International marketing china

International marketing china BY Kewaunee The third in a series of special reports on operations and strategy in China Special Report Selling in China http://www. Bcc. Com ; http://knowledge. Wharton.

Upend. Due Contents Selling in China China's 1. 3 billion consumers are at a crossroads. They are embracing new economic ideas and habits, and devouring goods that have long been unavailable, unaffordable or forbidden.At the same time, they are part of a culture and an economic system that remain quite different from those of developed countries.

In this special report, experts from Wharton and Boston Consulting Group offer insights on how Chinese consumers are evolving as the market develops; what companies need to know about navigating China's convoluted sales and distribution systems; and the advantages emerging Chinese companies have over Western competitors, even as these firms face their own difficulties in entering the global marketplace.Also, Deepen Divan, chief marketing officer of Leno, and Hal Jerkins, senior vice president at BCC, discuss the advantages of tailoring products and messages to local markets in China One Billion, Three Hundred Million: The New Chinese Consumer Despite rapid arbitration and the emergence of a strong, status-conscious middle class, experts from Boston Consulting Group and Wharton point out that China is still "a country of extremes," where it pays to understand the differing habits and mindsets of the rich and poor, as well as the subtleties of consumer rationales for trading up and down when making purchases.Navigating the Labyrinth: Sales and Distribution in Today's China 6 Experts from Wharton and Boston Consulting Group say that firms should not underestimate the skills they will need to navigate the labyrinthine networks of state- wend distribution companies and small, private wholesalers in China -? particularly as they try to expand outside the country's largest 30 or 40 cities into its 500-plus other large markets. 'A Crucible of Competition".

The Emerging Chinese Company 10 Despite the hurdles they face in entering the global market, companies emerging from the highly fragmented and competitive domestic market in China will have distinct advantages that many Western competitors are unprepared to deal with, according to experts from Wharton and Boston Consulting Group. Among them: steep sot savings in wages and safety requirements, and a widespread lack of concern or clear regulation regarding intellectual property protection.Selling to the Local Chinese Market: An Interview with Leno's Deepen Divan and Bag's Hal Jerkins 15 Because it is so difficult to generalize about Chinese consumers, multinational companies using global "one-size-pitfall" marketing strategies seem destined to fail in China. Knowledge@Wharton Spoke with Deepen Divan, senior vice president and chief marketing officer of computer manufacturer Leno, and Hal Jerkins, senior vice resident of BCC and leader of the firm's Global Operations Practice, about strategies for selling to Chinese consumers. The key, they point out, is to tailor products and messages to local markets.One Billion, Three Hundred Million: The New Chinese Consumer One Billion, Three Hundred Million customers: It's a number that has captured the attention of every company in the world that wants to do business in China, hoping to market everything from toothpaste to financial services to luxury cars.

But once multinational companies get past the excitement of imagining the opportunities offered by the world's largest consumer market -? growing richer and more status conscious with each passing year -? there is the sobering thought of figuring out how to go about unlocking the secrets to selling to all of these people.Who are they? How much money do they have? What do they want to buy? What motivates their purchases? What are the peculiarities of the Chinese consumer? Experts at Wharton, the Boston Consulting Group and elsewhere say China's consumers are at a crossroads. They are embracing new economic ideas and habits, and devouring goods that have long been unavailable, unaffordable or forbidden. At he same time, they are part of a consumer culture and an economic system that remain quite different from those of developed countries.In broad terms, there are multiple Chinas -? the old and the new, the urban and rural, dirt-poor peasants and multimillionaires, a land of freedom and authoritarianism whose world outlook and savings and buying preferences reflect the traditions of both East and West. A Country of Extremes China is rapidly urbanize but it is still a "country of extremes, says Hong Kong-based Hubert Has, vice president and leader of Bag's consumer goods and retail practice for the Asia Pacific region.

China is home to 1. 3 billion people, but only about 400 million are in urban areas.In urban areas, incomes have been growing at the same rate as GAP -? about 10% annually, adjusted for inflation -? in recent years, while incomes of rural people rise only 1% a year. Says Has: "It's a land of haves and have-onto. Wharton marketing professor Z.

John Ghana agrees. "The distribution of income is very uneven, he says. "There still is a tremendous difference in wealth between people in the city and the countryside. Even within cities you find huge disparities in income. This is a phenomenon you can't lose sight of if o'er selling consumer goods.

You have a billion customers, but they're not all the same. "It's a land of haves and have-onto. " -?Hubert Has, vice president and leader of Bag's consumer goods and retail practice for the Asia Pacific region If China is a country of extremes, it is also a "country of contradictions, notes Harlot Sings, ad agency Bodes strategic planning director for China. Consumers want products that are practical and work well, but they also covet brands that convey images of success.

