Commercial success in China: Know Your Consumers

The Chinese market may seem vast, but it is far from homogeneous. So while there are real opportunities for many business sectors, it is essential to study the structure of this market and its dynamics in advance. Indeed, if you want to do business in China for the long term, it’s essential to understand the mindset of the Chinese consumer. Influenced by a unique combination of traditional culture and modernity, these consumers have specific expectations that companies must recognize and satisfy.

Understanding the Chinese consumer

Understanding the Chinese consumer is the first step for any company looking to expand into China. A brief overview of consumer habits and interests.

Cultural values and their influence on buying habits

China, with its thousands of years of history, has a deeply rooted culture that can influence buying behavior. Certain values, such as respect for family and the value of saving, guide consumer choices and set the pace for certain purchases. For example, on special occasions such as Chinese New Year, it’s common to give expensive gifts to show respect and affection.

The Importance of Brand and Quality

Chinese consumers place a high value on brand reputation and product quality. A well-known brand is often associated with reliability and superior quality. For this reason, many foreign companies with a good international reputation have a clear advantage in the Chinese market.

The Role of Social Media and Influencers

With the rise of technology and the mass adoption of smartphones, social media plays an important role in the lives of Chinese consumers. Platforms such as TikTok have become essential sources of information for consumers. Influencers have a significant impact on purchasing decisions as they are perceived as reliable and authentic sources of information. They drive this digital commerce by offering live streaming on the main Chinese platforms, where they present products and generate a sometimes colossal volume of sales The rise of live streaming in China, a hot new sales channel – VVR International, strategic development, production, sourcing, distribution…

Meeting consumer expectations

Responding effectively to the needs of Chinese consumers requires an adapted and innovative approach, supported by a tailored marketing strategy and a multi-channel distribution network – Supply Chain & Distribution – VVR International, strategic development, production, sourcing, distribution… Here’s how companies can adapt to these expectations to ensure their success.

The Importance of Localizing Products and Services

China is a huge country with cultural and regional diversity. What works in one region may not be as effective in another. Therefore, localization of products and services is critical. This means not only language translation, but also adapting products, packaging and communication to local tastes, preferences and needs.

Customer service: a key element in gaining trust

Chinese consumers place a high value on customer service. Fast, efficient and courteous service can have a significant impact on brand perception. What’s more, word of mouth is powerful in China. A single bad customer experience can quickly spread across social networks and damage a company’s reputation.

Current and future trends to watch

The Chinese market is evolving rapidly. Companies need to stay on top of the latest trends and adapt accordingly. For example, the rise of e-commerce and certain platforms unknown in Europe, the growing importance of sustainability, and the appeal of local products are all trends that companies need to consider in their strategy.

Tips for foreign companies

Entering the Chinese market can seem daunting, but with the right strategies and a thorough understanding of the terrain, foreign companies can thrive. Discover some essential tips for successfully navigating this dynamic market.

Market Research and Local Partnerships

Before entering the Chinese market, it’s essential to conduct in-depth market research to understand local nuances. Working with local partners can also be advantageous, as they have intimate knowledge of the market and can help navigate the complex Chinese business landscape.

Adapt Marketing and Communications Strategies

Marketing and communications in China are very different from those in the West. Companies must adapt their messages to resonate with Chinese consumers. This may include using local celebrities for advertising campaigns or participating in local festivals and events to increase brand exposure. Relying on a local employee to represent the brand or product in China is an advantage when launching in China. Thanks to Portage Salarial, it is possible to hire a Chinese sales representative without having to set up a legal entity in China. In fact, VVR International provides a legal home for your employee. As part of our “PEO services, we manage your employee’s administrative affairs and act as an intermediary for the payment of salaries and other fees;

Understanding Local Regulations and Standards

China has its own regulations and standards for trade, quality and safety. Foreign companies need to ensure that they comply with these regulations and keep abreast of developments to avoid legal problems. This may involve working with local experts or consultants to ensure compliance.

The bottom line: Navigating the Chinese market with confidence

China, with its ever-evolving market and demanding consumers, offers immense opportunities for companies that are able to adapt and innovate. By focusing on localization, building strategic partnerships, and staying on top of the latest trends, companies can thrive in the Chinese market.

With over 24 years of experience, VVR International has assisted numerous European companies in their industrial and commercial development in China. Whether you’re looking to establish local brands, sell through distribution networks, recruit the best local talent on your behalf, or use the PEO services, VVR International’s teams are ready to assist you in your development project.

Strategies for standing out in the ultra-competitive Chinese market

The Chinese market is attractive, but with aggressive local competition and consumers with ever-higher expectations, how can a foreign company really stand out and win the trust of Chinese consumers? In this article, we’ll explore some proven tips for succeeding in this dynamic and sometimes unforgiving market, even in the face of fierce competition. Whether you’re new to the market or looking to consolidate your presence, these strategies could be the key to your success in China.

