Cross Category Trends
New expectations, social media habits shape brand building
Pandemic accelerates evolving attitudes about wealth, patriotism
Health vs. Indulgence
Affluence drives competing needs
Over 60 percent of Chinese are more active in sports than they were just three years ago, according to a Wavemaker study called Health & Wellness Today in China. Improved fitness and athleticism fits with national ambitions to project soft power with a healthier image and success in international athletic competitions. This trend is most obvious in apparel, where it has helped drive the interest in sports and the strength of athleisure brands like Anta and Li-Ning. It also influences healthcare, the interest in health supplements, and food and beverages, with brands like Yili and Mengniu introducing healthier options. While eating healthier, Chinese are also indulging in more treats. They have always worked long hours, but unlike earlier generations that saved much of their hard-earned money, today’s young people believe that their hard work entitles them to a reward—and they can afford it.
Pride vs. Pragmatism
Chinese feel pride, but shop for value
Stirred by the celebrations surrounding the 70th Anniversary of the People’s Republic of China, people are pleased to see their 5,000-year-old civilization restored to its historic stature. They are grateful to the modern nation for improving the lives of millions of citizens over the past few decades, and proud that Chinese brands have provided quality products and unparalleled convenience. Leveraging this pride, the athleisure brand Li-Ning successfully appealed to young consumers with China Li-Ning, a premium sub-brand of apparel decorated with calligraphy and other Chinese symbols. More typically, however, Chinese balance pride with pragmatism. When making a purchasing decision, value-for-money is still more determinative than provenance. Being of Chinese origin is a positive attribute for Xiaomi and other Chinese smartphone brands, but it is not enough to drive a sale without comparable quality, design, and other product benefits.
New vs. Old
New brands emerge, old brands resurge
Small Chinese brands are emerging, particularly in the personal care category where brand is particularly influential, according to the Worldpanel division of Kantar. These brands often target younger consumers who are more receptive to new brands and resistant to using the same brands as their parents. In most categories smaller brands are growing faster than the category leaders. The internet provides a low barrier to entry for these brands, which often outsource production to an OEM. With incubation on e-commerce sites like Taobao, some of these brands grow scale quickly with influencer-based marketing that relies heavily on endorsements by KOLs to reach young audiences. Simultaneously, older, traditional Chinese brands are being rejuvenated and gaining wide popularity. Factors driving this trend include national pride, especially among young people, and the affordable reach of digital marketing.
Young vs. Old
Marketers target GenZ consumers, and grandparents
Marketers have paid a lot of attention to the influence of young people, most recently GenZ consumers, those born just before and after the turn of the twenty-first century. Having grown up during the period of China’s rising affluence and international influence, they are avid consumers, open to new trends and ready to upgrade. The grandparents of GenZ consumers represent another burgeoning market. With China’s birth rate declining, despite the end of the one-child policy, the rapidly growing number of Chinese age 60 or over, already around 250 million, rivals the population of Indonesia, the world’s fifth largest country. Having grown up during the period of scarcity, these people are now part China’s expanding middle class. Technically senior citizens, they display youthful behavior, with 96 percent using their smartphone every day, according to Wavemaker research. Around 40 percent shop online, and half use online payment apps. They are financially stable, with 41 percent reporting income other than their pension or salary.
Trading Up vs. Trading Down
Shoppers seek bargains, and premium products
Premiumization, not penetration, drove value growth in many FMCG sectors, most notably personal care. As car sales continue to languish, the luxury segment of the car category experienced growth. Consumers shifted to the premium end of the smartphone market, choosing not only international brands like Apple, but also up-market models of the Chinese brands Xiaomi and Huawai. At the same time, however, people shopped for bargains. Pinduoduo, which built its reputation as a marketer of cheaper products in lower tier cities, is now a leading national e-commerce platform.
Faster vs. Slower
Material wealth has produced time poverty
Now that life has improved for most Chinese, they want more time to enjoy it. Moving the society from scarcity to abundance in only a few decades required an exhausting 996 pace—nine in the morning to nine at night, six days a week—the work schedule required for some technology employees. Because of the intense work demands, people feel entitled to reward themselves and expect instant gratification. Delivery services, like Maituan and Ele.me, meet the needs of people who do not want to waste the little free time they have. Live-video sites like Douyan (TikTok) and other social commerce brands often end with opportunities to purchase items for rapid delivery. Hotels are adjusting to this intensity and time compression by adding packages that feature activities for children because when people who work long hours have a long holiday weekend, they want to spend it together with family.
