Published on July 9, 2009
Roland BeRgeR Strategy ConSultantS Issue 06 09 Study In-depth knowledge for decision makers Chinese Consumer rePorT 2009
Roland BeRgeR Strategy ConSultantS dear Reader, over the past 20 years, roland Berger has conducted more than 80,000 interviews in China with people from all walks of life, giving us unprecedented access to the way Chinese consumers see their world. We have found out about their preferences and dislikes, their hopes and fears, their aspirations and what they are happy with in the status quo. these interviews were mostly held in connection with one of the more than 200 assign- ments we work on in China each year, affording us unrivalled insight into the Chinese mar- ket. For at least 15% of these assignments we have used our roland Berger Profiler tool to analyze the behavior of Chinese customers. Charles-Edouard Bouée, Regional Coordinator Asia, President & Managing Partner, to keep on top of developments in 2008/2009 we felt it was important to conduct a large- Greater China scale survey to consolidate our knowledge of this exciting and still growing market. this study presents you with some of the results of this undertaking, which covered 12,000 Chinese consumers in 64 cities, ranging from the four megacities Shanghai, guangzhou, Shenzhen and Beijing down to tier-3 cities. Ignatius tong, Partner and Vice President, Consumer goods and retail in China, believes knowing the customer base is vital for any business striving to penetrate or survive in the Chinese market: "More than ever, it is critical for FMCg to be tailored to specific consumer needs. this requires a more insightful understanding of consumers that goes beyond mere demographics." John Shen, Partner in automotive, agrees and points out how critical brand management has become: "Brand loyalty can only be nurtured and enhanced through the consistent delivery of brand values at every customer touch point. Brand strategy and brand management should be at the top of the agenda for every Ceo." We are delighted to be able to include interviews with two Ceos of Western companies which have been operating successfully in China for many years: Paolo gasparrini, Ceo of l'oreal China and günter Butschek, President and Ceo of Beijing Benz daimler-Chrysler (BBdC). their impressions about the future of the Chinese market will be of great interest to any reader working or investing in China. the following report is the first of what we're hoping will become an annual cornerstone of insight into the Chinese consumer market. In 2009 everybody will be looking to under- stand the unfolding domestic consumption in China as exports suffer due to the world eco- nomic crisis. In this environment we are looking forward to continuing to assist businesses in China in developing the domestic customer base and defining winning road-to-market strategies for our clients in this country.
study 3 a. Method and scope 04 B. the chInese consuMeR 08 1 SIx reCoMMendatIonS 08 2 ChIneSe SurPrISeS 18 3 KnoW your arChetyPeS 21 contents 4 SaMPle InduStrIeS: the CoSMetICS MarKet 28 5 SaMPle InduStrIeS: the autoMotIVe InduStry 33 6 StraIght FroM the horSe'S Mouth 37 c. aBout... ... roland Berger 42 ... CIC 43 ... l'oréal 44 ... BBdC 45 d. contacts 46
Roland BeRgeR Strategy ConSultantS expeRIence and eMpIRIcal ReseaRch: gettIng to know a. Method and scope the chInese consuMeR recently, roland Berger conducted a survey to analyze Chinese consumers. over the course of two months, over 12,000 individual interviews were conducted with consumers between the age of 18 and 64 in a representative study. "Both emotional and ratio- of our respondents, 14% lived in one of the four nal benefits should be taken Chinese megalopolies, 43% in a tier-1 city, 27% into account when defining in a tier-2 city and 16% in a tier-3 city. altogether brand positioning. We need we covered 64 cities in the country, ranging from to go beyond functional Shanghai with 18 million inhabitants to small cities benefits and address the of about 1 million people. self-expressive needs of consumers as well, subtly Consumers were asked questions regarding brand symbolizing the life atti- perception and differentiation, consumption tudes of the target group." behavior and purchase patterns as well as lifestyle. this method was in line with the basic methodology John Shen, Partner of the rB Profiler, developed and used international- (Automotive CC) ly by roland Berger Strategy Consultants. We added this latest research to the knowledge gained in over 20 years of working in China and a total of about 80,000 interviews. We can thus give you a real insight into the minds of your potential customers.
