Digital Lifestyle:
Yi Zhang
Online shopping
Greater choice
Better value
Industry focus:
Consumer packaged goods and retail...
1
The Allure and Challenges of China’s Changing Consumer Market 2
Digital Lifestyle:
Wei Feng
Online banking
Secure payments...
3
Executive Summary
“It is a country so vast and so complex that it can
never become hackneyed — so little known that one
...
The Allure and Challenges of China’s Changing Consumer Market 4
#2: It is difficult to drive
loyalty
Chinese consumers are...
5
Digital Lifestyle:
Fang Li
Online shopping
Greater choice
Better value
The Allure and Challenges of China’s Changing Consumer Market 6
China’s changing consumer market
New rules will dictate su...
7
Ironically, profiting from China’s
growing consumer market is getting
harder for both domestic and foreign
firms. With a...
The Allure and Challenges of China’s Changing Consumer Market 8
Accenture research and experience
revealed two trends, whi...
Digital Lifestyle:
Ying Wang
Online banking
24/7 Customer support
Cloud
9
What you really need to know about
the changing ...
The Allure and Challenges of China’s Changing Consumer Market 10
11
Any effort to unearth consumer insights
must reflect the reality that China is a
bifurcated society, with a significant...
The Allure and Challenges of China’s Changing Consumer Market 12
#1
A “me” culture is prevailing
With rising levels of inc...
13
Are you prepared
to reach the “me”
consumer?
Figure 4. Spending among urban consumers makes a statementThese consumers ...
The Allure and Challenges of China’s Changing Consumer Market 14
The transition to a middle-class lifestyle
is prevailing ...
15
#2
It is difficult to drive loyalty
In Accenture’s 2011 Global Consumer
Pulse Research,13 we observed that
Chinese cons...
The Allure and Challenges of China’s Changing Consumer Market 16
Figure 7. Switching due to poor service by industryThe fi...
17
82% of urban consumers are brand conscious during grocery shopping
Brand consciousness is more pronounced among develop...
The Allure and Challenges of China’s Changing Consumer Market 18
This spells big trouble for consumer
packaged goods compa...
19
#3
Life is digital
Whereas insights into the “me” and
curious consumers can be used to
better understand what urban Chi...
The Allure and Challenges of China’s Changing Consumer Market 20
Our research showed that 86 percent
of urban Chinese cons...
21
Communicate and share
79%
Source information
53%
Express own opinion
43%
Comment or forward others’ opinion
28%
Q: To w...
The Allure and Challenges of China’s Changing Consumer Market 22
This belief may be somewhat misguided.
While the importan...
23
Supermarket
84%
Department Store
62%
Internet Shopping
40%
Convenience Store
35%
Traditional Market/Wholesale
29%
Brand...
The Allure and Challenges of China’s Changing Consumer Market 24
Does this insight suggest that consumer
packaged goods co...
25
Our findings confirm that traditional
retail and eShopping are not mutually
exclusive endeavors. Urban consumers
in Chi...
The Allure and Challenges of China’s Changing Consumer Market 26
Meet your urban consumers
The insights gleaned from Accen...
27
Traditional consumer segmentation
models are rarely based on more than
two distinct buyer characteristics. Levels
of in...
¥
¥
The Allure and Challenges of China’s Changing Consumer Market 28
Aspirational wage earners
Brand Conscious
Trading Up
...
29
Thrifty householders
Brand Conscious
Trading Up
Impulsive
Price
Sensitive
Personalization
Convenience
Buying Considerat...
The Allure and Challenges of China’s Changing Consumer Market 30
Figure 22. Fashion-forward consumers
Brand Conscious
Trad...
31
Figure 24. Exclusive service buyers
Brand Conscious
Trading Up
Impulsive
Price
Sensitive
Personalization
Convenience
Bu...
The Allure and Challenges of China’s Changing Consumer Market 32
In response to its customers’ continuing
transition to on...
33
A winning consumer strategy in
a changing digital market place
Winning in China has never been more
challenging. Consum...
The Allure and Challenges of China’s Changing Consumer Market 34
References
1 “Doing it their way,” The Economist,
January...
Contact Us
To learn more details of this report,
please contact:
Till Dudler
Managing Director, Global Strategy –
Consumer...
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Strategies to Help CPG Companies Win in China

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Accenture’s latest study reveals consumer insights and strategies that can help accelerate growth for CPG companies and Retailers in China.
The profit rates of CPG companies have been declining in China recently, but by understanding the changing Chinese consumer, and adjusting their strategies to best serve consumer needs, CPG companies can drive growth in the country.

For more information view us on http://www.accenture.com/ConsumerGoods

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Strategies to Help CPG Companies Win in China

  1. 1. Digital Lifestyle: Yi Zhang Online shopping Greater choice Better value Industry focus: Consumer packaged goods and retail The Allure and Challenges of China’s Changing Consumer Market Developing consumer archetype strategies to win with one billion urban Chinese consumers
  2. 2. 1
  3. 3. The Allure and Challenges of China’s Changing Consumer Market 2 Digital Lifestyle: Wei Feng Online banking Secure payments 24/7 Customer support Contents Executive Summary 03 China’s changing consumer market 06 What you really need to know about the urban Chinese consumer 10 Meet your urban consumers 26 A winning consumer strategy in a changing digital market place 33 References 34
  4. 4. 3 Executive Summary “It is a country so vast and so complex that it can never become hackneyed — so little known that one may with encouraging frequency enjoy the thrill of the explorer by discovering some new fact.” Carl Crow, an American journalist and businessman, made that observation in 1937 in 400 Million Customers, a book of his insights about the Chinese people and doing business in China. Today, more than 75 years later, Mr. Crow’s words have never been more true. With a consumer market now exceeding one billion, China is often viewed as a land of limitless opportunities. The country has experienced multiple sea changes that, collectively, have created one of the most appealing business destinations in the world. Decades of economic growth and rising incomes, the ubiquity of digital technology, and the transformation of the hearts and minds of Chinese consumers (evidenced by the meteoric uptick in consumption) all add to the country’s allure. It is simply a market too attractive to ignore. But, as many consumer packaged goods companies and retailers are recognizing, it is also one of the most challenging markets in which to compete, much less win. That’s due largely to the fact that the ecosystem is evolving so quickly. A range of factors—from demographic changes and the breathtaking pace of urbanization to fluctuating buyer preferences and behaviors—makes consumers in China moving targets. While it may be impossible to capture a market of one billion, consumer packaged goods companies and retailers can make significant inroads by narrowing their sights. The truth is that China’s consumer market today is actually a collection of many different consumer archetypes, groups of consumers with different preferences and behaviors. In fact, the consumer landscape in China is so complex that companies need differentiating strategies and value propositions that can be adapted to meet the needs of each consumer archetype. By customizing your approach and targeting the unique preferences of each consumer archetype, consumer packaged goods companies and retailers can create a formidable foundation for growth and profitability. To do this, first you need to know your target consumers. Leveraging data and consumer insights, you can customize messages, offers and experiences to attract new consumers, and retain existing ones. By shaping new business models, you can enable more responsive operations. To help consumer packaged goods companies and retailers understand the composition and complexity of the consumer archetypes relevant in China, Accenture surveyed 3,500 consumers in 27 cities across China. Through detailed analyses of the responses, we have identified four learnings to help inform consumer packaged goods and retail consumer engagement and growth strategies in China. #1: A “me” culture is prevailing Urban Chinese consumers now exhibit the consumption patterns of a middle-class lifestyle. This means they are spending money on things and experiences that not long ago would have been considered luxuries. It also means spending more on goods that are perceived to be of higher quality. While three categories of products and services (food and restaurants, clothing and electronics) currently top the consumption list, spending is growing fast on leisure activities such as travel and products related to health. Importantly, these consumers have become more aware of what their purchasing power represents. They increasingly set themselves apart and assert their social status through what they buy.
