Università degli Studi di Modena e Reggio Emilia D
IPARTIMENTO DI STUDI LINGUISTICI E CULTURALICORSO DI LAUREA MAGISTRALE IN
L ANGUAGES FOR COMMUNICATION IN INTERNATIONAL ENTERPRISES AND ORGANIZATIONS (LACOM)
WeChat as Digital Marketing Tool for Made in Italy Brands in China
Prova finale di:
Veronica Rossi Relatore:
prof.ssa Sabrina Ardizzoni
Correlatore:
prof. Bernardo Balboni
Anno Accademico 2017/2018
Abstract
The use of WeChat as a digital marketing tool is already a practice established among Chinese brands, but it is still new for Italian companies that operate overseas. This study aims to identify the best strategies to be implemented on WeChat to increase the visibility of the Italian brands in the Chinese market. This is important because the new Chinese consumers, especially the members of the Post- 90s Generation, are demanding for premium products and they tend to use their smartphones to get information before making new purchases. Therefore, opening and updating regularly the corporate profiles is essential to firms that want to increase their visibility in China. To identify some general trends that Italian companies implement when they use WeChat as a marketing tool, I had analysed four corporate profiles of Italian firms belonging to four different economic sectors. After that, to investigate which economic sectors could benefit from the use of WeChat, I composed a sample of 50 Italian companies that use the app to promote their products in China and it was discovered that the Italian economic sectors that are popular on the platform are fashion and jewellery, automotive and food & beverage. Lastly, I created a survey addressed to 31 Chinese consumers in order to understand what WeChat users expect from a company profile and how they value the Made in Italy products. The results show that to engage the WeChat users and increase the visibility that the app guarantees, it is important to hire one or more KOLs (key opinion leaders), create targeted promotions that are able to respond the clients’ needs, allow the personalization of the products offered, write articles and messages exclusively in Chinese and use the app to educate the Chinese consumers about Made in Italy.
Riassunto
L’uso di WeChat come strumento di marketing digitale è ormai una pratica consolidata tra le aziende cinesi, ma rimane una novità per le aziende italiane che operano nel paese asiatico. Questo studio ha l’obiettivo di identificare le migliori strategie da adottare su WeChat per aumentare la visibilità dei marchi italiani nel mercato cinese. Questo è necessario in quanto i nuovi consumatori cinesi, in particolare i membri della Post-90s Generation, ricercano sempre più prodotti di eccellenza e tendono ad utilizzare i loro smartphones per informarsi prima di fare un nuovo acquisto. Di conseguenza, aprire un profilo aziendale e mantenerlo aggiornato è fondamentale per qualsiasi azienda che vuole aumentare la propria visibilità in Cina. Per individuare alcuni dei trend generali che le aziende italiane mettono in pratica quando utilizzano WeChat come strumento di digital marketing, ho analizzato quattro profili di aziende italiane appartenenti a settori economici differenti. Successivamente, per indagare quali settori dell’economia italiana possono ottenere dei vantaggi dall’utilizzo di WeChat, è
stato composto un campione di 50 aziende italiane che utilizzano l’app per promuovere i propri prodotti nel paese asiatico ed è stato scoperto che moda, automazione e alimentare sono i settori economici italiani più popolari sulla piattaforma. Per ultimo, ho creato un sondaggio indirizzato a 31 consumatori cinesi per comprendere cosa si aspettano gli utenti di WeChat da un profilo aziendale e come valutano i prodotti del Made in Italy. I risultati mostrano che per coinvolgere gli utenti di WeChat e aumentare la visibilità che l’app garantisce è importante assumere uno o più KOLs (key opinion leaders, persone influenti), creare delle promozioni indirizzate a rispondere ai bisogni dei clienti, permettere la personalizzazione dei prodotti offerti, scrivere articoli e messaggi esclusivamente in cinese e utilizzare l’app per educare i consumatori cinesi a riconoscere i prodotti Made in Italy.
1 Table of Contents
Introduction ... 4
CHAPTER 1 ... 6
The New Chinese Market ... 6
1.1 The Evolution of the Chinese Market ... 6
1.2 Digital Innovators and Latest Technologies ... 6
1.2.1 Three Factors for Digital Evolution in China ... 8
1.3 Reducing the Digitization Gap ... 9
1.4 Three Digital Forces ... 11
1.5 Digital Influence in Consumer and Retail ... 12
1.6 Characteristics of the Chinese Digital Landscape ... 14
1.7 The Chinese E-Commerce Market ... 14
1.8 Market Potential for Foreigner Companies ... 16
1.9 The Modern Chinese Consumer ... 18
1.9.1 Overview ... 18
1.9.2 Willingness to Spend ... 18
1.9.3 The Changing Shape of Consumption... 18
1.9.4 How to Be a Winning Brand ... 19
1.9.5 How and Where to Spend ... 20
1.10 New Trends and the Post-90s Generation of Consumers ... 21
1.10.1 Introduction ... 21
1.10.2 Consumers Confidence ... 23
1.10.3 Health-conscious Consumers ... 23
1.10.4 Healthy Living for Groups of Chinese Consumers ... 24
1.10.5 The Post-90s Generation ... 26
1.10.6 Chinese Nuanced View of Brands ... 28
1.10.7 Conclusion ... 29
1.11 The Mix between Offline and Online ... 29
1.11.1 Chinese Retail Market Development ... 29
1.11.2 The Omnichannel Experience ... 31
1.11.3 The O2O Commerce ... 33
1.11.4 Mobile Payments and the Chinese Cashless Society ... 35
CHAPTER 2 ... 38
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The WeChat Ecosystem ... 38
2.1 What is WeChat? ... 38
2.2 The Tencent World ... 40
2.3 Tencent’s Competitors ... 40
2.3.1 WeChat Pay or Alipay? ... 41
2.4 WeChat main functions ... 43
2.4.1 The App-Within-An-App Model ... 43
2.4.2 WeChat Wallet ... 45
2.4.3 WeChat into the Physical World ... 46
2.5 WeChat Pay and Chinese Tourists in Italy ... 47
2.6 Social Implication of WeChat... 48
2.6.1 Communication on WeChat ... 48
2.6.2 Red Packets on WeChat ... 50
2.6.3 WeChat as a Reflection of Chinese Culture ... 52
2.7 WeChat Marketing Strategies ... 55
2.7.1 Business and Friendships Relations ... 55
CHAPTER 3 ... 57
WeChat for Italian Companies... 57
3.1 Opportunities for Italian Companies ... 57
3.1.1 Luxury Companies ... 57
3.1.2 Small and Medium Enterprises (SMEs)... 58
3.2 Why WeChat? ... 59
3.3 Corporate Profile and Messages Analysis ... 60
3.3.1 Methodology ... 60
3.3.2 Corporate Profile ... 61
3.3.3 Messages ... 63
3.4 WeChat Functions and Strategies for Italian Companies ... 65
3.4.1 Sharing Articles ... 65
3.4.2 Live Chat ... 65
3.4.3 WeChat Pay ... 66
3.4.4 Key Opinion Leaders (KOLs) ... 67
3.4.5 Personalization and Promotions ... 69
3.5 Italian Brands and WeChat ... 71
3.5.1 Italian Brands on WeChat ... 71
3.5.2 WeChat as Vehicle for the Promotion of Made in Italy in China ... 74
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3.6 The Chinese Consumers’ Version ... 77
3.6.1 Methodology ... 77
3.6.2 Survey Results ... 79
3.6.3 Limits of the Survey ... 82
CHAPTER 4 ... 83
Conclusion ... 83
Appendices ... 85
Appendix 1 – sample of Italian companies present on WeChat ... 85
Appendix 2- Messages and Articles Analysis ... 87
Corporate Profile Analysis ... 88
Appendix 3- Surveys ... 90
English translation ... 95
Appendix 4 – Survey Results ... 100
Bibliography ... 114
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Introduction
This study aims to investigate the main strategies to implement for an Italian company that wants to use the app WeChat to increase its visibility in the Chinese market. I decided to investigate this topic after having experienced for the first time some of the functions of the app during my study tour in China in 2016. I was able to see how the app WeChat affected people’s lives as no other app did in the Western world.