"Functionality of products still commands a premium, he says. Diet Chinese consumers also ant products that make them unique. "It's difficult to generalize overall about Chinese consumers, says Joseph Wan, director and vice president of BCC in Hong Kong. "Companies are only beginning to realize the differences among consumers. In terms of geographical segmentation, most companies are pretty good at understanding that consumers in the western versus eastern parts of China are different. But there are so many intricate nuances that it's almost impossible to generalize -? and things can change so rapidly.

At the same time, a strong middle class is emerging.BCC estimates that there are 25 million o 30 million middle-class households in China, compared with 8 million affluent homes. "More people are moving into the middle class every year than into the affluent class, according to Has. "In general, the growth in middle-class incomes has been one of the key drivers behind the growth in a lot of consumer categories: color TV's, beer, mobile phones, personal computers. These are categories that enjoy high penetration in China. A BCC report published in December 2005 -? titled "Wealth Markets in China: Exciting Times Ahead" -? shows that wealth in China is highly concentrated.

Less than one half of 1% of Chinese households holds more than 60% of the nation's personal wealth. Among these rich households, about 70% of the wealth is held by households with more than $500,000 in assets under management. In all, 1. 59 million households have $500,000 or more in assets under management, according to the report, prepared by BCC consultants Thus Tang, Thomas Klutz and Thomas Coherent. Some 250 million households have $100,000 to $500,000 in assets under management, and 527 million "unhealthy' homes have less than $100,000 in assets under management.In recent years, the richest Chinese have gotten richer Ђ? a trend that shows no sign of abating.

"There is a popularization of wealth taking place, says Thus. "The Chinese say, the two poles are separating. " But, significantly, the report also notes that the unhealthy households are not getting poorer. Since 1999, households with assets under management of more than $5 million have grown from a 14.

3% share too 16. 6% share of China's personal wealth. During that same period, non-wealthy households have accounted for a steady 36. 6% of all wealth.

China is going through an economic boom period and that's driving a lot of consumer behavior changes, says Has. And this boom has been going on for 25 years now. Since 1980, Chinese GAP has been growing 10% a year, on average, after adjusting for inflation. Per capita income in China has grown by a factor of seven during this period, a pace greater than that enjoyed by Japan in the quarter century following World War II. Still, it is important to note that most Chinese are very poor, and even many working couples strain to make ends meet, according to Wharton management professor Marshall Meyer.

At the top, there's a lot of wealth, says Meyer. "Folks engaged in entrepreneurial ventures, particularly ventures where they connect Macs (multinational corporations) with the large state enterprises, Boston Consulting Group I Knowledge@Wharton Special Report have been able to make money. But the average family probably feels like the average family in the U. S. -? less well off today than a few years ago. Now, people are optimistic in China, but there's a tremendous squeeze on family budgets, and the squeeze is due to medical and education costs and the skyrocketing cost of housing.

Combine these with the need for families to save for retirement. Under the one-child policy, you've got an inverted yardarm with one child supporting four grandparents, in principle. People have to sock away a lot of money for retirement. And returns on savings are extremely low in China, so people have to sock away more.

Middle-Class Growth Nonetheless, the growth of the middle class is good news for companies selling in China. The Chinese middle class numbers 25 million to 30 million households, according to BCC. BCC defines the "middle class" as those households with an annual income of $4,300 to $8,700. Mass affluent" households are those with incomes of $8,700 to $11,600. "Affluent" households earn at least $11,600 year. Middle-class Chinese are both savers and spenders.

Since China's financial-services sector remains relatively primitive, and consumer credit is still virtually non-existent, consumers squirrel away money for long periods of time so that they will have enough to purchase the highest quality products and services they can afford. Noting that the personal savings rate in China represents a whopping 50% of GAP Bag's Has calls China "a culture of extremely frugal people.They've gone through hard times, starting with the Cultural Revolution [under Mao Sedona] in Just the last generation. Most never went to university. On the whole, Chinese have more money than ever before.

But because the days of harsh poverty are not that far behind them, many middle-class consumers insist that products be practical in nature and function well, according to Has. At the same time, however, people are beginning to look beyond the functionality of goods. Middle-class and affluent consumers spend much of their discretionary income on items that will help them rise in stature compared to their neighbors. Incomes have increased so much that some people have already taken care of their basic needs, according to Wharton Ghana.

"Their aspiration level is much higher now. They're looking to consume things that are not entirely necessary. Yet the Chinese are also frugal and will reject products they see as impractical or of low quality. Some of the most popular products among the middle class and affluent are color televisions, mobile phones and personal computers, according to BCC consultants. Providing schooling for children is also vital.

