China’s Spring Festival is a time of joy for everyone. It triggers the largest annual migration of humanity, as millions of migrant workers head home, their bags stuffed with goodies for their loved ones back home. It creates a spike in sales for all retailers, of everything from cars to apparel, from health tonics to toys, from the latest electronics to home appliances.
Last year, a large group of millionaires from Wenzhou decided to head overseas. Chartering a plane that would take them on a whistle-stop tour of America’s high streets, shopping centers and outlet malls, they were on a shopping mission. But they weren’t going to buy bagfuls of luxury goods for just themselves. Much of what was on their shopping list were watches, handbags, perfumes, pouchettes and jewellery that had one singular purpose: to cement their guanxi.
The World Luxury Association announced in a report that Chinese travelers spent $7.2 billion abroad on luxury goods during the week-long holiday, up nearly 29% from the previous year, making the Chinese the most powerful purchasing group in the world.
About 72% of Chinese people interviewed believed that luxury goods overseas are cheaper than at home. A total of 69% travel because of the wider choice available and 45% enjoy the products’ authenticity and the service at overseas outlets. The fact that China Unionpay is almost universally accepted in most luxury outlets worldwide, and stores hire Chinese-speaking shop assistants makes it easier for them.
Wenzhou is China’s capital of capitalism. According to the local government statistics, 93% of all businesses in the city are in the private sector. These entrepreneurs have been phenomenally successful. Last year, one in every three Chinese tourists overseas was from Wenzhou, and one-tenth of China’s luxury cars ended up in this city of 8 million.
As he waited in the airport departure building, a gentleman named Mr. Wu did a quick rundown of what he was wearing and carrying. “We all like LV (Louis Vuitton) for bags, since everyone knows this brand.” His bag was Louis Vuitton, his shoes by Gucci, and he wore a striped cotton sweater by Paul & Shark with a $600 price tag. “Very expensive, but it’s worth it. I bought the bag at the LV store in Wenzhou, but now I need many more! And with the dollar at an all time low against the renminbi, I can buy more” he adds, with a beaming smile.
Wenzhou’s luxury shoppers display a characteristic of Chinese shoppers that spans product categories and city tiers: a blend of status consciousness and deal-seeking.
In our recent study, ‘China Beyond – Change and Continuity’, we found that lower tier consumers care more about their status being recognized by others, and brands are the most important determinant of status. But tier two city shoppers are more likely to compare prices before they shop: and their source of knowledge is a combination of going online and asking their friends who have bought the same goods.
It is through this process of judging value that they make trade-offs. Qi Jin, a 29 year old former Army bodyguard turned entrepreneur I met in Jinzhou in Liaoning province splurged Rmb 200,000 (USD 31,000) on a shiny new Yamaha superbike, not available in China. It was the only one in the city; but he and his wife bought most of their clothes – including the fake Puma T-Shirt he was wearing – for a hefty discount online. The same businessman who picks up youtiao (fried dough) for breakfast and carries a flask of green tea with him to work could well order a bottle of Chateau Lafite Rothschild for 50,000 renminbi (US$7,862) when entertaining business partners.
In making brand choices, we are finding that the heart often wins over the head. Take a seemingly mundane product category like OTC (over-the-counter) analgesics. In a commoditized market, we created a campaign that recognized the heroism of Mr. Shi, an unknown schoolteacher. After suffering from the tragedy in his own family years ago, Mr. Shi had decided to devote himself to a bigger family: the numerous homeless, abandoned kids in the society. Brick by brick, Mr. Shi – who was wracked with back pain, built a school all by himself and provided an opportunity for orphaned children to study. We positioned GlaxoSmithKline’s (GSK) painkiller brand Fenbid as his ally which enable him to overcome his pain and realize his heroism, and the brand’s market share, which had been declining before the campaign, increased by double the target set by GSK.
The exodus of Chinese mothers from local infant formula brands, upon discovering many of them to be tainted by melamine, to MNC brands, was another emotional reaction, which persists two years on. Particularly in Tier One, Two and Three cities, where income levels are higher, families are taking no chances: it is here that we find that they are willing to pay higher for foreign brands because they trust them – a belief underscored by our research.
The power of emotions does not apply to foreign brands alone. The Wenzhou-based youth fashion label Semir is a popular second and third tier city brand. While wealthier consumers might be more concerned about status, for young people, brands are often about displaying an attitude. Many of them, belonging to the post 90’s generation in China, are resisting the pushing and prodding of their parents to perform and achieve. During the Beijing Olympics, the constant urging that China and the nation’s athletes were going after gold, made many of them somewhat cynical and wary of the halo effect of glory. After all, they knew that almost all the athletes had been groomed and trained for this, and for every gold medal winner, there were a hundred thousand who didn’t make it to the podium. How could a brand like Semir tap into that insight? It had to be through attitude. Our campaign showed young folks who hadn’t a hope of making it to the games taking their loss in their stride, with a cockiness that proclaimed, “So what if I’m not a great sportsperson? At least I look good!” The campaign struck an emotive chord and was rampantly viralled. It drove up footfalls into Semir stores, and average sales per store went up by 30%.
Much of that emotional connect and trust is built by sharing experiences and opinions about brands, often online. China is the only nation in the world where the number of online friends one has outnumbers the number of real life friends. The top basis for liking a brand is positive word-of-mouth, with 46% of all respondents in our recent study citing it. In first and second tier cities, we found that positive consumer comments online drive purchase intention among 63% of our respondents.