China is experiencing a period of digital revolution that leads to the emergence of the e-commerce channel as the main mode to purchase goods and services in the country and to the use of the smartphone as the primary tool to research products, reading reviews and to comment about purchases.
WeChat is the site where all these actions take place every day. Millions of Chinese use the app daily to obtain information about the products desired and then buy them without leaving the ecosystem created by WeChat. Therefore, it is essential to Italian companies to understand how to manage their profiles on WeChat successfully to be able to attract a large number of Chinese consumers.
The method used in the research comprises of a qualitative and a quantitative analysis. The qualitative analysis is based on the observation of the strategies implemented by four Italian brands operating on the app, plus a sample group composed of 50 Italian companies registered in the Italian Trade Agency list that use WeChat as a marketing platform. The quantitative analysis is represented by the creation of an online survey that engages 31 Chinese consumers and it is finalized to collect the consumers’
point of views about the use of the app and the perception of Made in Italy in the country. To support all the data collected and widening the perspective about the WeChat ecosystem, I also interviewed two experts in the sector.
The research is divided into four chapters. In the first chapter, it is analysed the digital evolution of the Chinese society, focusing on the new ways of interaction between offline and online (O2O), the omnichannel shopping experience and the development of mobile payment tools. I discussed the characteristics of the new Chinese consumers and in particular the members of the Post-90s Generation, who are identified as the engine of the Chinese consumption by the McKinsey Global Institute. The second chapter starts with an introduction of the history of Tencent, the company that created WeChat and the WeChat ecosystem that is characterized by an app-within-an-app model.
There is also an explanation of some of the most popular functionalities of the app, such as the WeChat wallet. There is also a presentation of the Tencent’s main competitors, Alibaba and Baidu.
Furthermore, I will discuss some of the social problems and changes that the app has created in the Chinese society. The third chapter is dedicated to the relationship between the app and the Italian
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companies that do business in China. In this section, it is analysed how Italian companies can benefit from the use of the app. There is a presentation of the strategies that Italian companies use to interact with their clients, such as messages, KOLs and live chat and it is studied how the Chinese consumers perceived the notion of Made in Italy. After the collection of the data provided by the two analyses, in the final chapter, I reported the best strategies identified for using WeChat efficiently to promote Italian brands. They concern the use of the Chinese language for articles and messages, the necessity of hiring at least one KOL, the education of the consumer about Made in Italy, the careful selection of targeted promotions and the necessity of offering personalized products.
This research could be a good starting point for Italian companies that want to promote the Made in Italy excellence overseas. It could be helpful to understand the areas where to invest resources both economically and human in order to take full advantage of the app and be as competitive as the Chinese counterparts.
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CHAPTER 1
The New Chinese Market
1.1 The Evolution of the Chinese Market
In the last decade, the Chinese economy evolved from being an agrarian economy to a manufacturing one, until today that has become one of the world’s labs of innovation. Contrary to what happened in the United States and Europe, China leapfrogged the creation of a strong bank system and the development of efficient offline infrastructures, by going online directly.
Just ten years ago, only 7 percent of the Chinese population used the internet. Today, China is the leading global force in the digital economy with over 700 million internet users and an internet penetration ratio of around 50 percent, processes 11 times more mobile payment that the United States and it is the home of one third of the world’s unicorns1. Some of the factors that brought the country to rich this leading position are the large and young Chinese market that enable the rapid commercialization of innovative business models, a rich digital ecosystem guided by three successful companies (BAT2) and the opportunity left by the government to experiment in the digital sector during the first period of expansion. These elements allowed to reduce the gap existing with its American counterparts significantly. In 2013, the United States was 4.9 times more digitized than China, but in 2016, that difference was only 3.7 times.
Nowadays, China has become the major worldwide investor in digital technologies and one of the global leading adopters of new technologies, such as virtual reality (VR) and mobile payments. It is already shaping the global digital landscape and it supports local innovative entrepreneurships and ventures based beyond its borders. Thanks to this new digitized economy, Chinese industries will experience huge shifts in revenue and profits pools across the value chain. This shift interests the entire planet, but it is likely to happen more quickly and be on a relatively larger scale in China due to the inefficiencies in traditional sectors, which will boost the creations of new ways and technologies aimed to improve people’s quality of life.
1.2 Digital Innovators and Latest Technologies
According to the McKinsey Global Institute (MGI), China is already in an advanced phase of digitization in comparison with other technological countries. It must be considered, that one decade
1 Woetzel, Seong, Wei Wang, Manyika, Chui and Wong, Digital China: Powering the Economy to Global Competitiveness, McKinsey Global Institute, December 2017.
2 Acronym of “Baidu, Alibaba and Tencent”.
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ago, Chinese e-commerce accounted less than 1 percent of the value of worldwide total transactions, but only after few years, in 2017, that share reached more than 40 percent. The value of China’s e- commerce transactions is estimated to be larger than in France, Germany, Japan, the United Kingdom, and the United States combined. Penetration of mobile payments, through the services provided by Alibaba and Tencent, grew among China’s internet users from 25 percent in 2013 to 68 percent in 2016. In 2016, the value of mobile payments related to individual consumption was $790 billion, 11 times that of the United States.
