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LOCAL MAT TERS


LOCAL MATTERS


LOCAL MATTERS

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CHINA NOW . LOCAL MATTERS


Increasingly the world is more connected and

Meanwhile, new learnings about how people

so feels smaller, familiar and more similar.

form relationships highlights the importance

However, this can be an illusion. What people do, think and feel, within their own

of understanding cultural and social influences.

environment and culture, can be vastly

We like to uncover what really matters locally,

different, often in surprising ways.

by watching what people do and delving

We like to help our clients’ brands build relationships that really matter to people, wherever they are. We recognise that digital technology is transforming the way we all experience and interact with brands, allowing different people to experience different things in

deeper into what they feel and think. We explore beyond individual desires and needs, to understand cultural context and the power of social influence. Only then can we build the most vivid picture of what matters to people. China Now explores what matters to the Chinese.

different places.

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WHAT WE SEE China’s boundless ambition has spurred tremendous economic growth, creating a new playground for consumerism and a new expressionism.

ION

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EXP R

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2.

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4. THE TRUST CHASM

Numerous scandals have created a trust chasm between consumers and brands.

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CHINA NOW . LOCAL MATTERS


As a result, consumers have become detectives, relying of mouth and the power of advocacy to find trustworthy information. They are also looking to foreign brands.

5.

E, AT RE .C 10 T AP AD

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ME

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N REIG O F F ER O W O HE P 7. T

primarily on digital word

AS S

IVE

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DE PERS

WHIS ESE N I H 6. C

8. NEW CH INESE VOIC E

GREEN G IN O GG EFININ 9. RED

A new Chinese voice is emerging: one where modernisation is more important than Westernisation. Traditions of the past are evolving to take on a contemporary flavour, while Western ideas are being reinterpreted with a Chinese eye. There is, for example, a redefinition of ‘going green’. The new demand for brands is to create, not adapt.

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“The space dream is a crucial part of our nation-building dream. With the rapid development of China’s space industry, a great step forward will be made by Chinese people in the exploration of space.” President Xi Jin Ping on the June 2013 launch of China’s 5th manned space mission, its longest to date. Source: CCTV

BOUNDLESS AMBITION President Xi’s space dream is just one

enormous wealth. It has lifted millions out of

example of China’s boundless ambition.

poverty and is propelling them forward into a

In the world of economics and global politics

new global middle class.

China, with its 1.3 billion consumers, is a dominant and powerful player.

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The consumption power of Chinese consumers is vast and its potential is not yet

The country’s phenomenal economic

fully tapped. Chinese consumers are savvy,

growth over the past decades has generated

demanding and ambitious.

CHINA NOW . LOCAL MATTERS


By 2015, China will represent 1/3 of global luxury spending

Rest of the globe

China

Source: McKinsey & Co.

In 2040 the Chinese economy will reach

123 trillion

nearly three times the economic output of the entire globe in 2000

China . 2040

Entire Globe . 2000

Source: Robert Fogel Nobel Prize winner in economics via Foreign Policy Curreny = USD

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A NEW PLAYGROUND FOR CONSUMERISM Underpinning China’s economic growth is the continued mass migration of its citizens from rural to urban areas, to find employment

221 China’s urban population =

1 billion by 2030

cities

with one million plus inhabitants by 2025 (Europe has only 35 such cities today)

23 cities with more than

5 million inhabitants by 2025

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CHINA NOW . LOCAL MATTERS


Annual per household income will

double

between 2010-2020 from USD 4K - USD 8K

Today 85% of Chinese ‘mainstream consumers’, consumers with annual household income USD 15-34K, live in the 100 wealthiest cities. Only 10% live in the next 300 wealthiest cities, but this will rise to 30% by 2020.

Lower-tier cities will become the centre of China’s future economic growth. Public and private sector investment, coupled with a rising middle class and the return of talented migrant workers to cities closer to home, means that many Chinese are becoming wealthier. These ‘mainstream consumers’ will be able to afford a range of goods and services (such as flat-screen TVs and overseas travel). So, a new type of Chinese consumer is emerging. Hard-working, entrepreneurial and optimistic about their future, they are the ones that will fuel further economic growth.