Understand and adapt to the Chinese culture

Entering the Chinese market without a thorough understanding of its culture and nuances is a common and costly mistake. Here are some key elements to keep in mind:

Importance of localization:

Chinese consumers appreciate brands that speak to them in their own language and respect their customs. This is more than just translation. Localization means adapting your messaging, design, and even aspects of your product or service to resonate with local audiences. Implementing a targeted, specific marketing strategy is essential to establishing yourself in the marketplace.

Cultural nuances:

From the color of packaging to local festivals, being aware of cultural nuances can help your company avoid major faux pas. For example, red is a lucky color in China, while white is often associated with mourning.

Work with local partners: Working with local partners, distributors and/or retailers can not only ease market entry, but also enhance your brand’s credibility. They can help you navigate regulatory complexities and better understand consumer preferences.

Maximize your digital presence

China is one of the most connected countries in the world, with a highly active population on digital platforms. Here’s how to optimize your online presence to reach and engage this audience:

The Chinese Social Media World:

In China, the main social networks are WeChat, Weibo, and Douyin. Each of these platforms has unique features and audiences that require tailored content strategies. For example, WeChat is ideal for CRM, while Douyin (the equivalent of TikTok) is essential for viral marketing. L’essor du live streaming en Chine, nouveau canal de vente en vogue – VVR International, développement stratégique, production, sourcing, distribution…

E-commerce and distribution platforms:

With platforms such as Tmall, JD.com and Pinduoduo, online commerce is a booming industry in China. Pinduoduo : l’avenir du e-commerce chinois – VVR International, développement stratégique, production, sourcing, distribution…. It’s essential to provide a smooth user experience and understand the nuances of Chinese e-commerce, such as specific “shopping days” (e.g. Singles’ Day).

Tailor content to the Chinese audience:

Create content that speaks directly to your Chinese consumers. This may mean working with local KOLs, producing customized videos, or even launching advertising campaigns specific to certain regions or cities.

Build strategic partnerships and collaborations

Collaboration is often the key to success, especially in a market as diverse and vast as China. Here’s how you can use collaborations to strengthen your position:

Work with recognized local brands:

Partnering with established Chinese brands can open doors for you and make it easier for the local public to accept your product or service. These collaborations can take the form of co-branding, cross-promotion, or joint marketing campaigns.

Attend trade shows and local events:

These events are an opportunity to meet potential partners, understand market trends, and showcase your products directly to Chinese consumers.

The Art of Succeeding in China: Adapt and Persevere

The Chinese market can be complex to navigate, but with a thorough understanding of the culture, the implementation of a multi-channel distribution strategy, and strategic alliances, your company can launch and sustain its business in China.

First, second, third and fourth-tier cities

A May 2018 report by Morgan Stanley asserts that the future of China’s growth (by 2030) will lie within lower-tier cities (namely the third and fourth-tier). It is more and more common to see economic analyses regarding China make use of this urban classification. While being a useful analytical tool to understand China’s society, the definition of tiers is actually not so obvious and requires that we stop for a while and think about it.  This article thus gives you the keys to better understand this aspect of China, and the resultant opportunities for your businesses.

A ranking of cities

To begin with, there is no official definition of what is a first, a second, a third and a fourth-tier city in China. To give you a general idea, Beijing, Shanghai, Shenzhen and Canton are unanimously classified as first-tier cities, while second-tier cities are generally provinces’ capitals. Yet, some rankings would label Suzhou and Wuxi as second-tier cities because of their economic growth and despite the fact that they are not capitals. Similarly, Hefei, the capital of Anhui province, is sometimes categorized as a third-tier city because of its weak domestic growth. Three-tier cities generally include non-capital cities with a dynamic economy (high economic growth rate). Lastly, fourth-tier cities are important cities in terms of their population size, but which economy is not so flourishing.

Each year, Yicai Media Group’s Rising Lab issues a ranking of the Chinese cities in terms of tier and make part of their methodology open to the public, allowing us to take a look at their criteria (Yicai Media Group is one of the first economic media in China). They use five criteria: the density of commercial resources, the degree of transportation’s connectivity (is the city a hub?), urban residents’ habits (to what extent do they use e-commerce?), the diversity of activities available in the city and the degree of visibility into the city’s future (the real estate market, the fluidity of the road traffic, the pollution, the talents’ attractiveness, the entrepreneurial index…) Be aware, classifying a city in a first, second, third of fourth-tier is likely to have a tangible impact on the city’s real estate price…

Thus, each organization speaking about tier cities is likely to have their own and different criteria. Most criteria revolve around the local GDP, the population size, and the administrative status of the city (whether it is a province’s capital or not). While the type of criteria does not vary so much from a report to another, the way it is measured does, inducing porous frontiers between different tiers: some cities can be classified in different tiers. Furthermore, the denomination “lower-tier cities” technically encompasses second, third and fourth-tier cities. This can be misleading since second-tier cities are generally wealthier than the average Chinese city.

