Roland Berger Chinese Consumer Report 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 assignments we work on in China each year, affording us unrivalled insight into the Chinese market. 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 understand the unfolding domestic consumption in China as exports suffer due to the world economic 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 consumer'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 million 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 inhabitants, 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, I do not buy products produced by there are hardly any hybrid cars in China: companies that harm the environment young or old, province or big city, large or yet the Chinese car market is expected (agree to some extent or strongly small income, between 84% and 88% of to overtake the uS as the world's biggest agree) respondents said they try to avoid compa- within the next decade. Shanghai general nies that harm the environment and pro- Motors is testing the market with its first 85% 85% 84% 88% fessed a preference for green products. locally produced hybrid model, which is priced slightly higher than the standard the green market in China is still extremely model but is 15% more efficient in terms underserved. this is not surprising in a of fuel consumption. country that has so much catching up to do in economic development terms. now With 1.3 billion people, China could have that China has overtaken germany as more than 100 million cars on the road if Mega tier-1 tier-2 tier-3 the world's third largest economy, more the market expands at the average global and more Chinese can afford to put their level of 10%. China has to take a lead in money where their mouth is. alternative technologies: the world simply I would choose green products doesn't have the energy resources to 92% 93% 91% 92% 91% Companies should leverage this new sustain such growth with conventional green consciousness. Some are already technology. doing so: In January 2009, Wal-Mart China announced a push towards sustainability, the Chinese are generally not yet as con- which includes opening new stores that cerned about climate change and a dete- use 40% less energy, reducing plastic riorating environment as Westerners are. bag use by 80% and increasing water But environmental concerns are sure to efficiency by 50%. the ambitious tar- increase, and companies would do well to 18-24 25-29 30-39 40-49 50-64 (age) gets were announced on the company's prepare for this eventuality now. website – an indicator of the importance attached to the message. Wal-Mart is also addressing another factor: While pushing their green credentials, they are continuing to stress their policy of offering high-quality products at the best price. the Chinese are still cost-sensitive and the premium put on being green is not quite as high as in Western countries. however, environmental concerns will

Roland BeRgeR Strategy ConSultantS IMpRove youR deFInItIon using the rB Profiler, we can distill the Figure 9 brand image of specific companies. We did Brand manufacturers often lack a clear brand positioning so for a number of different product areas: Ford Toyota  Beer Ford toyota  sets tV E E  phones Cell Fair Prestige Thrill & Entertainment Fair Prestige Thrill & Entertainment Vitality Vitality  Cars Classic Classic Nature Carefree Nature Carefree  care products Skin Tranquil Clanning Tranquil Clanning Cool& Cool& Purism Purism  Credit cards Trendy y Trendy y – Security + – Security + Service Service Innovation Innovation & Protech & Protech the overall impression from our analy- Smart Shopping Quality Smart Shopping Quality Personal Personal sis is that in some industries, brand Proven Efficiency Proven Efficiency Total Cost Total Cost manufacturers lack a clear brand image. Customized Customized Improvements in positioning are urgently R R required to build a more solid and well- defined customer base. Dongfeng Volkswagen dongfeng Volkswagen Figure 9 clearly shows that Volkswagen E E and dongfeng are the only brands that Prestige Thrill & Entertainment Prestige Thrill & Entertainment Fair Fair Vitality Vitality benefit from even an approximation of a Classic Classic Nature Carefree Nature Carefree brand image. however, dongfeng has joint Tranquil Clanning Tranquil Clanning Cool& Cool& Purism Purism ventures with nissan, honda and PSa, Trendy y Trendy y – Security + – Security + which makes the dongfeng profile a corpo- Service Innovation Service Innovation & Protech & Protech rate profile rather than a product profile. Smart Quality Smart Quality Shopping Personal Shopping Personal Efficiency Efficiency Proven Proven In VW's case, the product itself is seen Total Cost Customized Total Cost Customized as representing a modern, performance- R R driven brand. Customers think that the brand is expensive, but they value the brand image above cost considerations. In 12 dongfeng's case, it is the company that is perceived as representing these values, not the product itself. there is a solid value proposition at the corporate level owing to the company's JVs. assuming the ability to develop the necessary r&d capacity, this might allow dongfeng to eventually launch its own sub-brands with some success.

study 17 Ford and toyota, on the other hand, suffer Figure 10 from a very weak brand image. their weak brand image is also found for some tv manufacturers customer base is ill-defined, making a positioning decision difficult if not impos- sible. If the Chinese auto market slows Samsung Sony Samsung Sony down for whatever reason, this could mean E E serious trouble. Foreign manufacturers Fair Prestige Thrill & Entertainment Fair Prestige Thrill & Entertainment also have to prepare themselves for strong Vitality Vitality Classic Classic Chinese brands emerging from successful Nature Carefree Nature Carefree Tranquil Clanning Tranquil Clanning JVs that have produced strong corporate Cool& Cool& Purism Trendy y Purism Trendy y profiles, as in the case of dongfeng. to – Security + – Security + Service Innovation Service Innovation brace themselves against such difficulties, & Protech & Protech Smart Shopping Quality Smart Shopping Quality automakers are well advised to reinforce Personal Personal Proven Efficiency Proven Efficiency their brand image, find their specific cus- Total Cost Total Cost Customized Customized tomer base and cultivate their preferred R R channels. a similar picture emerges for the makers of Changhong Skyworth Changhong Skyworth 5 tV sets. two foreign brands have managed 6 E E to establish a clear reputation for quality Prestige Thrill & Entertainment and modernity; the others, regardless of Fair Vitality Classic their origin, are weak in comparison. tV Nature Carefree Tranquil Clanning makers should heed the same recommen- Cool& Purism Trendy y dations as for automakers: a clear brand – Security + – + Service Innovation image is the first step towards surviving in & Protech Smart Quality a more difficult and sophisticated market. Shopping Personal Efficiency Proven Total Cost Customized Foreign companies need to invest a great R R deal of time in learning about the Chinese customer. they need a strong local management team in place to adapt to a 7 rapidly developing market − one that is 19 poised to become the world's largest and most important.

Roland BeRgeR Strategy ConSultantS 2 chInese suRpRIses China is unique among the nations of leIsuRe haBIts our planet. It is home to the world's larg- the most costly and time-consuming Figure 11 est population, it is governed by the leisure activity is travel. We therefore differences by age group Communist Party and it has experienced looked at the travel habits of our unprecedented economic growth over respondents. number of trips per year the past 30 years. even now, with the 1.5 1.5 1.2 1.0 0.8 global economy in the doldrums, China Companies in China have been quick to 1.2 still expects roughly 7% growth for 2009. react to the newfound taste for leisure spending in their country. Ctrip, a full- Most companies have very little or no service online travel booking service estab- 18-24 25-29 30-39 40-49 50-64 (age) experience in such a market, making it lished in 1999, has been experiencing a doubly important to invest in extensive 50% growth rate for the past few years. research before venturing into China. Some 30% of trips taken are package tours differences by city tier Western companies that have so far been and about 25% of trips are beach holidays. successful in the country have usually trips per year spent years planning their market entry the general leisure trends are not unlike 1.8 1.1 1.1 1.0 before going there. In China more than those found in europe or the uS. But 1.2 elsewhere, unexpected tendencies in the companies have to be careful to use the general development need to be taken into right channel in the right region, as prefer- consideration at all times. It is not enough ences differ widely. the Internet is cer- Mega tier-1 tier-2 tier-3 to trust your feelings or base your judg- tainly a big medium in China, but access in ment on Western market circumstances. remote provinces can be poor. We identify four critical factors that need It's IncoMe, not Spending per trip (rMB) investigating by any company wishing to geogRaphy 3,364 3,859 3,516 3,781 establish a clear brand image in China: one might expect to find most families living under one roof outside the large  egardless of city tier, leisure spend- r cities and in the more remote provinces. ing remains roughly equal – it's the however, this is not the case. In fact, frequency of leisure pursuits which income is the defining component for Mega tier-1 tier-2 tier-3 differs demographic factors such as household  verage family size is connected to a size and number of children. income rather than geography  eople consider themselves to be P traditionally, families in China are length of trip fashionable in most parts of the closer-knit than in the West, with many 4.7 4.5 4.5 country, regardless of city tier older parents living with their grown-up 4.3  Interest in Western culture is evenly children and grandchildren under one roof. spread among all of society But the higher the income, the less likely such an arrangement is. Several reasons for this are possible: Mega tier-1 tier-2 tier-3