  5. 5. The Allure and Challenges of China’s Changing Consumer Market 4 #2: It is difficult to drive loyalty Chinese consumers are extraordinarily curious, with more than two-thirds of survey respondents indicating their willingness to try new products. Brand switching is prevalent in all cities and all age groups. Only 10 percent of respondents are unwilling to try new brands. That’s good news for consumer packaged goods companies and retailers that can leverage digital technologies to offer entirely new products, services and experiences to consumers. But it spells trouble for companies that have historically relied solely on their brand or reputation to lure new shoppers. #3: Life is digital Digital channels are pervasive in China and digital consumption continues to grow in popularity. That means it’s no longer sufficient to move consumers through linear purchasing processes. Creating smarter, seamless and secure experiences at every point of interaction is what defines expectations in the digital world. Our findings suggest that the surge of digital channels (and social media, in particular) has done little to eliminate the need for marketing basics in China. Even in the digital space, companies need to know their target consumers and how to reach them— online and offline. #4: Pragmatism still rules Despite their growing focus on purchases to represent their status and online consumption, China’s urban consumers remain very pragmatic shoppers, leveraging multiple channels before they purchase, and expecting an omni-channel experience. They frequent traditional supermarkets and department stores, as well as e-commerce. Our findings confirm that traditional retail and eShopping are not mutually exclusive endeavors. Urban consumers in China, as elsewhere, use both channels and expect a seamless and convenient experience. Consumer packaged goods companies and retailers that ignore one or the other in their marketing and sales efforts do so at their own peril. Armed with these learnings, we applied advanced mathematical principles to identify eight consumer archetypes, defined along multiple dimensions and with unique consumer profiles. Our goal was to show that an analytics-powered segmentation model can be used to continually refine growth strategies and better understand what it takes to target— and win—with consumers in China. In a market as complex and fast- moving as China, a company’s success is dependent on the quality and granularity of its consumer and customer insights, as well as its ability to act on those insights to drive high performance. As this research demonstrates, those that know your consumers and customers best will have a distinct advantage when it comes to defining and succeeding with your target consumer archetypes.
  6. 6. 5 Digital Lifestyle: Fang Li Online shopping Greater choice Better value
  7. 7. The Allure and Challenges of China’s Changing Consumer Market 6 China’s changing consumer market New rules will dictate success in China’s consumer market. High performers will be companies that not only embrace new (even unconventional) opportunities for growth, but also engage with customers in new and more dynamic ways. The winners may have different business strategies and operating models, but they will have one important thing in common - a clear understanding of who target consumers are, what they want and value, and how they make purchasing decisions. In many ways, China remains one of the most attractive markets in the world: an empowered consumer population of more than one billion is simply too large to ignore. This is especially true for consumer packaged goods companies and retailers, which operate in a sector that is as open and competitive as any developed market. China is an increasingly appealing destination for two main reasons. One, incomes have risen (and will continue to rise) at a steady pace. And, two, Chinese consumers are clearly willing to spend their money on all types of consumer goods—from food and beverages to consumer electronics and apparel. Even the sales of luxury goods have exploded in recent years (although the growth of luxury good sales is now tempered by greater government scrutiny on displays of extravagance and anti-corruption efforts). China is on track to overtake the United States as the world’s largest consumer market in just four years (see Figure 1). The impact of personal consumption on China’s economy, and the consumer packaged goods and retail industries is significant. Despite a cooling economy in recent years, China’s retail industry has been posting double-digit sales growth since 2000. Although its private consumption accounts for only about 8 percent of all consumption in the world, China’s contribution to the growth of consumption in 2011-2013 was more than that of any other country.1 And while official data indicates that private consumption’s share of GDP in China is significantly lower than richer countries (decreasing from 46 percent in 2000 to 34 percent in 2013), some research has suggested that China’s household consumption is actually underestimated by 10 percent.2 Figure 1. China is an attractive retail market 2012 2017 $2.3 $3.4 $4.4 $4.2 Total Retail Sales (US$ trillion)* China United States * Total sales from all retail outlets and B2C ecommerce, including warehouse clubs. The total market includes retailers operating in both modern and traditional channels. It excludes wholesale operations and all non-retail business such as restaurants, financial services and travel services. Source: EIU Retail Forecast; National Bureau of Statistics; Ministry of Commerce, 2012 China retail report.
  8. 8. 7 Ironically, profiting from China’s growing consumer market is getting harder for both domestic and foreign firms. With all this pent up demand now being expressed, how is it that operating income margins for retailers are shrinking? The drop in profit margin from an average of 2.67 percent in 2011 to 2.49 percent in 2012 suggests that brand erosion, industry fragmentation, rising costs, and intense competition from domestic and foreign companies have all taken their toll. The decline in profitability also points to just how difficult it is for businesses to maintain your growth momentum in China’s rapidly changing social ecosystem. A range of factors— from demographic changes and the inconsistency of income levels across China to fluctuating buyer preferences and behaviors—make consumer behavior and spending in China a moving target. Household incomes continue to rise. Although it is the second largest economy in the world, China’s GDP per capita is less than the GDP per capita of 81 other countries.3 However, many Chinese cities are as rich as upper/ middle-income countries in terms of GDP per capita. Recent research by Accenture and the Chinese Academy of Sciences revealed that 47 of 73 cities measured in the New Resource Economy City Index have GDP per capita of US$7,700. This is more than the average GDP per capita of upper/ middle-income countries, which was US$7,326. In 26 cities in China, GDP per capita equals US$11,000.4 The consumer population is aging—fast. Currently, people aged 65 and over make up 9 percent of the total population. This group will account for 25 percent of the population by 2050.5 As the number of senior citizens rises, the number of working-age people is falling. A consequence of China’s lower mortality rates and its one-child policy enacted in the 1980s is that, beginning in 2013, the workforce in China has started to shrink. The trend will continue. Urbanization is creating a new consumer market. As of the end of 2013, urban residents accounted for 53.7 percent of the total population in China. According to the National New-style Urbanization Plan (2014-2020) unveiled by the central government, 60 percent of China’s population will live in urban areas by 2020, which means that nearly 100 million people will become urban consumers in the next six years. By 2030, China will see more than 67 percent of its population living in cities, making it a huge market comprising one billion urban consumers.6 Digital is reshaping the consumer experience. Throughout 2013, China’s total value of online shopping sales reached ¥1.8 trillion, accounting for 7.8 percent of the retail sales of consumer goods and ranking China first among all online shopping markets worldwide.7 Calculated against an annual growth rate of 10 percent, the total value of China’s online shopping market will grow to $650 billion by 2017, far outrunning that of the US online market of $370 billion.8 Accenture’s research confirms the important role of digital technologies in China. Three-quarters of urban consumers we surveyed have smart phones and 60 percent have tablets. It is very likely that in the next few years, nearly all urban consumers in China will have smart mobile devices that connect them online, anytime and anywhere. The prevalence of a digital lifestyle makes it easier than ever for urban consumers to know a product, share comments, or pursue personalized products through online shopping. It is clear that China’s consumer market today is actually a collection of unique consumer groups, with different preferences and behaviors. It is imperative for consumer packaged goods companies and retailers to have a differentiating strategy and a value proposition that can be adapted to attract and meet the needs of a constantly evolving set of consumers and customers. Equally important, the winners in China will not be the companies chasing consumer and economic trends. The winners will be shaping them. Along the way, they will redefine the market and drive demand for new types of business and new methods of interaction. In short, they will likely pursue opportunities for growth outside their traditional business models, and often outside their industry.