Education is always a priority, since Chinese couples can only have one child [by government decree], Ghana notes. "Parents are always concerned that they don't spend enough to eve their kids a head start. People with the means to do so also tend to spend a lot on real estate, an outgrowth of the importance that the Chinese, in what is still a largely agricultural nation, have always placed on land. It is not unusual for wealthier city dwellers to have multiple apartments or houses, Ghana says. Affluent Chinese also enjoy traveling in Asia and around the world.China has become one of the largest transubstantiation countries in the world, adds Ghana.

Eye-opening Behavior Has says a visit to a middle-class Chinese home can be an eye opener into the idiosyncratic behavior of consumers. Off see amazingly insightful things -? where consumers trade up and trade down. Actually, they do both at the same time because there are not enough dollars to go around. A couple with a child will spend a lot on that child. If you go into homes without kids, you see that people spend their money on products that make them feel and look good or give them social status.

It can be clothes, mobile phones, fragrances or skin-care products. They don't spend money on products their friends and neighbors can't see. They may not be willing to pay premium prices for brands like Winded window cleaner or Kiwi shoe polish. It's important for companies to segment consumers and understand where they're willing to trade up and trade down, Has says. "Chinese consumers are experimental.

They will pay a premium price for a new brand to try it. But if it's not better, they won't buy it again. Instead, the buyer will go back to using his or her local brand of laundry soap or dish detergent.Brands like Safeguard soap and Tide detergent are national brands, and they are so popular now that they dominate their share of the market. But many local brands exist in China, especially in less cosmopolitan regions where many of today's city Weller grew up.

In local or regional markets these homegrown products offer consumers choices that can compete strongly with global brands. Companies must also pay attention to how the Chinese shop. "For some items they go to the store more often but spend less, and vice versa, says Bag's Wan. "It's a very complicated picture.The rate at which they adopt certain products will also change by demographics, and they have different behaviors across price points and brands.

By way of further explanation, Wan echoes He's comments about the unpredictable, ever-changing way in which Chinese consumers trade up and read down. This is one key difference, by and large, between Chinese and American consumers and it is the kind of behavior that can make life challenging for corporate marketers. Says Wan: "A Chinese consumer may say, 'l can trade down on my car. ' He may decide that a car is no longer important, even if he is making more money than he ever has before.

If he has additional savings or income, he might decide to buy better kinds of wine [to impress other people] and spend less on a car. He is balancing his portfolio, so to speak. This happens all the time, across demographics and incomes. Selling to the Affluent Some Macs, such as Procter & Gamble, General Motors and Careful, have had success in penetrating China's mass market.

But makers of luxury goods have yet to fully exploit China's growing affluent class. "There is no way that luxury companies are paving the way in China in terms of penetration, according to Has. Because luxury-goods companies are not doing a very good Job of presenting their products in China, customers go to London or New York to spend money. In China, a lot of these companies give what I call a 'constrained offer. ' If you go into a store, the amount of merchandise is a third of what you see n same store in New York or Hong Kong.

Of course, luxury-goods companies are glad people are spending money in New York, but they can't target them and get information on them or send them brochures and so forth. They're missing opportunities.Has estimates that there are at least one million Chinese with access to $1 million in cash. He adds that Bentley sold more cars in China than any other country in 2004. Even though practicality still reigns when it comes to product choice among Chinese consumers, the emotional and social benefits derived from shopping, so well known to Western consumers, are rowing in importance, says Sings, the strategic planning director for China for BAD.

The growth of the economy is changing "the way people look at buying brands and the way they look at themselves as people with money, he says.Even in the years immediately following the economic liberalizing begun by Eden Gapping in 1978, people viewed money exclusively as a means of security and a "protector, giving little thought to luxury. In recent years, however, Chinese have come to see that money can be an "enabler" and that economic freedom means, in part, the "freedom to be wooed y brands. Many Chinese citizens, especially the affluent, "have become extremely aggressive, demanding, highhandedness consumers, explains Sings. Instead " of controlled consumption restraint and denial, there is much more affluence.

There's this need to seek some form of expression by buying brands and wearing them as a badge. But Sings puts a different twist on the need by affluent Chinese to buy brands. Brands are important -? not necessarily because people need the esteem and want to stand out, but because they actually want to fit in with everyone else who buys brand-name goods. This has led to a form of anxiety heretofore unknown in China. It's been called 'consumptive anxiety," says Sings, who defines the term as the need for people to buy products so as "not to be left behind. Citing the work of Helmut Chutes, professor of international management at INSTEAD in France, Sings notes that the "hierarchy of acceptance and belonging" is inverted in China when contrasted with the West.

"The higher-order needs in China are still collective rather than individualistic. Everyone in China wants to conform to standards in a way that gives them social acceptance. Therefore, humbly become important.