study 5 taIloR youR custoMeR a brand's value proposition thus needs to there are four main areas where the appRoach to theIR values be aligned with the value profile of its rB Profiler can be applied: target group. this is where the rB Profiler when brand values and consumers' value steps in. It helps you see the fit between measures brand perception from It systems converge, the consumer is likely consumers and brands, providing a way to a consumer perspective, including to purchase the product. the RB profiler measure and quantify the value systems comparisons with competitors or helps you create such a fit. of consumers and brands using the same with other brands in a company's methodology. the rB Profiler is a vehicle portfolio every consumer has his or her own set of for values-based brand and marketing values, desires and aspirations to which management and creates a lasting identifies consumer needs, defines It he or she attaches varying degrees of competitive advantage (figure 2). consumer segments and evaluates importance (figure 1). their attractiveness. It helps in ana- how It woRks lyzing the brand projection in commu- this complex set of values, or value profile, at the core of the rB Profiler are 20 funda- nication and at the point of sale and influences how individuals make purchas- mental values describing all aspects of enables companies to compare the ing decisions. the link between the values an individual's consumption behavior. current situation with their own targets and the concrete purchasing decision is the axes of the matrix measure degrees formed by the brand's value proposition − of emotionality/rationality and of maxi- ue to its intuitive nature and the fact d the values it projects into the market via malism/minimalism. all the values are that the results are statistically proven its logo, product design, communication, elicited from consumers using carefully on a quantitative basis, it supports price, etc. at the moment of the buying developed attitudinal statements, and can direct buy-in from your organization decision, these two value systems come be measured and validated quantitatively. and easy implementation into the together. this is the "moment of truth." marketing mix When a brand's value profile and a con- sumer's value profile converge, then the helps with brand monitoring, It consumer perceives the brand as "his" or tracking and controlling "hers" and is likely to purchase it.
Roland BeRgeR Strategy ConSultantS THe MeANiNg OF VALueS FAir: high ethical standards, social awareness, solidarity Figure 1 NATure: high ecological standards consumer value profiles PuriSM: minimalism, understatement, the rB Profiler enables consumer and brand values to be visually represented reduction to essentials in a value grid TrANquiL: calmness, relaxation, Peter harmony PreSTige: status orientation, E E expressiveness, attention-seeking Prestige Thrill & Prestige Thrill & Fair Entertainment Fair Entertainment Vitality Vitality ViTALiTy: mental and physical fitness, Classic Nature Classic Carefree Nature Carefree activity, independence Tranquil Clanning Cool& Tranquil Clanning Cool& CLASSiC: timelessness, elegance, Purism Trendy y Purism Trendy y – Security + – Security + aesthetics, design orientation Service Innovation Service Innovation & Protech SeCuriTy: averseness to risk, Smart Quality & Protech Smart Quality Shopping Personal Shopping Personal "safety first" Efficiency Efficiency Proven Proven CLANNiNg: friends, family, Total Cost Customized Total Cost Customized team spirit R R THriLL & eNTerTAiNMeNT: risk, adventure, having fun, enjoying life CAreFree: easygoing, spontaneity, 1 optimism COOL & TreNDy: trendsetting, innovation, self-differentiation VALue griD PrO-TeCH: high-tech, cold trans- e = emotional = pro-values actions r = rational = anti-values PerSONAL eFFiCieNCy: efficient + = more consumption <Values> = fundamental values performance, just-in-time, comfort, – = less consumption of consumers convenience CuSTOMizeD: individualization, exclusivity, flexibility, variety SerViCe: clear information, uncompli- cated fulfillment, competent advice, warm transactions quALiTy: longevity, reliability PrOVeN: scientific proof, authority, traditional/tried and tested products SMArT SHOPPiNg: bargain hunting, excellent value for money TOTAL COST: frugality, penny-pinching, price-defined buying decisions
study 7 Figure 2 understanding consumer behavior By matching the consumer and brand profiles, the rB Profiler makes it possible to predict consumer behavior consuMeR pRoFIles BRand pRoFIles Peter Brand A "Kevin gong" Brand a E E Prestige Thrill & Prestige Thrill & kevin gong is very performance- Fair Entertainment Fair Entertainment Vitality Vitality Classic Classic oriented – efficiency, innovation Nature Carefree Nature Carefree Clanning Clanning and quality are more important Tranquil Cool& Tranquil Cool& Purism Purism to him than a low price Trendy y hIgh FIt Trendy y – Security + – Security + Service Service Innovation & Protech Buy Innovation & Protech Smart Quality Smart Quality kevin gong chooses BRand a – Shopping Personal Shopping Personal Efficiency Efficiency the brand is expensive, but stands Proven Proven Total Cost Customized Total Cost Customized for innovation and high quality R R lo W no FIt Bu y 3 4 FIt W y Brand B lo Ben Bu "Wendy Meng" Brand B no E E Fair Prestige Thrill & Entertainment Prestige Thrill & Entertainment wendy Meng is a very responsi- Fair Vitality Vitality Classic Classic ble person – she cares about the Nature Carefree Nature Carefree Tranquil Clanning Tranquil Clanning environment and social issues Cool& Cool& Purism Trendy y hIgh FIt Purism Trendy y – Security + – Security + Service Innovation Buy Service Innovation wendy Meng chooses BRand B & Protech & Protech Smart Quality Smart Quality – the brand appeals to her high Shopping Personal Shopping Personal Proven Efficiency Efficiency ethical and ecological standards Proven Total Cost Total Cost Customized Customized R R 5 6
