203 group report 1


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203 group report 1

  1. 1. “Compare and contrast as to how two (2) aspects or theories of consumer behaviour asdiscussed in Schiffman apply to this country and how it differs from that in Australia. Showhow this may provide a marketing opportunity for an Australian exporter.”AbstractThis paper will use two fundamental principles of market segmentation; demographical andbehavioural segmentation to examine the potential for success for an Australian exporterentering the Chinese market. Using an array of established brands across a variety ofindustries this paper illustrates and details some methods for success in regards tocustomer-retention, establishing brand loyalty and remaining competitive. The differencesbetween the Australian and Chinese market according to demographic and behaviouralprinciples was found to be immense and not limited to language, culture and religion.Methods of mathematical comparison including the Gini-coefficient were used to identifyless obvious trends, similarities and differences between said markets.IntroductionConsumer behaviour examines the reasoning, motivation and thought processes involved inthe buying decision-making process. Understanding consumer behaviour and how it isrelevant to a particular product or service is a crucial component in any marketing strategy.Prior to entering a new market marketers must determine if their marketing strategy andproduct offerings are in-line with those demanded within the market.The success ofmarketing efforts will revolve around the degree to which consumer behaviour isunderstood and how theseprinciples have been adapted and applied to a marketingstrategy. Given the aforementioned scenario, market segmentation will be based on bothbehavioural and demographic theories of segmentation. These theories will be examinedand their relevance to the Chinese market will be discussed. The differences between theChinese and Australian market will be highlighted though the use of these theories andultimately will detail opportunities for an Australian exporter entering the Chinese market.Market Segmentation: DemographicsOne of the most important concepts to understand regarding a new market is the behaviourof the customers. This behaviour can change because of different demographic variablessuch as age, income, gender, social class, lifestyle, etc. Demographic factors that affectconsumerbehaviour will be based on the person’s particular characteristics although thecharacteristics may differ. Demographic factors are based on the relevance to consumers’beliefs, attitudes and intentions. Humans have a tendency to engage in and enjoy activitiesinvolving effort (Kardes, 2010). These factors apply not only to one market but exist withinevery market, differing depending on a variety of characteristics. Demographicsegmentation variables are amongst the most popular basis for segmenting customergroups in order to focus the on successful marketing strategies and efforts.Consumer needs and wants evolve and change with time, relevant not only to the currentgeneration but also the individuals age. Marketers should design, package and promoteaccording to the particular wants and needs of an age group.As an example of how ageaffects consumer consumption we will compare the life expectancy of China and Australia inorder to try to better understand this dominant factor.Australia maintains a greater average
  2. 2. life expectancy of 79 years. Low rates of fertility and the continued effects of the 1945-55baby-booms have resulted in an aging population. Every five years life expectancy increasesby 0.4 of a year. In 2002 those aged over 65 totalled 2.5 million or 13 per cent of thepopulation. In 2050 there will be 7.1 million in this group totalling 25 per cent of thepopulation. Six per cent will be over 85 (Biddle, 2011).Similarly in China, from 1990 to 2008 life expectancy rose 5.1 years, to 73.1 according to aWorld Bank compilation of United Nations data. Nearly every other large developingcountry, be it Brazil, Egypt, Ethiopia, India, Indonesia or Iran experienced a greater increaseover the same span despite much slower economic growth (Jianghong , 2008). Since 2000,Australia which started with higher life expectancyhas continued to outpace China in termsof life-expectancy growth.High, consistent economic growth provides the building blocks forsocial and health improvements which has remained true for centuries.The rate of thisgrowth and the growth rate of economic development are paramount in extending life-expectancies for any given nation.Analysing this data, we can develop a marketing strategy that will target a specific sector ofthe population. We can take age as a reference amongst other characteristics. Australia atpresent maintains a higher life expectancy than China, hencethis market should beconsidered viable if the product-offering is in-line with the demands of older or aginggenerations. Demographic segmentation is an essential part of any successful marketingstrategy.Market Segmentation: BehaviouralOne of the ways for a marketer to successfully enter a new market is by understanding thenew market and segmenting it into several groups. One of the groups for marketsegmentation is behavioural as the base. By understanding the new market or the targetmarket’s behaviour, the marketer is able to fully understand the needs and thus how toeffectively target the new market.As an example, Australian consumers tend to be brand loyal when it comes to impulsivepurchases or high involvement products where the cost is high.A company that reliesheavily on brand loyalty is that of Apple. As Apple’s product-offerings are typically highinvolvement purchases, existing brand loyalty can often make the difference between a saleand lost potential. This is seen throughout university with a large portion of students in anygiven lecture will have at least one Apple product. Using this information a marketer wouldbe able to know that Apple is a high-involvement purchase in Australia and therefore itcould be financially-lucrative to establish, through the use of advertising; brand loyalty inregards to Apple and its product offerings.Australia and China have a lot of differences in terms of culture and behaviour and thereforerequire different approaches to segmentation. According to (Yau, 1993), the easiest way tofigure out the behaviour of a consumer is by examining the consumer’s culture and lifestylebecause thesefactors will ultimately determine the behaviour of a consumer. As time goesby and society progresses, the culture of Chinese people will begin to evolve as Chinabecomes an increasing force, both economically and physically-speaking. This will inevitablylead to a variety of opportunities in a range of overseas markets assuming marketers