Another strong point, that shows the high level of digital opportunities in China, is that one in three of the world’s 262 unicorns3 is Chinese, commanding 43 percent of the global value of these companies (Exhibit 1). This digitized environment offers a huge number of opportunities, so the majority of venture capital investments are intended for digital technologies, such as big data, artificial intelligence (AI) and financial technology (FinTech) companies. China is in the top three in the world for venture capital investments in key types of digital technology including virtual reality (VR), autonomous vehicles, 3‑D printing, robotics, drones, and AI.
Exhibit 1
China’s digital economy
1 Refers to third-
party payments conducted through mobile transactions. For China, mobile payments exclude bank or UnionPay credit card transactions, digital wealth management, and digital finance. For the United States, payments are in-person payments on mobile between buyers and sellers, and remote payments on mobile devices.
2 Defined as a privately held startup valued at over $1 billion.
3 Defined as a privately held startup valued at over $1 billion
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NOTE: Numbers may not sum due to rounding.
SOURCE: PitchBook; Dealogic; eMarketer; iResearch; TechCrunch CrunchBase Unicorn Leaderboard; McKinsey Global Institute analysis
1.2.1 Three Factors for Digital Evolution in China
The MGI identifies three factors, which suggest that there is room for digital expansion in China.
The first one is that the huge and relatively young Chinese market is enabling rapid commercialization of digital business models on a large scale. Numbers were quite relevant already in 2016 when China had 731 million internet users and 695 million mobile users (95 percent of total internet users), compared with 343 million in the EU (79 percent), and 262 million in the United States (91 percent).
Nearly one in five internet users in China connects to the internet using a mobile tool, compared with just 5 percent in the United States. However, what it is relevant for business is that China’s mobile share of e-commerce sales is around 70 percent and its share of internet users making mobile digital payments is around 68 percent vs. 15 percent in the United States.
The second MGI’s statement is that the BAT companies (Baidu, Alibaba and Tencent) are building a rich digital ecosystem that is now growing beyond them. The BAT companies have built strong market positions and popularity among the Chinese population by taking out inefficient, fragmented and low quality offline market structures. At the first stage, they provided an alternative to poor and inadequate services, but rapidly they diversified their offer until covering almost every aspects of the market. Today, players like Alibaba and Tencent offer “super apps” which give consumers a one-stop shop experience covering education, health, information services, entertainment, e-commerce and social interactions. The three technological giants have been also powerful enablers for other companies. In 2016, they provided 42 percent of Chinese venture capital investments. BAT or BAT alumni founded one in five top Chinese startups, and an additional 30 percent receive funds by BAT firms.
The last important element, that promotes the digital revolution in China, is that the central government left space to experiment before enacting official regulation and then it became an active supporter of innovation initiatives. The Chinese government moved to regulate the digital sector only after a delay, for example, regulators took 11 years after Alipay introduced online money transfers in 2005 to set a cap on the value of such transfers.While consumer protection may sometimes have been weak, especially regarding privacy issues, this approach gave innovators space to experiment. The government position was reaffirmed during the 19th National Congress of the Communist Party of China held in October 2017, where the leadership announced that China has entered a new era of development and reconfirmed that the government will continue to play an important role to promote
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innovation and technology in the country through its policy and regulation. Today, the government is actively building world-class infrastructure to support digitization as an investor, developer and consumer.
The combination of these three factors has led to the development of digital in China, which is also exporting digitally driven business models to foreign partners.
1.3 Reducing the Digitization Gap
China has already a high position in the consumer-driven economy. The next force, aimed to promote the digital transformation of the country, is likely to come from broader adoption of digital technologies by businesses in different sectors that will restructure the traditional value chain and boost productivity4. Looking at the 2017 MGI Industry Digitization Index for China (Exhibit 2) it is possible to notice that the Chinese industries are at very different stages of digitization. Overall, China businesses digitization still lags behind that of the United States, but the gap is narrowing quickly. In 2013, the gap was 4.9 times in favour of the United States, but in 2016 that figure reduced to 3.7 times.
The index assesses five sectors clusters that are at similar stages of their digitization process. In China, as in other economies, the most technologically advanced sectors are information technology (IT), media and finance. Regarding the companies that lag furthest behind, they fallow the same trends of other economies. They are fragmented and localized industries, for example, real estate, agriculture, local services and construction. However, even in these sectors, digital solutions are penetrating. For instance, the offer of real-time house listing for sale and rent, Anjuke.com, or app that offers services of property maintenance, like the residential-property company Vanke.
Thanks to digital super app or websites, such as WeChat or Tmall.com, even small and fragmented local service firms, such as restaurants and family businesses, are benefiting from the use of digital platforms, even if they do not invest many assets in digital tools themselves. Other sectors that rank higher compared with their counterparts in the United States and Europe, are the consumer-facing industries and sectors associated with the government. Thanks to the fact that Chinese consumers are enthusiastic to embrace digital technologies, the industries that serve them have invested in digital assets and process to respond at their demand for innovation, for example in 2016 more than half of the events tickets were sold through digital channels5. Looking at the retail sector, about 45 percent
4 Woetzel, Orr, Lau, Chen, Chang, Seong, Chui, Qiu, China’s digital transformation: The internet’s impact on productivity and growth, McKinsey Global Institute, July 2014.
5 according to iResearch estimate, 2016
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of retailers have developed online sales channels, for example with the creation of a WeBoutique on WeChat or an online shop on the Alibaba platform. Even the government-associated sectors have invested in technology, as proven by the fact that China was already the world’s largest market for smart grids by investment in 2013 and that in 2015, about 310 million households were using smart meters. In health-care institutions, the spending on IT solutions has increased rapidly from ¥15 billion ($2.3 billion) in 2011 to ¥34 billion ($5 billion) in 2016, with an annual growth of 18 percent. Digital improvements have also interested the education sector, where increased spending has ensured that 87 percent of all elementary and middle schools in China have internet access6.
According to MGI’s research on digitization in the United States and Europe, it has been proven that firms in the most digitized sectors tend to be more profitable. In the United States, the average profit margins in the most digitized sectors increase two to three times as much as those of less digitized sectors over the past 20 years. The same pattern is visible in the MGI’s Industry Digitization Index for China, which reveals a similar overall picture. Sectors that have a high degree of digitization tend to show faster growth in labour productivity than those that are less digitized.
6 13th Five-Year Plan for educational informationization, Ministry of Education, June 7, 2016 (http://www.moe.
gov.cn/srcsite/A16/s3342/201606/t20160622_269367.html).