Source: McKinsey & Co. 11


Practice of sending kids abroad to study is increasing rapidly

50 45 40

abroad from 1978 to 2012

30

Source: The Chinese Luxury Consumer White Paper 2012

25 20 15 10 5

1978 12

1989

1992

CHINA NOW . LOCAL MATTERS

1998

2001

2004

2007

2010 2012

by 10,000

35

Number of Chinese studying


NEW EXPRESSIONISM Beyond the Birkin Expressing oneself within the family and

This new breed - the affluent and super-

society is a long-held tradition. Rising

elite - already possesses a surplus of status

incomes are enabling the Chinese to project

symbols. These consumers are looking for

their status to society and show their respect

more singular forms of status that tie into

(‘give face’) to others through the purchase

their values (such as family and education)

of status-giving luxury goods and services.

and demonstrate their world view. Sending

Some Chinese consumers are becoming even wealthier. Brands are already responding by

their children to elite foreign schools and universities is one example of this.

creating new tiers of exclusivity for them.

90% of Chinese* plan to send their children abroad

*with assets of more than 100 million RMB

The top preference for study is the US, followed by the UK and Canada Source: The Chinese Luxury Consumer White Paper 2012

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THE TRUST CHASM

Despite a strong appetite for consumption and self-expression, the prevalence of fake brands across all sectors (food, shampoo, consumer electronics and more) has left the Chinese distrustful of brands, particularly domestic ones. This has created a trust chasm between Chinese consumers and brands. However, Chinese consumers still believe strongly in brands and consider brands to have a responsibility towards society.

53.9%

58.6%

of Chinese consumers

of Chinese consumers

state that companies

state they are willing

have a responsibility to

to purchase products

create a better society

from a company that

and environment

demonstrates greater social responsibility

Source: N-Dynamic’s National Study

So what? Brands need to promote their integrity and demonstrate that they will deliver on their promises. Brands must cultivate long-term relationships, showing that they value their consumers and their communities.

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CHINA NOW . LOCAL MATTERS


CONSUMERS AS DETECTIVES Facing this deep trust chasm (in the midst of

Such strategies include:

so much spurious data), Chinese consumers have developed ingenious strategies to uncover trustworthy information. They are

Growing reliance on word of

extremely pragmatic and will reject products

mouth, particularly digital

that fail to either demonstrate real value or show how they will deliver differently.

Looking to foreign brands

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CHINESE WHISPERS Chinese culture emphasises the importance of

China’s digital citizens have taken on a

personal relationships. Naturally, consumers

‘people’s champion’ mentality, exposing

value and trust first-hand interactions and

brands that do not live up to their promises

recommendations from real consumers. As

and applauding those they love.

such, peer recommendations delivered via word of mouth (for example, online and via social media) have grown rapidly.

46.5%

77%

57%

of Chinese Weibo users will

of Chinese digital citizens

of Renren (a social media site)

check reviews posted on Weibo

feel that a company

users recommend products

before purchasing

becomes more attractive when it appears on a social networking site

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CHINA NOW . LOCAL MATTERS

Source: http://www.alibuybuy.com/posts/78651.html


Who do you trust? When it comes to making buying decision, the Chinese rely on people they know rather than on any marketing or sales channel

90% Word-of-mouth Information from people I know (family, friends, co-workers)

Social media

74%

77%

Such as Twitter, Facebook, Pinterest and user forums

39%

Online reviews Expert review sites, news sites or product comparison

Usage Importance in decision

70%

44%

Source: 2012 Accenture Global Consumer Behaviour Survey

So what? Consumers need to find a reason to spread positive information about brands: maybe outstanding customer service or some great content that shows the brand cares about broader consumer sentiments. It is important for brands to invite consumers to participate and even interact with them. Brands therefore

demonstrate not only that they are open and transparent but also that they value their customers’ opinions. Consumers are adept at navigating different channels to make informed purchase decisions. So brands must integrate all channels consistently to optimize consumer satisfaction. 17


THE POWER OF FOREIGN China is adept at decoding countries as brands The Chinese attach strong emotion and

As their incomes increase, more Chinese

associations to foreign countries. After

consumers can afford to look abroad for

countless scandals, it comes as no surprise

things they like. For these shoppers, how

that they favour imported products over

they view a foreign country influences which

domestic ones and view foreign companies as

brands they choose to buy.

superior, innovative and trustworthy.

