Meet the new Chinese consumer

Meet the New Chinese Consumer


February 2013

During the past three decades, profound social, economic and cultural changes in China have converged to create a consumer market that is unlike any other. Complicating matters is the speed at which the market continues to evolve.

To win the hearts and wallets of Chinese consumers, local and multinational firms alike need to master a new art that combines the ability to generate meaningful consumer insights amid unprecedented change with the agility to act on those insights quickly and proactively. We refer to it as art because it requires not simply applying tools and science but also sometimes embracing unconventional and counter-intuitive approaches.

Along with the promise of opportunity, these approaches come with a certain amount of risk as well. And as with any art, experience is both the teacher and the driver of excellence. Here, then, are five movements—brushstrokes, if you like—that Accenture believes the best marketers in China can apply to master their art.

Counterintuitive
Over the past several years, Accenture studied the behavior of consumers in China to gain a better understanding of the sales and marketing approaches that resonate in that country. In 2011, we surveyed more than 330 consumers in China to better understand their behaviors, attitudes and expectations. In 2012, we conducted a similar survey of 504 consumers. The findings reveal five areas of marketing action—some counterintuitive—that companies must pursue and master to extend their reach and sales in China.

 

1. Embrace a more complex, not a simpler, marketing channel strategy

To make informed purchasing decisions, consumers in China rely on multiple channels, ranging from direct-mail campaigns and advertising to the Internet. But it is the online channel that customers turn to most often when looking for product or service information. In 2012, the proportion of consumers doing research online topped 90 percent.

Like shoppers in other parts of the world, Chinese consumers tend to “research online, purchase offline.” And this so-called ROPO effect is growing. In 2010, 33 percent of Chinese consumers purchased products offline after looking online for pricing, product and brand information, as well as for customer reviews. In 2011, that figure jumped to nearly 43 percent. Meanwhile, the value of ROPO sales during that one-year period more than doubled, to $90 billion.

 

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Given that the boundaries separating online and offline worlds will continue to blur, it’s critical that companies develop a multichannel marketing strategy in China that makes it easy for consumers to carry out online and offline activities. And these multiple channels must be seamlessly integrated to deliver a consistent experience.

 

2. Sell yourself to everyone, including non-buyers

While the Internet is the research tool of choice for Chinese consumers prior to making their purchases, it is information from other consumers that is consistently most important in helping them understand what products are available and shaping their buying decisions. Social media is playing an increasingly critical role here. More than 90 percent of Chinese consumers use social media and microblogs (known as “weibos”) to learn about companies’ products or service delivery.

Nearly a quarter of consumers post their provider experiences and opinions about a company’s products or services several times a week. When it comes to valuing the opinions of others, 74 percent of Chinese consumers responding to our most recent survey trust the comments about companies that are posted by people they know (compared with 68 percent in 2011). Interestingly, however, it is not just the opinions of friends and family that matter. In 2011, more than a third of Chinese consumers based their purchasing decisions, at least partly, on posts made by complete strangers. In 2012, that number climbed to nearly 44 percent. Less than one-third of Chinese consumers are satisfied with their providers, which suggests that a huge number are willing to with if the incentives are right.

The lure of online opinion sharing explains the popularity of sites such as Dianping, on which people rate restaurants and merchants in approximately 2,300 cities across China. By 2012, the website had more than 48 million monthly active users who had posted some 20 million reviews on more than 1.5 million member merchants. The site reports more than 1.2 billion monthly page views—60 percent of which come from its 40 million unique mobile users.

To take full advantage of the social media channel, companies need a clear understanding of its potential for the organization. It also requires them to enhance their analytics capabilities to identify and monitor customer-relevant sites and opportunities, respond to comments from consumers about their brands, and continuously assess the social media presence of competitors.

 

3. Develop and manage a brand “persona” that customers recognize and like

It is increasingly hard to maintain consumer loyalty in China. Currently, less than one-third of consumers are satisfied with their providers, which suggests that a huge number are willing to switch if the incentives are right.

China’s shoppers tend to be even more opinionated and outspoken than their American and European counterparts. Negative experiences can be particularly detrimental to customer relationships. Retailers, banks and Internet service providers are most susceptible to losing customers due to poor service. But no industry is immune from customer churn.

With word of mouth and social media playing such dominant roles in shaping customer preferences, one negative experience can quickly “go viral” and influence the purchasing decisions to tens of thousands of consumers. Indeed, our research revealed that 97 percent of Chinese consumers told others about a bad customer service experience in 2011, and 52 percent posted comments about the negative experience online.

