will reject products
mouth, particularly digital
that fail to either demonstrate real value or show how they will deliver differently.
Looking to foreign brands
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CHINESE WHISPERS Chinese culture emphasises the importance of
China’s digital citizens have taken on a
personal relationships. Naturally, consumers
‘people’s champion’ mentality, exposing
value and trust first-hand interactions and
brands that do not live up to their promises
recommendations from real consumers. As
and applauding those they love.
such, peer recommendations delivered via word of mouth (for example, online and via social media) have grown rapidly.
46.5%
77%
57%
of Chinese Weibo users will
of Chinese digital citizens
of Renren (a social media site)
check reviews posted on Weibo
feel that a company
users recommend products
before purchasing
becomes more attractive when it appears on a social networking site
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CHINA NOW . LOCAL MATTERS
Source: http://www.alibuybuy.com/posts/78651.html
Who do you trust? When it comes to making buying decision, the Chinese rely on people they know rather than on any marketing or sales channel
90% Word-of-mouth Information from people I know (family, friends, co-workers)
Social media
74%
77%
Such as Twitter, Facebook, Pinterest and user forums
39%
Online reviews Expert review sites, news sites or product comparison
Usage Importance in decision
70%
44%
Source: 2012 Accenture Global Consumer Behaviour Survey
So what? Consumers need to find a reason to spread positive information about brands: maybe outstanding customer service or some great content that shows the brand cares about broader consumer sentiments. It is important for brands to invite consumers to participate and even interact with them. Brands therefore
demonstrate not only that they are open and transparent but also that they value their customers’ opinions. Consumers are adept at navigating different channels to make informed purchase decisions. So brands must integrate all channels consistently to optimize consumer satisfaction. 17
THE POWER OF FOREIGN China is adept at decoding countries as brands The Chinese attach strong emotion and
As their incomes increase, more Chinese
associations to foreign countries. After
consumers can afford to look abroad for
countless scandals, it comes as no surprise
things they like. For these shoppers, how
that they favour imported products over
they view a foreign country influences which
domestic ones and view foreign companies as
brands they choose to buy.
superior, innovative and trustworthy.
US Strong Rich Creative
RUSSIA
UK
CANADA Friendly Leisurely Quiet
Traditional
GERMANY
Strong
JAPAN
Noble
Steady
Artistic
Diligent
Ancient
Prudent
Enthusiastic
Creative Prudent
Creative
NEW ZEALAND Quiet Leisurely Pure
INDIA Ancient
FRANCE
Traditional
Romantic
ITALY
BRAZIL
Artistic
Artistic
Mysterious
Noble
Romantic
AUSTRALIA
Enthusiastic
Ancient
Enthusiastic
Leisurely
Traditional
Young
Diligent Interesting
Mysterious
THAILAND
Quiet Source: N-Dynamic’s Imported Food Study, May 2009
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CHINA NOW . LOCAL MATTERS
Chinese consumers like to buy from countries they admire
64%
60%
Taking a holiday
Buying fast-moving consumer goods
49% Buying durable consumer goods
26% Buying luxury goods
20% Studying abroad
So what? It is important for foreign brands to be on Chinese consumers’ ‘good list’. Also, foreign brands should tap into the positive impressions and emotions that the Chinese associate with their country. However, foreignness is not automatically valued. If a brand is exposed for unethical behaviour or fails to deliver on its promises, the Chinese will turn away.
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THE NEW CHINESE VOICE The Chinese are aware that everyone is looking to win the Chinese consumer. They have a growing sense of pride in themselves, their country and even their brands. They are becoming global inventors, creators and leaders. They are modernising on their own terms: evolving traditional practices and redefining Western ones to suit their tastes. Overall the focus is on ‘modernisation’ rather than ‘Westernisation’.
So what? Brands should tap into Chinese cultural heritage and habits from the beginning. They need to be nuanced in their approach. There is no one-size-fits-all method. Brands must understand how Western, contemporary and traditional Chinese cultural values all relate when approaching their category, their products and their services.
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CHINA NOW . LOCAL MATTERS
EVOLVING CHINESE TRADITIONS Chinese consumers recognise that thriving
ingrained in Chinese culture. This is
local brands have an edge over Western
particularly important as more Chinese
brands in understanding what they want
people are suffering from chronic diseases
and need. Their ‘Chineseness’ is a source of
due to their diet and lifestyle.
strength and differentiation.
Traditional medicine has always been widely
Brands that incorporate traditional Chinese
revered and regarded by the Chinese as a
medicine, for example, are growing
way to enhance physical fitness, prevent
in importance as health has become a
disease, postpone ageing and prolong life via
top priority.
spiritual growth.