US Strong Rich Creative

RUSSIA

UK

CANADA Friendly Leisurely Quiet

Traditional

GERMANY

Strong

JAPAN

Noble

Steady

Artistic

Diligent

Ancient

Prudent

Enthusiastic

Creative Prudent

Creative

NEW ZEALAND Quiet Leisurely Pure

INDIA Ancient

FRANCE

Traditional

Romantic

ITALY

BRAZIL

Artistic

Artistic

Mysterious

Noble

Romantic

AUSTRALIA

Enthusiastic

Ancient

Enthusiastic

Leisurely

Traditional

Young

Diligent Interesting

Mysterious

THAILAND

Quiet Source: N-Dynamic’s Imported Food Study, May 2009

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CHINA NOW . LOCAL MATTERS


Chinese consumers like to buy from countries they admire

64%

60%

Taking a holiday

Buying fast-moving consumer goods

49% Buying durable consumer goods

26% Buying luxury goods

20% Studying abroad

So what? It is important for foreign brands to be on Chinese consumers’ ‘good list’. Also, foreign brands should tap into the positive impressions and emotions that the Chinese associate with their country. However, foreignness is not automatically valued. If a brand is exposed for unethical behaviour or fails to deliver on its promises, the Chinese will turn away.

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THE NEW CHINESE VOICE The Chinese are aware that everyone is looking to win the Chinese consumer. They have a growing sense of pride in themselves, their country and even their brands. They are becoming global inventors, creators and leaders. They are modernising on their own terms: evolving traditional practices and redefining Western ones to suit their tastes. Overall the focus is on ‘modernisation’ rather than ‘Westernisation’.

So what? Brands should tap into Chinese cultural heritage and habits from the beginning. They need to be nuanced in their approach. There is no one-size-fits-all method. Brands must understand how Western, contemporary and traditional Chinese cultural values all relate when approaching their category, their products and their services.

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CHINA NOW . LOCAL MATTERS


EVOLVING CHINESE TRADITIONS Chinese consumers recognise that thriving

ingrained in Chinese culture. This is

local brands have an edge over Western

particularly important as more Chinese

brands in understanding what they want

people are suffering from chronic diseases

and need. Their ‘Chineseness’ is a source of

due to their diet and lifestyle.

strength and differentiation.

Traditional medicine has always been widely

Brands that incorporate traditional Chinese

revered and regarded by the Chinese as a

medicine, for example, are growing

way to enhance physical fitness, prevent

in importance as health has become a

disease, postpone ageing and prolong life via

top priority.

spiritual growth.

The desire to preserve health, postpone

In contrast, Western medicines are viewed

ageing and enjoy a long life is deeply

less favourably by many Chinese consumers as they often have side effects (such as damage to the liver or kidneys). They prefer to use traditional medicine to treat chronic diseases, but are open to new methods of delivery: for example, in the form of a pill or as part of their food at breakfast.

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76.3%

appreciate companies that take environmental sustainability measures

50%

motivated to buy environmental products for health reasons

60.2%

willing to pay 10% extra for environmentally friendly products

69.5%

save water, electricity and food Source: N-Dynamic 2012

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CHINA NOW . LOCAL MATTERS


REDEFINING GOING GREEN Another example of modernisation with

High pollution levels in Chinese cities have

Chinese flair is seen in their approach to

brought health concerns to the fore. Affluent,

‘going green’.

educated consumers who have accepted eco-

Unlike their Western counterparts who adopt eco-friendly behaviour because of the environment, for the Chinese ‘going green’ is very personal and local. It is about improving

friendly products are ‘going green’ to show their status. Of course, many realise that adopting eco-friendly habits can save them money too.

one’s own health (not everyone else’s) and one’s own status.