study 19  higher income makes it easier to rent FashIon sells eveRywheRe more than one apartment We asked people whether they had a good Figure 12  young high-flyers may delay or forgo knowledge of what was fashionable and Persons per household according to having a family what was not. Surprisingly, the number of income (rMB/year)  Many Chinese aspire to Western-style people saying they did was similar in the 3.3 3.2 3.1 3.1 3.1 family arrangements different types of cities and across provin- 3.0 ces (figures 13 & 14). geography, on the other hand, has a markedly weaker effect on the number this widespread regard for fashion is of people living in one household. those somewhat puzzling. Consumption behavior parts of northwest China which are still and cultural environments differ great- <5,000 5,000- 50,000- 100,000- 150,000- >250,000 49,999 99,999 150,000 250,000 least touched by the economic and social ly from Shanghai to Sichuan. however, development of the past 30 years have an modern media are able to penetrate all average of fever than three persons per areas of the country, bringing the same household, whilst some more affluent and ideas about style and fashionableness to number of children according to income developed provinces such as guangdong, all sorts of different consumer groups. this (rMB/year) Fujian or hebei show an average of 3.4 is clearly having an impact. 1.4 persons per household. one must also 1.2 distinguish between the general tendency Contrary to what one might expect, peo- 1.0 1.0 1.0 1.0 in cities to live in smaller households and ple in the four richest provinces consider specific tendencies in the different themselves to be less fashionable than provinces. those in provinces such as tianjin or anhui. and the picture is even more complicated <5,000 5,000- 50,000- 100,000- 150,000- >250,000 49,999 99,999 150,000 250,000 what does this teach us? easy assump- when it comes to price sensibility: Some tions often fail to reflect the reality of areas show up as both price- and fashion- demographics in china. to understand the conscious, with respondents claiming to market, you need to look closely at your be more concerned about price than brand. potential customer base. When it comes to fashion items of any Figure 13 kind, intensive research into local markets I have a good knowledge of what is is needed to find the right mix of pricing fashionable and what is not and branding. 67% 67% 67% here, as with demographics, china is 65% good for some surprises. Mega tier-1 tier-2 tier-3

Roland BeRgeR Strategy ConSultantS welcoMIng the west although China has an ancient culture of Figure 14 its own, its people are open to Western consumers everywhere claim a good culture such as classical music, literature knowledge of fashion and painting. this interest is evenly spread across the eastern provinces. only in the remote areas of western china is it found for under 60% of people. regardless of city tier, roughly 63% of respondents claim to enjoy Western culture, with Beijing at around 75%. unsurprisingly, it is the young who are most interested in all things Western. this 60% <...< 70% is probably connected with their use of the 70% <...< 80% Internet, which is a great spreader of influence and ideas. I have a good knowledge of what is fashionable and what is not With the right marketing strategy, Western (agree to some extent or strongly agree) brands have a good chance of capturing the Chinese imagination, especially in the critical younger and affluent markets. But even the average Chinese shows some interest in things Western. deng's policy of opening up the country has affected all Figure 15 provinces and the new influences have had western culture appeals to a lasting effect. It stands to reason that in consumers of all regions time, even the people of the northern and western provinces will reach the level of 67% 63% 64% 62% interest in Western culture professed by those in the south and east. Mega tier-1 tier-2 tier-3 I enjoy Western culture, including Western classical music, literature and painting (agree to some extent or strongly agree)

study 21 3 know youR aRchetypes In the previous two sections we described China's customer base and presented some surprising insights culled from our research. the question now is: What do you do with this information? how do you know if your strategy in China is correct and your customer fit accurate? this is where the rB Profiler can help. We have already seen how it facilitates the development of value-based marketing strategies. In this section we present the different archetypes used to define customer bases and show how this helps with actual cases. to segment the market into useful sections, we have defined eight archetypes or types of consumer. together, these archetypes cover most of the spectrum. the eight archetypes allow you to define a customized brand and marketing strategy. however, in China strong regional differences in consumer attitudes also have to be taken into consideration. We outline these differences below.

Roland BeRgeR Strategy ConSultantS Figure 16 eight archetypes the percentage figure denotes the proportion of respondents in each category. Blue areas are more important to the consumer type, Red areas less important (compared to the average/population) and whIte areas neutral. Conformists Traditionalists E the Conformist E the traditionalist Prestige Thrill & Prestige Thrill & Entertainment Entertainment Fair Vitality (7.9%) Fair Vitality (9.4%) Nature Classic Carefree Conformists like to live a quiet life, Nature Classic Carefree Traditionalists place great impor- Tranquil Clanning Cool& have a clear sense of what they see Tranquil Clanning Cool& tance on sharing their life with Purism Trendy y Purism Trendy y as value for money and adhere to family and friends, pursuing their – Security + social rules and conventions. They – Security + long-term goals in a quiet, steady Service Service Innovation Innovation & Protech care a lot about the environment & Protech fashion. Although usually to be Smart Quality Smart Quality Shopping Personal and little about fashion. Conformists Shopping Personal found in the middle-income range, Efficiency Efficiency Proven tend to be older and female. Proven they are not particularly price-sensi- Total Cost Total Cost tive, preferring quality and timeless Customized Customized R R products to a cheaper alternatives. Source: Roland Berger; International Research 2008, n = 11,100 Source: Roland Berger; International Research 2008, n = 11,100 8 7 Progressive maximalists Modern performers E the Progressive E the Modern Performer Prestige Thrill & Prestige Thrill & Entertainment Entertainment Fair Vitality Maximalist (11.1%) Fair Vitality (11.5%) Nature Classic Carefree Usually at home in the wealthiest Nature Classic Carefree A more serious type, Modern Tranquil Clanning Cool& consumer segment, Progressive Tranquil Clanning Cool& Performers ask for nothing less than Purism Trendy y Purism Trendy y Maximalists are ruthless rule break- the highest possible quality, both – Security + ers, determined to reach their goal, – Security + in their own performance and in the Service Service Innovation Innovation & Protech unconcerned about either cost or & Protech products and services they buy. Smart Quality Smart Quality Shopping Personal environmental issues. Extroverts Shopping Personal They are prepared to pay more if Efficiency Efficiency Proven who like to show their success, Proven this will get them what they require. Total Cost these consumers are still quite Total Cost Fun and fancy trends are low on Customized Customized R young (34 years old on average) R their list of priorities. and mostly male. Source: Roland Berger; International Research 2008, n = 11,100 Source: Roland Berger; International Research 2008, n = 11,100 6 5