11 Exhibit 2
MGI Industry Digitization Index: China
1
Information and communications technology
SOURCE: Gartner; Kable; OECD; Central Bureau of Statistics; Bloomberg; McKinsey Global Institute analysis
1.4 Three Digital Forces
According to the MGI’s research, as China digitizes, industries will experience huge shifts in revenue and profit pools across the value chain, which involve a degree of disruption that will create losers and winners. All around the world, digital advancement is causing creative destruction, but this phenomenon is on a relatively larger scale in China due to the combination of the rapid pace of economic growth and changes in the economy, the diffusion of inefficiency across sectors and the massive potential for commercialization at scale.
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The MGI’s simulation about how the major digital forces can reshape the value chain and improve productivity, suggests that by 2030, digitization can potentially shift and create value equivalent to 10 to 45 percent of the industry revenue pools in four sample sectors analysed (consumer and retail, automotive, health-care and freight and logistics). Digital forces will shift value from old business models to new ones, from slow-moving incumbents to digital attackers and from one part of the value chain to another. For large traditional companies, this means that a substantial portion of their revenue could be at risk. Nevertheless, this transformation may be an opportunity if they actively embrace digital by offering digital solutions and becoming sources of new competition too. The MGI identified three digital forces that are able to influence the Chinese economy: disintermediation, disaggregation and dematerialization.
Disintermediation is a major trend in China. Alibaba and WeChat have disrupted the retail industry by cutting out the inefficient middle layer and linking suppliers and consumers directly through digital platforms. Other industries with high margins of offline channels, a lack of information transparency between suppliers and customers and a fragmented landscape are ripe for this type of digital disruption.
Disaggregation appears when digital attackers disrupt traditional business models and then they reinvent industries by disaggregating huge assets into many pieces, for example by turning them into services. Disaggregation force is particularly attractive for industries that have high value, high durability and fluctuating utilization. Digital disruption through disaggregation is increasingly prominent in China, such as the shared mobility app Mobike.
Dematerialization changes products or processes from physical to virtual, unbundling demand with digital delivery and enabling consumers to receive products and services everywhere and anytime. In China, the speed of this conversion has been faster than elsewhere, especially in categories such as music and e-books and the upside for digital attackers is far larger than in other countries.
The impact of these three digital forces varies according to the sector. Overall, disintermediation and disaggregation are the most relevant in the sectors analysed by the MGI. Digital platforms play an important role by directly matching fragmented suppliers and customers and they could improve substantially the transparency across the value chain while offering multisided solutions that enable the rapid expansion of supply and meet the underserved demand.
1.5 Digital Influence in Consumer and Retail
Thus far, the e-commerce revolution drove the digitization in China and it is expected to create an even more significant transformation in the years ahead. MGI’s simulation shows that digitization
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can shift and create new value, approximately 13 to 34 percent of the industry revenue pool.
Disintermediation is the major force that can shift and create value. In addition to the constant growth of e-commerce as online sales penetrate further into rural areas, small cities and across borders, there are other three additional trends relevant to the transformation of the consumer and retail sector.
The first trend is the evolution of the omnichannel experience for consumers that mixes offline and online elements. According to the 2017 McKinsey China iConsumer Survey, an overwhelming majority of shoppers in China, 85 percent, are already omnichannel. Nowadays, offline shops are shifting from being the main sales channel to a place of shopping “experience”. Looking at the consumer-electronics category, shoppers who performed online research while visiting a retail outlet bought the same brand they originally had in mind more than 80 percent of the time. This new way of living the shopping experience brings brands and retailers to pay attention to shaping the omnichannel experience and it offers room to experimenting and improving. About 60 to 70 percent of shoppers surveyed by the MGI said that they were excited about omnichannel services such as online-to-offline (O2O), product pickup, QR code-scan payments, product-return services, and VR experiences at offline stores. Nevertheless, only 10 to 25 percent of shoppers surveyed said that they had actually used and experienced those services. Consumer goods and retail companies need to take this into account to retain their existing customers and maximize unexplored selling potential, also digital attackers have an incentive to experiment with new retail models.
The second trend is linked to the importance of processing data in today’s economy. The data-driven business model can serve more effectively Chinese consumers who expect higher quality and personalized products and services. Thanks to the popularity of digital media, social networks and search engines, consumer-goods and retail companies can monetize much more consumers data than the past. They are essential to understanding consumers’ behaviour and sentiment in real time and they are a powerful tool to influence consumer choices. The use of analytics and digital connections data are enabling the rise of new customer-to-business solutions that engage the customer directly and gather his/her data allowing orders to be customized easily. Chinese companies are starting to listen to their clients when they decide to introduce a new product or offer new services. For example, a yogurt company could take into account recommendations from its customers when it develops a new flavour or packaging or a furniture company could promote a tailored design solution.
The third trend examined by MGI is that digital platforms go upstream as they accumulate know-how and own consumer relationships. Popular online platforms are moving beyond their core business broadening the offer and strengthening the relationship with consumers. This trend is spreading
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worldwide, for example in the United States Netflix has become also a production company and Amazon created its own product line. In China, Alibaba was one of the first broadening its offer by opening Hema supermarkets all around the country.
1.6 Characteristics of the Chinese Digital Landscape
In the last decade, China’s e-commerce market boomed. It represents the largest online market in the world, 40 percent of all the global e-commerce in 2016. 70 percent of domestic retail growth came from the online channel in the same year. Nowadays, shopping online is the norm for many consumers. However this potential for local and foreigners firms, it is essential to recognize that the Chinese e-commerce market has unique peculiarities that may influence the way of using these channels to sell and advertise products and services.
The “Great Firewall”, the internet censorship active in China, blocks many web sites and web platforms that are popular in Western countries, such as Facebook, WhatsApp, Google, Twitter and more. For this reason, new and peculiar digital services were born in China developing a characteristic digital ecosystem. In this digital landscape, it is possible to find Chinese equivalents of the most popular Western websites and app. In the Asian country, the three internet giants are Baidu, Alibaba and Tencent. Baidu, which could be described as the equivalent of Google, is famous for its search engine Baidu Search and map service Baidu Map, Alibaba is the leader in the e-commerce market and Tencent is famous for its app WeChat and videogames.
This unique scenario combined with the rapid growth of the Chinese e-commerce market poses unique challenges for Western brands. One of them is the extensive use of B2C platforms, such as Tmall.com and JD.com that together account for over 80 percent of China’s online shopping. This peculiarity is based on the fact that Chinese consumers tend to be more demanding than European and American consumers and they prefer to buy from established platforms than brand websites.