  3. 3. properly understand local consumer behaviour and can effectively tailor their marketingefforts accordingly.St-Maurice in “The McKenzie Quarterly” (2008) states “that Chinese consumers are sensitiveto value for money and generally have a clear idea of which functional features merit ahigher price.” It can be concluded that most Chinese consumers are knowledgeableregarding the price vs. functionality balance and therefore marketers must emphasise aproducts functions and capabilities.Another fact about Chinese consumers is that they place high value on the image and statusthat the product or service will provide.Marketers must be consistent with the usefulnessand the quality of the products as modern Chinese culture emphasizes the importance ofaesthetics and prestige. Therefore,because of these characteristics China has developed ahuge market of fake products which attempt to imitate existing, high-end brands and labels.Although these theories cannot be applied to all Chinese people these theories arerelevantto 70% of Chinese consumers which are middle-aged. Thus in conclusion to the Chineseconsumer behaviour, it can be stated that to be successful in the Chinese market a producthas to be consistent with its price and quality and must convey a certain level of prestige orvalue.Relevance to China and differences from AustraliaSince Chinas reform and progress towards globalisation, marketisation of the Chineseeconomy has become an irresistible trend. Marketing theories play an increasinglyimportant role in China. The following will describe how consumer behaviour theories applyto the Chinese market.Market segmentation theory is dependent on the needs of consumers throughout themarket that is divided into different consumer groups. Geographic is one of the fivecommon segmentation strategies and it aims to define specific areas that require custompromotion. Geographic segments are particularly important in China because China hascomplex climate and large population. There exists an enormous impact on product salesdue to changes in climate. To illustrate, Lao Gan Ma chili crisp sauce is the most famousbrand of chili sauce in China. It was created in the southwest area where people areaccustomed to spicy foods. China’s geographical environment is so vast and widespread thatsome area’s lack the essential tools required for production. In the southwest mountainousregions it is difficult for farmers to grow vegetables and it isalso far away from the sea sothey require alternative sources for seasoning and flavouring (Zhang, 2006) .In fullknowledge of this issue, Laoganma positioned their product at provinces where people loveto consumer spicy foods and cuisines. Nowadays it is growing fast and owns the largestmarket value in part thanks to the success in provinces such as Hunan, Jiangxi and othernorthern provinces. In comparison to Australia which is more of a complete marketeconomy this marketing behaviour will be weakened due to logistics, food preferences, andthe other reasons although Australia also has a complex climate.For the demographic aspect, in accordance with the internationally accepted Ginicoefficient, China’sGini coefficient reached 0.474 in 2002 which places China above theinternational warning line of 0.4 (Wan 2004). This means China has the worlds largest
  4. 4. urban-rural income gap with the ratio of3:1; though the proportion in the western provincesis higher amounting to more than 4:1 (Chinese Academy of Social Sciences).Gome is Chinas largest home appliance retail chain which has adopted an interestingapproach to store positioning. Gome doesn’t bother building stores and facilities in ruralareas due to a lack of demand, though instead Gome employs salespeople to travel door-to-door for rural sales. For example, a salesman sells a television with new function. If thisfeature is easy to use villagers will convey their appreciation through word-of-mouth, wherealternative forms of communication have yet to be established. This method can reduce thesales-creation aspect of commercials, helping to alleviate any potential financial issues. Also,the technical staff will adjust the washing machine power because the villagers were notwilling to pay more for electricity fees. Furthermore, price is critical factor to villagers asthey fall under low-income earners and thus have little funds available for non-essentialpurchases.This situation is greatly different from Australia due to Chinas rural and urban averageincome gap. Australia is a developed, high-income, post-industrial societywhereas China hasjust begun the process of industrialisation. The differences in the two nations’ markets arefar greater than their similarities. For instance, Ganzhou and Guangzhou are two importantcities of each province in China. But the GDP of Ganzhou is about 112 billion Yuan whereasGuangzhou is about 1.0604 trillion Yuan (2011) therefore the purchasing power ofGuanzhou is almost one-hundred fold that of Guangzhou. The distance between these twocities is two-hundredkilometres thus they maintain similar geographic characteristics. Onthe other hand the purchasing power of between Australia’s states differs much less incomparison.Exporting opportunity to Chinese marketAustralia has built a strong relationship with China over the years by exporting significantquantities of products, specifically raw materials and metals. However as China’s culture isever-evolving and changing, an exporters approach must also evolve in order to remaincompetitive in the Chinese market. China has been Australia’s second biggest tradingpartner by consistently purchasing enormous amounts of commodities such as iron ore, coaland copper in which Australia has a competitive advantage over. The Australia -China FreeTrade Agreement (ACFTA) has offered opportunities for Australian exporters to gain acompetitive advantage by dealing with one of the largest economies in the world. Theagreement allows Australian exporters to enter the Chinese market with minimumrestrictions to trade and thus makes Australian exporters more competitive.However, before entering the Chinese market direct marketing needs to be used in orderfor Australian exporters to adapt to the Chinese culture. Consumer behaviour is alsorequired for examination before entering the market. It is paramount that marketersunderstand the local culture and what is of value if they are to succeed in the Chinesemarket. If this is conducted well, "consumers purchase the same brand consistently,’(Cannon, 1998) in which Australia can build a strong exporting relationship with.