Roland BeRgeR Strategy ConSultantS 1 sIx RecoMMendatIons B. the chInese consuMeR It is well established that Chinese society inhabitants form the most sophisticated is extremely intricate, complicated and consumer base in China and can be relied dazzling in its complexity. the country and upon to be early adopters, willing to spend its people are fascinating and Western more on leisure and adept in the use of the minds often struggle to make sense of the Internet and other modern media. country's many facets. anyone who wishes to do business in China is well advised to We use the term megacity for these four study the market carefully before ventur- cities, meaning that they are the largest, ing into such unknown territory. most developed, and highest profile cities in the country. to sales and business development man- agers everywhere, the Chinese consumer Besides the four megacities, China has seems a mysterious creature. although what we call tier-1, tier-2 and tier-3 cities. China is the world's third largest economy, an example of a tier-1 city is Chengdu, the little is known about the preferences of its capital of Sichuan province in the heart of consumers – we are used to seeing the country. this city is a trading hub and the Chinese as producers rather than its metropolitan area has over 10 million consumers. inhabitants. a China daily survey recently listed Chengdu as the fourth most liveable With China's economy expected to grow city in China. xiamen, another tier-1 city, by roughly 7% even in these economically is a much smaller coastal town with 2.6 turbulent times, it's time to get to know million inhabitants. Cities are not neces- the Chinese consumer a little better. to sarily defined by their number of inhabit- get you started, here are six points that we ants, but by their relative economic and have distilled from the many insights that social importance. xiamen might be small, our survey affords us. these points can be but in 1981 it was one of the first four seen as general recommendations for any special economic zones introduced by the business that is in China already or is plan- Communist Party and today has a large ning to go there. industry base, making it an affluent city. don't disregard the smaller cities Shaoxing and datong are examples of Concentrate on under-40s tier-2 cities, with 4.3 million and 3.1 million Strengthen your brand inhabitants respectively. datong in the Channels are critical northern Shanxi province is a coal-mining green go town with a history and economy closely tied to this industry. Shaoxing, the birth- place of Communist Party leader Zhou the dIFFeRence Between enlai, today has a gdP of rMB 222.3 billion. BIg and sMall China's four largest cities are Beijing, guangzhou, Shenzhen and Shanghai. together they have an astonishing 57 mil- lion inhabitants with a share in national gdP of around 14%. these port cities are traditionally more open to foreign ideas and steeped in a tradition of trading. their
study 9 tier-3 cities are usually much smaller Figure 3 and their importance is mainly regional. comparison of overall consumption patterns in different tier cities examples are tongcheng situated in anhui province, with roughly 744,000 inhabit- ants, and Fengcheng situated on the Mega City 1st Tier city Megacity tier-1 yellow Sea coast in the southeast, with E E around 630,000 inhabitants. Prestige Thrill & Prestige Thrill & Fair Entertainment Fair Entertainment Vitality Vitality Classic Classic With China being as big and confusing as Nature Carefree Nature Carefree Tranquil Clanning Tranquil Clanning it is, it is easy to concentrate sales and Cool& Cool& Purism Trendy y Purism Trendy y marketing efforts on the four biggest and – Security + – Security + Service Innovation Service Innovation best-known cities. this, however, would & Protech & Protech Smart Shopping Quality Smart Shopping Quality be a fatal mistake. Whilst potential Personal Personal Proven Efficiency Proven Efficiency customers in smaller cities might have Total Cost Total Cost Customized Customized different preferences and spending R R patterns, they are certainly as interested in consuming as their fellow nationals in bigger cities and they also have an 2nd Tier city 3rd Tier city tier-2 tier-3 1 increasing amount of disposable income. 2 E E the smaller cities might well be home Prestige Thrill & Entertainment Prestige Thrill & Entertainment to your best customers. Fair Fair Vitality Vitality Nature Classic Carefree Nature Classic Carefree Tranquil Clanning Tranquil Clanning See figure 3 to get an idea of the compara- Cool& Cool& Purism Purism Trendy y Trendy y tive overall consumption profiles for the – Security + – Security + Service Innovation Service Innovation different city tiers. & Protech & Protech Smart Quality Smart Quality Shopping Personal Shopping Personal Efficiency Efficiency Proven Proven Total Cost Total Cost Customized Customized R R 3 4