study 23 Hedonists Minimalists E the hedonist E the Minimalist Prestige Thrill & Prestige Thrill & Entertainment Entertainment Fair Vitality (15.11%) Fair Vitality (11.8%) Nature Classic Carefree Unsurprisingly, Hedonists are driven Nature Classic Carefree Mostly female (57%), Minimalists Tranquil Clanning Cool& by pleasure. Having fun is high on Tranquil Clanning Cool& are careful people who avoid risk Purism Trendy y Purism Trendy y their list of priorities and they gladly and do not care about new technol- – Security + accept cheaper products and ser- – Security + ogy or aggressive career goals. They Service Service Innovation Innovation & Protech vices as long as they are new and & Protech seek out the best price/quality ratio Smart Quality Smart Quality Shopping Personal trendy. They care little about the Shopping Personal products and only buy what they Efficiency Efficiency Proven social impact of their actions, Proven really need. Peace, privacy and Total Cost usually have a mid-range income. Total Cost purity rank high on their scale of Customized Customized R R values. Source: Roland Berger; International Research 2008, n = 11,100 Source: Roland Berger; International Research 2008, n = 11,100 2 4 Traditionalist maximalists Self-centered E the traditional Maximalist E the Self-centered Prestige Thrill & Prestige Thrill & Entertainment Entertainment Fair Vitality (12.0%) Fair Vitality (21.3%) Nature Classic Carefree Combining a traditional mindset Nature Classic Carefree Easily the largest consumer seg- Tranquil Clanning Cool& with maximalist consumption Tranquil Clanning Cool& ment, this type of consumer is on Purism Trendy y Purism Trendy y behavior, this consumer segment average 37 years old, rejects tradi- – Security + is very young (30 years old on – Security + tional values and is an early adopt- Service Service Innovation Innovation & Protech average) and despite their relatively & Protech er. More egocentric but also more Smart Quality Smart Quality Shopping Personal low income, cost is not a major Shopping Personal eccentric than the average, they Efficiency Efficiency Proven factor for them. Their buying Proven care little about the environment or Total Cost decisions are strongly influenced Total Cost ethical issues, have a higher income Customized Customized R by their values but they still like to R than most and are prone to unusual show their status and have fun. or provocative behavior. Source: Roland Berger; International Research 2008, n = 11,100 Source: Roland Berger; International Research 2008, n = 11,100 3 1

Roland BeRgeR Strategy ConSultantS don't FoRget the RegIons our eight archetypes cannot be applied Figure 17 to the Chinese market in a meaningful value-profiles in selected chinese provinces: way unless the regional differences of dark = more modern the country are taken into consideration. average consumer preferences vary widely from province to province. as China contin- ues to develop, these regional differences can be expected to widen. Figure 17 shows a selection of profiles for different provinces. note how different the preferences can be in different geographical locations. Chongqing Heilongjiang Shanxi guangdong Sichuan Jilin Beijing henan Yunnan Liaoning Guangxi Shanxi Hubei Jiangxi shanxi population: 35 million, average income: RMB 21,000 p.a. the people of this province are very traditional, showing a high concern for the Shanghai environment and placing less importance on innovation and fashion. grounded Hunan in a strong ethical framework, Shanxi people have a similar, but softer, profile compared to other northern provinces. Zhejiang Guangdong Fujian guangdong population: 93 million, average income: RMB 43,000 p.a. a thoroughly modern mindset prevails in this province. entertainment, innovation and improving personal efficiency are high on the list of values. even though this is a rich province, people are highly cost-sensitive, attaching less importance to quality.

study 25 Choosing the right channels for each Hebei Tianjin province is critical for an optimized sales Hebei Tianjin strategy. a thorough analysis of regional preferences, differences between city tiers and consumer archetypes prevalent in a Beijing Shandong given region is essential to achieve a Beijing Beijing Shandong successful marketing strategy. population 16 million, average income: RMB 46,000 p.a. Shaanxi Jiangsu Beijing residents have a modern profile, similar to Shanghai and guangdong. the It helps to view some consumer prefer- capital is home to many hedonist and Self-centered types, makingJiangsu Shaanxi the province in ences as being defined by city tier general a good target for customized and luxury products. and others by region. Figure 18 gives an Henan Anhui idea of how the preferences might be split. Henan Anhui henan population: 94 million, average income: RMB 23,000 p.a. People from the henan province tend to be traditional rather than modern and have little interest in the latest technologies and trends. environmental concerns and a strong set of values complement this rather neutral profile. Figure 18 CiTy-Tier iNDiCATOr regiONAL iNDiCATOr  credit card use  clothes shopping  Frequency of travel  Restaurant selection  day-to-day expenses  desire for security

Roland BeRgeR Strategy ConSultantS the RB pRoFIleR In actIon Figure 19 to illustrate how the rB Profiler works, ABC aBC's current brand positioning let's look at a sample case built around a national beer manufacturer, which we will E Prestige Thrill & call aBC. Fair Entertainment Vitality Nature Classic Carefree Beer consumers in China are interested Tranquil Clanning Cool& Purism Trendy y in entertainment, want to be seen as cool – Security + and trendy and often feel freer than the Service Innovation & Protech average consumer. they value innovation Smart Quality Shopping Personal Efficiency and see themselves as modern. not the Proven Total Cost Customized quiet type, they like to live life to the full. R Chinese beer manufacturers often lack 1) n = 213 vs. n = 5,859 clear target customers and need to improve their brand image in order to grow. 1 Figure 20 this also applies to company aBC, which Joint space analysis for selected has never managed to build a strong brand beer brands in China. Following the analysis, beer manufacturer TRA using the rB Profiler, we are able to aBC was advised to reshape its brand MPE H analyze aBC's branding position more image so as to meet the preferences of TMX CON closely. the result, shown in figure 19, the identified target group, traditional F ABC Company reveals a typical weak brand with no Maximalists. these are consumers who: TRA clearly defined customer base. MPE PMX A G  to hang out with family and like B MIN H E D We now need to find out where in the friends C I market aBC should move to attract new  have relatively low income X SCF HED Consumer/ target groups; size of circle = size of Archetype CON customers. In order to do this, we execute  shopping for fashion items and like a joint space analysis. Figure 20 shows the latest technical gadgets F ABC Company Brands = Brand profiles that aBC's most likely customers are to  Make buying decisions that are TRA = archetypes, size of bubble PE represents segment size; see be found in the traditional Maximalist strongly influenced by values HA figure 16 (e.g. Con = Conformist) segment of the market, where apart from  young (30 years old on average) are 2 brand F there is no competition. X G CON B Company ABC MIN E D G C I MIN E SCF HED I mer/ target groups; size of circle = size of Archetype HED SCF oups; size of circle = size of Archetype

study 27 next, a tV advertisement was created, the branding effort focused on the status featuring young people enjoying and values embodied by the beer. this themselves at a rock concert holding needed to be strongly communicated in bottles of aBC beer. the ad was geared all the media used. the label on the bottle toward a young audience and comple- made it clear that the beer had been mented by a print and radio campaign brewed with pure spring water and without featuring testimonials by the rock star additives, reflecting the target customer seen in the ad. group's appreciation of traditional values.

Roland BeRgeR Strategy ConSultantS 4 saMple IndustRIes: the cosMetIcs MaRket the use of cosmetics and skin care products is relatively new in China – a phenom- Monthly ModeRn depaRtMent specIalIzed enon that largely coincides with the open- IncoMe RetaIl stoRes shop ing up of the Chinese economy. growth has been breathtaking − 15% per annum over under rMB 3,000 75% 24% 20% the last ten years − reflecting a rise in dis- rMB 3,000-4,999 28% 47% 64% posable income and a willingness to spend on beauty products. With such opportunity over rMB 10,000 17% 54% 50% comes intense competition: the market is inundated with brands of every conceiv- able hue, from Chinese brands to brands from Japan, Korea and the West, all vying choose the RIght channel ... Modern retail, needless to say, is a for a slice of the rMB 75 billion market. Chinese consumers face a wide variety of significant channel for hair care products. channel choices when it comes to shop- It is also the channel of preference for unlocking this market requires excellence ping for beauty products, from corner phar- lower-income consumers. Particularly in three areas: macies to luxury department stores. the relevant in tier-3 or smaller cities, such rise of so-called "modern retail" − super- outlets – especially hypermarkets – are 1. Product innovation markets and hypermarkets − is an oft- de facto department stores, exhibiting 2. route-to-market cited development. however, aside from similar traffic patterns and consumer 3. Brand image-building hair care products, these retail newcomers perception. play second fiddle to department stores, In this section, we examine the latter two especially for mid- to high-end the shift toward modern retail is somewhat areas in detail. skin care products. inevitable according to many industry veterans, even for mid-level products. the two important factors underpin the rise of real issue is: What products can unlock the cosmetic sales: consumers' need for ser- spending potential for cosmetics and skin vice and the match between products and care products in this environment? at what channel. after all, it is difficult to sell a rMB price point? Within which sub-category? 300 jar of face cream amid a sea of special Companies that are mindful of the product/ offers or in an environment dominated by channel match and systematically explore diapers and detergents. opportunities along this axis will likely tap into a significant stream of growth in the coming years.