  9. 9. The Allure and Challenges of China’s Changing Consumer Market 8 Accenture research and experience revealed two trends, which are particularly relevant for consumer packaged goods companies and retailers to act on now as you look to build or maintain your competitive differentiation in China. Digitization Over the next five years, all companies will become digital companies. In tandem, all consumers will become digital consumers. These bold statements are based on two factors: the explosion of data and the staggering rise in the number of individuals and organizations coming together in social media networks. Nowhere is the power and potential of the digital revolution more evident than in China. Consider the following statistics. At the end of 2013: • 618 million people in China were Internet users—a figure that represents just slightly more than 45 percent of China’s population.18 • More than 80 percent of China’s Internet users accessed the Internet through mobile devices, an increase of approximately 6 percent over the previous year.19 • The number of Chinese people who shopped online topped 300 million,20 making China the largest retail e-commerce marketplace by far. • The value of products purchased via mobile shopping exceeded ¥167 billion (US$27 billion), a 165 percent increase over 2012.21 • Some 600 million of China’s 1.3 billion population are active in social media.22 Each of these figures, on its own, suggests that companies looking to conduct business in China must build their digital capabilities. Collectively, they present an absolute imperative. Industry Convergence With consumers’ growing digital footprints, companies have access to more data about them than ever before. Buried in the data, you will find insights about new types of products and services consumers want and the purchasing experiences they demand. Often, what consumers want extends far beyond traditional offerings. Accenture’s recent survey has revealed that, for about 60 percent of business leaders, unconventional growth means using digital advances to expand their business models to different industries.23 Consider the case of Alibaba, a privately owned group of e-commerce businesses in China. Leveraging its analytics- driven consumer insights, the company realized that most merchants trading on its platforms were small- and medium-sized businesses that found it difficult to access traditional lenders. In 2012, the company started offering merchants small loans, using data on their activities to help them make financial decisions. By the end of 2013, its loan book reached US$2 billion, up from US$600 million in 2012.24 Alibaba and numerous other Chinese companies have taken advantage of the reams of digital data now at their disposal to create new business models and revenue streams. Chinese consumers, even more so than their counterparts in the developed world, are very fast movers when it comes to adopting digital technologies. These factors, plus fewer regulations to muddy the competitive landscape, make cross-industry expansion a particularly relevant option for companies operating in China. Our research supports this viewpoint; 87 percent of executives based in China expected to pursue cross- industry growth. Once again, consumer packaged goods companies and retailers are well placed to be the trendsetters when it comes to reshaping their industry dynamics and giving consumers better experiences and more offerings than they expected. Are you a trend setter? • To what extent do you believe your business can provide consumer experiences versus products and services? • How do you maintain active relationships with businesses outside your immediate value chain? • How are you deploying digital technology to proactively disrupt your industry? Trend Setting
  10. 10. Digital Lifestyle: Ying Wang Online banking 24/7 Customer support Cloud 9 What you really need to know about the changing Chinese consumer To drive growth and profitability in China, consumer packaged goods companies and retailers must know their target consumers—and use that knowledge to deliver truly outstanding experiences at every touch-point. With such insights, these companies can create more responsive operations and more easily shape new business models. However, in a consumer market as complex and fluid as China’s, it is exceedingly difficult to generate meaningful insights that hold relevance over time. As with everything in China, the consumer market is continually being shaped by economic conditions, demographics and technological advances. Together, these forces are having a profound effect not only on consumers’ preferences and behaviors, but also on the tactics consumer packaged goods companies and retailers implement to drive demand and brand loyalty. Also, urban consumers in China, as elsewhere, are multi-dimensional. They are affected by trends in different ways. And their brand preferences and shopping behaviors are fluid and often dependent on product categories or specific circumstances in which they find themselves. Traditional segmentations based solely on factors such as age, location or income, offer momentary snapshots of one’s consumer base. But they do not provide insights that can help companies prioritize their marketing investments for the medium- and long- term. Rather, one must take a number of variables into consideration, including China’s demographic shifts, the impact of urbanization, the country’s adoption of digital technologies and continuing economic growth. Recognizing that these factors continually shape the consumer landscape, Accenture launched its China Consumer Study in 2013. Through detailed analyses of responses to our comprehensive survey of mainstream Chinese consumers, we produced insights that we believe accurately reflect the complexities of the Chinese market.
  11. 11. The Allure and Challenges of China’s Changing Consumer Market 10
  12. 12. 11 Any effort to unearth consumer insights must reflect the reality that China is a bifurcated society, with a significant gap between urban and rural consumers. Overall, rural household consumption is only about one-third of urban household consumption. And while the government launched a series of social and economic initiatives aimed at increasing the incomes for both rural and urban individuals by 7 percent by 2015, the gap between urban and rural households is not expected to narrow. For the purposes of our study, we focused exclusively on the urban consumer. This is because China’s urban areas already comprise 70 percent of China’s consumer market. In total, we surveyed 3,500 consumers in cities in eastern, southern, western, northern, northeast and central China. We focused specifically on consumers in 27 Tier 1, Tier 2, Tier 3 and Tier 4 cities, with populations ranging from one million to more than 20 million (see Figure 2). Survey respondents were aged 18 to 55, with household income levels below ¥600,000 (US$97,500) and above the income level attained by the top 70 percent of residents in a given city, or approximately ¥45,000 (US$7,400). It is important to note that the household income data in this study, which was drawn from the surveyed cities’ Statistics Yearbook, may have been underestimated. It is widely accepted that China’s household income figures are often believed to be under-reported. According to research by Xiaolu Wang of Chinese Academy of Social Sciences, China’s household “grey income” - income that goes unreported to authorities - in 2011 accounted for 12.2 percent of GDP.9 Wang’s research also revealed that the under-reported household income could be as high as 76.8 percent of what is officially reported.10 The under-reported income is concentrated mainly in high- and middle- income households. Beyond the urban focus, our research differs from other China consumer studies in two fundamental ways. Our profiling takes geographic and demographic diversity into account and is based not on singular factors such as age or location, but on individual needs, attitudes and behaviors. Additionally, the study has specifically targeted consumers of mainstream (i.e., non- luxury) consumer packaged goods companies and retailers. Generally speaking, our survey results reveal four learnings that can be used to shape the growth strategies of consumer packaged goods companies and retailers looking to expand and grow in urban China. These learnings are broad, yet durable. We believe they can be applied to better address the needs of customers, regardless of the consumer segment they find themselves in at any given time. Figure 2. Accenture surveyed 3,500 consumers in 27 cities across China in 2013 Nanning Chengdu Kunming Shenyang Tier 3 cities Taiyuan Shijiazhuang Wuhan Nanchang Fuzhou Beijing Tier 1 cities Shanghai Shenzhen Guangzhou Dujiangyan Dingzhou Linghai Macheng Baoji Tier 4 cities Yingde Jilin Luoyang Tier 2 cities Weifang Xuzhou Ningbo Yueyang Liaoyang Foshan About the research: The unique focus of Accenture’s China Consumer Study