Chinese vs. Foreign
Chinese brands emerge, foreign brands rebound
Emerging Chinese brands in certain categories are gaining volume growth, while multinationals continue to grow revenue with aspirational positioning and premium pricing. Across categories, such as apparel, cars, beverages, and even wine, the quality of Chinese brands has improved, and Chinese brands are available at all price points, including premium. The competitive challenges facing multinational brands entering and doing business in China are more intense than 10 year ago. Today, it is critical to create products and services specifically for China, which requires more localized management. Multinational FMCG brands are experiencing a comeback. Ironically, multinationals helped educate Chinese consumers but, in many cases, failed to keep up with the consumers’ rapidly rising expectations. Today, multinationals are more closely aligned with Chinese consumer expectations for the best, most innovative products with messaging that resonates locally, especially with younger consumers.
Unlocking lower tier potential takes insight
Lower tier cities are developing rapidly for two primary reasons. First, government social planning has produced lower tier infrastructure, including fast trains, superhighways, internet, and housing, plus greater job opportunity. Second, these advantages now lure people away from the stress and expense of higher tier cities in search of a more livable and affordable life. The reverse migration has created new brand opportunities. The online classified marketplace 58.com introduced a new site called 58 Town, specifically for lower tier markets. A video site called Quaishou has become a lower tier version of Douyin (TikTok). Pinduoduo grew into an e-commerce giant from its lower tier base. But brand success in lower tier markets requires understanding consumer attitudes and needs in precise detail. Not all low tier cities are the same, and not all consumers within a lower tier city are the same. People in lower tiers are more likely to rely on recommendations of their peers, according to Mindshare, and their brand preferences differ in certain categories from those of upper tier consumers.
Medium-size brands research possibilities
As China’s economy slows and brands face more challenging domestic growth, overseas expansion becomes a strategic priority. In certain product categories, like beverages, brands are exploring markets like Southeast Asia that are relatively close to China geographically and culturally. In other categories, like smartphones, brands such as like Xiaomi, Huawei, Vivo, and Oppo are looking at more far-flung expansion that includes Europe and North America. Other brands, like the short-video platform TikTok, have successfully adjusted to the expectations of Western markets. Chinese games have gained great overseas popularity. Meanwhile, more medium-size brands are commissioning research to understand multiple overseas markets. Their biggest challenge is brand building, which requires understanding other cultures and making products and services that translate their Chinese distinctiveness in ways that are relevant and appealing to local markets.
New Retail now the new normal
New Retail is no longer new. Alibaba founder Jack Ma invented the term to describe a vision of seamless online-offline integration that has rapidly become retail reality. Having stepped down from Alibaba leadership in autumn 2019, and best indicator of Ma’s influence is that the term New Retail not heard as often. Combining data and logistics to make commerce easier, faster, and more convenient is now basic retail hygiene. Myriad collaborations and acquisitions involving virtual and physical merchants have enabled consumers to purchase just about anything anytime and expect rapid delivery, often from nearby distribution centers created from repurposed space in hypermarkets or other large-surface retail locations. Alibaba expanded its Freshippo stores, formerly called Hema. Carrefour Le Marche and Younghui’s Super Species operate similarly. Meanwhile, JD opened its largest physical location, an experiential center called JD E-Space. As retailers refine their O2O operations, the new developments in retail are social and content commerce, sales that happen online while people, engaged in other activities—communicating with friends on WeChat or watching videos on Douyin (TikTok)—move along a dynamic path to purchase.
Data, delivery enable instant gratification
The streams of uniformed deliverymen weaving motorcycles around clogged traffic suggest that speed and convenience in China has reached its zenith. But to meet the needs of Chinese consumers eagerly pursuing a life that is better and faster, the e-commerce players are planning to ramp up and revamp their game. Alibaba is giving some customers the choice of even shorter delivery times. This feature requires Alibaba to finely match its consumer data with its logistical capabilities. An order for a cold beer will be fulfilled immediately from a distribution center near the customer. Less urgent orders could be fulfilled from further away and over a longer time period. Fulfilling the customers need for a snack or other impulse item also addresses the business need to optimize the time delivery drivers spend relatively idle between peak order periods.
