Building a strong brand in top cities remains important despite greater emphasis on value-for-money by Chinese consumersDOWNLOAD
Published: 22 June 2010
Chinese consumers are becoming more sophisticated with value-for-money replacing brand and costs as the key decision factor in retail purchases. However, brand is still an important consideration for Chinese consumers and international brands should achieve a large scale presence in top cities in order to maximize the marketing impact and returns from the lower-tier cities, according to the latest report by Deloitte released today at the Third Annual Asia Retail Congress 2010 ("the Congress") in Hong Kong.
Entitled "Winning the Wallet of Today's Chinese Consumers", the report aims to provide insights to companies that are planning to enter, or have entered China's retail markets, which exhibit much difference among the first- and second-tier cities. The report was put together through about 2,000 computer-assisted telephone interviews of Chinese customers, coupled with a number of interviews with retail executives in China.
The increase in sophistication of Chinese consumers was reflected in the growing importance of value-for-money as a purchase factor. According to the report, quality has remained as the top decision criterion for consumers in the third- and fourth-tier cities. However, value-for-money is consistently the top decision factor for consumers in the first- and second-tier cities and it increasingly drives many purchases in the third-tier cities. Over half of the respondents feel that big brands are not properly priced and may not be worth the money they charged.
"Chinese consumers are still less sophisticated than their western counterparts, but over time, the importance of value-for-money may be expected to rise in all tiers of cities. Consumers are getting more sophisticated in thinking about whether what they buy really worth the money they pay. This bodes well for many foreign mid-range brands, which are likely to be perceived as premium in China," said Mr. Alan MacCharles, Partner, M&A Transaction Services, Deloitte China when presenting at the Congress.
To enter the China market, the report suggests that premium brands can enjoy a definite "halo effect" by penetrating into the first-tier cities. Consumers in the lower-tier cities appear to have a high preference for brands "seen in big cities" and this indicates their desire to emulate the lifestyle of the first-tier city. In addition, it is also easier for a recognized brand to gain access to department stores, a conventional channel for apparel.
The report also covers other brand preferences of Chinese consumers. It is found that Chinese consumers are willing to experiment, with approximately 70% of respondents across all cities interested in trying new premium brands. As to retail promotion, consumers in the first-tier cities consider word-of-mouth and well-positioned media and advertising campaigns as critical drivers for them to try new brands. Interestingly, brand image has a stronger influence on men than women. Male consumers in China were found to be using brand as a short-cut for evaluating quality while women are moving past brand in their buying habits.
Despite the growing importance of sustainability, the report indicates that Chinese consumers are unwilling to pay premium for abstract concepts, such as "low carbon". A majority of consumers recognized the concept of "low carbon", but did not consider this as a motivation to buy goods marketed in this way. Only 10% of consumers would accept low carbon as a value proposition and were willing to pay a 10-20% of premium over goods that are not making this claim.
"While developing softer attributes such as environmental credentials may promote a brand’s reputation for social responsibility, it does not lead directly to a pricing premium in this cost- conscious and confused marketplace in China. Features with clear and direct benefits to consumers, especially for those in the lower-tier cities, are better able to secure premium prices," said Mr. Wakeman Gao, Associate Director, M&A Transaction Services, Deloitte China.
"As with almost everything in China, the purchasing power and sophistication of Chinese consumers are developing at an exceptionally fast pace fuelled by economic growth. We advise retailers to carefully analyse their target markets before entering China and, just as critically important, keep their fingers on the pulse of the Chinese consumers by continuously and actively monitoring their brand positioning after their market entry," concluded Mr. MacCharles.