  5. 5. Adapting Behavioural theoryStudying the behaviour of Chinese consumers is important, as an Australian exporter willneed to consider all these aspects in order to have a successful opportunity to trade. Afactor seen in the behaviour of Chinese consumers in buying a product is the quality andprice. Before an Australian exporter chooses to expand internationally into the Chinesemarket through exporting it needs to construct a suitable marketing plan after studying thecultural behaviour of consumers. They will need to focus on determining the right price forthe quality offered in the product. Keeping the Gini-coefficient in mind, the right price willalso need to be determined within the right area. The visual appearance of a product inChina is seen as a major factor of their consumer behaviour as appearance is a determiningfactor in most purchases. For an Australian exporter to capitalise on an opportunity withinthe Chinese market they must ensure that their product offering communicates the rightvalue and represents prestige in accordance to the demanded level.Adapting Demographical theoryAn Australian exporter needs to ensure it has the latest statistics when studying thedemographics throughout China. Firstly, the average life expectancy of China is lower thanAustralia. This helps Australian exporters to not focus on many products aimed at a higherage group such as 80+. As Chinas Gini-coefficent gap surpassed the recommendedmaximum, an Australian exporter needs to ensure it does not target high priced productswhere income levels are low. Looking into the life style is very important success as thereare areas in China where only one out of eight people have a television. An Australianexporter needs to market its product through other means such door-to-door marketingand avoid large, expensive television advertising that may not even each the targetaudience.Chinas economic growth and Australias ability to maintain its competitive position will bethe key determinants of Australias export growth in China (Lianjing and Mahmood, 2006). Itis seen that behavioural and demographical theories need to be applied before anAustralian exporter chooses to enter the market. However, there are always risks associatedwhen it comes to doing business in China. As China produces many products at a cheap costdue to their low costs of labour, it puts pressure on Australian to remain profitable andcompetitive in the ever-changing Chinese market. Ultimately, understanding thebehavioural and demographic factors found in China does not guarantee success though itdoes reduce the risk of failure assuming the marketing strategies were tailored according tothe acquired information.ConclusionUltimately, the success of an Australian exporter relies not on the knowledge andinformation collected pertaining to China’s demographic and behavioural features butrather on their ability to adapt and tailor their marketing efforts according to the researchcollected. No amount of research or preparation will guarantee success in China’s ever-evolving and changing markets though such preparation in conjunction with a well-structured marketing plan will yield endless opportunities and considerable potential for anAustralian exporter looking to export into the Chinese market.
  6. 6. AuthorsFabricio Palomino (41618513)NitinDhingra (42109043)Filbert Jonathon Jong (42318009)Qichangjie (41814339)Cameron Couch (42154979)*Group contract will be submitted in-class as signatures are required.Reference ListBiddle, Ian 2011, The Impact Of Changing Demographics (Future trends, opportunities,economic and social implications), Busidate, 19, 2, pp. 2-6, Business Source Premier,EBSCOhost, viewed 27 March 2012.Cannon, T. (1998). "Marketing Principles & Practice" 5th edns.,Cassell, Wellington HouseLondon)Jianghong, L, Chun, L, & de Klerk, N 2008, Trends in infant/child mortality and lifeexpectancy in Indigenous populations in Yunnan Province, China, Australian & New ZealandJournal Of Public Health, 32, 3, pp. 216-223, Business Source Premier, EBSCOhost, viewed 28March 2012.Kardes, F. R. (2010). Consumer Behavior.South-Western, Cengge Learning.Lianjing, M., Mahmood, M. (2006). "Australia-China Trade Relations" Journal ofInternational Marketing & Marketing Research, 31, 2, 75-87St-Maurice, I., et al. ,(2008), “What’s New with the Chinese Consumer”, The McKinseyQuarterly, pp.1-8Wan, Guanghua (2004). ‘Measure and decomposition of income distribution: A review onresearch methodology’. World Economic Papers, 1, 64-69.Yau, Oliver H.M., (1993),"Chinese Cultural Values: Their Dimensions and MarketingImplications", European Journal of Marketing, Vol. 22 Iss: 5 pp. 44 – 57.Zhang Xiabo (2006) “Asymmetric Property Rights in China’s Economic Growth,” DSGDDiscussion Paper No. 28, January 2006. Washington, D. C.: International Food ResearchInstitute, Development Strategy and Government Division.