Who has the keys to tapping China’s vast markets, especially its rapidly growing number of middle-class consumers? One might think it’s primarily the largest and most successful Chinese firms. Three state-owned energy companies, after all, are in the Top 10 of the Fortune Global 500, and telecom provider China Mobile is in the Top 100. Other companies on that list, such as computer maker Lenovo, also have a high profile outside China’s borders.
But there’s also a lot to learn from smaller Chinese firms that have successfully targeted specific markets in the country. After all, in a nation with well over 1 billion inhabitants, just one slice of a market can be a very large opportunity. Consider how quickly consumer markets are expected to grow. Recent Accenture research (“Fast forward to growth: Seizing opportunities in high-growth markets”) reveals that by 2020, China will have an additional 125 million households with annual incomes exceeding $15,000 and 5 million households with incomes above $50,000—the second-largest increase after the United States. That’s a lot of new spending power.
What do China’s small to midsize consumer-products firms know about tapping into this new consumer base? Accenture has identified four keys to success that companies should consider as they plot their growth strategy for emerging consumers and markets in China.
1. Identify the “big-enough market insight”
Companies making significant inroads with consumers in China have moved beyond ideas that create only incrementally better products. Successful players build on insights that can help them create a company capable of high growth. In their book, Jumping the S-Curve, Accenture’s Paul Nunes and Tim Breene call this concept a “big-enough market insight,” or BEMI. BEMIs give companies the opportunity to launch themselves toward higher planes of success.
Consider how Jiangzhong Pharmaceuticals created a market in China for an over-the-counter remedy for stomach indigestion. Products were readily available from Western sources, but those did not appeal to Chinese consumers because of the belief that they resulted in unpleasant side effects.
Jiangzhong Pharmaceuticals’ BEMI was about a product to treat dyspepsia that built on Chinese consumers’ trust in traditional herbal medicine. To assuage concerns about product safety and potential side effects, the company used Chinese yam and an herb called “may bloom” as major ingredients, both of which are commonly found in Chinese kitchens. The product took hold with consumers and has been the top-selling over-the-counter brand in the digestive category since 2005, with sales of more than 1 billion RMB ($200 million).
Another BEMI can be seen in yoga clothing and equipment company Easyoga. In 2000, the company anticipated the rising popularity of yoga and leapt into the market with a durable exercise mat—a product supported by more than 10 patents—that included anti-skid and anti-virus features. Easyoga soon became the top-ranked brand in Asia in the yoga market and has enjoyed 30 percent growth in profit margin in recent years.
2. Don’t invent, adapt
Achieving success with emerging consumers in China does not necessarily depend on having a BEMI that leads to a breakthrough product. Companies can focus instead on improving and upgrading existing products.
The market for home-soymilk-makers provides a good example. Many Chinese suffer from lactose intolerance and, therefore, drink soymilk instead. For many years, the option of making the product at home—potentially much cheaper than buying it at the store—did not exist. Machines for making soymilk were too large and complex to operate at home.
Soymilk and home appliance manufacturer Joyoung responded to this opportunity by adapting existing machines, launching a soymilk maker in the early 1990s. Consumers add soy beans to the machine and follow a set of simple steps; within half an hour, the milk is ready.
The underlying technologies of the product, though not necessarily advanced, add up to an effective and popular consumer product. The company has also continuously improved the soymilk-making machine over the years to build on its first-mover advantage. After entering the market in 1994, Joyoung achieved sales of more than 10 million units by 2008, and its sales revenues reached more than RMB 5 billion in 2011—or nearly $800 million.
3. Innovate to create and extend brand value
China has plenty of room to grow in the area of branding. This is true even for common household purchases—such as the lowly egg.
As in other parts of the world, Chinese consumers are increasingly interested in buying organic foods. Beijing DQY Agricultural Technology Company produces hormone-free organic eggs that are more nutritious than the non-organic variety and are also believed by many consumers to be better tasting.
Before DQY entered the market in 2000, eggs available in the Chinese market were unbranded, with no distinctive packaging or information about their date of production or place of origin. By contrast, DQY packages its eggs with detailed manufacturing information and its brand on the outside, increasing brand associations with consumers of a high-quality and trusted product.
DQY produces its eggs in a clean, modern industrial facility, greatly reducing concerns about the possibility of eggs that might transmit diseases such as bird flu. By winning the public’s trust with its standardized production, DQY became the market leader in China in its category, even though its eggs cost twice as much as those of competitors.
4. Focus on a single product, then branch out
A company can win a substantial share of its market by operating according to a single-product strategy—but only for a time. Given inevitable market saturation, changes in consumer demand and the emergence of new competitors, a company’s initial dominant position can quickly erode. Chinese market leaders have sustained their success by starting with a single product and then extending the brand with other products.
The companies introduced earlier serve as successful case studies of such a strategy. Jiangzhong Pharmaceuticals built on its strength with over-the-counter indigestion medicine for adults by developing a similar product for children. It then turned to other drugs and healthcare products that are also based on herbal remedies.
Building on its success with yoga mats, Easyoga soon expanded into accessories, shoes and clothing that were especially focused on the needs of yoga practitioners. Product enhancements have included the use of material that stays close to the skin without being tight.
DQY took several paths to expansion in light of its focus on organic eggs. The company has turned to eco-breeding of chickens, organic manure production and clean energy development. For example, its biogas generation facility has been recognized by the United Nations and the Global Environment Facility as the largest demonstration project of its kind. According to the Food and Agricultural Organization at the United Nations, “DQY is creating a sustainable development model for ecological agriculture, establishing leading global standards for economic recycling, agricultural industrialization and providing consumers with high-quality ecological food and clean energy.”
Chinese consumers are increasingly seeking what consumers in the developed world want, especially in the area of healthy living—from safe food to exercise equipment to relief from everyday ailments. Firms looking to tap this growing market can learn important lessons from companies that have used their local knowledge of consumer trends and behaviors to create compelling products and services.
Innovation is important, but not only in terms of creating a breakthrough product. Companies have achieved success by adapting existing technologies, and also by creating a compelling brand for everyday goods. Starting simply with a limited product suite, and then building on that success, has also become a viable business model.
China is a huge and complex market. For companies that can identify and meet a need in a specific area, millions of consumers await.
About the authors
Cherry Lu Cui is a research associate with the Accenture Institute for High Performance in Beijing.
David Light is a senior research fellow with the Accenture Institute for High Performance in Boston.