  13. 13. The Allure and Challenges of China’s Changing Consumer Market 12 #1 A “me” culture is prevailing With rising levels of income, more and more urban Chinese consumers have embraced the consumption patterns that a middle-class lifestyle affords. This includes spending money on things and experiences that not long ago would have been considered luxuries. It also means spending more on goods that are perceived to be of higher quality. This is clearly reflected in a number of consumer segments identified in Accenture’s research. According to our survey results, urban consumers spend the lion’s share of their money on three categories of goods and services: food and restaurants, clothing and electronics (see Figure 3). Spending on leisure activities is growing among consumer groups at all income levels— from aspirational wage earners (typically in lower income brackets) to exclusive service buyers (among the wealthiest of those consumers interviewed). Leisure purchases will continue to grow in importance, with travel and tourism- related activities expected to become a particularly important spending category. In 2012, Chinese consumers spent RMB 2.3 trillion (US$360 billion) on traveling within China, 17.6 percent more than the previous year11, and more than US$100 billion on international travel, up from just $73 billion in 2011. This makes them the largest source of tourism cash in the world.12 Products related to personal health also hold appeal across income levels. They already make up an important purchase category for older consumers and will take a much larger share of these consumers’ wallets in the years ahead. This is because China is an aging nation, and is poised to be one of the largest “silver economies” in the world. Figure 3. What do (will) urban consumers buy? Top 3 Spending Categories % of respondents Top Category for Increased Spending % of respondents Q: Which of the following are your top three expenses over the last year? Which of the following category are you most likely to increase expenditure in over the next year (allowing for inflation)? Source: Accenture China Consumer Survey Books and Videos Books and Videos 36% 34% 33% 28% 25% 21% 9% 72% 42% 26% 24% 23% 21% 20% 19% 7% 45% 31% Food and Beverages/Dining Out Food and Beverages/Dining outApparel Apparel Consumer Electronics Consumer Electronics Travel and Tourism Travel and Tourism Home Appliances Home Appliances Personal Care Personal CareHome Care Home CareHealth and Medical Health and Medical
  14. 14. 13 Are you prepared to reach the “me” consumer? Figure 4. Spending among urban consumers makes a statementThese consumers in urban China have not just grown wealthier; they have also become more cognizant of what their purchasing power represents. Through shopping, they are increasingly looking to set themselves apart and assert their individualism or social status. This was clearly evident among young professionals in Tier 3 cities and, to a lesser degree, other segments. This trend shows no sign of slowing. In fact, as geographic and socio-economic differences continue to erode, what consumers buy will increasingly become a tangible symbol of their success and an expression of who they are. As illustrated in Figure 4, 62 percent of urban consumers do not want to buy products that most other people buy. This attitude is most prevalent among younger consumers. Older consumers, by contrast, are more likely to spend on purchases that represent their social class. Among all urban consumers surveyed, 45 percent hold this view. Urban consumers are willing to spend on products that reflect one’s identity Agree Neutral Disagree Q: To what extent do you agree with the following statement? I am not willing to purchase the same items that are bought by most other people. It is worthwhile to spend more on products that better represents one’s social status. Source: Accenture China Consumer Survey The young are drawn towards individualism while the older generation remain attached to social status Age 18-25 17% 18% 65% 26-35 20% 15% 64% 36-45 23% 18% 59% 46-55 23% 18% 59% 18-25 46% 14% 40% 26-35 40% 17% 43% 36-45 37% 13% 50% 36% 15% 49%46-55 Age 62% 17% 21% Individualism 45% 15% 40% Social Status • How are you capturing consumer data and insights today? • If traditional geographic and socio-economic boundaries are disappearing, does your current consumer segmentation still work? • How does this impact your category management (product mix, price band, promotion tactics, shopping environment) to retain and grow your customer base?
  15. 15. The Allure and Challenges of China’s Changing Consumer Market 14 The transition to a middle-class lifestyle is prevailing in cities of all tiers. The categories of future spending among this new breed of “me” consumers are remarkably consistent (see Figure 5). So is their willingness to pay more for better products. Approximately 90 percent of respondents in each city tier express a willingness to pay at least a 5 percent premium for high-end products. Nearly 60 percent are willing to pay at least 10 percent more. Thanks to multi-year economic growth, state-of-the-art infrastructure, advanced communications technologies and the prevalence of mass media, the differences in urban Chinese consumers’ needs, preferences and behaviors across city tiers are narrowing. This means consumer packaged goods companies and retailers will soon need to develop different approaches to segmentation to gain an even deeper and more nuanced understanding of consumers. Figure 5. How spending will increase Q: Which of the following category are you most likely to spend more on in the next year (allowing for inflation)? Source: Accenture China Consumer Survey Top Category for Increased Spending – By City Tiers Travel and Tourism 47% 47% 45% 37% Food and Beverages/Dining Out 32% 31% 31% 28% Consumer Electronics 30% 26% 25% 22% Health and Medical 23% 24% 24% 24% Home Appliances 21% 22% 25% 25% Books and Videos 8% 8% 7% 4% Home Care 16% 18% 19% 25% Personal Care 21% 20% 21% 17% Apparel 17% 20% 23% 23% Tier 1 Tier 2 Tier 3 Tier 4
  16. 16. 15 #2 It is difficult to drive loyalty In Accenture’s 2011 Global Consumer Pulse Research,13 we observed that Chinese consumers are extraordinarily curious. That finding was confirmed in our most recent research. More than two- thirds of survey respondents expressed their willingness to try new products. According to our study, the curious characteristic of brand switching was found equally in all city sizes and all age groups. Only 10 percent of respondents claimed to be unwilling to try new brands or products (see Figure 6). This bodes well for consumer packaged goods companies and retailers that are able to take advantage of industry convergence to offer entirely new products, services and experiences to consumers. It also presents opportunities for companies looking to accelerate the pace of your go-to- market strategies with new products. 69 percent of urban consumers are willing to try new products Similar trend is observed across city tiers and age segments City Tier 11% 21% 69%Tier 1 11% 21% 68%Tier 2 11% 18% 71%Tier 3 11% 24% 66%Tier 4 9% 21% 70%18-25 10% 22% 68%26-35 12% 19% 69%36-45 12% 19% 69%46-55 Age Not willing to try new brands/products Neutral Willing to try new brands/products 69% 20% 11% Q: How willing are you to try out new or innovative products in the market? Source: Accenture China Consumer Survey Figure 6. The lure of new brands and products Are you prepared to reach the curious consumer? • How important is branding in your product category? • How do you make sure you have the right brand value proposition? - Are you fully aware of your brand values and positioning? - How much of your brand value proposition is tied to consumer and customer values? - Are you fulfilling consumer and customer needs? • Which brand elements can you tweak to build brand loyalty?
  17. 17. The Allure and Challenges of China’s Changing Consumer Market 16 Figure 7. Switching due to poor service by industryThe financial impact of brand switching is significant. According to Accenture’s 2013 Global Consumer Pulse Research, it is estimated that revenue loss due to brand switching in China in 2013 neared US$1.2 trillion. That makes it the second-largest switching economy in the world, accounting for 23 percent of Chinese consumers’ annual disposable income. According to our survey, about 40 percent of consumers reported they switched retailers in the past year. And approximately 60 percent of those consumers switched because of a negative customer experience (see Figure 7). % of respondents who switched in the sector Retailers 41% Banks 29% Hotels 25% Internet Service Providers 23% Wireless/Cell Phone Companies 21% Property and Casualty Insurance 21% Airlines 18% Cable/Satellite Television Service Providers 12% Home Telephone Service Providers 11% Utility Companies 10% Other 1% Q: In the past year, which of the following types of service providers, if any, have you switched away from because of poor customer service or support? Source: Accenture 2013 Global Consumer Pulse Research
  18. 18. 17 82% of urban consumers are brand conscious during grocery shopping Brand consciousness is more pronounced among developed cities and the young City Tier Value-driven Brand-driven 82% 18% Q: When you purchase food products or daily necessities, which of the following best describes you? Stick to one brand, choose between multiple brands, go for the best deal Source: Accenture China Consumer Survey Tier 1 Tier 2 Tier 3 Tier 4 18-25 26-35 36-45 46-55 12% 88% 18% 82% 19% 81% 28% 72% 14% 86% 15% 85% 18% 82% 24% 76% Age Figure 8. Brand mattersWhat about brand appeal? Shouldn’t that temper the brand switching of curious consumers? Our survey revealed that urban Chinese consumers are highly brand conscious when choosing what and where to buy. Brand-based purchases correlate with age and location. The larger the city (where international brands have more presence) and the younger the consumer (who are more aware of brands), the higher the influence a brand has on purchasing decisions (see Figure 8). Interestingly, while urban Chinese consumers are extremely brand conscious, the brands of consumer packaged goods companies and retailers no longer hold the appeal they once did. Thanks to the much greater availability and range of brands, urban Chinese consumers are constantly evaluating new products. Some experts have gone so far as to say that brand loyalty is a thing of the past.14
  19. 19. The Allure and Challenges of China’s Changing Consumer Market 18 This spells big trouble for consumer packaged goods companies and retailers that have historically relied on their brand reputation to lure new shoppers. Only half of our survey respondents were committed to a specific brand. The other half routinely chose among multiple brands. Older respondents (aged 36 to 55) and residents of Tier 4 cities demonstrated the lowest levels of brand loyalty (see Figure 9). The Internet and social media have played a large role in the weakening of brands around the world. Consumers now have fast and easy access to product information and consumer reviews, which hold more sway than logos or advertisements. Among brand conscious urban consumers, there is an equal split between loyalists and switchers Similar trend is observed in Tier 1/2/3 cities and across age segments City Tier Stick to one brand Choose between multiple brands Loyalists Switchers 50%50% Q: When you purchase food products or daily necessities, which of the following best describes you? Stick to one brand, choose between multiple brands, go for the best deal Source: Accenture China Consumer Survey Tier 1 52% 48% Tier 2 51% 49% Tier 3 53% 47% Tier 4 42% 58% 18-25 49%51% 26-35 48%52% 36-45 51%49% 46-55 51%49% Age Figure 9. Brand loyalty is not particularly strong
