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Stratified Spending

Stratified Spending

Rational shoppers trade up or down, deciding to spend according to need

Brands must revise their understanding of consumers and channels

Jason Yu

Managing Director, Greater China

Kantar Worldpanel


The once-prevailing belief in “consumption upgrading” or “premiumization” has recently been questioned. It had been assumed that Chinese consumers would now buy better products/services for higher quality and no longer care too much about prices. Shaking the belief, is the quick rise of so-called “consumption downgrading” apps and brands.

The bellwether of these apps and brands is the social group shopping/discount app Pinduoduo. Pinduoduo enables consumers to buy small-brand (or even copycat-brand) products at very low price and achieve even deeper discounts if they invite WeChat friends to buy together. Pinduoduo went public on Nasdaq only three years after its founding and has more than 300 million users.

Netease Yeation, the e-commerce platform that Chinese internet portal Netease founded in 2016, offers consumers mostly white label products. Using the slogan “The good life is not that expensive,” Netease Yeation has become one of the mainstream e-commerce shopping channels among young urban consumers. The key question is: Does the strong growth of these new app/brands indicate that Chinese consumers are downgrading?

The answer is no, according to Kantar Worldpanel. Total fast-moving consumer goods sales in China is still growing. The annual growth rate has rebounded since 2016. In the 12 months ending in June 2018, the FMCG growth rate was 4.5 percent higher than a year earlier, faster than the full-year pace of 2017.

These data confirm that consumption upgrading is still continuing and expanding. Kantar Worldpanel data showed that price continued to expand its contribution to the total FMCG sales growth: from 42 percent in the 12 months ending in June 2017, to 64 percent in the 12 months ending in June 2018.

From a channel perspective, online is still the fastest-growing sector: its growth rate in the 12 months ending in June 2018 is 30.3 percent, six times that of the total FMCG growth rate. With online accounting for an increasingly big share of total sales, omnichannel shopping is becoming mainstream. From June 2017 to June 2018, 57 percent of urban families are buying FMCG from both online and offline sources.

Understanding the new shopping era

Chinese consumers buy a lot of premium goods online, and strongly supported the premiumization of online shopping. With Chinese consumers entering a new era of shopping, brands need to understand shoppers even better. Kantar Worldpanel believes that consumer needs in the near future will grow around three themes: health, instant satisfaction, and personalization.

Health Consumers are demanding that brands offer healthier products/services. The concept of health needs to start from the foundation of brand offers. Only brands with truly healthy ingredients can convince increasingly sophisticated consumers. Soybean milk, for example, has promoted itself as a “non-additive” drink and the category sales in the 12 months ending in June 2018 were 87 percent higher than a year earlier. Soda water, which is alkalescent and sugar free, increased its sales by 37 percent during the same period.

Instant Satisfaction Instant satisfaction and efficiency have become a major competitive edge for many new products, such as washing capsules (annual sales growth of 34 percent) and high-end instant noodles (annual average sales growth of 20 percent). These innovative products have won over new shoppers because of their convenience in usage.

Among cosmetics, products packaged in ampoules can help improve skin condition quickly and hence achieved great growth. They increased 81 percent increase in shoppers. Similarly, sales of concealers increased 92 percent. In terms of channels, small supermarkets and vending machines offer quick buying solutions and have become more popular. Shopper visits to small supermarkets have grown 5 percent and use of vending machines has grown 26 percent, according to Kantar Worldpanel’s Out-of-Home Panel.

Personalization Last but not least, brands that offer personalized services and fun can stand out. Jo Malone London invites consumers to create their individual scents. “Cross-category joint marketing” is another trend. Popular milk tea brand HEYTEA worked with L’Oréal Paris to launch lipstick gift package. Japanese brand Nissin launched cup noodles according to flavors that had appeared in the series “Ms. Koizumi Loves Ramen Noodles, which was hosted in Bilibili, a leading online entertainment platform for young people. The brand showed TV commercials at the end of each episode. It has successfully raised brand awareness among young audiences.

Key strategic considerations

As China’s consumption landscape keeps evolving, brands have to explore and constantly add new paths to reach the consumer. That requires understanding how Chinese consumers and social and purchasing channels are rapidly changing. Kantar Worldpanel recommends that brands focus on three key directions:

  1. Redefine the relationship between brand and consumers

Brands are trying to make breakthroughs in their relationships with consumers. International brands continue to build their images among young consumers. High-end cosmetics brand Estée Lauder has invested heavily to attract young consumers, especially those younger than 25. The strategy has paid off, as in the past 12 months 50 percent of sales growth came from this group.

At the same time, brands also need to leverage the power of Key Opinion Leaders (KOLs)and celebrities. Compared with celebrities, KOLs are closer to consumers and trusted by them. They are very effective in influencing young consumers’ behaviors.

Brands can also benefit from celebrities’ halo effect through partnership on content marketing platforms. Since the beginning of this year, social shopping platform RED has invited many female celebrities to open accounts to share their experiences of using inexpensive products. On the one hand, it gives celebrities an opportunity to show the “real me” side. On the other hand, it is impactful in creating consumers’ interests in those products and eventually buying from RED’s e-commerce platform.

  1. Redefine the relationship between social and purchasing

WeChat and social shopping app Pinduoduo have demonstrated the sales-driving power of social media. Kantar Worldpanel data has shown that in the past 12 months 20 percent of urban Chinese families have bought FMCG through WeChat. Consumers would proactively show off what they’d bought on their WeChat Moments feed, which is an invaluable “earned media” for brands.

Pinduoduo invites its users to form “buying groups” through the WeChat platform to earn deeper discounts. The app successfully leveraged the close connections established on WeChat, supplemented by the much cheaper unit price of goods on its platform compared with other channels, to earn more than 300 million shoppers within three years of its launch.

  1. Redefine the boundary and mission of channels

As online and offline retail channels keep merging, the boundary and mission of different channels are being redefined. Previously, each channel had a clear and distinctive positioning: hypermarkets like Walmart stood for value-for-money shopping; e-commerce retailers, such as Taobao, meant endless options; convenient stores, like FamilyMart, meant easy and quick shopping.

Now, with technologies empowering everyone, the boundary is blurring. Consumers can buy from Walmart’s website or app to get goods not only at reasonable prices but also with convenience. People can order food from popular restaurants through take-away apps without queueing for a table for hours anymore. Channels have also become media because they also publish contents to engage consumers. These blurred boundaries will have profound impacts on reshaping the future marketing landscape.