Brands that present a big logo and have exaggerated patterns are often best-sellers in China. Such brand examples include Louis Vuitton, Chanel, Gucci, MCM, and in the entry luxury market, Coach. This is contemporary China, the place where all global luxury brands with their flashy logos are coming in for a gold rush opportunity in its big market. I am Letty Kwan, a professor at The Chinese University of Hong Kong. I am the instructor for this course, “Selling to Chinese Consumers”. In this and the coming 3 weeks, I will be here to discuss with you how to sell to Chinese consumers using strategies that are grounded in rigorous scientific research. In this course, you will learn from research demonstrations, as well as interviews with renowned scientists, the behavioral characteristics of Chinese consumers. Every week also contains a segment called “Dialogue with Practitioner”, which will help you connect the concepts and theories you will learn in this course to the actual marketing practices. Hopefully, after the four weeks, you will have a good understanding of the current China market, and gain some insights on how to brand and sell your products to Chinese consumers. Over the past decade, there has been an exponential growth in China’s GDP per capita. Within the last decade, China’s GDP per capita has jumped from approximately 2000 US Dollar to a whooping 8000 US Dollar. That is a 280% increase in just 10 years. China has become the consumption superpower, overtaking Japan in recent years. And that is just the beginning. No other countries are able to compete with China on the speed of economic growth. We will return to this subject later on. America has experienced a similar consumption boom, but the China experience is unique in many respects. Understanding the distinctive cultural factors that contribute to China’s extraordinary growth will make your learning journey worthwhile. Here are some characteristics of Chinese consumers, characteristics that have enormous influence on how they make consumption choices, and characteristics that are shaped by Chinese culture. First, economists generally assume that consumers’ preferences determine their choices. Thus, to prefer what consumer will buy, we need to know what they like first. But Chinese consumers’ spending habits are different. Research has shown that they do not always buy what they like. Instead, other factors, like the anticipated public reactions to one’s own choices and other normative factors, may importantly shape what Chinese consumers want. For example, Chinese consumers may buy things that they think others would like them to buy. Let’s look at an example. Chinese consumers are particularly inclined to buy expensive foreign goods. China's middle class is growing. How may consumption trends be related to the growth of middle class in China? It is projected that there will be 5 billion middle class globally by 2030, and two thirds of them will be in Asia. McKinsey projected that by the year of 2022, 76% of urban Chinese households will be in the middle class. This will also be a drastic growth of upper middle class from the year of 2012 to the year of 2022. The percentage of upper-middle class will expand from a 14% of the total urban population in 2012 to 54% in 2022. This drastic expansion of the upper-middle class is expected to contribute to the overall boost in urban private consumption. As we can see in this diagram, the amount of consumption will double within a decade. This demographic change will be accompanied by a shift in the consumption habit in China, because upper middle class are expected to have different consumption habits than lower class consumers. E.g., they tend to spend money on luxury goods consumption. The consumption patterns of different cities will also change, together with the growth of the middle class in Tier 2 and Tier 3 cities. These changes will present new challenges and opportunities to businesses that intend to sell their products and services to Chinese consumers. It is reasonable to believe that most consumers will buy within their means. However, consultancy firm IDEO found that migrant workers who earn an average of 600 USD per month are willing to spend more than their one month’s salary on an iPhone. Many Chinese consumers are obsessed with brand names; and they are more likely to buy things with highly visible brand logos so that others will recognize and notice the brands that they use. Chinese consumers are also known to be lower in brand loyalty and are more willing to try out new brands. Why are Chinese consumers so brand conscious? Why do they prefer to spend on products of famous brands? Why do they switch brands so often? In today’s lesson, you will find some answers to the above questions. The lesson consists of three parts. First, you will learn about some characteristic motivations of Chinese consumers, and the influence on consumption, particularly the consumption of luxury goods. Specifically, the Chinese are known for their high achievement motivation. You will learn how the strong drive to become an elite in the society influences Chinese people’s consumption habits. In the second part of the lesson, you will learn how social norms affect Chinese consumers’ choices, and understand from a normative perspective why Chinese consumers do not always buy what they like. In both Part 1 and Part 2, you will watch interviews with expert researchers in consumer psychology, who will share with you how their research findings shed light on the characteristic motivations on Chinese consumers. In Part 3, you will see a “Dialogue with Practitioner”, where you can connect the concepts you learn, to actual marketing practices.