Roland BeRgeR Strategy ConSultantS Figure 4 the person behind the profile a possible translation of our average consumption profiles SuSAN gAN works as a systems administrator for a major chinese company FrOM gHuANgzHOu Megapolis SiNgLe, 35 Main source of news: Internet Megacity newspaper: national daily E credit cards owned: two Prestige Thrill & Entertainment use of credit card: Fair Vitality several times a week Nature Classic Carefree travels for leisure: Purism Tranquil Clanning Cool& twice a year Trendy y clothes shopping: once a week – Security + Service Innovation preferred grocery shopping: mall Smart Quality & Protech accommodation: one bedroom flat Shopping Personal near the city center Efficiency Proven hours spent watching Total Cost Customized tv a day: 1 R hours spent using the Internet a day: 3 likes: risk-taking, innovative things, trendy features, just-in-time, price- 1 defined buying decisions NeiL zHeNg Runs a small stationery shop FrOM Tier-3 CiTy Main source of news: tv 3rd tier city tier-3 MArrieD, 43, ONe CHiLD newspaper: local daily credit cards owned: none E use of credit card: never Thrill & Fair Prestige Entertainment travels for leisure: once every Vitality Classic three years Nature Carefree clothes shopping: twice a year Tranquil Clanning Purism Cool& Trendy y preferred grocery shopping: – Security + supermarket and own plot to Service grow vegetables Innovation & Protech Smart Quality accommodation: small house in Shopping Personal Efficiency the suburbs Proven hours spent watching tv a day: 3 Total Cost Customized spent on the Internet hours R a week: 1 fitness, family, elegance likes: 2
study 11 to show you what these profiles could translate into, we have developed two prototype customers, one from one of China's four largest cities (Susan gan) and one from a tier-3 town (neil Zheng). For easy reference we have juxtaposed their typical behavior, showcasing the development of the Chinese consumer across the board (see figure 4). the notable differences between the two are obvious at first glance. For example, "Innovation and Pro-tech" are of very little interest to tier-3 cities. tier-1 types on the other hand attach great importance to "Vitality" and "Clanning". looking at the color distribution of these prototype city dwellers, it is clear that their preferences and interests are often diametrically opposed. note the sensitivity to "total cost" which is high in tier-1 cities, but neutral in tier-3 cities. Instinctively we would assume big city tiers to be big spenders. however, it turns out that china is good for a surprise here – it's the people in smaller cities who are more relaxed about price-benefit ratios and their saving accounts.
Roland BeRgeR Strategy ConSultantS Figure 5 the person behind the profile a possible translation of our average consumption profiles Consumer profile: age 30-39 Consumer profile: age 30-39 LAurA HuA, 32 E clothes shopping: twice a month Prestige Thrill & Fair Entertainment Vitality Buys skin care products in a Nature Classic Carefree specialized shop Tranquil Clanning Cool& pays more attention to brand Purism Trendy y than price – Security + Service uses the Internet for shopping Innovation Smart Quality & Protech uses teleshopping or mail order Shopping Personal likes: innovative products, Efficiency Proven new features, just-in-time Total Cost Customized R 3 Consumer profile: age 40-49 Consumer profile: age 40-49 SHi zHi, 48 E clothes shopping: twice yearly Prestige Thrill & Fair Entertainment Vitality Buys skin care products Nature Classic Carefree in a supermarket Tranquil Clanning Cool& pays more attention to Purism Trendy y price than brand – Security + Service uses the Internet for some Innovation Smart Quality & Protech shopping Shopping Personal does not use teleshopping Efficiency Proven or mail order Total Cost Customized likes: comfort, convenience, R bargains, independence 4
study 13 age Is MoRe than a nuMBeR regardless of geographical location, our data shows clearly that the age of age or economic circumstance, 90% of Figure 6 40 denotes a threshold in consumer those surveyed say that they have I pay more attention to brand behavior in China. there are many reasons "confidence in products made by well than to price for this. one of the most important is that established and experienced suppliers". 35% 33% people under 40 have spent all of their In any event, most brands that are trusted 31% adult life in a time of market-oriented in China are Chinese; indeed it is often 25% reforms which began under deng xiaoping stated that local brands cater better to 23% in the early 1980s. customers' taste and needs. to highlight the main differences be- age is also a factor for brand importance. 