  20. 20. 19 #3 Life is digital Whereas insights into the “me” and curious consumers can be used to better understand what urban Chinese people buy and the thinking behind their purchasing decisions, our analysis also sheds light on how urban consumers engage with consumer packaged goods companies and retailers. Not surprisingly, digitization has taken hold in a pivotal way. Digital channels are pervasive and digital consumption continues to grow in popularity. What does the emergence of digital as a way of life mean for consumer packaged goods companies and retailers? It means that growth is no longer simply a matter of moving consumers and customers through linear purchasing processes. Creating smarter, seamless and secure experiences at every point of interaction is what defines expectations in the digital world. Experiences today must be non-stop, customized and cross-channel (see Figure 10). Figure 10. New dynamics of today’s consumers and customers The Traditional Funnel The Accenture Nonstop-Customer Experience Model Open content/channels Brand-controlled content/channels Discover Consider Evaluate Purchase Use Discover Consider Purchase Use Promise DeliveryEvaluate Source: Digital Customer: It’s time to play to win and stop playing not to lose. Accenture 2013 Global Consumer Pulse Research. Are you prepared to reach the digital consumer? • What is your new marketing plan around digital consumer touch-points instead of traditional Above the Line (ATL) and Below the Line (BTL) promotional activities? • What are the new digital channels that are increasingly relevant for target consumers? • What consumer insights you gain from social listening can improve your R&D, service, marketing and sales, etc.?
  21. 21. The Allure and Challenges of China’s Changing Consumer Market 20 Our research showed that 86 percent of urban Chinese consumers are Internet users. One segment of consumers—which we refer to as “Internet civilians”—conducts nearly all of its transactions online. Only two of the eight segments we identified have little digital exposure. Of China’s digitally connected urbanites, 73 percent go online and nearly 50 percent visit social media sites every day. And 25 percent of respondents expressed their preference of watching television programs on their computers, tablets or mobile phones. This has significant implications for advertising and brand building. Consider this: urban consumers spend, on average, 9.4 hours per week watching TV. Yet, they spend more than 28 hours per week consuming content via their PCs, tablets or smartphones (12.6, 8.3 and 7.2 hours, respectively). In this fragmented environment, it is quite difficult to maintain a consumer’s attention through a single channel. In the future, as screens and content multiply, brands and content will become even more diluted. Digital media is particularly relevant to younger consumers in Tier 1 and Tier 2 cities (see Figure 11). As the 18- to 35-year olds age, their affinity for digital media will certainly continue and also be embraced by the generations that follow them. This suggests that Internet advertising will become a mainstream approach to connecting with urban consumers in the years ahead. Figure 11. Internet advertising and social media are more influential for younger consumers in Tier 1 cities Tomorrow’s mainstream Tomorrow’s mainstream Internet Advertising Social media Tier 1 38% Tier 2 31% Tier 3 31% Tier 4 28% 18-25 41% 26-35 38% 36-45 31% 46-55 22% 29% 27% 21% 22% 40% 29% 18% 17% Tier 1 Tier 2 Tier 3 Tier 4 18-25 26-35 36-45 46-55 Q: Which are the top three sources of information (by order) that influence your choice of food and beverages and personal care products? Source: Accenture China Consumer Survey
  22. 22. 21 Communicate and share 79% Source information 53% Express own opinion 43% Comment or forward others’ opinion 28% Q: To what extent do you agree with the following statement? I often recommend products purchased to my friends. How often do you visit social media networks, such as microblogs, renren, qzone, blogs, tieba, or forums? Source: Accenture China Consumer Survey Figure 12. Urban consumers are actively consuming and contributing information on social media Social media deserves special consideration. Urban consumers in China use social media for a variety of purposes (see Figure 12). Most use social media to stay connected and communicate information. But a sizeable number also turn to social media sites to source product information. Given that 73 percent of respondents often recommend products they’ve purchased to their friends, one can assume that many of these recommendations—and critiques—occur in the social media space. Given the prevalence of social media activity among consumers in China, it’s understandable that businesses are upping their investments in digital marketing. In fact, a quarter of all advertisers’ budgets were dedicated to digital channels in 2013—an increase of 38 percent from just a year prior.15 For many, the growing emphasis on digital marketing is based on the belief that China’s explosive growth in online and mobile channels, coupled with consumers’ skyrocketing use of digital technologies, can transcend many of the old barriers to market entry.
  23. 23. The Allure and Challenges of China’s Changing Consumer Market 22 This belief may be somewhat misguided. While the importance of digital channels cannot be disputed, their usefulness as a marketing mechanism has been somewhat overhyped, at least in the consumer packaged goods and retail sector. Our survey confirms this by showing that television advertising of consumer products is still the main channel of influence for the vast majority of urban Chinese consumers. Only about 25 to 30 percent of consumers consider social media and online advertising to be their main channel of influence when it comes to purchasing food, beverages or personal care items. Even traditional marketing approaches such as in-store information and sales staff interactions trump online advertising and social media (see Figure 13). Price-sensitive families, thrifty householders and conservative middle- income shoppers—which, collectively, make up about 40 percent of the urban consumer base—are all united by the lack of digital influence in their lives. There is also the issue of diversity in the digital world. The online community in China is enormous—and no more homogenous than the population at large. Digital consumers have varying preferences, attitudes and behaviors. Additionally, some digital consumers are more digital than others. It is unlikely that a single digital campaign would target these groups equally effectively. Our findings and observations suggest that, to date, the surge of digital and social media in China has done little to eliminate the need for marketing basics. Even in the digital space, consumer packaged goods companies and retailers still need to know their target consumers and how to reach them— online and offline. Q: Which are the top three sources of information (by order) that influence your choice of food and beverages and personal care products? Source: Accenture China Consumer Survey Food and Beverages Personal Care TV Advertising 66% 61% Family and Friends’ Recommendation 46% 57% Instore Displays 40% 34% Salesperson Recommendation 38% 44% Internet Advertising 33% 29% Social Networks, Blogs, Forums 25% 23% Outdoor Advertising 20% 17% Print Advertising 18% 17% Figure 13. TV remains a mainstream channel for food and beverages and personal care products
  24. 24. 23 Supermarket 84% Department Store 62% Internet Shopping 40% Convenience Store 35% Traditional Market/Wholesale 29% Branded Boutiques 22% Fashion Shop/Street 14% Others 8% TV/Phone Shopping 4% Q: Please specify the three key channels where you spend the most of your daily expenses? Source: Accenture China Consumer Survey Majority of urban consumers shop in supermarkets and department stores due to convenience, comfort and wide product range Figure 14. Traditional shopping destinations trump online shops for now #4 Pragmatism still rules Despite all indications that online channels are gaining ground, China’s urban consumers are still, at their core, pragmatic shoppers. This means they frequent both brick-and-mortar and online shops to make their purchases, and increasingly expect a seamless experience when navigating these two worlds. The growth in online shopping is phenomenal. Nearly 70 percent of consumers we surveyed had online shopping experiences. In its 12th Five- Year Program, the central government estimated that online shopping volume will be 8 percent of total retailing volume. In fact, online shopping is growing much faster than the government’s forecast and faster than offline shopping, as well. In 2013, China’s online shopping was RMB1.85 trillion (US$303 billion), which was about 7.8 percent of the total retailing volume, an increase of 1.6 percent from 2012.16 According to the Ministry of Commerce, online shopping sales grew by 31.9 percent in 2013, over 22 percent faster than department stores, supermarkets and boutique shops, respectively.17 However, traditional supermarkets and department stores still reign supreme (see Figure 14). Citing convenience, comfort and a wide selection, 84 percent and 62 percent of respondents rank supermarkets and department stores, respectively, as their primary shopping destinations. This finding held across all city tiers and across all age groups. Among all survey respondents, Internet shopping is a distant third- place contender—and did not even register as a top-three shopping destination for urban consumers in Tier 4 cities, in the country’s northern region, or in the 36 to 55 age range. It is among younger shoppers in China’s largest cities that Internet shopping really shows its power and potential.
