To Sell Consumer Goods in China, You'll Need to Go Digital, but Chinese-Style
Journalists, consultants and others writing about China's future tend to focus on the potential of specific industries (such as automotive) or product categories (such as luxury goods) to lead the country's shift from an economy fueled by exports to one driven by domestic consumption. But China's growth ultimately rests on the massive spending power of its households, and on their appetite for basic consumer goods such as shampoo, soap and food items.
That appetite is strong and growing, even in mature categories. Kantar World Panel calculates that 98% of Chinese urban households already buy cookies, for example, yet cookie sales rose 23% last year. And the potential for rising sales of consumer goods extends far beyond China's first-tier cities and into its vast hinterland, where 80% of the population lives. Last November, the country's outgoing president and party secretary, Hu Jintao, said that the government's goal was to double per-capita income by 2020, giving households additional cash, and consumption a much-needed boost.
So what do companies need to know about selling consumer goods to Chinese households? Here are four strategies that can help:
Increasingly, you must reach consumers digitally. In just three years, China is expected to become the world's largest e-commerce market. McKinsey estimates that the number of online consumers will rise from 190 million today to 351 million in 2016, while Forrester, in a paper called "Understanding the Dynamics of China's eCommerce Market," is forecasting combined business-to-business and business-to-consumer online sales of $315 billion just two years from now.
Smart brands have already integrated digital into their marketing plans. For example, to increase sales of Rejoice shampoo on Valentine's Day, P&G created a campaign with my firm, FleishmanHillard, using online videos, social-networking sites with celebrity endorsement and digital ads that combined rich, sharable content with incentives linked to the holiday. The company reports that online sales of Rejoice rose by 354% during the campaign.
Make social and mobile priorities. China is the most socially engaged market in the world. Seventy-six percent of its social-media users are creating content rather than just watching it, and 84% upload videos, share photos and microblog at least once a month. What's more, China's estimated 1 billion mobile-phone users are driving e-commerce sales. Alibaba Group, which owns TMall and Taobao, China's dominant e-commerce platforms, predicts that mobile sales in China this year will account for $8 billion. With 420 million mobile internet users, 238 million smartphone users and 8 million tablet users, this number can be expected to grow.
Invest in data analytics. Marketers need real-time information about consumer behavior, which can change rapidly in China. Analytics help companies collect the right data and use it to make campaigns more effective and identify high-value customers, among other things. A study by R3, a consultancy with offices in Beijing and Shanghai, shows that nearly half of marketers in Asia Pacific cite accuracy of website traffic as their chief concern when deciding what share of their marketing budget should be allocated to digital media.
Keep cutural differences in mind. Chinese want the newest, most desirable products available; yet they respond to price first and quality second. They tend to trust celebrities when making a buying decision. And their loyalty is fleeting: A Bain survey of 40,000 households concluded that Chinese buyers seldom form attachments to specific branded products. The more often they shopped within a particular product category, the more different brands they were likely to try.
Retailers can do several things to confront this difficulty. First, they may need to re-evaluate the effectiveness of affinity and loyalty programs, acknowledging the tendency of Chinese consumers to try out a range of products, and then tailor promotions to accommodate that tendency. Bricks-and-mortar retailers may find it prudent to stock only the top-selling items. Bain's research found that, despite consumers' desire to try different brands, a handful of best-selling items accounted for the bulk of retailers' revenue. Multinationals will compete more effectively with local stores by increasing the frequency of shopping trips that consumers make and the range of product categories they sample -- again, most likely through promotions tailored to the tastes of local buyers.
More broadly, companies in China should remember that nearly every challenge confronting them is offset by an equally compelling opportunity to improve their standing. China is a market where you can create new holidays, tap into deep wellsprings of national pride (in unexpected ways) and use social media to convey solidarity with a huge migrant population that returns home about once a year.
Digital media offer better ways to respond to growing demand among Chinese consumers seeking timelier, more personalized service. Companies that make smart use of these technologies, while keeping in mind the unique characters of the Chinese market, are the ones most likely to succeed in this new landscape.