Economic transition, consumer attitudes, touch most categories
Confidence varies among consumers
Middle class consumers showed confidence, despite slower economic growth, as they continued to spend money, although with greater discretion, seeking quality over quantity. But not all Chinese consumers are middle class. The transitioning economy is dividing Chinese consumers into two groups: the middle class propelled by economic change, and the less affluent dislocated by change, who spend more cautiously. Sales accelerated for products desired by the middle class, and slowed for products needed by less affluent people. Kantar Worldpanel calls this phenomenon, “Two Speed China.”
Lifestyle and Basics
Categories experience economic shift unevenly
Lifestyle brands are thriving. Consumers in the rising middle class are looking for products that express their individuality and add fun to their lives. The categories that appreciated most in value – education and travel agencies – benefited from this trend. The overall impact of this phenomenon is nuanced, however. Within the personal care category, sales of beauty products accelerated, while sales of certain basic items slowed because of the frugality of people experiencing economic dislocation. Similarly, in the beer category demand was strong for premium, craft, and import brands, but sales slackened for mass brands.
Penetration / Premiumization
Brands satisfy aspirations of middle class consumers
Penetration-led growth has reached its limit in many categories, although some room remains, especially in remote parts of China where e-commerce drives incremental growth. Profit primarily is coming from premiumization, as middle class Chinese become wealthier and more sophisticated consumers. This trend touches many categories. The travel agency brand Caissa, a newcomer to the BrandZÔ China Top 100, has identified a niche market of travelers looking for a more refined experience, for example. Until recently, premiumization was practiced more by multinationals than Chinese brands, which more typically competed on price. Chinese brands now go to market quickly with products that provide affordable innovation. Chinese brands have not reached the luxury level, at least not yet.
Chinese brands now more competitive
Chinese brands today are more formidable competitors, even for lifestyle purchases. With improvements in product quality and innovation, they have more closely matched the core strengths of multinationals. Also, Chinese brands have leveraged their own core strengths: insight about the needs and wants of local consumers; and the ability to act quickly on those insights. For the first time, Chinese brands exceeded multinationals in Brand Power, the BrandZÔ measurement of brand equity, the consumer inclination to select a particular brand. The strength of Chinese brands across categories is evident in sales of Chinese brands’ cars, which surpassed 10 million for the first time.
Brands from many categories go abroad
For many reasons, including the need for new markets to help drive consumption, Chinese brands are increasingly going abroad. They are still relatively unknown outside of China, although the levels of awareness vary by country and product category. Spanish and Australian consumers are more likely to know about Chinese brands, for example, according to BrandZÔ research. And certain technology and consumer electronics brands are gaining recognition outside of China, particularly among young people. Lenovo gained over 72 percent of its sales outside of China. Chinese car brand BYD, the maker of electric vehicles, grew exports. Ton Ren Tang, the health care brand, opened Traditional Chinese Medicine stores in the US. And emerging Internet brands, many not present in the BrandZÔ China Top 100, found overseas consumers receptive to Chinese brands.
Some attributes inspire loyalty
The millennial influence in China is especially important because these young people, born since the period of economic liberalization that began over 35 years ago, grew up in a much more affluent and brand-conscious China than their parents. They like brands and influence the preferences of older consumers. Increasing millennial loyalty requires understanding what attributes they seek in brands. Consumers of all ages want products or services that offer quality, are trustworthy, and help make their lives better. Millennials are more likely to favor brands that are famous or trendy, while older consumers may look for brands that confer status or advance social responsibility. Brands that increased most in millennial loyalty include a mixture of brands that rank in BrandZ™ Top 100 Most Valuable Chinese Brands 2017, along with smaller brands. Brands increased millennial loyalty across diverse categories, including some unlikely categories such as insurance.
E-commerce and social media are converging
E-commerce and social media are rapidly evolving and converging in China, where digital ecosystems are more comprehensive than in the West, and more central to people’s lives. Video is rising in importance with new niche platforms complementing the more traditional sites, and live streaming and self-broadcasting are rising rapidly in popularity. These developments are influencing how, where, and when brands need to interact with consumers.
Media adds channels and content marketing
More than half of the brands in the BrandZÔ Top 100 Most Valuable Chinese Brands 2017 have increased their spending on new digital media, specifically elevator (TV, posters), in-store video, and cinema. CTR Market Research, a partner of Kantar Worldpanel, found that these media together reach almost 84 percent of trend-setting, high-potential consumers, age 20 to 45. No media channel dominates. Individual consumers rely on multiple media channels, especially in the cities. Plus, the kind of the information consumed is changing, with a rise in content marketing that is more informational than promotional.