Unmasking the Chinese consumer

Amid the doom and gloom that envelopes much of the global economy, China is one bright spot that continues to shine.

Despite murmurings of possible “hard landings” ahead, the prospect of a seemingly limitless supply of eager new consumers remains an enticing prospect for many outside firms.

But what do Chinese want?

That’s the key question that Tom Doctoroff, North Asia Director and Greater China CEO of global ad agency JWT, sets out to answer in his new book, unambiguously titled What Chinese Want.

Doctoroff has lived and worked in China for 14 yearsIn a recent talk sponsored by Think Business at NUS Business School he said a common misperception, and the biggest mistake – especially among Western companies – is that the past two decades of breakneck growth have propelled China on a road to becoming “Westernised”.

Yes – Chinese cities may be bristling with iPhone-touting consumers, sipping Starbucks lattes while discussing the merits of the latest high end European accessories, but concluding that this is a form of Westernisation is superficial and misplaced.

China is becoming modern and international, but to translate that as Westernisation is to ignore centuries of cultural history, says Doctoroff, an American who has lived and worked in China for 14 years.

“China is a timeless civilisation with timeless cultural values and a world view – a relationship between individual and society – that is deeply different.”

Likewise, he says, many outsiders interpret high profile incidents of political dissent, the growing prominence of counter-cultural artists, a thriving online community and grungy rock music scene as signs of growing Western-style liberalism.

Wrong again, says Doctoroff. Yes, China is changing, but the prospect of a fundamential cultural shift is well off the mark.

Change, not revolution

One factor he says that is influencing social change in China is the growth of the internet, opening up a new world of options for Chinese consumers that can only be accessed digitally.

The speed and enthusiasm with which China has embraced the online world is certainly remarkable. But, says Doctoroff, “change does not equal revolution.” And, as with other areas, the impact of the internet should not be mistaken as a Westernising one.

Much of what Doctoroff has to say is directed primarily at Western marketers and brands with little or no China experience. But his central points are relevant to anyone who wants to know the right buttons to push to win over the Chinese consumer.

In China products need to do something – they are weapons on the battlefield of success

Tom Doctoroff,
author What Chinese Want

At the heart of Doctoroff’s argument is what he says the dichotomy of a deeply ingrained Confucian conflict between ambition and regimentation; between standing out versus fitting in.

In the Chinese mindset, he says, individualism is only good if it yields a result acknowledged by other people.

In consumer culture this translates into a constant struggle between the need for projection versus the need for protection – between projection of status and image on the one side, and on the other a need for protection of wealth.

“Projection, when you translate that into buying behaviour, is bold,”  he says. “It is conspicuous consumption. It is about now, it is about me and it is about status.”

Countering that is the regimented side – the stability-craving, safety-focused side – that looks for protection. Hence Chinese savings rates that average around 35-40 per cent of yearly income.

Three golden rules

Watch the Q&A session with Tom DoctoroffFrom this foundation Doctoroff has built what he calls the “three golden rules of marketing in China”. The first and most important of these being that in order for brands to maximise their profit margins and charge a price premium, they must maximise public consumption.

As a result, he says, many status-driven brands have an easier time than brands that are not driven by status. In particular it explains why luxury in China has seen double digit growth over the past two decades.

But for marketers this is about much more than pandering to any perceived need to show off, he says. Business models must adapt and change to connect with Chinese consumers.

He points to the often-cited example of Starbucks, a premium coffee retailer that has succeeded in a nation with a deep history and culture of tea drinking.

Starbucks, he says, changed their entire retail strategy, menu and store layout for the Chinese market to focus on status, making Starbucks outlets a place to be seen and aligning their brand with aspiration and success.

starbucksStarbucks in China: An aspiration destination

The result is that Starbucks, which opened its first first store in China in 2000 is on course to have 1,500 stores across the country by 2015, making it the chain’s biggest market outside the US. And it’s still able to charge a higher price for its coffee in Chongqing than in Chicago.