study 29 good research and dedication to Chinese needs lie at the heart of success in this market p.g.: It's certainly a challenge. the Chinese I.t.: Mininurse, like yue Sai, is a Chinese consider themselves to be very different, brand developed by a Chinese entrepre- not only culturally but also physically. neur, purchased and transformed by their hair, their skin − they're different l'oréal. In your opinion, how can Chinese from what we know in the West. It was a brands reach out beyond their borders in big challenge for us to show the Chinese the future? that we are confident in what we're doing. Before we came to China we had already p.g.: as was the case with yue Sai, Chinese spent a lot of time in Paris on trial runs, brands often have very interesting exper- trying to understand the Chinese custom- tise and market knowledge, but lack the ers, their culture and traditions. So we funds and tools to develop further. this weren't unprepared. a couple of years ago is where l'oréal comes in. We guarantee we bought yue Sai. now nobody doubts development, new brands, new formulas. L'Oréal China CEO Paolo Gasparrini our capacity to produce products for the It's a fantastic opportunity for consumers Chinese. We're performing especially well who like to use Western brands but want with products specific to the asian market, to stay true to their own cultures. there Ignatius tong, partner in the Roland such as whitening products. are also many Chinese living overseas who Berger shanghai office, talked to l'oréal want to use brands that allow them to china ceo paolo gasparrini in the greater I.t.: how did you accelerate l'oréal's follow beauty trends regardless of loca- china headquarters in shanghai about the growth in the past few years? and how do tion. this principle is very successful. company's success in china.1 you manage to keep the success going? I.t.: how has the financial crisis of the past I.t.: tell us about l'oréal's beginnings in p.g.: the success of our brand and prod- months impacted your business? China. ucts is first of all based on research. We consider our products to be high-tech; if p.g.: as far as I'm concerned, there is no p.g.: We started in 1996/97. our first task we cannot perform better than the com- crisis. Foreign financial difficulties are was to create a Chinese name: "ou lai ya". petition, we don't launch the product. We being felt in China, but the government is at the time we were only allowed to do Pr, have 3,000 scientists working in Paris. In reacting very well. It is promoting internal no business as such. We spent the first China we have local r&d to develop new consumption to prevent a possible crisis year explaining to people who we were and formulas. For example, the yue Sai prod- in the country. and though there might what we were about. In 1996 we acquired ucts are developed entirely in China. When be challenging times ahead for Chinese Maybelline and discovered they already we launched "empower" for yS it was a exports, the internal market is very under- had a plant in Suzhou. eventually we man- fantastic success. there is also collabora- developed. huge reserves of consumption aged to receive a trading license and now tion between the Paris laboratories and our can still be activated. We feel very positive. we have 16 brands in the country. local r&d. approval by the latter is one reason for our success. Chinese women thus 1 For detailed information on l'oréal, I.t.: In your opinion, what is the key for have the advantage of using a global brand see page 44 converting Chinese customers to Western that's been formulated to suit their needs. products?

Roland BeRgeR Strategy ConSultantS ... and then suppoRt It at each poInt Figure 21 Consumer choices in any given channel dabao: a chinese brand with a distinctive profile1) Cherry can easily be sabotaged by a lack of dabao execution at the point of sale. It is difficult E to recover any trust lost as a result of Prestige Thrill & Entertainment Fair Vitality such failure. So it's not enough simply to Classic Nature Carefree be present in a particular channel: success Tranquil Clanning Cool& Purism requires consistent excellence from Trendy y – Security + product inception right through to product Service Innovation & Protech sale. this is no easy feat. Smart Quality Shopping Personal Efficiency Proven Consumers expect a high level of service Total Cost Customized and have certain requirements when it R comes to cosmetic and skin care products. 1) n = 1,419 vs. n = 9,682 sample dabao product training for frontline sales personnel is important. the wide variety of products and constant innovation complicate this. Figure 22 there's also a seemingly inevitable high olay: successful despite a weak brand profile1) Olay employee turnover rate in this industry. olay Companies have to seek solutions beyond E the traditional high pay/high turnover trade-off. distributors can substantially impact field – + performance. Many distributors in China play a role beyond that of mere last-mile logistics cash collection, warehousing, bundling, hr management, etc. the start- ing point for a successful brand/distributor R relationship must be to keep the distribu- 1) n = 1,127 vs. n = 9,974 sample olay product tors' role clearly defined. Figure 23 l'oréal: a western brand with a distinctive profile1) Toyota l'oréal E Prestige Thrill & Fair Entertainment Vitality Nature Classic Carefree Tranquil Clanning Cool& Purism Trendy y – Security + Service Innovation & Protech Smart Quality Shopping Personal Efficiency Proven Total Cost Customized R 1) n = 421 vs. n = 10,680 sample l'oréal product

study 31 Key areas to focus on are:  ensuring distributors' compensation is in line with their roles  establishing clear geographical regions for different distributors  Focusing not just on sales, but other areas too (such as PoS)  having an ordering mechanism that avoids "loading"  Installing an expense reimbursement mechanism that preserves field flexibility whilst minimizing "gray" money distributor margins are high. Cutting out the distributor can mean better control of the points of sale and stronger relation- ships with customers. But don't underestimate the risks and costs of going direct, especially if your product portfolio skews toward mid- to high-end cosmetics and skin care products. In particular, going direct means: the beauty sector exhibits substantial field capability and product portfolio with channel complexity along product lines, the channel and consumer requirements  Credit terms with retailers must be geography, channel choice and service of each sub-segment. In China, such capa- renegotiated models. the market must be addressed bility, once internalized, will form the foun-  additional headcount has to be not as a whole, but at a segmented level. dation for a successful franchise. absorbed In other words, companies must align their  returns and bad goods have to be dealt with  rdC footprint will be visible the

Roland BeRgeR Strategy ConSultantS who's BuyIng? olay's profile (figure 22) is much less well despite the current economic downturn, the skin care market in China is extremely defined. at best, it stands for technical the Chinese beauty product sector is likely fragmented. local brands such as dabao innovation and tried and tested products. to continue growing, albeit at a slower pace are increasingly coming under pressure the lack of a distinct image makes olay's than in recent years. among high-income from international brands such as olay success in China all the more remarkable, residents of tier-1 and tier-2 cities, cos- and l'oréal. although P&g's effective field sales orga- metics and skin care products are increas- nization and consistent investment in It ingly seen as a necessity or affordable analyzing these players with the technology no doubt play a role. luxury compared to, say, cars or jewelry. rB Profiler produces some interesting among the broader consumer base in the results. dabao has a clear brand profile, l'oréal, another successful foreign tier-3 cities, the adoption rate is high, while whereas olay's strength in the market can- player, has a strong image as a stylish consumption intensity remains low. this not be attributed to a clear brand image. and innovative brand. Perceived as trendy creates a fantastic growth opportunity for this weakness is partly because the olay and exciting, l'oréal products appeal companies. the key to capturing a slice brand stretches across a vast price spec- to the Progressive Maximalist and of this vast market is finding the right trum – which also goes some way toward traditionalist archetypes, who are less combination of product, value, channel explaining the brand's success. concerned with price. and service. the dabao profile (figure 21) shows a Most brands have not yet succeeded in reflection of traditional values, tranquil- establishing a clear brand image. they ity and security. It does not represent a may well suffer as the market becomes trendy, progressive lifestyle but rather more competitive and consolidated. a calmer, practical approach. as such, it Skin care products are generally targeted appeals to a large segment of the popula- at Maximalists, and competition for such tion, particularly in tier-3 cities, while it consumers is fierce. this applies particu- struggles in the tier-1 cities. larly to foreign brands, which appeal more to Maximalists than traditional consumers.

