China's new rich confound pundits
International marketers are having to change tactics as old challenges in China disappear and new ones emerge from growing affluence.
Five years ago a survey by the American Chamber of Commerce showed 38 per cent of respondents cited market access restrictions as one of the main barriers to profits and 66 per cent reported negative affects from business restrictions.
Today the issue of market access has dropped off the Top 10 list as China opens its economy to the world, but some companies are still failing miserably to market their products.
Veteran marketer Tom Doctoroff, who is area director for northeast Asia and chief executive of J. Walter Thompson, says he has discovered why some are successful and others fail, especially those who rely on western marketing strategies that are not appropriate.
The focus of Mr Doctoroff, who is based in Shanghai and has lived on the mainland for 11 years, is on the growing middle class. 'In 1995, there was virtually no Chinese middle class,'' he said. 'By 2005, there were approximately 100 million individuals with incomes in excess of US$4,000 per month, by 2010 the middle class will probably swell to 200 million.'
China is already the world's largest market for washing machines and mobile phones, the second largest for beer, and the third largest for carbonated soft drinks.
But the rise of an affluent middle class does not mean that everyone is necessarily clamouring to buy western-style products. In many cases, particularly in the home, people are content to use domestic brands for a wide range of needs. Selling to the nouveau riche requires getting in touch with their thinking.
Quantitative research is not enough. 'From the consumer's perspective, desire gives a brand a clear reason for existence. From a company point of view a brand's long-term identity should be a seamless combination of user motivation and brand attribute,' said Mr Doctoroff.
Hong Kong companies could hold a competitive advantage over western companies due to a better understanding of the culture and the purchasing influences on mainlanders.
In his book Billions - Selling to the New Chinese Consumer, Mr Doctoroff looks at insights gleaned from discussions with consumers.
He says Chinese consumers expect products to represent their aspirations of social advancement or status.
For example, a brand of tea should help the professional man gather himself together before an important meeting.
A soup cube should help the housewife enhance her authority over the domestic scene, and demonstrate her culinary skills and household harmony.
Big-ticket items such as jewellery and cars must be even more obvious. Even beer must deliver something. In western countries letting the good times roll is enough, but in China a beer must bring people together, reinforce trust and stress the opportunity for mutual benefits, usually financial gain.
Realising this, several foreign companies have had their names translated to appeal to consumers' 'added-value' psyche. BMW uses bao ma, which translates to 'treasure horse', Nike (nai ke) becomes 'stamina' and Rejoice shampoo (piao rou), floating softness.
Mr Doctoroff also says too much attention is paid to regional peculiarities and not enough to national similarities.
He says regional factors only play a role for products with 'physical' benefits; for example, soy sauce, which in Guangzhou is used for dipping and in Tianjin for braising.
Other products such as electronic items, cars, and items that show a public display of wealth, such as fashion wear, must be sold as 'must have' products that transcend regional differences.
Market-watchers say China's fashion products industry registered about US$2 billion in sales last year and is expected to grow at 20 per cent annually.
By 2015, the luxury goods market is expected to reach US$11.5 billion and is tipped to account for about 30 per cent of the world's consumption. The mainland has around 10 to 13 million luxury-goods buyers with average annual income of more than 240,000 yuan. Many of the affluent consumers are female and increasingly exercise their independent buying power.
Angelica Cheung, editor of Vogue China, said women have turned their focus from Karl Marx to Karl Lagerfeld.
She said understanding what Chinese women want is becoming increasingly important for both local and foreign companies. Contrary to many other countries, Chinese women, especially the middle class, are calling the shots on major purchases; from homes to automobiles and lifestyle choices.
'The decision-making power of woman when it comes to consumer spending cannot be overlooked.'