Communal mentality drives group buying
Two seemingly unrelated developments illustrate the Chinese communal mentality and the determination of Chinese consumers to be smart shoppers. Pinduoduo, the e-commerce site that began by serving bargain-hunting lower tier consumers, has become China’s No. 2 e-commerce site after Alibaba. Costco, the US membership warehouse chain, opened its first store in China, outside of Shanghai. Pinduoduo drives volume by incentivizing customers with discounts for group purchasing. Costco drives volume with value pricing based on bulk purchasing, an approach that typically works best in markets such as North America where multi-month supplies of commodity items like paper towels can be stored in basements or garages. Despite the apparent mismatch with China’s relatively small living spaces, Costco may be well suited for the Chinese communal buying mentality that helps ensure the popularity of Pinduoduo. A motivation for group buying on Pinduoduo is that the arrangement benefits both the individual and the community. Similarly, Costco may be betting that customers will buy in bulk to share with friends and neighbors.
Brand objectives determine choice of ecosystem
To do business in China, it is imperative for brands to be present on the leading online ecosystems that have reshaped retail over the past decade. All the ecosystems connect brands with consumers, but in different ways, making it critical for brands to align with the ecosystems most relevant to the brand’s customer focus and ambitions. On any ecosystem visited by hundreds of millions of shoppers, visibility requires promotion. Each ecosystem has its own business model for promotion opportunities and associated costs. And each ecosystem has its own operating style and speed. Like many brand opportunities in China, the potential benefit of presence on a major ecosystem is enormous; realizing the potential is a multidimensional and complicated challenge.
Direct channel will add customer data for personalization
Brands are present everywhere in Chinese retail: in physical stores, on the leading O2O ecosystems, and on the newer social commerce and content commerce platforms. They have successfully reached millions of consumers with their products and services. But brands have been less successful collecting and deriving insights from their own customer data. Going forward, brands will remain on the major ecosystem platforms, but they also will build their own Consumer Data Platforms and become much more active going Direct-to-Consumer. The accrued insights should help brands increase their relevance whether they are reaching customer directly or on the major ecosystems. This more granular customer knowledge is critical today to differentiate from competitors and satisfy consumers who expect more personalized products, services, and messaging.
Customer journey more complicated than in the West
The customer experience journey map is much more complicated in China, relative to most Western markets. In a study of demographically similar Chinese and European consumers, Wunderman Thompson discovered that Chinese consumers experience more and steeper emotional ups and downs because of the complexity of China’s O2O retail landscape. The key insights for brands doing business in China are: (1) your customer in China may seem identical to your customer in the West; but, (2) the customer may behave quite differently; and, therefore, (3) reaching the Chinese customer requires different rules of engagement.
Extensive options add opportunity and complication
Social media in China can seem relatively simple because it is possible to navigate daily life using just a couple of mobile apps, often WeChat or Alipay. Kantar recognized this phenomenon with a new social media classification called omni-media. Omni-media leaders include WeChat (Tencent’s multifunctional messaging platform); Alipay (Alibaba’s payment facility); QQ (Tencent’s messaging service); and Taobao (Alibaba’s C2C commerce platform). The addition of omni-media as a social media classification illustrates how social media continues to evolve beyond Kantar’s other two classifications: core social media, platforms used primarily for communication to maintain social relationships (Weibo, Sina’s microblogging site); and derivative social media, where communication happens on platforms designed primarily for content consumption (Douyin, the ByteDance-owned, short-video app known as TikTok outside of China). The additional social media classification also illustrates that what looks simple is actually quite complicated. The challenge for brands is to accept that China’s social media landscape is complicated and find ways to navigate it successfully.
Circles of Interest
Audiences organized by shared interests produce high ROI
To help navigate the complexity of social media in China, Kantar recently introduced the notion of Quanceng, which means circle in Chinese. Rather than organize consumers according to traditional demographic groups, these circles cluster social media users based on their mutual interests. These circles of interest, which sometimes overlap, are well-defined, engaged target audiences for brands aligned with a group’s focus of interest. But the circles of interest are not monolithic. Although members of the group share interest in a topic, the reasons for their interest and the intensity of their interest vary. Consequently, it is important to understand these nuances and match various interest levels with most relevant KOLs and other influencers. This approach is especially important with high engagement categories, like sports, where deeply knowledgeable members may find the comments of a KOL with mass appeal too superficial. This approach has proven to produce a higher ROI on media investment than marketing to random groups.