Chinese consumers rely on reviews and word-of-mouth recommendations that are spread on social media platforms, such as WeChat. Another characteristic of the typical Chinese consumer is that he/she requires a higher standard of online customer service, such as online chat service, and he/she prefers to be guided during the purchasing process before buying the product or service. For these reasons, foreign companies will have to implement their digital strategy according to their customers’
needs, if they want to approach the Chinese online market successfully.
1.7 The Chinese E-Commerce Market
The characteristic of the Chinese e-commerce market is not only its size but also the integration that exists between digital services and everyday life. The continuous growth of social media networks,
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the popularity of e-commerce platforms and the constant expansion in mobile payments that is faster than any other place are all evidences of these integration between online and offline7. The large global market share is driven by volume of purchases, in fact 1 out of 7 Chinese consumers makes an online purchase every day and 4 out of 7 at least once a week, it is three times more than the average for global consumers8.
This digital lifestyle is not only about shopping. Every sixty seconds in China, 14.000 reviews are written, 4 million searches are made and 11 million messages are sent. Another important driving force is the rapid adoption of the smartphone in the country. In 2011, only three years after the launch of the first innovative device in China, the smartphone users base had already reached 100 million users. In 2016, more than 60 percent of all households owned a smartphone, there was almost one mobile phone subscription per citizen and China constituted the largest global market 4G services9. In China, the smartphone is fundamental to all digital activities. In 2016, 90 percent of internet users use their smartphones to access internet 10 and 80 percent of them chose mobile payments as the preferred method for buying goods. This preference is demonstrated by the fact that only 25 percent of payments were made with a credit card in 2016 while 37 percent were mobile payments. This tendency is completely different from what happened in Europe in the same year. For example in Sweden, credit cards were the main payments tools with 80 percent of the total, and mobile payments reached only the 7 percent11.
Another important aspect to consider is that credit card providers, such as VISA and MasterCard have not gained popularity on the Chinese market. Only the local credit and debit card UnionPay dominates.
In practice, this means that any foreign company that wants to sell its products in China must offer Chinese domestic payment solutions to attract the targeted audience.
The Chinese digital market is different also for another aspect. In contrast to many other countries, well-recognized internet giants, such as Facebook, Amazon and Google, do not dominate the digital market due to the government's censorship. For this reason, European brands, which want to enter the Chinese market, have to adapt their digital strategy to the unique Chinese digital ecosystem.
7 Emarketer source in Hallgren, Wahlfors and Rita Ma, Digital China: Succeeding in the World’s Largest E-Commerce Market, Business Sweden, 2017.
8 Econsultancy source in Hallgren, Wahlfors and Rita Ma, Digital China: Succeeding in the World’s Largest E-Commerce Market, Business Sweden, 2017.
9 Euromonitor
10 CBCC
11 Riksbanken
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1.8 Market Potential for Foreigner Companies
At this stage, China’s economy is in a transition phase between being a manufacturing and export country to an economy where services and consumption make up a larger share of GDP. The world’s largest middle class is located in China, but it is still relatively small compared with the total population. The increased buying power, the constant changing preferences, the urbanization and the improved connectivity enable the creation of great business opportunities.
Today, the young generation guides the consumer group. They became the main group thanks to the popularity of online shopping and the development of the e-commerce industry. This entails a shift in demand from offline to online and to the research for more premium products, which are mainly of foreign origin. Moreover, the products bought online are quickly becoming more diversified. In 2011, the top 5 product categories represented 83 percent of all online sales, while in 2015 the equivalent ratio was just over 50 percent. Considering this change in demand and the growth of e- commerce in the country, the experts of Business Sweden state that there are few product categories that are still beneficial for foreign brands invest in: fashion and apparel, consumer electronics and appliances, baby products and toys, health, beauty and personal care, food and beverages, pet products and furniture and home decorations12. Let us look at each category in detail.
In 2016, the fashion and apparel sector represents 20 percent of all online sales. This category is expected to remain the most popular and it will continue to grow over the years thanks to the brands that are entering the marketing offering new styles and products.
The consumer electronics and appliances category was one of the first sectors to take off the e- commerce market. In 2011, it represented half of all online retailing in China. In the coming years, it is expected to keep its position as the second larger category of the Chinese e-commerce market.
After some domestic quality scandals, for example about milk powder, Chinese parents are becoming more concerned about the safety of domestic products, especially the ones related to childcare. For this reason, they tend to buy foreign brands, which are generally subject to strict safety and quality controls. The abolishment of the “One child policy” in 2015 was a boost to increase the birth number, and today the younger generation of parents are willing to spend money on baby products because they can afford them more than the past. Hence, they want the best products available for their babies and are more conscious of health and safety. Chinese consumers are more aware of health risks not only for their children but also for adults. Even if health products tend to be quite expensive, they are
12 Hallgren, Wahlfors and Rita Ma, Digital China: Succeeding in the World’s Largest E-Commerce Market, Business Sweden, 2017, pp. 22-23.
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on the rise as consumers are paying more attention than ever to their health. Make-up, skincare and more in general personal care products are in the top purchased products on cross-border e-commerce platforms, because online it is possible to find a wide range of products that are not available in the local retails. Thanks to this gap in the domestic market, more and more foreign brands are entering the Chinese beauty market resulting in a fierce competition between international brands.
Since 2011, the food and beverage online sales grew on average 70 percent annually. Chinese people look for quality and convenience, but also today they are aware of health issues and they prefer to buy products that passed quality and safety texts, like those coming from Western countries. For this reason, the online food and beverage sector is forecasted growing at fast pace.
The pet products category is an emerging sector in the Chinese market. China is home of 60 million pet cats and 30 million dogs, and it is in the global top three for pet ownership. Traditionally, pet owners did not spend significant sums of money for their pets, but the younger generation consumption of pet products is growing quickly. This derives from the fact that they can afford more products, but they have less time to make food and toys for their pets as was common in the past.
To conclude, the furniture and home decoration sector is the fasted growing category. It increased significantly when Chinese households enter the upper-middle class. Now, Chinese dispose of more money to invest in their houses, therefore their houses do not have to be only functional, but they may also be beautiful and pleasant13.
Exhibit 3
E-commerce market share per category
Source: Euromonitor
13 PWC source in: Hallgren, Wahlfors and Rita Ma, Digital China: Succeeding in the World’s Largest E-Commerce Market, Business Sweden, 2017.
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1.9 The Modern Chinese Consumer 1.9.1 Overview
The economic growth slowdown and the depreciation of the yuan are making political and business leaders concern that the Chinese age of gold may have ended. However, consumer confidence has remained persistent over the past years, because salaries did not diminish and the unemployment rate stayed low. According to the 2016 China Consumer Report edited by the McKinsey Global Institute, Chinese consumers remain upbeat about their future.