  25. 25. The Allure and Challenges of China’s Changing Consumer Market 24 Does this insight suggest that consumer packaged goods companies and retailers should invest more in traditional marketing programs? Not really. Despite the general preference for brick-and- mortar shopping experiences, more than one-third of urban consumers in China regularly shop online. Nearly 80 percent of Internet shoppers buy online at least once a month. More than a third do so weekly. Apparel, payments (for things like mobile phone charges or concert tickets), and travel are the three hottest Internet product categories. Again, the younger the consumer and the larger the city, the more frequently they carry out online purchasing (see Figure 15). Q: Have you ever made purchases online? How often do you make purchases online? Which of the following would you prefer to purchase online? Which of the following categories of products would you prefer to purchase offline over online? Source: Accenture China Consumer Survey Shop online at least once a week Shop online at least once a month Online shopping is prevalent in all city tiers. Young consumers are more frequent online shoppers. Tier 1 83% Tier 2 80% Tier 3 79% Tier 4 70% 18-25 38% 26-35 37% 36-45 32% 46-55 25% Figure 15. Who shops online and how often? Are you prepared to reach the pragmatic eShopper? • Do you have an omni- channel/online-offline strategy to tap into overall growth and build differentiation? • How will you leverage digital to create new consumer in-store shopping experiences—to be more inclusive, interactive and integrated? • How ready is your back office to build a highly integrated organization with seamless operations to support an omni- channel strategy?
  26. 26. 25 Our findings confirm that traditional retail and eShopping are not mutually exclusive endeavors. Urban consumers in China, as elsewhere, are using both channels to create a seamless and more reassuring experience. For example, 75 percent of urban consumers compare prices online and offline before purchasing big-ticket items. And more than half venture to physical stores to assess products in person before buying them online. There are a number of reasons urban Chinese consumers are wary of purchasing products directly online without examining the quality or other pricing options. Concerns over product quality top the list by a large margin (see Figure 16). Our survey results further prove that the fine line between online and offline worlds are blurring. Urban consumers see value in both worlds and regularly step from one to the other. Consumer packaged goods companies and retailers that ignore one or the other in their marketing efforts do so at their own peril. It is now imperative that companies employ an integrated, omni- channel approach to provide urban consumers the seamless experience they expect and demand. Inferior Product Quality 82% Unable to Try Products 40% Fake Products 38% Internet Scams 34% Poor Online Customer Service 34% Inflexible/Late Delivery 23% Inconvenient Payment Methods 17% Higher Prices 15% Time Consuming 9% Poor Online User Interface 2% Q: What are the three most important problems you are concerned with in shopping online (by order)? To what extent do you agree with the following statement? I often go to physical stores to see and try products before buying them online. Source: Accenture China Consumer Survey Figure 16. Urban consumers are cautious when it comes to shopping online
  27. 27. The Allure and Challenges of China’s Changing Consumer Market 26 Meet your urban consumers The insights gleaned from Accenture’s research and outlined above can help consumer packaged goods companies and retailers begin to craft strategies for growing their businesses in urban China. They provide a broad overview of shoppers’ changing preferences, attitudes and behaviors, and can form the basis of a consumer experience- driven blueprint. But to create long-term differentiation in the market and highly targeted offerings, consumer packaged goods companies and retailers should dig even deeper into the attributes of the consumers they are trying to reach. We applied an advanced analytics- powered segmentation model to generate more granular insights of consumer patterns from the perspective of the consumer packaged goods and retail industries. This enables companies to zero in on high-value consumer archetypes or channels. Further, by examining each archetype’s consumption patterns from the perspective of the financial service, communications and hi-tech industries, our analysis also sheds light on emerging preferences or cross- sector purchasing patterns. Above all, it distinguishes one set of consumers from others in a way that allows consumer packaged goods companies and retailers to make targeted strategic investments. A detailed analysis of our survey results reveal eight consumer archetypes for consumer packaged goods companies and retailers to consider targeting in urban China. At the lower income ranges, two consumer archetypes—aspirational wage earners and price-sensitive families—dominate (see Figures 18 and 19). Together, these groups make up about 30 percent of the urban Chinese consumer market. Figure 17. Eight consumer archetypes relevant to the urban China market Age18-25 26-35 36-45 46-55 Income 140K+ 72K+ 45K+ < 45K 600K+ Demanding, high-income, urban-dwelling white-collar workers; seek service excellence, personalized experience, performance and efficiency. The bourgeois group of consumers seek self-esteem in their pursuit of quality and personalized services that represent social status. The digital generation, focused on fashion trends and high quality, are keen on the Internet and digital technology. Wage earners who lack strong spending power but pursue convenience and enjoyment, are progressive and open-minded in their consumption. Cost-conscious men and women seeking affordability for their families. A young, motivated group with general spending power, enthusiastic for digital technology, typically associated with the Internet. Well-off group with satisfactory living standards and conservative in their pursuit of comfort and decent quality. The middle-aged, home-focused group, cautious and conservative in their pursuit of practical and economical goods and services. Focused on children's expenditure and lifestyle, save up to support children's expenditure. Fashion-forward consumers - 5% Exclusive service buyers - 6% Yuppies - 10% Conservative middle-income shoppers - 8% Internet civilians - 23% Thrifty householders - 18% Price-sensitive families - 16% Aspirational wage earners - 15% *Note: Annual household income in RMB. Analysis excludes consumers with annual household income of less than RMB45K (30%) and more than RMB600K (2%). Source: Accenture China Consumer Survey Wealthy class (Not Included) Low Income (Not Included) ¥ ¥ ¥
  28. 28. 27 Traditional consumer segmentation models are rarely based on more than two distinct buyer characteristics. Levels of income and consumption are two of the most commonly utilized dimensions. One of the greatest advantages of such a simplistic segmentation model is that it establishes clear boundaries among the resulting segments. However, a two-dimensional analysis provides scant insight into the value potential of each group or how companies should target their marketing and sales investments for maximum impact. Additionally, defining income and consumption levels is a highly subjective exercise. The lack of rigor applied to segmenting consumers means that the nuances of the consumers’ expectations, desires and experiences cannot be taken into consideration. Accenture’s approach to segmentation is markedly different. Based on the data collected through the research, we applied analytics to create distinct buyer profiles based on multiple dimensions that go far beyond income levels and spending patterns. Specifically, we examined survey respondents’ attitudes towards shopping, their consumption needs, their buying power (versus their buying intent), and the factors that come into play when they make their purchasing decisions. With this model, an almost limitless number of attributes can be assessed and quantified. Clearly, such a highly nuanced profile is quite helpful to consumer packaged goods companies and retailers (and companies from other industries) looking to build their brands, set prices, launch new cross-industry offerings, or establish a stronger digital presence. That said, we also realize that—despite their granularity of detail—these segments (or archetypes) should rarely be considered in isolation. This is the true power of an advanced analytics-based approach that can examine an infinite number of attributes: the ability for companies to generate even more complex and meaningful insights that enable you to meet the needs of target consumers, regardless of the segment they find themselves in at any given time. So why does the analytics-powered segmentation matter? Without segmentation models, some companies might approach members of the “Internet civilians” and “thrifty householders” segments similarly simply because both groups are middle-income wage earners. Deeper analysis quickly reveals that income is where the similarity starts and ends. Consumers in the thrifty archetype are older, more price-sensitive and more rational in their decision-making. When they buy something, it is because they need it—not because it promotes their individualism. They have low intentions to buy, and equally low buying power. In making their online purchasing decisions, their top consideration is value. Things like quality, service and speed of delivery are much less important to them. In short, the attitudes, preferences and behaviors of these two archetypes call for completely different marketing approaches. That realization would have never come to light without advanced analytics and segmentation. Marketing investments would have been wasted or, at a minimum, not been able to produce the desired results. Accenture’s Segmentation Model and why it matters
