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Strategies for Consumer Market Success in China

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With a background of slowing economic growth and increasing competition from domestic and global players alike, multinationals are broadening their horizons in order to succeed in China. Retail sales growth has been decelerating since 2010 and is expected to continue to do so. Recent stock market falls have dented business and consumer confidence and companies in diverse fields including Ford, Anheuser-Busch InBev and Caterpillar are voicing their concerns about the challenges to growth in China. Winning in China is now harder than ever to achieve, but there are several strategies that should be employed in order to boost the likelihood of success.

Real Growth of GDP and Retailing: 2010-2019


Source: Euromonitor International from trade sources/national statistics/IMF

Note: Data from 2015 onwards are forecast

 1.       Build an online presence

An online presence in China is a must. Online retailing sales are high compared to other emerging markets in Asia. As well as having their own Chinese websites, brands are increasingly appearing on online malls such as JD.com and Taobao Mall. A mobile strategy is also a necessity – mobile internet retailing grew by 162% in real terms in 2014. Business 2 Consumer Internet retail sites have some important advantages over the dominant consumer 2 consumer retail sites, particularly in terms of quality and the confidence they engender in consumers wary of counterfeit goods. Mobile internet subscriptions will surpass 50% of all mobile phone subscriptions in 2019.

  • Sephora, a global beauty retailer has extended its online presence in China by opening a “flagship” store on JD.com. Despite a large bricks and mortar presence, having opened its first store in Shanghai in 2005, and a Chinese version of its website, the company hopes this move will increase its visibility amongst Chinese consumers. Consumers are also able to share online shopping experiences on WeChat and Sina Weibo and the company launched its mobile apps in both iOS and Android platforms in 2013. In 2014, Sephora had a 10.4% share of the beauty specialist retailing sector in China.

Internet Retailing as a Percentage of Total Retailing in Selected Emerging Asian Economies: 2014


Source: Euromonitor International from trade sources/national statistics

 2.       Extend your reach

Competition is tough in China’s tier 1 cities. Savvy companies are expanding their presence into smaller cities and the rural hinterland. Because of the country’s sheer size, even “small” cities can have significant consumer markets. We expect seven of the 10 fastest-growing city markets between 2014 and 2019 to have consumer expenditure of less than US$10 billion. Yet to succeed in these fast-growing markets, companies will have to cut their cloth accordingly as per capita incomes are also much lower. This will probably necessitate a different strategy to one that has been successful in Shanghai. Ürümqi, for instance, which we expect to see the strongest percentage gains in consumer expenditure, had a per capita disposable income of US$5,210 in 2014, half that of Shanghai.

Fastest-growing Cities by Consumer Expenditure: 2014-2019


Source: Euromonitor International from national statistics

Note: Data taken from a ranking of 61 cities

Rural consumers also offer growth potential. Per capita spending in rural areas is obviously much lower than in urban – rural spending was 54% of urban spending in 2014, and the rural population is in decline, but it is still large, at 629 million in 2014 and relatively untapped – compared with large cities. It’s important to realise that it would be a mistake to assume that consumers in rural areas are unsophisticated, many consume global media and have friends and family working in urban areas, so strategies should not be purely driven by price but should take in quality, value and aspirational design. Even ecommerce is set to see strong growth outside cities with large domestic players such as Alibaba and JD.com investing in rural areas.

  • Global hotel brands are increasingly investing in second and third tier cities. Starwood Hotels is a major player in China with 146 hotels and 53,200 rooms in 2014 – more than its stock in the whole of Europe. The Sheraton brand formed the majority of the company’s portfolio.  Its extensive presence takes it well beyond China’s first tier cities with properties in Xiamen, Changsha and Nanning all of which have total consumer expenditure under US$20 billion. The company is profiting from increased domestic tourism with trips increasing by 82% between 2009 and 2014 with further growth of 57% expected to 2019.

 3.       Adapt to the market

The market is changing fast and research needs to be constantly renewed. As in all emerging markets, success is based on knowledge – an understanding of the market, but also the economy, consumers, competitors and suppliers. Companies that do well in China understand this and adapt their products, services and selling models accordingly – espousing a glocalisation model. They also go further recognising that consumers in the east have different attitudes, tastes and motivations to consumers in the north. Those in coastal cities are different to those inland.

  • Starbucks has achieved phenomenal success in China. It has done this by offering products that consumers want and serving them in an environment that suits the market. Rather than focus on fast service takeaway milky coffees the company has adapted creating new drinks to suit the market – including green tea-flavoured coffee drinks. It focuses on the social experience by serving its products in attractive surroundings conducive to groups. Starbucks has also emphasised good customer service. Starbucks now has a 12.6% share of the café/bar market in China, up from just 3.4% in 2009.

Sales in Cafés/Bars in China: 2009-2014


Source: Euromonitor International from trade sources/national statistics

Note: Data refer to Value RSP constant 2014 US$

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