Recent research amongst China’s Millennials – its post ’80s generation, by Edelman and StrategyOne concurs with our observations:
90% of them share their brand preferences online.
72% are brand loyal – once they find a company or brand they like, they keep coming back to it.
It is interesting that such brand loyalty translates into bulk-purchases. The common response to times of financial crises, or inflation – as China has been experiencing recently, is for consumers to buy lesser quantities. Not so here! With their high savings rate, Chinese consumers would rather hedge against inflation than deprive themselves. In many daily-use categories – where brand loyalty has its own rewards, they are buying things in bulk. In many of the homes we visited, it was not uncommon to find cartons of beer, juice, bottled tea, detergent powder, diapers, pencil boxes, tissue and toilet paper stacked high. Some of these were bought on group buying websites. There’s nothing to be ashamed of in admitting that you’ve snagged a deal, because the chances are quite high that the brands will get in touch with you when they have the next offer going.
It is no surprise then, that 62% of the post ’80s generation are willing to share more personal information with their trusted brands.
60% of them have written about their positive experiences with a brand. For many young people, purchasing a brand and participating in activities sponsored or supported by the brand is a form of self-expression through affiliation.
And, in a display of candor, 53% of them have also written about their negative experiences. Many of them hope that companies will pay heed to their criticism. They feel emotionally let down when their trusted brands fail them. The extreme reaction of the BMW owner who had his car towed by oxen when the company failed to address problems with his car is one such example.
In their search for identity, many Chinese people struggle with notions of what is international and what’s Chinese. Running parallel with the advance of international brands and popularity of foreign culture – in the form of dress, music, entertainment, sports and technology, there is a growing sense of China Pride.
In the same lower tier cities where a majority of our respondents agreed with the statement “I appreciate our traditional cultural heritage and feel that our lives should be guided by them,” shopping malls are awash with giant posters of foreign models promoting fashion brands, cosmetics, automobiles and mobile phones. Our respondents preferred international celebrities over local, or Hong Kong / Taiwan stars. Many of the brands featuring these international models were local brands, and they seemed to be signaling that the brand was being used by foreigners, and therefore must be very good.
And it is in the big cities, as a kind of reverse trend, that we have found brands inspired by ethnic craft, traditional Chinese medicine, the cultural revolution or Imperial China, becoming increasingly visible and favored by consumers. The home furnishings brand Emperor, and skincare brand Herborist, shown here are just two of the many examples that you will now find in upscale malls in Beijing, Shanghai, Chengdu and Guangzhou.
Leading international brands are catering to Chinese tastes, or respecting their wallets: Hermes, by collaborating with top designer Qiong Er, to create the Shang Xia luxury line; Louis Vuitton’s Spring-Summer 2011 collection was an ode to 1930s decadent Shanghai, with silk cheongsam and panda themes; Hewlett Packard collaborating with Vivienne Tam to create a line of netbooks that was inspired by the Jin dynasty based opera ‘Butterfly Lovers.’ At the other end of the market, we find that the state-owned bicycle company Forever has been taken over by a group of twenty something enthusiasts, who are on a mission to bring back the freewheeling cycling days of the cultural revolution, with a twist: their bicycles draw upon minimalism, and are yet they are very trendy. In a market where bicycles still outsell automobiles two to one – and sometimes anger against the ‘spoilt rich kids in fast cars’, it is indeed smart strategy, not unlike Semir’s.
Today, there’s so much pressure on Chinese households that many folks are seeking to retreat and hunker down. We are observing the first phase of reverse migration. Those who moved to the big metro cities find that they can no longer afford to buy houses, and high inflation is eating into their savings. Some of them are now returning to their home provinces and setting up their own business, using the experience gained in the big city. At the very least, they find jobs easier to find since they’re better qualified than those who stayed back. But having stayed in the big city and after being exposed to more brands and a certain kind of lifestyle, they are keen to make the most of their time after they return. The result: a take-off in leisure activity and leisure and entertainment brands in the second tier cities. Lower tier residents showed the greatest desire to travel both within China, and overseas in our study. So this desire is not confined to only the wealthy classes!
These families are spending more on doing up their homes, buying cars for weekend trips to the countryside (sometimes to buy fresh fruits and vegetables – a smart money saving move!), and on their child’s education. They are very concerned about environmental pollution (which ranks #2 after food safety in their list of concerns) and will spend more on those products that are healthier.
These themes are then reflected in their choices of favorite television commercials. The WildAid ads, which feature basketball superstar Yao Ming and diving diva Guo Jingjing exhorting people not to have shark fin soup, were often mentioned by families we interviewed as their most memorable ads.
Across the board, our study showed that TV viewers liked ads showing family warmth, funny ads and story telling ads. Logical communications, such as ads showing product features, came in fourth. An emotional connection, often rooted in the family, is a surefire way to bond with Chinese consumers. One of our advertisements for Kentucky Fried Chicken (KFC) shows a woman working late in her office, alone, panicking when the phone rings and her son asking ‘Mama, when are you coming home?’ Moments later, her husband and son walk in through the door with KFC takeout, enjoy a meal together, and when they leave, the son asks ‘Dad, can we do this again tomorrow?’ The brand eases the mother’s tensions, and strikes a deep chord.
In a nation of 1.4 billion people, 520 million of whom are on the internet buying 48000 pieces of merchandise every minute, there are no easy answers. At Ogilvy Discovery, by keeping track of the changes – in big cities and small, we can indeed prepare you better on your journey to build brands in China.