Much the same model has been taken by Haagen-Dazs ice cream. No Chinese consumer will buy premium ice cream – again costing well above prices in the West – to eat it in the privacy of their home, Doctoroff argues.

In China, it’s about out-of-home consumption – about being seen, projecting status and deriving societal recognition.

External benefits

The second of Doctoroff’s golden rules is that product benefits must be externalised: products are a means to an end, they must move you forward in life.

book2 280Western marketing tends to promote internalised benefits, focusing on things that make consumers personally feel good. That doesn’t connect with Chinese consumers, Doctoroff says.

In China benefits are never internalised and instead paying for brands is seen an investment in future advancement.

“Enjoyment does not charge a high price premium. In China, products need to do something – they are weapons on the battlefield of success.”

It’s a rule that Doctoroff says applies to marketing across the spectrum, from mass market laundry detergent to luxury cars, and can often take on quite subtle yet influential forms.

For example, baby food formulas must promote intelligence, not just happy kids. Beauty products must help a woman achieve success and advance her career.

Even beer must actively do more than simply allow people to relax and let their hair down. The most successful beer brands, he says, play up other factors such as their products’ ability to bring people together, reinforce trust and promote mutual financial gain – again, a means to an end.

Earning trust

The third and final golden rule is that a product’s basic role is to reassure and protect. “Brands reassure on both a functional level and a societal level,” Doctoroff says.

apple280Global brands dominate in mobileHigh-profile safety scares, such as the melamine in baby milk scandal, have reinforced this. Products which are ingested into or used on the body must carry a stamp of approval from a recognised agency. In the West and other markets, consumers generally assume products are safe, but in China trust must be actively earned.

Likewise, he says, companies which project large scale and service are seen as delivering reassurance in another form. And brands must also reassure in a social context – that consumers are not going to “lose face” because of the wrong brand selection.

In making purchase decisions, he says, Chinese consumers look to both project status – or face – while also protecting and saving their wealth.

“Face”, a concept frequently mentioned in the context of Chinese culture, is far more than simple dignity, he says. Face is “social currency”, a commodity accumulated over time – one that is sold, traded and earned through daily social and business interactions.

“Face is important at every stage of the retail process,” he says.

Translating this to marketing, products that are publically consumed can command a high price premium, Doctoroff says. But when it comes to goods for the home, Chinese are much more price sensitive.

Consequently, low-cost Chinese brands such as TCL, Changhong and Little Swan lead the market for domestic appliances like TVs and washing machines. Whereas in mobile phones, for example, multinational brands dominate the market, despite being upwards of 250 per cent more expensive than Chinese competitors.

Status symbol

He points to the example of Sony which has achieved a 54 per cent market share for its Handycam video camera brand, whereas its Bravia TV range has just a three per cent market share. The difference: video cameras are brandished in public, while TVs are generally in the home, largely out of the public eye.

Likewise for car sales, Doctoroff says. The car is the defining middle class status symbol, as well as an inherently mobile and visible asset. And part of the car buying process is that car buyers need to be seen on a stage, shopping in public. The result, he says, is that car dealerships are dressed up like retail palaces, “the customer and their family are treated like visiting royalty.”

It’s a situation he says is constantly evolving. Chinese consumers are becoming more selective, and with the ongoing disparities in wealth and development across China – between the cities and the countryside, the eastern seaboard and the western interior – the pace of those changes will vary from location to location.

As multinational brands become increasingly prominent in Chinese cities, many marketers have mistakenly interpreted this as an innate preference among Chinese consumers for foreign brands over their domestically-made counterparts.

That’s confusing the terms “global” versus “foreign”, says Doctoroff. Chinese consumers want international cache that comes from global – not foreign – brands, he says. “And through that global brand a product can become a vessel of Chinese culture and aspiration.”

Overall Doctoroff sees little fundamental change in the basic realities behind China’s consumer culture. China may be evolving, but it is – and will remain – resolutely Chinese.

Rather than expecting Chinese consumers to fit into established, Western-derived approaches to marketing, brands must learn to meet and adapt to China’s worldview on its own terms.

Understanding this, he says, is the first step to success in the China market.

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