Despite this positive attitude, the Chinese consumer changed a lot. Today, consumers are more selective about what and where to spend in comparison with the glorious past. They prefer spending their salaries in services and premium products. In addition, the way of considering life changed too.
They seek a balanced life where priorities are health, family and experiences. Due to this transformation, consumer goods companies may have more difficult than the past to exploit the Chinese market.
1.9.2 Willingness to Spend
According to MGI’s report, 55 percent of the respondents were positive about their expectations regarding the future. However, this level of confidence is not the same across all the country, since it is possible to see some regional differences. For instance, in the Liao Central South city-cluster confidence has decreased, low 35 percent, but it rose to 62 percent in the Nanjing city-cluster. Despite confidence is still spread in the population, Chinese consumers are aware of the deterioration of the economy. Therefore, more and more consumers are saving and investing their money to be prepared for rainy days. Nonetheless, confidence is helping consumers to continue to spend.
1.9.3 The Changing Shape of Consumption
The Chinese spending shape is changing rapidly because consumers are now focusing more on what and how spend their money. In this period, Chinese citizens invest their income more in lifestyle services and experiences, such as travel, leisure and entertainment. A significant percentage that shows this shift in consumer attitude is 50 percent surge in box office revenues that indicates how Chinese people prefer to spend their money in pleasant activities. Moreover, Chinese consumers are focusing more on premium and high-quality products over mass products, indeed 50 percent of them seek the best and expensive product. This phenomenon may be a good opportunity for premium foreign brands to exploit the overseas market. The trend towards higher quality products is already started and the premium segment is growing more than the mass segment. Foreign brands are still holding the leadership in this sector, especially in segments like skincare, premium cars, sports
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apparel and fashion. In contrast with this trend, there is the mass segment of the market, where local brands are the winners and foreign firms have a weaker product proposition.
1.9.4 How to Be a Winning Brand
According to the MGI’s report, the winning brands in the new Chinese market will be those that understand four key consumer trends: loyalty to brands, healthy living, family focus and rapid adoption of new trends.
A rising number of Chinese consumers buys things only from a few brands, and some become loyal to only one single brand according to the category. Few consumers are brave enough to switch to a brand that is outside their comfort zone. In 2015, only 30 percent of consumers were willing to consider a brand outside of their consideration list. This trend makes particularly challenging for foreign firms to enter the Chinese market.
Nowadays, Chinese consumers’ income is higher than the past and their standard of living is rising, because they are focusing more on their quality of life. In MGI’s survey, 42 percent of consumers find that it is difficult to have time to enjoy their lives and 45 percent is frightened of an uncertain future. Therefore, an increasing number of Chinese consumers are seeking a more balanced life. They try to eat healthy and organic food, do sport activities and prevent diseases in general. Today, Chinese consumers are more concern about food safety issues, probably because of some food scandals that happened in the past 10 years. Indeed, 72 percent of consumers is worried that food could be harmful to their health. The new trend shows that more than 50 percent of consumers are eating healthy and nutritious food, such as fruit juice that is penetrating the market up to 2 percent, which is preferred to unhealthy categories, which have seen their penetration rate drop. Due to the spread of this healthy trend, also not so healthy brands have adapted their products to the new demand of the market. For instance, Schweppes has fuelled growth by successfully creating new products around health with its +C drink, which contains vitamin C. Organic and green food are two main criteria that guide the consumers’ choices, because are synonyms of food safety, despite in China there is not available a credible organic certification.
This new consumers’ balanced seeker lifestyle also influences the Chinese approach to healthcare.
Concerns about the illness of a family member are one of the top three reasons for saving. This attitude has driven a growing demand for preventative healthcare products such as private medical insurances, health check-ups and lifestyle apps. To keep and healthy lifestyle, Chinese consumers are investing more time and money on sports activities and sporting goods. 73 percent of Chinese urban consumers are participating in sports activities, a similar rate to one registered in the United States, 70 percent.
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Another trend, which was growing in the last years, is the importance that is given to the creation of a happy family. Having a great family is a sign of success for Chinese people and it affects also the consumer sector. Despite the rise of e-commerce, two-thirds of consumers consider that go to a mall or retail with their relatives is one of the best ways to spend time together14. The entities that benefit the most from this new trend are shopping malls. Families are spending more time in shopping malls, because they combine shopping, dining and entertainment experiences that all members of the family can enjoy. In addition to go shopping, another way to strengthen the family relationship is travel together. 74 percent of the interviewees said that travelling helps to better connect with their family, as proven by the fact that in 2015 45 percent of international trips were taken with family members.
In 2015, more than 70 million Chinese consumers travelled overseas, with an average of 1.5 trips.
One of the best travel experience is shopping: 80 percent of Chinese consumers have bought something overseas and even 30 percent of them decide the next travel destination based on shopping opportunities. The items that international travellers prefer to buy abroad are watches, handbags, cosmetics and apparel. This trend is particularly appealing for foreign retailers. They have to adapt themselves to the Chinese shopping experience to have success, for example by permitting mobile payments such as WeChat Pay and Alipay.
To conclude, these trends are amplified by the willingness and rapidity which Chinese consumers adopt new products, services and retail experiences at rates unseen in developed markets. For example, the mobile payment penetration rate that went from 0 in 2011 to 20 percent of the population in just four years.
1.9.5 How and Where to Spend
Nowadays, China is the world’s largest e-commerce market and it generates revenue of ¥ 4 trillion in 2015. However, physical retails remain important as consumers express their engagement with brands both online and offline. Even if consumers still enjoy physical stores than online channels, the gap is narrowing and the online stores, as the WeChat boutiques, are growing in popularity.
Looking at the McKinsey ClusterMap, which helps companies understand which are the most attractive Chinese cities and city-clusters, differences across the level of confidence and spending power in the country are visible. Some elements, such as new highways, high-speed rail links and mobile internet access have connected different areas of the country; however, there are some differences that have become more pronounced during the last decade. An example of this is the level
14 Zipser, Chen and Gong, 2016 China Consumer Report: The Modernization of the Chinese Consumer, McKinsey&Company, 2016.
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of consumer confidence. In the Xiamen-Fuzhou city-cluster, 70 percent of consumers are quite optimistic and think that their income will increase significantly. Instead, in the Shandong-Byland city-cluster, people are more pessimistic, with only 33 percent of optimistic consumers.
To conclude, it is vital to understand that Chinese consumers living in different clusters evolve a different pace, for this reason, it is imperative that firms take a granular view of China to have success in this diversified market.