  29. 29. ¥ ¥ The Allure and Challenges of China’s Changing Consumer Market 28 Aspirational wage earners Brand Conscious Trading Up Impulsive Price Sensitive Personalization Convenience Buying Considerations Consumer Preferences Price Appearance Class Quality Service Features Figure 18. Aspirational wage earners This archetype is typically represented by middle-aged women in Tier 3 cities. While they lack significant spending power, they will pay for products that give them enjoyment or make their lives easier. Like other archetypes, they are highly influenced by social networks and online advertising. And the largest amount of their spending is directed toward apparel and household items, which they buy in large measure via online channels. However, unlike other archetypes, they are less likely to follow trends or place much emphasis on the latest product features. They purchase what they need and, as far as they are able, what they want. Point-redemption schemes appeal to this archetype, as do low delivery costs. The buying considerations and preferences of this archetype are illustrated in Figure 18. Figure 19. Price-sensitive families Brand Conscious Trading Up Impulsive Price Sensitive Personalization Convenience Buying Considerations Consumer Preferences Price Appearance Class Quality Service Features Price-sensitive families Also known as “wise shoppers,” this archetype is very rational when it comes to making consumer product purchases. Like the aspirational wage earners, this group is predominantly middle-aged and female, has low spending power, and values promotional discounts and incentives. The lion’s share of their spending on consumer products is directed to personal care and household items. They spend little of their disposable income on “impulse buys” or items or experiences they might simply want to have. These wise shoppers are experienced in online shopping. But they ultimately base their purchasing decision on where they can get the best price advantages. The buying considerations and preferences of this archetype are illustrated in Figure 19. Among middle-income urban Chinese consumers, another two archetypes emerged. Internet civilians and thrifty householders make up about 40 percent of the urban Chinese consumer market.
  30. 30. 29 Thrifty householders Brand Conscious Trading Up Impulsive Price Sensitive Personalization Convenience Buying Considerations Consumer Preferences Price Appearance Class Quality Service Features Figure 21. Thrifty householders Like Internet civilians, thrifty householders tend to have medium-level incomes and live in Tier 3 cities. That is where the similarity between these two groups ends. Thrifty householders are middle-aged and quite conservative in their purchasing practices. They prefer to pay cash, and spend their money on practical things such as home appliances and health care. When they buy things, price and quality are often the determining factors. They care little about an item’s appearance or what it might say about the owner’s social status. This segment generally has no online shopping experience and is, therefore, not influenced by social networking or online advertising. In- store promotions and attentive sales people make the difference. The buying considerations and preferences of this archetype are illustrated in Figure 21. Accenture’s segmentation model revealed four distinct archetypes among higher-income urban consumers. Fashion-forward consumers, yuppies, exclusive service buyers and conservative middle- income shoppers, combined, make up approximately 30 percent of the urban Chinese consumer market. Members of these archetypes have the highest buying power in urban China. Figure 20. Internet civilians Internet civilians The largest of any of our identified archetypes, this group comprises younger, ambitious, middle-income wage earners—primarily men from Tier 3 cities. These consumers are more emotional about their purchases and are willing to spend more than, say, members of the “price-sensitive family” segment, for whom spending is more restrained. The Internet civilians do not buy out of necessity; rather, they are motivated by the opportunity to enjoy leisure and, to a slightly lesser extent, trendy pursuits. They are heavily influenced by social networking and allocate a significant part of their spending to online purchases across a wide range of areas. Interestingly, they prefer physical channels when it comes to purchasing books or electronic products. They can be impulsive shoppers, and they react positively to shopping experiences that deliver personalized service and convenience. Importantly, their buying intent is very high. But, at this point in their lives, their buying power is relatively low. In other words, they are dreamers, with wallets not yet large enough to meet their purchasing aspirations. The buying considerations and preferences of this archetype are illustrated in Figure 20. Brand Conscious Trading Up Impulsive Price Sensitive Personalization Convenience Buying Considerations Consumer Preferences Price Appearance Class Quality Service Features ¥
  31. 31. The Allure and Challenges of China’s Changing Consumer Market 30 Figure 22. Fashion-forward consumers Brand Conscious Trading Up Impulsive Price Sensitive Personalization Convenience Buying Considerations Consumer Preferences Price Appearance Class Quality Service Features Fashion-forward consumers These young professionals are clearly part of the digital generation—a fact borne out of their strong propensity to purchase digital and electronic products. Mostly male, these individuals tend to live in Tier 1 cities. They are far trendier than any other archetype and seek out high-quality goods that can help them assert their individualism. Not surprisingly, the appearance and features of an item hold great sway, and price is a less important consideration. These Internet-savvy consumers use multiple devices to navigate their online shopping experiences. They are strongly influenced by online product information and the chatter on social networks. Given their exposure to the digital world, it makes sense that they are also more concerned about issues such as online fraud. The buying considerations and preferences of this archetype are illustrated in Figure 22. Figure 23. Young urban professionals (Yuppies) Young urban professionals (Yuppies) Like the fashion-forward consumers, yuppies are young with money to spend. However, whereas fashion upstarts tend to reside in Tier 1 cities and be drawn to electronic goods, yuppies are more likely to be seen in Tier 3 cities, buying books, personal care products and travel-related items and experiences. For yuppies, the overriding concern in making many of their purchases is the status that such a purchase will convey. In fact, yuppies’ self- esteem is closely linked with their ability to buy products that reflect their desired social status. Their brand awareness is extremely high. Yuppies are also one of the most digitally savvy archetypes, with 85 percent having online shopping experience and engaging in e-commerce quite frequently. Approximately 40 percent make purchases via their smart phones. Given their digital connectivity, it stands to reason that social networking plays a big role in shaping their preferences. But yuppies don’t spend all of their money in the online world. They also make regular visits to branded stores and internationally renowned supermarkets. The buying considerations and preferences of this archetype are illustrated in Figure 23. Brand Conscious Trading Up Impulsive Price Sensitive Personalization Convenience Buying Considerations Consumer Preferences Price Appearance Class Quality Service Features
