Eight out of 10 China-based marketers surveyed in a new study said the biggest opportunity to grow in China is to go beyond saturated first-tier cities like Beijing and Shanghai.
A report presented at Global Advertiser Week in Beijing by the World Federation of Advertisers in association with Forbes Insights explores how major brands are approaching China's emerging consumer, based on a survey of 310 China-based marketing executives and follow-up interviews.
In the report, called "Marketing to the New Chinese Consumer," researchers suggested targeting second- and third-tier cities where the majority of the population lives. Some marketers go even further. Nike, for example, told researchers that the company treats a tier-six city the same way it does a tier-one city. Nike's global brand director Simon Pestridge said, "We have a presence in all the tiers of cities, from zero to 15, and we have consistent campaigns in those cities that center on basketball."
China has more than 100 cities with populations exceeding 1 million. Though the current demographic target identified by survey respondents is middle class, educated, urban, married and equally divided between men and women, the hundreds of millions of "have-nots" today will soon be joining an existing army of consumers.
The Communist Party is committed to developing the western interior in hopes of minimizing the yawning inequality gap between the urban rich and the remaining hundreds of millions living in poverty as part of its "harmonious society" mission statement. According to McKinsey, half of China's 100 largest cities will experience at least 50% growth in consumption between 2008 and 2015, and 25 will double their consumption.
Currently, 10 million new Chinese consumers enter the market annually. The consumer market is valued at $1.7 trillion, and projected by Credit Suisse to reach $16 trillion within a decade. It is estimated that Chinese consumers spent $9 billion on luxury goods in 2010, second only to the U.S.
In the report, the researchers urge foreign brands "to get up close and personal with your customers," not just demonstrating a commitment to Chinese consumers but even re-jiggering brand attributes to align with local culture and tastes. Of the marketers surveyed from non-Chinese companies, 63% said they believe they do need to change their brand attributes for the local market. In one example, General Motors Co.'s Buick, considered an "uncool" brand at home in the U.S. market, successfully reimagined itself according to local tastes in China. For one, the car maker introduced a more powerful horn in honor of the love of honking amongst Chinese drivers; it also redesigned headlights to look more masculine and fierce.
All is not smooth cruising in mainland China, however, and marketers cited numerous barriers such as shortcomings with market research. For instance, 37% of respondents said their specific industry lacked research on Chinese consumer demand, and 32% said they felt there was a lack of reliable market research on Chinese consumers in general. And 10% of respondents gave a rating of "poor" to market research providers in China. Another obstacle is the shortage of qualified executives that would enable companies to take advantage of growth opportunities in China; 30% of respondents said their own companies lacked the expertise and skill-sets needed. And 26% cited difficulty finding or keeping talent in China. Another issue, dealing with regulations within China, was cited by 27% of respondents.
Of the executives surveyed, 57% worked for Chinese companies and 43% for non-Chinese companies, and 64% held C-level or other top titles including CEO, while the remaining 36% had titles such as marketing director or manager.