 

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Loyalty programs can help stem the tide of customer defection and negative commentary. Such programs have been effective in persuading Chinese customers to maintain their provider relationships across all industries, but are most popular (and successful) among cell phone companies, banks and Internet service providers. Three-quarters of cell phone customers, for example, reported that their provider’s loyalty programs discouraged them from switching service.

More important, half of our survey respondents noted that loyalty is driven by factors other than financial incentives. These include open and honest communications, the availability of opportunities for consumers to take part in designing or improving products and services, and the provider’s commitment to corporate social responsibility.

Companies should take all these factors into consideration when developing customer loyalty and retention strategies in China. They should also consider applying predictive retention analytics and other forms of analysis to determine the root causes of customer unhappiness. Having such capabilities in place will make it easier not only to protect their market share but also to develop strategies and offerings that will attract new customers.

 

4. Focus on the invisible customer expectations as well as the explicit

Today, it is no longer enough to exceed consumers’ expectations; you must anticipate them before they are explicitly articulated. This is especially true in China, where, according to the Accenture surveys, consumer expectations for better customer service are at an all-time high.

So what do Chinese consumers demand of their providers? First and foremost, they want to conduct their business with providers in a fast and hassle-free fashion. This means there are basic service expectations that cannot be compromised: speed of service, ease of obtaining information and service, and agents’ knowledge and experience.

Digging deeper, we found that polite employees, a service experience that matched the company’s promise, and reasonable wait times are consistently the most important components of customer service. Conversely, several factors contribute to negative customer experiences. Frustration levels are highest among consumers who have to contact customer service agents multiple times about the same problem or feel they must wait too long to be helped.

Naturally, companies want to avoid creating a negative impression that causes their consumers to flee. Instead, they want to give their customers what they want—and more than they expect—via a differentiated sales and service strategy.

This can be accomplished in several ways. By building their capabilities in predictive modeling and analytics, companies will find it easier to generate valuable customer insights, recognize “moments of truth” that contribute to (or erode) loyalty, and develop offerings tailored to meet the needs of specific consumer segments. And by enabling customers through channel integration and automated self-service features, businesses will be better positioned to provide a holistic customer experience, reduce their cost to serve, improve service and distinguish themselves from the competition.

 

5. Let the customer help you create your “palette” of offerings

In today’s global economy, what matters is not where an idea comes from but how fast a country’s firms and consumers are willing to try it out. Amar Bhidé, an economist from Tufts University, dubbed this propensity for consumers to welcome new products and services “venturesome consumption” and noted that their willingness to try new products and services may be an important component of innovation.

This is certainly relevant for companies operating in China, where consumers are in fact surprisingly “venturesome.” In our 2011 survey, about 30 percent of Chinese consumers said they are very interested in participating in innovation efforts for a company, in either online formats such as idea portals or offline via focus groups or product trials. More than half said they are somewhat interested in such activities.

They are also more than willing to try new things—and this openness to new experiences can inspire companies to launch new products and services. Few companies have taken better advantage of Chinese consumers’ venturesome spirit than KFC.

The fast-food company, which has 4,000 outlets across China, distinguished itself in the Chinese market by adapting its menus to local tastes. Today, KFC customers in China can order buckets of “original recipe chicken” just as easily as KFC customers can anywhere in the world. But in China, they can also order fried dough sticks, egg tarts and a number of new food products designed to appeal to regional tastes. The strategy has paid off in terms of revenue growth and customer loyalty. Nearly a third of KFC customers in China visit the shops specifically for the chance to try new products.

According to our research, most Chinese customers did not participate in innovation efforts for a company in the past two years. This will certainly change. With China’s young, connected population, the potential to engage consumers in technology-enabled innovation programs is significant.

There are several paths companies can pursue to consistently create meaningful experiences that attract more—and more valuable—customers. That is, to apply their artistic skills to create valuable outcomes. Specific initiatives will naturally vary from one business or sector to another, but there are things all companies can do right now to bolster their likelihood of success in the Chinese marketplace.

  • Develop a customer experience blueprint. High-performance businesses know that their customers’ most satisfying experiences don’t just happen. They are carefully planned, consistently presented and continually refined to deliver on the brand’s promise across channels and throughout the customer lifecycle.

    A “customer experience blueprint” can help you deliver memorable experiences, maintain relevancy and reinforce your brand’s value proposition. To create such a blueprint, you should first define the big picture by establishing a strategic vision. Next, define what “good” looks like on the ground, outlining the ideal customer experience blueprint at the tactical level—making clear for employees the step-by-step path customers are expected to follow.

  • Adopt and/or strengthen a digital marketing strategy. Most marketers in China attempt to make their product and service information available via a broad range of channels. Yet some channels are much more effective than others. Assess your existing multi-pronged marketing strategies to ensure they are aligned to the customer experience blueprint, and allocate resources to those channels that deliver results. That will most likely mean rethinking the role that digital marketing and social media programs can play in taking advantage of the “research online, purchase offline” phenomenon, producing higher conversion rates, and building dynamic conversations and interactions.