18-24 25-29 30-39 40-49 50-64 (age) tween someone in the 30-39 age group younger people pay more attention to and someone in the 40-49 age group, we brands. geography does not seem to have used our research to construct two matter all that much: People in Beijing and more prototype consumers: laura hua, people in small towns think of themselves 32, from guangzhou and Shi Zhi, 48, from as roughly equally knowledgeable regard- Many multinational brand manufactur- Beijing. Figure 5 shows the rB Profiler ing fashion. ers have adapted their logos for China blueprints and possible examples from both age groups. on the surface, brand loyalty seems to be driven by nationalistic considerations, with Consumers aged between 30-39 are people assuming they can trust Chinese or the most important target market at the local brands more than foreign ones. moment. they are more open to innova- tions than their elders and have more however, it turns out that some of disposable income than those younger the most trusted brands mentioned than they. by respondents are in fact foreign, especially in western china; the respon- Companies need to watch the develop- dents think of them as chinese, just ments in younger age segments if they because they are known to be good. want to benefit from future high-income consumers. trends are likely to echo those this goes to show that Chinese consumers of earlier young consumer generations in will base their brand loyalty also on qual- more advanced economies. ity and price rather than just on whether something is "made in China". Consumers BRands do MatteR in the highest segment, with an annual the Chinese are extremely interested in income of rMB 250,000 and above, are brands and attach a lot of importance most interested in Western brands and to which brand they buy. any product or have a clear understanding of what's service intended to penetrate the Chinese Western and what's not. these segments market needs to establish a strong brand. also show the highest interest in Western culture and are, either through economic ability or intellectual interest, more open to foreign influence and ideas in general.
Roland BeRgeR Strategy ConSultantS cRItIcal channels Malls are not only popular with the In China, as everywhere else, there are expected groups: some provinces such Figure 7 traditional sales channels such as shops as Chongqing have also declared a clear people's preference for malls is and markets, and new channels such as preference for malls. more influenced by size of city than the Internet and tV. unsurprisingly, young by income customers are those most likely to use With 250 million users in China, the the Internet, with 7% of 18- to 24-year- Internet certainly is a force to be reckoned named "mall" as a preferred channel olds preferring to shop for clothes on the with. younger users and those in the top for household grocery shopping Internet as opposed to only 1% of over four cities are more likely to use it for 63% 40-year-olds. shopping, whereas the older generation 54% and those in provincial towns are more to get a product to the customer, the right tV- focused. 34% choice of channel is critical. Whilst custom- 21% ers in the four largest cities prefer the mall apart from a pure sales channel, the for grocery shopping, only 20% of tier-3 Internet should be viewed as an city inhabitants do the same. Mall prefer- essential Pr tool when it comes to Mega tier-1 tier-2 tier-3 ence is strongly influenced by city size – reaching the younger and more affluent more than by income. parts of society. chinese bloggers have considerable influence in a country which Western retailers that have been active still suffers from censorship, and compa- in China since the 1980s have been quite nies that are in their bad books can suffer Malls given as a preferred channel successful in penetrating the market, significantly. for household grocery shopping particularly the French supermarket 35% 33% chain Carrefour. on January 9, 2009 the the devastating earthquake in China in 31% chain opened its 134th hypermarket in early 2008 is a case in point. dior group 25% 21% China, this time in Beijing. their american was forced to drop actress Sharon Stone rival, Wal-Mart, has also been successful, from their advertising in China after she recently opening its 100th store. Wal-Mart claimed the disaster was "karmic retribu- China President and Ceo ed Chan has tion" for China's treatment of tibetans. < 5000 5,000- 50,000- 100,000- 150,000- 49,999 99,999 150,000 250,0001) stated that his company is committed to Bloggers immediately called for a boycott 1) Income (RMB/yr) bringing its superstores to tier-2 and tier-3 of dior's products. Similarly, when Chinese cities throughout the country. Paralympic athlete Jin Jing was attacked in Paris during the olympic torch relay, Mall or free-standing superstore? Which Carrefour, normally strong in China, suf- channel is best depends more on geog- fered from a customer boycott started by raphy than income, as figure 7 clearly bloggers. shows. Carrefour and Wal-Mart are using both channels, but their superstores are equally, the Web can be exploited to frequently so large that they are stand- improve a company's image; companies alone rather than attached to a mall. like ge or Wal-Mart that gave generously after the earthquake received an immedi- ate positive echo in the blogs around the country.
study 15 go gReen grow in the future, and companies Figure 8 surprising as it may seem, concern for the should not underestimate green issues preference for green products within environment is equally widespread across as a powerful marketing tool. different consumer segments all types of consumers in china, at least when it comes to shopping. the car market is a case in point. to date,
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