study 33 5 saMple IndustRIes: the autoMotIve IndustRy three facts summarize the Chinese these consumers tend to be Progressive automotive industry: and traditional Maximalist types who can Figure 24 afford to own a private car. vw is the clear market leader in china  nly 1.5% of Chinese people own a o Market shares private car. however, if trends con- Foreign cars carry the most kudos, tinue there could soon be 100 million with german luxury automakers leading vehicles on Chinese roads the pack. overall, audi enjoys the big- volkswagen 19%  hina currently has over 100 different C gest share of the luxury car market. the other brands 31% automakers Mercedes S-class has the highest share of  25% tariff is paid on all cars imported a the top-end of the market, with the BMW honda 11% into the country 7 series and audi a8 close behind. around 1,000 S-classes are imported into China Faw 2% Clearly, the Chinese car market is still in its each month; these are then sold at a very dongfeng 3% tianjin 3% gM 10% infancy. this makes it an extremely inter- high price that includes the 25% import toyota 4% hyundai 7% esting market for manufacturers. In times tariff. Ford 5% chery 6% of crisis for automakers everywhere, the Chinese market looks like it might be the oveRcoMIng the BaRRIeRs light at the end of the tunnel. Foreign oeMs are trying to establish manufacturing bases in China. this would however, the environmental impact of enable them to avoid import duties and Volkswagen Santana exponential growth in car ownership is also give them a local foothold in the market an important issue, especially given finite once it really takes off. there are obstacles fossil fuel reserves. Some analysts think to be overcome, however. that this could cause China to become a leader in green auto technology, or at least the only way for foreign automakers to in green auto consumption – an unlikely manufacture in China is via a joint venture, assertion given Chinese car owners' cur- in which they may hold a maximum share rent preferences. Certainly for now, the of 50%. this policy aims to enable technol- priority lies with reducing dependency on ogy and know-how transfer from foreign imported fuels, and reducing emissions is manufacturers to Chinese companies a secondary consideration. without giving foreign manufacturers an Chery independent foothold in China. the german automaker Volkswagen leads the Chinese market, with a 19% market examples are the Shanghai automotive share (figure 24). this includes sales by Industry Corp (SaIC), which has JVs with VW's two joint ventures in China (SVW and gM (Shanghai-gM) and VW (Shanghai-VW). FaW-VW) plus imports. the only Chinese SaIC also produces its own brand of cars, make in the top five is Chery, in fifth posi- using the valuable knowledge gained from tion. its JVs with gM and VW. however, so far this strategy has not been successful for typical customers for cars in China are SaIC's own vehicles. people who enjoy an above-average income. they are reaping the fruits of China's opening up to market forces.

Roland BeRgeR Strategy ConSultantS Companies that have overcome these barriers, patiently building up their business Figure 25 in China, are slowly reaping the rewards. little brand differentiation between car manufacturers Market leader VW was the first to enter into Volkswagen General Motors a JV with SaIC in 1985. audi, part of the VW Volkswagen 161 vs. 1667 gM 82 vs. 746 group, is now a player in the top league E E of the premium segment. It is able to rely Prestige Thrill & Prestige Thrill & Fair Entertainment Fair Entertainment Vitality Vitality on a strong base of local suppliers, which Classic Classic Nature Carefree Nature Carefree makes it easier for it to adapt its products Tranquil Clanning Cool& Tranquil Clanning Cool& Purism Trendy y Purism Trendy y for the Chinese market. – Security + – Security + Service Service Innovation Innovation & Protech & Protech adapting models for the Chinese market Smart Shopping Quality Smart Shopping Quality Personal Personal often means providing a long wheel base Efficiency Efficiency Proven Proven Total Cost Total Cost (not only for top-end makes but also for Customized Customized the VW Passat lingyu, for example, devel- R R oped in China for China) or offering a beige interior. the Chinese love of technological gadgets is apparent in local preferences Cherry Hyundai for Bluetooth connectivity, dVd players Chery 46 vs. 782 hyundai 59 vs. 769 and built-in refrigerators. E E Prestige Thrill & Prestige Thrill & Fair Entertainment Fair Entertainment Vitality Vitality these preferences are naturally those of Classic Classic Nature Carefree Nature Carefree people with more money than average. It Tranquil Clanning Tranquil Clanning Cool& Cool& Purism Purism remains difficult to tell what the average Trendy y Trendy y – Security + – Security + Chinese person will want from his or her Service Innovation Service Innovation & Protech & Protech car. Some local manufacturers such as Byd Smart Quality Smart Quality Shopping Personal Shopping Personal (Build your dream) are copying various Efficiency Efficiency Proven Proven parts from Western makes and combining Total Cost Total Cost Customized Customized them in new models. If this is an indication R R of Chinese taste in cars, Western companies clearly still have a lot to learn. Honda Toyota More recently, Chinese oeMs have shown honda 91 vs. 737 toyota 32 vs.796 that they are capable of considerable E E innovative capability. Besides building Prestige Thrill & Entertainment Prestige Thrill & Entertainment Fair Fair Vitality Vitality eccentric cars, Byd is the world's largest Classic Classic Nature Carefree Nature Carefree battery manufacturer. It has launched sev- Tranquil Clanning Tranquil Clanning Cool& Cool& Purism Purism eral electric vehicles, putting it ahead of its Trendy y Trendy y – Security + – Security + foreign rivals should this really turn out to Service Innovation Service Innovation & Protech & Protech be the future of transportation. Smart Quality Smart Quality Shopping Personal Shopping Personal Efficiency Efficiency Proven Proven Total Cost Total Cost Customized Customized R R n = 11,100 Source: Roland Berger Strategy Consultants, 2008

study 35 weak BRands attracted to the brand, followed by Modern products and a relaxed attitude toward In China, most oeMs differentiate their Performers and Self-centered types. this innovation and technology apparent in brand image through sub-brands or prod- reflects the market leadership of the Chery customers, but it is hardly strong uct-line brands rather than an overall com- brand. VW appeals least to Conservatives enough to warrant any bold statements. pany brand. Few major companies have and Minimalists. managed to establish a distinctive brand the biggest consumer group interested identity. even Volkswagen, far and away geneRal MotoRs in Chery are Progressive Maximalists, the market leader, is no exception here. gM is not clearly differentiated from other followed by Modern Performers. the brands. however, the company makes a brand appeals least to Conformists and Figure 25 gives profiles of the six major success of its umbrella brand strategy and Minimalists. brands in the country. manages to achieve some brand differentiation through its sub-brands of Chevrolet, unsurprisingly, it turns out that all auto looking at the brands in detail, it is clear Buick and Cadillac. brands show a clear tendency toward the that most oeMs have diversified their Progressive archetypes. these consumers customer base by means of various sub- Most of gM's customers in China are are high earners and more open to new brands and product-line brands. Modern Performers, followed by Self- ideas, technological advance and progress centered types. the brand is least in general. volkswagen popular with traditional Maximalists Volkswagen drivers are less cost-sensitive and hedonists. When it comes to branding, oeMs are still than average, less concerned about being pursuing a strategy of sub-brand identity trendy, and somewhat traditional. even cheRy diversification. they are relatively weak these characteristics are only tendencies, the only local brand to make it into the in terms of building their overall company however: the profile picture is too weak to top 5, Chery also suffers from a weak brand. make firm statements. Probably by virtue brand profile. of being the first foreign automaker to the strongest automakers have a slightly enter China, VW has been able to establish Chery is a national brand and as such clearer positioning than the others. this its position as market leader. might be expected to benefit from some fact suggests that as the Chinese market local pride. however, its brand image is develops, strong branding will be the key an analysis of the VW customer base no stronger than those of the other auto- to gaining a solid foothold in this vast and shows that Progressive Maximalists makers analyzed. there may be a very tricky market. and traditionalists are most strongly slight tendency toward buying proven

