Appealing to the Chinese Consumer

In general, foreign companies selling in China win customers by offering three things:

✓	Technology
✓	Superior quality
✓	A higher-end image

Historically, Chinese consumers were worried about only one thing: price. They never asked “where’s the beef?” as long as the price was low enough. The Chinese are now becoming more sophisticated consumers, although commanding a premium can be tough for your product or service if you aren’t selling to high-end customers.

You’re going to have a very hard time competing on price with Chinese companies, but one of the positives about the Chinese market is that high-end consumers are very willing to try new things. However, don’t assume that if you market it, they will come. In order to maintain consistent appeal to Chinese consumers, you have to make a number of adjustments, which we discuss in the following sections.

Knowing your customer

“Know thy customer” is one of the first rules of marketing. The following sections can help you figure out just who may be interested in your product or service and how they’ll react to your offering.

Viewing a portrait of the Chinese consumer class

Unlike in the West, most of the money in China belongs to people who are younger than 45. Because of the cultural revolution (see Chapter 3), people older than that generally aren’t well educated, live in government subsidized housing, and have spent the bulk of their careers in state-owned enterprises (SOEs). The younger generation is better educated and is more likely to work in private firms, including foreign-invested enterprises (FIEs — see Chapter 7).

Regionally, China’s middle and wealthy classes tend to cluster in Beijing, the Pearl River delta, and the Yangtze River corridor.

Understanding different markets, different consumers

Chinese consumers show important regional differences in their buying habits. You may very well need different approaches in different regions. Many factors determine how people will react to your offering, but here are some tendencies that may hold true:

✓	Northern Chinese aren’t quite as price sensitive as other Chinese. They’re more likely to pay for convenience instead of shopping around to compare prices.
✓	Chinese people in the central coastal areas tend to shop around a lot and try to play stores off one another for a better price. They usually go for the best deal.
✓	Southern Chinese (particularly Guangdong province) are used to getting good products at low prices. They’ve had access to factory overruns at deep discounts for many years.

You also have to be aware of lifestyle differences among consumers, so do a lot of research on your particular targets in each market you want to sell into. Shanghai, for instance, is generally more avant garde and Western-friendly than Beijing. But contrary to what you may think based on the two cities’ reputations, young Shanghainese tend to be closer to their parents and lead more stable lifestyles. Beijing’s 18- to 35-year-olds are more attuned to the rest of the world — particularly in pop culture — than are the youth in Shanghai or any other Chinese city. Beijing’s youth are also less traditional than in any other part of China, which may explain why Beijing is the center of China’s rock and pop scenes.

Getting a leg up by researching your target consumer

China is a series of regional markets and submarkets. Dig deep to really understand your targets — you may end up revising many of your initial assumptions.

In China, you’d do consumer research the same as you’d do it in the West. The positive for foreign companies is that most Chinese companies don’t bother (or don’t know how) to do consumer research. For Chinese companies, just throwing ideas on the shelves and seeing whether they sell is usually cheaper and faster. If you’re going to compete with Chinese offerings, market research can give you an edge.

In China, doing intercept interviews is usually more effective than doing focus groups (when the Chinese do focus groups, they tend to be a little embarrassed about speaking in front of each other). Hiring interviewers isn’t that expensive.

Helping customers show their “face”

The Chinese are inherently suspicious of anything that costs more than average. One way to overcome their aversion to paying higher prices is to sell them a product or service that gives them face, or status in the eyes of others (see Chapter 11 for details on face).

For a product to give face, others must be able to see the consumer with it. For example, a car has the potential to give face; a blender usually doesn’t.

A lot of face relates to branding, which we discuss next. In general, if something is perceived as newer, cooler, fresher, more lavish, and so on, it gives the consumer face. Face is a powerful argument in favor of paying more for a product or service; conversely, an expensive offering that doesn’t give much face is a tougher sell.

Looking at name recognition: The Chinese and branding

China doesn’t have a tradition of strong brands, though the Chinese are starting to become conscious of brand identity. As one foreign sales executive says, high-end Chinese consumers pay for “perceived image.”