So what? Brands should play up their sustainability credentials in launching new products and services. It is important to ensure that brands enable the Chinese to flaunt their ‘green status’ in real life, as well as on social media platforms.

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CHINA NOW . LOCAL MATTERS


CREATE, DON’T ADAPT To reflect their new voice, the Chinese have

content with adapted Western brands. Nor are

a new demand from brands: to offer genuine

they happy with imitations.

creativity, not adaptation.

Instead they want inside-out development.

In the past, many brands have offered

The expectation is for products and services

imitations (shanzhai), or products which

to be personalised to their specific Chinese

have been made for other markets and then

tastes. This is evident in their creative use

adapted for China.

of existing technology for new purposes (for

Today, Chinese consumers have more exposure and access. They are no longer

example, Haier washing machines repurposed to wash potatoes, process yak butter, etc.).

So what? Brands need to listen carefully to Chinese consumers before assuming they have a product to launch. With the exception of a few brands such as Xiaomi, this is still surprisingly rare in China. The Chinese will gladly welcome a chance to cocreate. They are very innovative and keen to join the creative process, contributing with their own ideas and vision.

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CREATE, DON’T ADAPT

Map of lower-tier cities in China

Harbin Changchun Urumqi Tangshan Hohhot Shijiazhuang Taiyuan

Yantai Qingdao

Jinan Luoyang

Lanzhou

Zibo

Yangzhou Zhenjiang Nantong Changzhou Wuxi Shaoxing Ningbo

Zhengzou

Xi’an Heifei

Guiyang

Kunming

Changsha

Fuzhou Quanzhou Xiamen

Nanning

Huizhou Foshan Dongguan Haikou

Consumers in lower-tier cities are not like

Many ‘internal’ migrant workers are also

their higher-tier city counterparts. They have

returning home having tired of soaring living

grown up with fewer opportunities and are

costs and being treated as second class

less educated.

citizens*. They are ‘coming back’ to lower-tier

Because lower-tier cities are less developed, there is a dearth of professional jobs. From a

cities to start their own businesses, bringing with them both funds and newly-learnt skills.

young age, workers have aspired to become

These changes are inspiring new levels of

savvy and creative entrepreneurs in order to

creativity in these cities.

to escape poverty and gain success.

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CHINA NOW . LOCAL MATTERS

* Migrant workers are not entitled to the same benefits as locals due to China’s household registration system (hukou).


In 2011, second to fourth-tier cities had a combined disposable income value roughly eight times bigger than tier-one cities

RMB 1 trillion One-tier cities

RMB 8 trillion Second to fourth-tier cities

Source: AC Nielsen 2011

The consumer classes in the second, third and fourth-tier cities consist of approximately

million

people Source: Ogilvy & Mather via CKGSB

In the next 12 months

of China’s potential car buyers will come from third and fourth-tier cities

of the potential buyers will be first-time owners

Source: Nielsen & China Association of Automobile Manufacturers

So what? For international brands looking to crack China’s lower-tier cities, the opportunity is to learn from, and even partner with, local entrepreneurs. The success of local entrepreneurs demonstrates that local knowledge, creativity and a physical presence are important to the Chinese. 27


SO WHAT MATTERS FOR BRANDS IN CHINA? Ensure your brand expresses the new Chinese voice in inventive and imaginative ways. Make sure you offer real benefits that deliver under the scrutiny of the savvy shopper. Find innovative ways to demonstrate openness and transparency. Encourage people to participate: give them things to do and ways to contribute their own ideas. Seamlessly integrate all your channels. Create for the Chinese, don’t adapt.

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CHINA NOW . LOCAL MATTERS


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China Now - Local Matters