  • Pursue outside-in innovation. As noted above, customers are eager to share their opinions and are increasingly looking to do so via imaginative, high-quality experiences. One of the most effective ways to access customers’ insights is by taking advantage of their willingness to participate in innovation programs. At a minimum, create opportunities that encourage consumer involvement in product design and testing. You may even want to make innovation an essential part of the customer experience. The potential payoff is enormous in terms of new ideas, meaningful feedback on new products and services, and enthusiastic consumer support and loyalty.

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By taking the time to understand Chinese consumers’ buying preferences and behaviors—and then adopting appropriate strategies based on those insights—companies will be able to create differentiated sales and service programs that will, in turn, enable them to acquire, engage and retain more customers. Individually, these actions can help businesses create a more engaging and rewarding experience for their customers. Together, they provide a roadmap for high performance.

 

For further reading
Shoppers without borders,” Outlook 2012, No. 3
The last 10 miles,”Outlook 2012, No. 3
"Think you’ve got China figured out? Think again," Outlook 2012, No. 2

 

Sidebar | Understanding the fundamentals of China’s consumer market
Companies looking to improve their art and extend their reach into the vast Chinese consumer market must, at a minimum, understand the general market conditions and drivers. However, it is not enough for them to have a passing familiarity with their art; they must become masters. Consider the following:

China is not yet a consumption economy. The contribution of household consumption to China’s GDP was just 38.8 percent in 2010, compared with 71 percent in the United States and 50 percent to 60 percent in most European and other BRIC countries. The government is striving to reverse this trend with policies aimed at increasing domestic consumption so that it accounts for 45 percent of GDP by 2020. How much Chinese consumers will be willing to spend remains to be seen, since they have one of the highest savings rates in the world (38 percent of earnings).

Income disparity is alarming. The chronic income disparity between urban and rural residents continues to widen. In 2011, the average disposable income of urban Chinese consumers was 323 percent higher than that of their rural counterparts. While the government has launched a series of social and economic initiatives aimed at increasing incomes for both rural and urban individuals by at least 7 percent each year by 2015—resulting in 7 percent of households having annual disposable incomes of more than $25,000, compared with just 2.4 percent in 2010—we do not expect the gap between urban and rural households to narrow significantly.

Meet the new Chinese Consumer

Urbanization is accelerating and will continue to drive consumption. Approximately 13 million people in China move to cities each year. In 2000, the proportion of urban dwellers climbed to 36 percent, up from 20 percent in 1980. By 2015, it is expected that 60 percent of the population will reside in urban areas. And by 2020, there will be 70 to 100 cities in China with more than one million people. This dramatic urbanization is, and will continue to be, a main driver of China’s domestic consumption.

Profound demographic changes are making the consumer market landscape more complex. China’s population is aging. The number of people over the age of 65 will increase by more than 51 percent from 2010 to 2020 and will account for 14 percent of China’s total population. Thanks to the country’s one-child policy, its workforce is simultaneously shrinking and will actually decrease by 2020. Given that the social security safety net won’t cover the majority of older residents, younger workers will be faced with a heavier burden to support the seniors.

The rise of online consumers marks a new frontier for growth. The prevalence of mobile Internet applications and smartphones is accelerating the rate of online consumption. By 2015, the number of Internet users in China will soar to more than 800 million, up from 538 million as of June 2012. Internet access is growing ubiquitous in consumers’ daily lives for shopping and entertainment. Online shopping accounted for 3.3 percent of China’s retail sales in 2010 and will increase to 8 percent (with sales volume of more than $360 billion) by 2015.

 

About the authors
Jeffrey I. Beg leads management consulting for Accenture’s Products group in Asia Pacific. He is based in Shanghai.

Tzeh Chyi Chan is a managing director in Accenture Analytics. He is based in Beijing.

Xuyu Chen, a senior marketing manager at Accenture Management Consulting, is based in Beijing.

 

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About the authors

Jeffrey I. Beg leads management consulting for Accenture’s Products group in Asia Pacific. He is based in Shanghai.

Tzeh Chyi Chan is a managing director in Accenture Analytics. He is based in Beijing.

Xuyu Chen, a senior marketing manager at Accenture Management Consulting, is based in Beijing.

 

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Meet the new Chinese consumer | Accenture Outlook 
Successful consumer marketing in China is, in many ways, as much art as science. It combines a sophisticated understanding of local perceptions and preferences with a willingness to embrace unconventional strategies and the best new technology.
China, consumer marketing
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