Where price matters: Cayennes and yams A single consumer may be willing to pay for image with one type of product but be incredibly price-sensitive with another. One foreign businessman tells the story of the time he was walking along the sidewalk in Shanghai discussing cars with a wealthy Chinese businesswoman. The woman said that she planned to purchase a Porsche Cayenne — a car that sells for over US$100,000 in China — in the near future. When the foreigner asked her why the Cayenne, she replied, “Because it’s a good car.” The woman stopped to buy some yams from a street vendor, but when the vendor told her that the price for two yams was 8 RMB (US$1), the woman became furious. She proceeded to shout at the vendor that she never pays more than 6 RMB for two yams. The woman and the vendor began to argue loudly over the price. After 15 minutes of shouting and negotiating, the future Porsche buyer walked away with two yams. She was quite pleased with herself for having won the argument over 2 RMB (US$0.25).

Building brand loyalty

Building brand loyalty is hard in China, and it takes more than making a customer happy with your product. The flipside of new and cool is that somebody else’s offering is soon going to be newer and cooler than yours. As a result, China is probably the most rapidly changing consumer market in the world. You may have to make constant adjustments to your offering just to create the perception that you’re leading the market in innovation.

Changing your offering constantly can be very expensive. What you really need to create is the perception of change, which doesn’t always require costly changes to the substance of product or service.

Another way companies can create brand loyalty in China is by associating with celebrities. In the past, China didn’t have many of its own celebrities, so companies were limited to using foreign personalities. Although celebrity culture is still developing in China, the nation already boasts a number of bona fide Chinese celebrities. Chinese celebrity culture isn’t built solely around entertainers or athletes — it also centers on successful businesspeople!

Word-of-mouth campaigns supported by company incentives are also effective at creating brand loyalty in China. To encourage personal recommendations, you can offer a customer a discount on the next purchase if he or she refers a friend.

Talkin’ to celebrities for endorsements You don’t have to be a massive multinational corporation to land an effective celebrity. For instance, take Talk da Talk, a Shanghai-based company providing activity-based English training to young Chinese professionals (www.talkdatalk.com). A few young entrepreneurs started the company in 2003. Cofounders Jim Leu and Rich Chin saw the potential to develop strong brand identity by working with a celebrity, so they approached David Wu, a popular TV personality in China. Wu was intrigued by the idea and agreed to work with the group. He became a significant equity holder in the company and is heavily featured in all aspects of its advertising, marketing, and branding. Despite beginning with a relatively modest investment, Talk da Talk has managed to create a strong awareness in its markets through the partnership with Wu. There is a flipside though — most new customers think of Talk da Talk as David Wu’s company! Talk da Talk encourages this association, but it may not work for everyone.

Most companies operating in China are making at best rudimentary use of databasing techniques to build brand loyalty. Building databases of customers offers an opportunity to develop a relationship with them. Foreign baby-product marketers in particular use databases well, often keeping records of parents’ and babies’ names and babies’ ages. Then they market to the parents throughout the children’s developmental stages.

Considering nationalism

Until the past few years, Chinese almost always associated foreign products with superior quality. They’re not necessarily thinking that way anymore, and they’re sometimes willing to forego quality in order to help the domestic company compete against the big, bad foreign competition. The growing “buy China” sentiment among Chinese consumers will continue to be a difficult tightrope for foreign companies to walk in China, possibly reminiscent of what Japanese auto manufacturers faced in the U.S. in the 1980s.

One strategy for foreign companies is to buy Chinese brands and allow them to keep their Chinese identity. At the same time, you can improve operations through foreign processes and management.

One company that has done extremely well investing in Chinese brands is Groupe Danone SA. Since 1991, Danone has been acquiring stakes in a number of Chinese brands, which very few consumers realize. In fact, one of Danone’s investments is Feichang Cola, which goes head-to-head against Coke and Pepsi by trumpeting itself as “China’s own cola.”

In the cards: Turning low-tech communication into high-tech databases Although China may not offer you all the databasing techniques you’d have in the West, you can come up with innovative ways to keep track of your customers. Consider the China Information Broadcast Network (CIBN), which delivers value-added Internet services and digital entertainment via mobile phones under its CATV brand. Because China doesn’t have the developed credit and debit card system of Western countries, the use of prepaid cards for services (particularly Internet-based) is common. CIBN takes this relatively low-tech reality and does some sophisticated high-tech databasing with it: The company has created a prepaid card that allows CIBN to track and understand its customers, cross-sell goods, and develop new products.