  32. 32. 31 Figure 24. Exclusive service buyers Brand Conscious Trading Up Impulsive Price Sensitive Personalization Convenience Buying Considerations Consumer Preferences Price Appearance Class Quality Service Features Exclusive service buyers For this group, which makes up about 6 percent of China’s urban consumer market, service quality and convenience are exceptionally important factors. Members of this archetype are quite demanding when it comes to service excellence and receiving a highly personalized experience. This is understandable, given the high levels of spending made in the service-dominated areas of tourism and healthcare. Women outnumber men in this archetype. They tend to be young, live in Tier 1 cities, and pay special attention to product performance and the efficiency of the consumer experience. All exclusive service buyers are experienced in online shopping and use social networks and websites as their primary sources of product information. The buying considerations and preferences of this archetype are illustrated in Figure 24. Figure 25. Conservative middle-income shoppers Conservative middle-income shoppers Along with exclusive service buyers, conservative middle-income shoppers have the greatest buying power in urban China. Yet despite their relatively high levels of disposable income, these individuals adhere to more conventional purchasing practices. Typically older, these consumers are very pragmatic when it comes to making their purchasing decisions. Quality and brand recognition are important product considerations for them. Home appliances, household goods, and healthcare products and services account for most of their consumer product purchases. Interestingly, the conservative archetype is the only upper-income archetype with relatively few online shopping experiences. These individuals prefer to shop in large, well-known stores, and are greatly influenced by TV advertising and word-of-mouth channels when making their purchasing decisions. The buying considerations and preferences of this archetype are illustrated in Figure 25. Brand Conscious Trading Up Impulsive Price Sensitive Personalization Convenience Buying Considerations Consumer Preferences Price Appearance Class Quality Service Features ¥
  33. 33. The Allure and Challenges of China’s Changing Consumer Market 32 In response to its customers’ continuing transition to online consumption, a large Chinese bank moved into the e-commerce territory by launching a B2C eBusiness platform, offering financial and non- financial products. By applying Accenture’s analytics-powered, cross-industry segmentation model, the bank was able to precisely target retail consumers with the greatest need for online financial products (see Figure 26). In addition, the bank was able to improve its understanding of the financial and non-financial needs of target customer groups. Armed with these types of insights, the bank launched its new e-commerce business strategy and is well on its way to growing revenue through its online offerings. It has taken advantage of digitization and industry convergence in China and is now using retail insights to drive financial services success. Current penetration of consumer credit products (%) Fashion-forward consumers Internet civilians Yuppies Conservative middle-income shoppers Exclusive service buyers Aspirational wage earners Thrifty householders Price-sensitive families Average Future demand of consumer credit products (%) 45 40 35 30 25 20 15 45403530252015 Figure 26. Current and future penetration of consumer credit products Blurring borders: A bank’s venture into e-commerce Case study
  34. 34. 33 A winning consumer strategy in a changing digital market place Winning in China has never been more challenging. Consumers are savvier, more socially connected and more demanding than ever before. Disposable income differences are narrowing. Loyalty is fleeting. And competition from multi- national and home-grown companies is becoming ever more intense. Fortunately for consumer packaged goods companies and retailers, the challenges associated with operating in China are offset by the tremendous opportunities for growth. Digitization and industry convergence hold particular promise. They are the new frontiers of growth, innovation, differentiation and competitive advantage. But seizing these growth opportunities requires deep knowledge of consumers and an ability to act on that knowledge to drive high performance. To win consumers in a changing digital market place in China, consumer packaged goods companies and retailers must implement strategies specifically designed for urban consumer archetypes. Before you can do that, however, there are four things you need to do: • Invest in technology platforms that will enable you to gain and integrate consumer data from different sources. • Invest in building analytics capabilities so that you can truly understand changing consumer behaviors and the path-to-purchase journeys of the consumers you want to reach. • Develop a consumer engagement blueprint that will guide you in delivering the most satisfying and valuable consumer experiences. For consumer packaged goods companies, this blueprint should be focused on building brand loyalty. For retailers, the goal of the blueprint should be to provide a seamless and personalized shopping experience. • Identify opportunities for unconventional growth. China remains a land of tremendous opportunity. Consumer packaged goods companies and retailers that stake your claims in digitally contestable markets will be the ones to succeed. Accenture research and experience suggest there are additional actions consumer packaged goods companies and retailers can take to further differentiate yourselves in the urban Chinese market. For consumer packaged goods companies, these actions include: • Pursuing consumer-driven innovation by engaging consumers, encouraging collaborative design or crowd-sourcing. • Eliminating the complexity, cost and time inherent in analog processes and channels. • Building new marketing and sales capabilities based on a digital foundation. • Rethinking and adapting to a new digital operating model. For retailers, the actions include: • Integrating operations through seamless, cross-channel merchandising, stocking, marketing, inventory management, pricing strategies, management scales and incentives. • Investing in seamless connections between various technology platforms. • Collaborating with technology, data, analysis and process partners to deliver a seamless shopping experience.
  35. 35. The Allure and Challenges of China’s Changing Consumer Market 34 References 1 “Doing it their way,” The Economist, January 25, 2014. 2 China: Beyond the Miracle, Barclays, March 2013. 3 World Economic Outlook Database-April 2014, International Monetary Fund. 4 “Creating Prosperous and Livable Chinese Cities: The New Resource Economy City Index Report,” Accenture and the Chinese Academy of Sciences, 2013. 5 “Population Aging in China: A Mixed Blessing,” The Diplomat, November 10, 2013. 6 “New Style Urbanization Plan (2014-2020), Xinhua News Agency, March 16, 2014. 7 “2013 China’s online shopping transaction volume will reach 1.85 trillion,” ClickZ Network, January 15, 2014. 8 “US Online Retail Sales to reach $370 Billion by 2017,” Forrester Research, Inc., March 13, 2013. 9 Xiaolu Wang, Grey Income and National Income Distribution–2013 Report, Comparative Studies, October 2013. 10 Xiaolu Wang, Grey Income and National Income Distribution–2013 Report, Comparative Studies, October 2013. 11 “China Tourism Statistics Bulletin,” China National Tourism Administration, September 2013. 12 “Chinese travelers the world’s biggest spenders,” CNN Travel, April 12, 2013. 13 “Winning the hearts of the Chinese Consumer,” Accenture, 2013. 14 “Twilight of the Brands,” The New Yorker, February 17, 2014. 15 “Chinese advertisers digital marketing budget in 2013 will reach 23 million yuan,” iResearch, May 9, 2013. 16 “2013 China’s online shopping transaction volume will reach 1.85 trillion,” ClickZ Network, January 15, 2014. 17 Press Conference, Ministry of Commerce – People’s Republic of China, January 16, 2014. 18 “33rd Statistical Report on Internet Development in China,” China Internet Network Information Center (CNNIC), January 16, 2014. 19 Ibid. 20 Ibid. 21 “Chain Mobile Shopping Market Snapshot in 2013,” China Internet Watch, February 12, 2014. 22 “With 600 Million Social Media Users, This is China’s Web in 2013,” Tech In Asia, January 17, 2013. 23 Accenture, 2014. 24 “The World’s Greatest Bazaar,” The Economist, March 21, 2013. 25 “Banks’ New Competitors: Starbucks, Google, and Alibaba,” HBR Blog Network, February 20, 2014. Executive Sponsors: Luis Ceniga, Chan Tzeh Chyi, Roger Yu Program Director: Xuyu Chen Research Team: Laura Lin, Jason Long, Catherine Mao, Gong Zheng, Amy Chng, Sheryl Yu Acknowledgements: Jeff Beg, Alex Broeking, Steven Maass, Tina Senior, Ted Liu, Bessie Wo, Selina Zhao
  36. 36. Contact Us To learn more details of this report, please contact: Till Dudler Managing Director, Global Strategy – Consumer Goods and Services till.dudler@accenture.com Rajat Agarwal Managing Director, Consumer Goods and Services, Asia Pacific rajat.agarwal@accenture.com Woolf Huang Managing Director, Consumer Goods and Services, Greater China woolf.w.huang@accenture.com About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 289,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com. Disclaimer This report has been prepared by and is distributed by Accenture. This document is for information purposes. No part of this document may be reproduced in any manner without the written permission of Accenture. While we take precautions to ensure that the source and the information we base our judgments on is reliable, we do not represent that this information is accurate or complete and it should not be relied upon as such. It is provided with the understanding that Accenture is not acting in a fiduciary capacity. Opinions expressed herein are subject to change without notice. It is not intended to provide advice on your specific circumstances. The names corresponding to the photos in the report are purely fictitious and any similarity is purely coincidental. Copyright © 2014 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. 14-1995 / 11-8616

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