Making right call on Chinese consumers

Making right call on Chinese consumers

Wed, 11/07/2018 - 10:08

NIMBLE Chinese brands are reacting to consumer demand quicker than their foreign counterparts. Photo: Shutterstock

Foreign brand companies scanning the news early last month may have been sent on an emotional roller coaster.

Although bears in China have been doom-talking about the economy for years, the World Bank’s latest update points to China’s gross domestic product continuing to grow at a healthy 6.9 per cent last year, and 6.8 per cent in the first quarter of this year.

Consumption remains China’s growth driver, which is likely to continue given consumer confidence reached a 10-year high in the first quarter of 2018.

But on the flipside, a Financial Times article about increasingly wealthy Chinese consumers trading up referred to McKinsey research illustrating a pronounced consumer preference for Chinese brands.

Across 17 categories, infant formula and wine were the only two segments where foreign brands were preferred over domestic – and only by a whisker.

This is contrary to what China Skinny is seeing in the market.

Consumers are often more familiar with domestic brands and their perceptions have become more positive – but we’re still seeing more favourable views for foreign products overall.

Based on the feedback we have had from our extensive industry networks in China, we believe many foreign brands are being supported.

China Skinny has done deep, intimate and personal research and analysis with thousands of consumers across China.

The numerous projects spanning many categories have found Chinese consumers overwhelmingly still believe foreign brands are better – higher quality, more stylish, safer and healthier.

In reality, there is a disconnect. While Chinese consumers usually favour foreign products, those brands are not servicing their needs well enough and are not where they want them to be.

Research by Bain & Co showed China’s domestic fast-moving consumer goods brands grew 8 per cent versus 1.5 per cent for foreign brands in 2016.

This result is not so much that they are seeking local products over foreign, but more reflective of nimbler Chinese brands, which are reading the market better and acting more swiftly, coupled with stronger distribution networks and more resonant marketing.

As we highlighted 18 months ago, dairy products are a classic example of foreign brands not meeting needs.

While the wounds of the 2008 melamine scandal may still cast a cloud over Chinese milk, domestic milk commands a 38 per cent premium per litre over the imported product.

This is because more of appropriate format sizes, better-suited value-added products, more specific segmentation and more targeted marketing.

China Skinny analysis has found similar results across many other categories.

Research by China’s Ministry of Commerce found 31 per cent of surveyed consumers expected to spend more on imported products in the next six months and more than 20 per cent claimed imported products accounted for at least 30 per cent of their total consumption.

Similarly, Chinese retailers plan to increase imports of more than a third of 92 products surveyed.

Although the results could be somewhat glossy due to current US-China trade negotiations and November’s massive China International Import Expo, they do reflect the general sentiment that Chinese consumers still relish imported products.

It’s why Alibaba and JD, with all of their data, are busy opening up offices globally to source foreign products.

So with the good news from GDP growth to positive consumer sentiment, foreign brands are still well placed to tap into it if they ensure they interpret the market well, and act quickly.

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Mark Tanner is the founder and managing director of Shanghai-based China Skinny. Through his agency he has worked with over 150 international brands such as IKEA, Colgate, Tourism Malaysia, ANZ, Westpac and IHG on their China market entry and growth strategies, trend analysis, branding and new product development.