The desire to preserve health, postpone
In contrast, Western medicines are viewed
ageing and enjoy a long life is deeply
less favourably by many Chinese consumers as they often have side effects (such as damage to the liver or kidneys). They prefer to use traditional medicine to treat chronic diseases, but are open to new methods of delivery: for example, in the form of a pill or as part of their food at breakfast.
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76.3%
appreciate companies that take environmental sustainability measures
50%
motivated to buy environmental products for health reasons
60.2%
willing to pay 10% extra for environmentally friendly products
69.5%
save water, electricity and food Source: N-Dynamic 2012
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CHINA NOW . LOCAL MATTERS
REDEFINING GOING GREEN Another example of modernisation with
High pollution levels in Chinese cities have
Chinese flair is seen in their approach to
brought health concerns to the fore. Affluent,
‘going green’.
educated consumers who have accepted eco-
Unlike their Western counterparts who adopt eco-friendly behaviour because of the environment, for the Chinese ‘going green’ is very personal and local. It is about improving
friendly products are ‘going green’ to show their status. Of course, many realise that adopting eco-friendly habits can save them money too.
one’s own health (not everyone else’s) and one’s own status.
So what? Brands should play up their sustainability credentials in launching new products and services. It is important to ensure that brands enable the Chinese to flaunt their ‘green status’ in real life, as well as on social media platforms.
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CHINA NOW . LOCAL MATTERS
CREATE, DON’T ADAPT To reflect their new voice, the Chinese have
content with adapted Western brands. Nor are
a new demand from brands: to offer genuine
they happy with imitations.
creativity, not adaptation.
Instead they want inside-out development.
In the past, many brands have offered
The expectation is for products and services
imitations (shanzhai), or products which
to be personalised to their specific Chinese
have been made for other markets and then
tastes. This is evident in their creative use
adapted for China.
of existing technology for new purposes (for
Today, Chinese consumers have more exposure and access. They are no longer
example, Haier washing machines repurposed to wash potatoes, process yak butter, etc.).
So what? Brands need to listen carefully to Chinese consumers before assuming they have a product to launch. With the exception of a few brands such as Xiaomi, this is still surprisingly rare in China. The Chinese will gladly welcome a chance to cocreate. They are very innovative and keen to join the creative process, contributing with their own ideas and vision.
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CREATE, DON’T ADAPT
Map of lower-tier cities in China
Harbin Changchun Urumqi Tangshan Hohhot Shijiazhuang Taiyuan
Yantai Qingdao
Jinan Luoyang
Lanzhou
Zibo
Yangzhou Zhenjiang Nantong Changzhou Wuxi Shaoxing Ningbo
Zhengzou
Xi’an Heifei
Guiyang
Kunming
Changsha
Fuzhou Quanzhou Xiamen
Nanning
Huizhou Foshan Dongguan Haikou
Consumers in lower-tier cities are not like
Many ‘internal’ migrant workers are also
their higher-tier city counterparts. They have
returning home having tired of soaring living
grown up with fewer opportunities and are
costs and being treated as second class
less educated.
citizens*. They are ‘coming back’ to lower-tier
Because lower-tier cities are less developed, there is a dearth of professional jobs. From a
cities to start their own businesses, bringing with them both funds and newly-learnt skills.
young age, workers have aspired to become
These changes are inspiring new levels of
savvy and creative entrepreneurs in order to
creativity in these cities.
to escape poverty and gain success.
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CHINA NOW . LOCAL MATTERS
* Migrant workers are not entitled to the same benefits as locals due to China’s household registration system (hukou).
In 2011, second to fourth-tier cities had a combined disposable income value roughly eight times bigger than tier-one cities
RMB 1 trillion One-tier cities
RMB 8 trillion Second to fourth-tier cities
Source: AC Nielsen 2011
The consumer classes in the second, third and fourth-tier cities consist of approximately
million
people Source: Ogilvy & Mather via CKGSB
In the next 12 months
of China’s potential car buyers will come from third and fourth-tier cities
of the potential buyers will be first-time owners
Source: Nielsen & China Association of Automobile Manufacturers
So what? For international brands looking to crack China’s lower-tier cities, the opportunity is to learn from, and even partner with, local entrepreneurs. The success of local entrepreneurs demonstrates that local knowledge, creativity and a physical presence are important to the Chinese. 27
SO WHAT MATTERS FOR BRANDS IN CHINA? Ensure your brand expresses the new Chinese voice in inventive and imaginative ways. Make sure you offer real benefits that deliver under the scrutiny of the savvy shopper. Find innovative ways to demonstrate openness and transparency. Encourage people to participate: give them things to do and ways to contribute their own ideas. Seamlessly integrate all your channels. Create for the Chinese, don’t adapt.
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CHINA NOW . LOCAL MATTERS
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