Roland BeRgeR Strategy ConSultantS In China, consumers achieve differentiation – via brand and type of car B.t.: Is consumer behavior in China prices prior to visiting a dealership. We also changing? make sure our dealers are aware of all the product features and are ready to answer g.B.: Chinese consumers certainly are technical questions from customers. extremely knowledgeable about what they are buying and expect a lot of technical B.t.: has the financial crisis had an impact information about their car. So far, there on your business already? is no brand loyalty. Whilst in the past consumers simply bought a car, they now also g.B.: China is less dependent on other buy service and entertainment. financial systems, so the impact of the financial crisis has been much less than in B.t.: how do you adapt to the evolving the West. the stimulus package launched tastes and behavior of your customers? by the government will have a positive impact. But the drop in gdP growth from Beijing Benz Daimler-Chrysler (BBDC) President and CEO Günter Butschek g.B.: our new C-class is built entirely in 12% in 2008 to 8% in 2009 is putting us China and is expected to attract young under a lot of pressure. Q4 2008 was very Roland Berger senior consultant Benjamin customers who want dynamic handling as volatile for us, with C-Class sales down 25% thoma talked to Beijing Benz daimler- well as many comfort and safety features. in november but gaining ground again in chrysler (BBdc) president and ceo günter We are also preparing to launch the new december. Butschek about the chinese car market.1 e-Class with a long wheel base, in recogni- Competition is getting tougher. Many deal- tion of the fact that many of our clients ers have had problems securing loans to B.t.: What do you think is the biggest dif- have a driver and therefore sit in the rear finance their showrooms, but new financ- ference between Western and Chinese car of the vehicle. ing options will emerge. consumers? B.t.: how does your marketing and brand- B.t.: In your opinion, what will be the next g.B.: In the West, individualization is impor- ing strategy in China differ from else- big thing to hit the Chinese automotive tant. Western consumers act according where? market? to the pull principle. In China, on the other hand, consumers achieve differentiation g.B.: In principle, the image and marketing g.B.: definitely alternative power technolo- via brand and type of car. mix of the Mercedes-Benz brand in China gies. government subsidies and policies is the same as in our global campaigns. are supporting this development. there will B.t.: Is there a perceptible evolution in con- of course, our marketing programs are also be further growth in the luxury seg- sumer behaviour? If so, how? tailored to the Chinese market, but we ment, as well as in the small vehicle seg- communicate the same brand values. ment with displacements below one liter. g.B.: Chinese consumers are certainly the recently introduced fuel consumption extremely knowledgeable about what they B.t: What channels do you use to commu- tax based on displacement has triggered are buying and expect a lot of technical nicate with existing and potential clients? a general trend toward reduced displace- information about their car. there is no ment. brand loyalty at present. In the past, con- g.B.: naturally we use new media, such as sumers simply bought a car; they now also the Internet, especially as Chinese con- 1 For detailed information on BBdc, buy service and entertainment. sumers spend a long time looking online see page 45 for information about product features and

study 37 6 stRaIght FRoM the hoRse's Mouth Many analysts feel that traditional market research can only go so far in exploring the Figure 26 psyche of potential customers. In a survey, Participation in the Internet community in China respondents might be influenced by the is more active and vibrant than in the West way that questions are asked or give the unIted states chIna answers that they think are expected of "I have expressed personal opinions and/or writ- them. 56% 72% ten about myself online"1) one way to circumvent these difficulties "Online I feel free to say and do things I wouldn't 32% 73% is to analyze what consumers have to say do or say offline"1) when they are outside the survey environ- User-generated content (consumer reviews, ment. the Internet, especially where user- rating sites, forums, discussion boards, blogs, 19% 58% etc.) influences purchase decisions2) created content is concerned, has made such research much easier. In Bulletin Percentage of broadband users commenting on 28% 47% Board Systems (BBS), chat rooms and blogs, listserves, in chat rooms and forums2) blogs, people freely express their opinions 1) IAC and JWT, China Leads the US in Digital Self-expression, November 2007 and swap experiences about brands, prod- 2) Netpop, Chinese Surpass Americans in Web 2.0 Use, November 2007 ucts and services in massive numbers. this phenomenon is called Internet Word of Mouth (IWoM). Figure 26 shows the difference in active Figure 27 Internet use in the united States and China. Motivation for participating in BBS (%) Share opinions 72.7 of special importance to marketers in China are the highly popular Bulletin Board Seek help 49.8 Systems (BBS). Since their creation in 43.2 Help others 1994, BBS have formed the heart of the Internet community architecture. More Stay in touch with others 20.3 than 91 million1 Chinese use BBS to dis- Attract others' attention 9.5 cuss topics such as automobiles, sharing their experiences, suggestions and que- Other 0.6 ries. Figure 27 explains what people use Data basis: 315 valid responses them for most; figure 28 shows a screen- Source: CIC Efluencer Survey, Q3 2008 shot of a typical BBS site.

Roland BeRgeR Strategy ConSultantS the Method roland Berger asked CIC, China's leading Figure 28 IWoM research and consulting firm, to pro- BBS screenshot vide insights into the Chinese automotive industry. CIC does not conduct surveys; instead, it analyzes the data created by China's 298 million Internet users, the largest Internet community in the world.1 using its proprietary data collection and text mining technology, the company derives insights and actionable intel- ligence from tens of millions of monthly consumer conversations about a wide variety of industries, including automotive, cosmetics/beauty and consumer electronics. Figure 29 For this study, CIC concentrated on the the CIC automotive IWoM Practice automotive industry, tracking 19,471,305 automotive Industry term library messages in Q4 2008 from automobile- related BBS. these messages were cat- IndustRy coveRage egorized and mined according to a library  1 manufacturers 8 of terms (including Internet slang) repre-  41 models 4 senting 441 models, 81 manufacturers,  6 attributes (categories) 1 16 attributes (categories) and 200 sub-  00 sub-attributes (sub-categories) 2 attributes (sub-categories) customized for  roduct and attribute sentiments P mainland China. Figure 29 gives an idea of how the system works. saMple chaRacteRIstIcs oF cIc chInese text MInIng  Industry attribute terms: 1 The 23rd Statistical Survey Report on the Internet Development in China by CNNIC, January 2009 (gearbox): gearbox  xceptional key terms: a4 = a4 e (a4 paper)  pelling variation: S (Sagitar): Sagitar  hinese word segmentation: C (heavy) vs. (important)  Internet language/slang: (Focus): FKS FCS

study 39 the Results Figure 30 Volkswagen, in its joint-venture incarna- Most discussed auto attributes, Q4 2008 tions SVW and FaW-VW, was the most discussed brand in Q4 2008, with a 15.2% Other "share of voice" (figure 32). SVW had an Safety systems 10% 8.3% share of voice at brand level, with Power systems 5% 24% 540,247 posts, and FaW-VW had a 6.9% Distributors share, with 453,669 posts. Ford Focus was 6% the most discussed model, with 214,416 Transmission posts or 4.1% of the total share of voice at systems 7% the model level. 8% 15% Interior Price Power systems were the most discussed equipment 8% topic on BBS sites, cropping up in 24% of all 15% posts mentioning specific topics. this was Exterior equipment followed by price (15%) and appearance Appearance (15%). Such findings provide an understanding of what consumers are most Data basis: Total attribute-related posts, Q4 2008 = 2,323,560 Source: CIC Automotive IWOM Practice concerned about, which can in turn inform product marketing messages (figure 30). to help manufacturers understand how consumers feel about their brands, CIC Figure 31 also produces an "IWoM health Matrix." IWoM profile of models this analyzes a particular make's online reputation by splitting its online appear- IWoM health Matrix for five compact models, Q4 2008 ance into two categories: "buzz volume" and "sentiment" (figure 31). high II Bora excelle STD nsR chery a3 Focus sagitar III low low Buzz volume high NSR is as follows: (positive-negative)/(positive+negative) x100% Data basis: Total model-related posts = 5,210,948 Source: CIC Automotive IWOM Practice