Another limit in this definition is that very different realities are described with the same word. Indeed, second-tier cities include industrial cities (Tianjin, Wuhan, Changsha…) coastal cities whose consumption market is more developed (Nanjing, Hangzhou, Wuxi, Suzhou…) as well as inland cities, often industrial but that are also becoming hubs with the One-Belt-One-Road initiative (Chengdu, Chongqing…)

A map of consumers

Despite these limits, knowing the tier of a city still is useful as a reading grid to understand to some extent the geographical diversity of China. Morgan Stanley’s report is an illustration of it, identifying a 6,9 trillion USD potential for growth within third and fourth-tier cities by 2030. They identify more specifically five city-clusters with high growth potential: the Jing-Jin-Ji region, the Yangtze River delta, the Canton bay, the Mid-Yangtze region, and the Chengdu-Chongqing area.

They support this assertion by several arguments, the first one being political support for growth in these very cities. Indeed, the central government and regional governments have been recently issuing many development plans, respectively inter-regional and intra-regional, allocating wide investments in connectivity infrastructures. As a result, there has been a multiplication of high-speed trains connections which divides the travel time by two and helps dis-enclave cities.

Besides, the cities offer financial allocations to help young talents buy real estate properties, a must do after graduation in China (this refers mainly to second-tier cities which have the financial resources for it). Besides, contrary to first-tier cities (except from Shenzhen) who implement stricter hukou* policies in order to hamper their population’s growth, second-tier cities make the promotion of their hukou policies, easy to obtain for young talents. As a result, Morgan Stanley’s report forecasts a 2.5% annual urban growth in lower-tier cities between 2017 and 2030. Lower-tier cities also have a higher fertility rate which accounts for this higher growth, as life costs (and the costs of having a child) are lower than in Beijing or Shanghai.

For European companies, as well as for Chinese ones, this demographic evolution means that lower-tier cities, especially second-tier cities, will gather an increasingly qualified manpower as well as better infrastructures in the near future. Implementation costs are to decrease, while labor costs are increasing on the coast. Chinese and foreign companies already started to move in these inland cities (cf VVR’s September article).

Another consequence of interest for European businesses lies in distribution. Indeed, more and more retailers are attracted to these new and untapped markets opening in these smaller cities, as they become more accessible and people’s incomes are increasing. Firstly, residents from these cities devote a larger part of their budget to discretionary spending as their fixed costs are lower (rents). Besides, although there is in these cities a smaller part of the population earning enough to afford European products (often more expensive and assimilated to rather high-end products), the quantities bought per consumer are comparatively larger than in first-tier cities. In other words, less people buy European goods, but the ones who do buy more of them.

Turning more specifically to these consumers’ habits, a survey by AlphaWise on more than 3000 households notes that the income gap between first-tier and lower-tier cities is reducing, but also that consumption habits changed significantly. Third and fourth-tier cities’ consumers now pay more attention to the value of the goods they buy: they upgrade their consumption and are increasingly sensitive to brands (mostly local brands for now). They also care about the fastness, quality and entertainment’s aspect of the service. In terms of industries, the sectors of daily consumption goods shall mostly benefit from these changes: house appliance, food & beverage (especially dairy products), beauty products and make-up… Most of this growth is also expected to happen within the e-commerce because of accessibility reasons. The entertainment industry (cinema, tourism) and the education industry are also likely to see some positive trends in their consumers’ pool.

There are yet some limits to this overall positive picture of the economic potential within lower-tier cities.   Firstly, today, the costs and risks of implementation in third and four-tier cities are still rather high: quality retail spaces are still few, and the size of the consumers’ pool remains to be verified. Thus, it is recommended to use e-commerce to test these markets (although this retail channel also bears its own limitations, cf VVR’s July article).

Furthermore, third and fourth-tier cities’ consumers might have a similar spending power as in the first and second-tier cities, this does not mean that they have similar consumption habits: it is crucial to analyze accurately the local consumption habits and to not launch a product merely because “it worked well in Shanghai”. Each expansion strategy must be thought locally and a dose of education on international products (on geographical indications for instance) might very well be necessary.

Lastly, the consumption’s growth in the lower-tier cities is conditional upon regulatory changes, especially regarding the real estate market. Indeed, these cities’ attractiveness relies on their low real estate prices, enabling young households to buy property. Besides, these young households’ budget is also less taken up by rent and more is available for consumption. On that point, there is no study that is today forecasting such a change in the near future.

In short, China has diverse markets, and it is important to understand their local specificity. Tiers are one way to approach diversity and allows for the above analyses. It is then one way, but it is not the only one and it can not account for the entire diversity of China. For instance, it is also important for retailers and employers to understand the different generations in China…

* The hukou is a resident permit that each Chinese citizen gets, binding them to a province (Shanghai’s hukou, Beijing’s hukou, Jiangsu’s hukou). It is rather similar to a province-scale “nationality” and serves to obtain a right to some public services in the location of the hukou.

By Manon Bellon