Exhibit 4
McKinsey ClusterMap
Source: McKinsey 2016 China Consumer Report.
1.10 New Trends and the Post-90s Generation of Consumers 1.10.1 Introduction
MGI’s 2017 Chinese Consumer Report underlines the features of different groups of consumers, who are changing the Chinese market. It investigates the Post-90s Generations and some new trends that
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are spreading through the whole population. According to the MGI’s scholars15, in the past twelve years, Chinese consumers changed their behaviour and attitudes about what they buy and their selection criteria, dramatically.
A decade ago, the Chinese society was hyper-conscious about extracting the most value from their purchases, but in 2017 we assisted to a terrific change. Chinese consumers are earning much more money than the past, and they spend their earnings on a variety of higher quality and expensive items and services. The higher spending power means that Chinese consumers have a wider range of products and services that are able to buy. For this reason, companies interested in the Chinese market have to pinpoint how consumers select what they purchase. According to the survey16 conducted by the MGI, it is possible to observe that there are a multi-faced set of consumer segments with peculiar characteristics that define their shopping habits. A consequence of this is that the “Chinese Consumer”
no longer exists. This means that mapping the general trend is not enough. Today, grasping all the nuances of consumer behaviour is more important than ever.
The trends that characterize the new Chinese consumers are the high level of consumer confidence, the spread of health-conscious awareness and the Post-90s Generation as the engine of consumption.
Relating to consumer confidence, we are assisting to the reach of a ten-year high level, but there are also problems that fear the consumer. Pay for children’s education, look after elderly family members, the rising cost of real estate and overall increasing of prices compose the dark side of the bright vision of the Chinese consumers’ future. When we talk about the spread of health-conscious awareness, we have to consider that the concept of “health” is not the same for everybody. Undoubtedly, this attitude, even if diversified, influences the spending and lifestyle decision of the population. The new engine of consumption in China is the Post-90s Generation that is composed of digital native aged 17-27.
They were born with the internet and now they work, invest their money and purchase through digital platforms and with the assistance of their smartphones.
To conclude, it is important to point out that the Chinese consumer is taking a more blurred perception of global versus local brands. Today, they are looking for quality, value and service, despite the nationality.
15 Wouter Baan, Lan Luan, Felix Poh and Daniel Zipser.
16 The survey was conducted among 10,000 consumers aged 18 to 65 across 44 cities and seven rural villages and towns.
23 1.10.2 Consumers Confidence
Examining the MGI’s 2017 China Report, it is possible to see that Chinese consumers are very confident, as they reach a ten-year high level of confidence. It rose quite rapidly: in 2016 was 100 and one year after marked 115 that was higher than the level reached in 2007, before the global financial crisis. An effect of this rise in confidence is that Chinese consumers have spent more on dispensable items, due to the fact that they crave more premium brands.17 Evidence that shows this need to buy things is the hype about “Single Day”. Alibaba created this day to celebrate single people, as it falls on November 11, but it rapidly became a day reserved for online sales. The sales number usually overcomes Black Friday and Cyber Monday combined. In 2018, Alibaba’s gross merchandise value across its platforms closed the day 27 percent higher, for a record $30.8 billion (¥213.5 billion).
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Even though these positive signals, there are several risks for the Chinese economy. One of them is the high level of debt of the Chinese economy and households are taking on. In 2017, the total leverage ratio hit 266 percent, the highest of all time, and household debt reached 50 percent, the highest registered, even if it is still lower than some developed countries. The most important risk that China is facing is the income growth rate that dropped from 10.1 percent in 2012 to 6.3 percent in 2016. Other issues that Chinese consumers have to deal with are the rise of education costs and real estate costs, the rising cost of caring elderly family members and healthcare expenses are becoming one of the biggest burdens for Chinese households.
1.10.3 Health-conscious Consumers
Chinese consumers earn much money than the past and they are starting to spend their disposable income on healthy products and fitness activities. This phenomenon is popular especially in the big metropolitan areas, where it is easier to find a wide variety of high-quality products and services and where wealthy people live. According to MGI’s survey, the perception about the environment, healthy lifestyle and exercise changed significantly in the last dozen years, as 65 percent of the respondents are seeking a healthier lifestyle. An example of this shift in consumption is the junk food backlash. Data shows that 41 percent of Chinese consumers almost never eat unhealthy food, the noddle and soda markets shrank by 7 percent and 2 percent respectively in one year and fast food chains are introducing in their menus healthier options.
17 McKinsey 2017 Global sentiment survey.
18 Cheng: “Alibaba's Singles' Day Hits Another Record: 3 Takeaways Beyond The Big Number”, November 11, 2018.
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Despite this positive trend, a huge part of the Chinese population can afford more types of food, but it is not able to distinguish between healthy and unhealthy food. 320 million Chinese people are overweight and 6 percent is obese, by giving China the first position for the overweight population in the world. This dangerous situation pushed the Chinese government to establish in 2016 the
“Healthy China 2030 plan” that promotes initiatives in support of healthy diets, exercise programs and access to healthcare services.
It is important to remember that the Chinese interpretation of healthy living is different from the western one. In the West, a healthy lifestyle is a synonym of vigorous exercise regimes and they promote a diet based on high-protein, low-carb and low-fat consumptions. Instead, for Chinese people it means a harmonious balance of mind and body. They valued food according to its specific properties, heating or cooling effects and they prefer to practice low impact exercise like tai chi, that focuses on restoring positive flows of energy.
We should not forget that Chinese consumers have different perception about the definition of what is considered “healthy”. MGI’s identifies five segments of consumers based on their attitudes toward health, who act in very different ways.
1.10.4 Healthy Living for Groups of Chinese Consumers
The five segments identified are called: Back to Basics, Balance Seekers, Exercise Enthusiast, Driven Workaholics and Indifferent.
The “Back to Basics” group represents 25 percent of respondents. They are nature lovers and seek natural products. They have a natural, holistic approach to wellness. They are focused on having fun and being close to nature and they do not care about their career. They are concern about pollution and food safety and they try to buy natural and organic food. 55 percent of them are willing to try health apps, as calorie counting and pulse monitors.
The “Balance Seekers” segment, which accounts for 30 percent of respondents, are looking for equilibrium across all dimensions of health, which include physical fitness, mental health and social relationships. They want to look and feel good. For them, having a happy family is more important than gain money and the majority of them are not willing to trade off personal time for work. They are more willing than others about spending money on sport activities, buying sportswear and paying for health apps. This typology of apps is very popular all over the country, with over 65 million active users in 2016. A very well-known app is Nike+Run Club, which provides a virtual coach and connects runners in the same community and then leads consumers to buy Nike products.