Roland BeRgeR Strategy ConSultantS Figure 32 Figure 33 Manufacturer buzz trends in manufacturer buzz top 10 discussed auto manufacturers, Q4 2008 (no. of posts) Buzz for four manufacturers, Q4 2008 (no. of posts) 160,000 SVW FAW-VW 540,247 SVW 453,669 4S retailer assaulting SGM 423,600 consumer scandal 130,000 CA Ford 359,479 Launch of new CITY model Ca Ford Mazda Shenlong 348,514 GZ Honda 311,992 100,000 FAW-Toyota 242,395 gZ honda dF nissan DF Nissan 223,049 Chery 189,549 70,000 DF Honda 136,662 oCt noV deC Note: Manufacturer posts include brand, series and model posts Data basis: Total posts for four auto manufacturers, Q4 2008 = 1,348,189 Data basis: Total manufacturer-related posts = 6,518,352 Source : CIC Automotive IWOM Practice Source : CIC Automotive IWOM Practice Figure 34 contribution of fuel economy to buzz volume for five brands, Q4 2008 Quotes Buick 9.3%  he fuel consumption of american cars t Ford 9.2% is definitely higher than Japanese ones. Honda 6.3%  merican cars are not fuel-efficient. a Toyota 5.3% even my Sail SrV used 8 l/100 km VW 4.4% 8 Notes: Only includes domestic models Data basis: Total number of attribute-related posts, Q4 2008 VW = 51,503; Toyota = 197,185; Honda = 205,943; Ford = 106,904; Buick = 109,281 Source: CIC Automotive IWOM Practice

study 41 looking at recent data trends, we see that It is essential for manufacturers to listen communities. others have set up their own while SVW's discussion curve is stable, to the issues being discussed by Internet communities or social networks, including Chang'an Ford Mazda (Ca Ford Mazda) users. But they also need to understand SVW (mysvw.com) and honda Fit (ifitclub. and guangzhou honda (gZ honda) expe- the specific online culture in China. com.cn). rienced a sharp rise in discussion around organizing group purchases is one impor- december 2008 (figure 33). In the case of tant feature of online automotive commu- By systematically tracking and analyzing Ca Ford Mazda, much of the spike can be nities. another is the so-called "homework" IWoM, manufacturers can learn how their attributed to the buzz following a heated post, in which Internet users request (or brands are perceived by potential custom- argument and shoving match between a share) detailed experiences with a particu- ers. In particular, they can track consumer Ford dealership employee and a group of lar car or feature. For example, a potential sentiment and spot any issues that might customers who had organized themselves buyer may ask community members to have an impact on their reputation. they online in order to receive a group purchase give their impressions of driving the SVW can also identify influential communities discount (a not unusual practice in China). Polo. Such discussions from "people like and opinion leaders, and target them with the incident was discussed in BBS forums, you and me" can have a very strong impact digital Pr. and they can identify trends and recorded and uploaded to video-sharing on potential buyers' opinions. interests, both as a source of inspiration sites similar to youtube, and reported on for their own marketing campaigns and by the media. gZ honda, on the other hand, as a way of measuring their subsequent generated a buzz with the launch of its the IMplIcatIons impact. new CIty model in late december. thanks to BBS sites, many Chinese car buyers have already made up their mind CIC further investigated perceptions of about which car to buy before they even fuel economy for different manufacturers enter the showroom. they base their – particularly relevant given the worsen- decisions almost exclusively on IWoM. ing economic situation (figure 34). their new members of the Chinese middle analysis shows that 9.3% of all mentions class are often the first of their friends of the Buick brand or its models refer to or family to buy a car, so they lack any fuel economy, as do 9.2% of all mentions of "offline" word of mouth to help them in Ford or its models. By comparison, honda their buying decisions. and toyota are less often mentioned in association with fuel economy, with 6.3% It is only natural that car retailers should and 5.3% of brand or model messages want to influence these online discus- mentioning the issue respectively. Most of sions. text mining technology such as that these mentions are negative, suggesting used by CIC can identify the 20% of BBS that rightly or wrongly, there is a strong contributors who create 80% of the content perception that american cars are not about particular topics or models. these as fuel-efficient as Japanese and other so-called "efluencers" can serve as the brands. basis for new kinds of CrM and Pr engage- ment programs. Some retailers have begun directly engaging within the auto expert

Roland BeRgeR Strategy ConSultantS ... Roland BeRgeR stRategy consultants woRldwIde roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies. With 36 offices in 25 countries, the company has successful operations in all major international markets. In 2008, it generated more than eur 670 million in revenues with 2,100 employees. the strategy consultancy is an independent partnership exclusively owned by about 180 Partners. roland Berger supports leading international corporations, non-profit organizations and public institutions in all management issues – ranging from strategic alignment and intro- ducing new business models and processes to organizational structures and It strategy. roland Berger is based on global Competence Centers that are organized along functional and industry lines. this allows us to offer tailor-made solutions devised by our interdisci- plinary teams of experts. at roland Berger we develop customized, creative strategies together with our clients. Providing support in the implementation phase is particularly important to us. In so doing, we create value for our clients. that's why our approach is based on the entrepreneurial character and individuality of our consultants – "It's character that creates impact." all employees at roland Berger Strategy Consultants strive to adhere to our three core values: excellence, entrepreneurship and partnership. c. aBout... ... Roland BeRgeR stRategy consultants gReateR chIna the Chinese market is a key pillar of roland Berger Strategy Consultants' international expansion. Since our entry into the China market in 1984, the consultancy has grown rapidly: the four Chinese offices (Shanghai, Beijing, hong Kong and taipei) now have over 200 people dedicated to working extensively with leading Chinese and international companies. With the motto "Client and quality first," we offer consulting services in fields of industry such as automotive, electronics, telecommunications, consumer goods and retail, engineered products and high tech, transportation, financial services, chemicals and oil, building materials, and real estate. our services are focused mainly on strategic and oper- ational consulting involving every aspect from M&as, corporate development strategy to marketing as well as supply chain management. Currently, Chinese clients account for more than 70% of our total revenue in greater China. through in-depth understanding of the Chinese business environment and dedication to forward-looking, creative, targeted and practical solutions for clients, roland Berger has gained a very strong reputation in the Chinese market. We offer tailor-made solutions according to the individual needs of each client in response to current Chinese market development trends.

study 43 as the only consulting firm of european origin among the top 3 in greater China, roland Berger Strategy Consultants has built its expertise on its extensive experience working with clients worldwide on complex business cases for 40 years. outstanding strategic analysis and in-depth knowledge of implementation are the strengths of the company's consulting approach. roland Berger consultants combine their analytical and strategic know-how within a diverse company setting to help clients in greater China successfully master their unique challenges. ... cIc CIC is the leading Internet Word of Mouth (IWoM) research and consulting firm in China. Since 2004, CIC has pioneered the concept of distilling insight from Chinese blogs, message boards and social networks with its team of IWoM analysts supported by proprietary Chinese language-based technology for text mining (patent pending), data processing and data visualization. as the only firm in China that helps Fortune 500 retainer clients utilize IWoM for high- level strategic planning and marketing communication, CIC's continual development and evolution is driven by a unique, powerful and open mindset and learning culture that at its core continually seeks to help clients understand how the Internet and IW0M are redefin- ing the relationship between brands and consumers. CIC is committed to both providing objective third-party strategic advice to clients and to promoting the healthy development of the Internet community in China. For a comprehensive analysis of what consumers are saying online about the automotive category, CIC provides customized reports, a powerful dashboard as well as a newly released syndicated IWoM insight tM automotive Industry report. For more information, please visit www.cicdata.com (CIC website), www.seeisee.com (Chinese blog) and ww.seeisee.com/sam (english blog). ... saM FleMMIng Sam Flemming is co-founder and Ceo of CIC. Sam has been a participant of China's digital evolution for more than a decade, first with Chinapay.com, the original online payment platform in China, and now with CIC. CIC is at the forefront of exploring Chinese digital culture, helping leading brands in China such as Pepsi and nike understand how IWoM is impacting and can be used to impact marketing communications, product research and development, reputation monitoring, and public relations. Sam holds a Master's degree in teaching english to Speakers of other languages from Monterey Institute of International Studies in Monterey, Ca, and a Ba in Sociology and religion from rhodes College in Memphis, tn. he is a native speaker of english, speaks Mandarin Chinese and has lived in Shanghai for 10 years.

Roland BeRgeR Strategy ConSultantS ... l'oRéal woRldwIde l'oréal, a Fortune 500 company, was founded in 1907 by chemist eugene Schueller who invented the first synthetic hair colorant. over the last hundred years, l'oréal has developed from a small home business to the no.1 cosmetic company in the world. thanks to its outstanding performance, l'oréal now ranks among the world's 100 most sustainable corporations. With operations in over 130 countries and regions worldwide, the company possesses 63,000 employees and 40 plants. Sales revenues were eur 17.5 billion in 2008. the group is also one of the world's most successful businesses ever, having recently reported its 18th consecutive year of double-digit growth. l'oréal markets an impressive portfolio of more than 25 international brands, sold in 130 countries, including l'oréal Paris, l'oréal Professionnel, Maybelline, garnier, redken, Kiehl's, Shu uemura, Biotherm, helena rubinstein, lancôme as well as giorgio armani and ralph lauren perfumes. l'oréal is active in all segments of the cosmetics market, including hair care, perfumes, makeup, skin care and dermatology. l'oréal's century-long history is marked by major successes. With its strong r&d capability, innovation and pursuit of excellence, l'oréal offers women new ways and means to enhance their beauty. ... l'oRéal In chIna In 1996, l'oréal entered the Chinese market. thanks to its outstanding business performance and good citizenship activities during the past 12 years, l'oréal China is now one of the most prestigious multinational enterprises in China. In 2008, l'oréal China reported its eighth consecutive year of double-digit growth with sales of rMB 6.95 billion, a 27.7% increase on the previous year. l'oréal China is among the top 10 players globally and the biggest player in the asia-Pacific region. l'oréal China markets an impressive portfolio of 16 international brands, including l'oréal Paris, Maybelline, garnier, Kiehl's, Shu uemura, Biotherm, lancôme, helena rubinstein, Biotherm, giorgio armani, ralph lauren perfumes, Kérastase, l'oréal Professionnel, Matrix, Vichy, la roche-Posay and two local brands, yue Sai and Mininurse. Its high-quality products are available in all distribution channels, including department stores, hair salons, hyper- and supermarkets, pharmacies and direct mail order. l'oréal has built a research & development Center in Shanghai to investigate Chinese consumers' needs and expectations, and three plants in Shanghai, Suzhou and yichang to provide better service and products, not only to China, but to the whole of asia.

study 45 l'oréal China also emphasizes the recruitment and development of new talent. a new Management development Center was founded in 1995 in Shanghai. l'oréal China shows its long-term commitment to Chinese society by supporting culture, education, science, environmental protection and the arts. as a good corporate citizen, the company is involved in a number of initiatives, such as the China young Women in Science Fellowship, Charity Sales, green Cup and hairdressers against aids. l'oréal China has been recognized as the most successful and respected international company in China. ... BBdc established on august 8, 2005, Beijing Benz-daimler Chrysler automotive Co., ltd. (BBdC) is a joint venture founded by Beijing automotive Industry holding Co., ltd, daimler ag and daimler north east asia ltd. the Chinese shareholder owns 50% of the total shares. BBdC's new plant is located in the Beijing economic & technological development area (Bda) and boasts an annual production capacity of 100,000 units. BBdC's manufacturing philosophy is based on criteria such as state-of-the-art techniques, outstanding products, strict quality control, a strong emphasis on sustainable and environmentally friendly processes and well-trained technical workers. BBdC currently produces vehicles such as the world-famous Mercedes-Benz e-Class/ C-Class, Chrysler 300C and Chrysler Borui. BBdC has devoted itself to providing high-quality professional services to its customers. an adequate supply of parts, efficient technical support and long-distance and on-site training have guaranteed the continuous progress of our First Fix Visit (FFV). the company continually strives to make its service even faster, more comfortable and customer- oriented. BBdC's mission statement is "We enhance Mobility and Quality of life." Its aim is to become the top-performing player in the Chinese market. the products and services pro- vided to its customers are of the same high-quality as those of dag worldwide. In so doing BBdC is creating a new epoch for the auto industry and the Chinese market.

Roland BeRgeR Strategy ConSultantS d. contacts charles-edouard Bouée Regional coordinator, asia president & Managing partner, greater china roland Berger Strategy Consultants 23rd Floor Kerry Center, 1515 nanjing West road Shanghai 200040, China e-mail: Charles-edouard_Bouee@rolandberger.com Phone: +86 21 5298 6677-821 Qi wu senior partner & vice president for greater china roland Berger Strategy Consultants Suites d&e, 20th Floor, tower a, gateway Plaza 18 xiaguangli, east third ring north road Beijing 100027, China e-mail: Qi_Wu@cn.rolandberger.com Phone: +86 10 8440 0088-619 John shen partner automotive competence center, leader greater china roland Berger Strategy Consultants 23rd Floor Kerry Center, 1515 nanjing West road Shanghai 200040, China e-mail: John_Shen@cn.rolandberger.com Phone: +86 21 5298 6677-890 Ignatius tong partner consumer goods & Retail competence center, leader greater china roland Berger Strategy Consultants 23rd Floor Kerry Center, 1515 nanjing West road Shanghai 200040, China e-mail: Ignatius_tong@cn.rolandberger.com Phone: +86 21 5298 6677-850

study 47 Rainer Balensiefer principal, head of RB profiler Marketing & sales competence center roland Berger Strategy Consultants Karl-arnold-Platz 1 40474 düsseldorf, germany e-mail: rainer_Balensiefer@de.rolandberger.com Phone: +49 211 4389-2158 susanne gamers senior consultant consumer goods & Retail competence center roland Berger Strategy Consultants 23rd Floor Kerry Center, 1515 nanjing West road Shanghai 200040, China e-mail: Susanne_gamers@cn.rolandberger.com Phone: +86 21 5298 6677-142 please contact us if you have further questions: Phone: +86-21 5298 6677-176 Fax: +86-21-5298 6655 e-mail: Consumerreport_China@cn.rolandberger.com think:act study Publisher: Roland Berger Strategy Consultants Responsibility: Torsten Oltmanns Roland Berger Strategy Consultants 23rd Floor Kerry Center, 1515 Nanjing West Road Shanghai 200040, China © Roland Berger Strategy Consultants All rights reserved

Roland BeRgeR Strategy ConSultantS

Roland Berger Chinese Consumer Report 2009

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