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The segment that loves to exercise, which represents 10 percent of respondents, is identified by the name “Exercise Enthusiasts”. Thanks to them, the sportswear and equipment sectors are on the rise.
This is demonstrated by the fact that Adidas plans to open 3.000 new stores, Reebok plans to open 500 more stores, Lululemon, a brand specialized in yoga apparel, opened 10 stores in China and Decathlon owned 214 stores in the country. According to them, exercise regularly is key for leading a healthy lifestyle. They aimed to reach a high level of physical strength and athletic ability. They are not interested in environmental issues, mental health and social relationships. They are focused on diets that avoid unhealthy food, rich in supplements and fresh food.
The last two categories are composed by the “Driven Workaholics” who have not the time for living a healthy life and the “Indifferent” that are not concern about their health. In the next years, they may be converted becoming more conscious of their health and they may start to improve their actual condition.
Exhibit 5
Different consumers define health differently
SOURCE: McKinsey China 2017 consumer survey
In the future, the “Back to Basics”, “Balance Seekers” and “Exercise Enthusiasts” will become more important and companies will need to create marketing campaigns appealing to them. Understand the needs of these groups will be key to success. In this initial stage, innovative firms have the
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possibilities to shape people’s perceptions about healthy products by collaborating with trade associations and educational institutions.
Finally, health and fitness companies have to construct multi-platform marketing campaigns to have success. They have to broaden their offer and engage the consumer in the online communities, providing information and connecting directly with their customers.
1.10.5 The Post-90s Generation
According to the MGI’s China report 2017, the new engine of consumption is represented by the young men and women born between 1990 and 1999, who are called the “Post-90s Generation”. This generation has particular attitudes that are different from the “Post-80s Generation” and also with the western millennials. They grew up in China where the middle-class reached an extraordinary level of wealth, they are exposed to western culture and they have access to new technologies, such as the internet, smartphones and AI or VR. According to the report’s forecasts, in 2030 this group of consumption will account more than 20 percent of total consumption growth in China.
This consumption segment can be divided into five subgroups that represent different attitudes toward success, health, family, brand, products and future. Identifying and studying the specific features of each subcategory, for example, what success means for them or how they choose brands and products, is essential to deliver to them appealing marketing campaigns and offer products and services that can satisfy their needs. The categories are labelled as: Happiness Seekers, Success Seekers, Laid Back, Spendthrifts and Homebirds.
The largest segment of the Post-90s Generation, with 39 percent of the total, is called “Happiness Seekers”. It is composed of students born after 1995 who are confident about their future and their economic outlook and they define success base on their own happiness rather than material assets.
The majority of them, 86 percent, pursues as a goal in life the achievement of a happy life and they are not very interest in brands’ popularity. They are very conscious consumers and they seek quality in each of their purchases. Indeed, they do their researches before buying a product, they check labels and the ingredients list and they are willing to pay a premium for environmental-friendly products.
What really matters for them is what they get from a product despite the brand.
The second group, 27 percent, is composed of the “Success Seekers”. They are well-educated and white-collar who are stressed about their current and future life. For them success means getting reach and achieve a high career position, happiness is not contemplated. To manage this stressful lifestyle, they are more likely to reward themselves. They buy what they like when they like and they are not interested in saving for a rainy day.
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The “Laid Back”, 16 percent, they are focused on living better than others. Success is not to be rich, but be better than their peers. They are not interested in premium, famous brands or high-tech items and they see their future more positive compared to their counterparts.
The “Spendthrifts” group is the most appealing from brands, because they are the most willing to spend money on the last trend. They represent only 10 percent of the total Post-90s Generation, but their attitude to materialism and luxury makes them a valuable consumer group. They grew up in wealthy households and their parents covered all their needs. They are not interested in saving money, there were not used to do it, but they are the most willing group among their peers to spend their income on the latest fashions, top brands and leisure activities in order to stand out from the crowd.
The last group of the Post-90s Generation is the “Homebirds”. It makes up the 8 percent of the total and it predominately composed by women, 68 percent, who are still living with their parents and that are not financially independent. It is a low-income segment, where the members want to lead their own life and live better than others, but they fell little stress about their current situation or the future.
They are quite pessimistic about their future, indeed, only 38 percent believe that their income will increase in the next five years, for this reason, this group is the most likely to save for a rainy day.
Exhibit 6
Post-90s consumers have different priorities
1 Statistics for the total survey population shown in brackets
SOURCE: McKinsey China 2017 consumer survey
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To conclude, the Post-90s Generation is undoubtedly a promising group of consumers that will guide brands choices in the next years. Nevertheless, brands have to consider these new consumers segments and manage their actions to satisfy their specific needs. They have to understand the specific necessity of each sub-set to create effective marketing campaigns and products tailored to this portion of the Chinese market. Tencent, with its multiplayer mobile game Honor of Kings, has targeted the Happiness Seekers and the Success Seekers by appealing to their main values. For the first segment, the game appeals to their research for happiness, instead for the Success Seekers, the game is a way to escape their stressful routine. Another advantage for companies will be to consider young people that live in lower-tier cities or rural areas. They are a huge number and they are optimistic about their future spending power, for these reasons there are opportunities for forward-looking brands to enter this market early with the use of e-commerce platforms.
1.10.6 Chinese Nuanced View of Brands
The last trend, identified by the MGI’s China Report 2017, shows that in recent years Chinese consumers select a brand according to the delivered value for money, despite the origin of the product.
Today, brand origin matters less than the past, because consumers have higher expectations that apply for local or foreign brands in the same way. The first thing that Chinese consumers seek is value for money, then quality products and finally, an efficient after-sales service.
Chinese brands have become credible competitors for foreign brands, for example in food and beverage, laundry detergent, beer, electronics, personal care and more, because they master the three principles mentioned above. This is why in 2012 Chinese brands accounted only for 43 percent and in 2017 they reached 63 percent. Chinese consumers are willing to buy local brands, not for patriotism, but because they offer better value, products are more sustainable and they provide a precise after sales service.
In other categories, there is not a clear preference for foreign or Chinese brands. However, there are some sectors where the foreign origin of a product is a synonym of high-quality. Cosmetics, wine and infant milk powder are the main areas where Chinese consumers prefer to invest in western brands, for this reason, it is essential to have a good quality and well-known brand to be selected by the consumer. Chinese consumers are willing to pay more money to have a higher quality and long- lasting product, 64 percent of respondents. 46 percent of them will invest more money in international products if they had more money to spend and more than 50 percent believe that popular brands are always of better quality. This is why the brand image and brand credibility are fundamental.
