As 2012 comes to an end, pundits and analysts alike are making predictions for 2013. Many things could happen in 2013, but one thing is almost certain: China will be the largest e-commerce market in the world. Already, the country has the largest population of online shoppers. In June 2012, people who shopped online in China reached 210 million, compared 179 million in the United States.
Chinese consumers have always been a mystery to many Western companies. Little is known about their spending behavior and buying habits. As they come of age, certain characteristics are starting to emerge. Here are five new trends of Chinese consumers:
A quintessential trait of Chinese consumers is that they are value seekers. They will search hard for the best deals, to make sure they get good value for their money. That means they will spend a lot of time researching products and comparing prices. They tend to resist impulse buying (despite some conspicuous spending), and are more likely to get cues from their friends as to which products to buy.
This trait actually applies to both high- and low-income groups, although it is more apparent in consumers with lower incomes. I know this intuitively, and from first-hand experience. Having lived in the West for over 20 years, I am still “good at saving money” (as my husband put it) when it comes to a purchase. For example, I eyed a giclee painting from ZGallerie for several months before I bought it on sale. I searched on the Internet for comparable paintings, and was willing to wait for holiday sales to make the purchase.
I am not the most frugal person you can find in the world, but like most Chinese, I am naturally good at finding good deals.
Sophisticated High Earners
Only a few years ago, the Chinese were novices in the world of consumption. They were either looking for big logos to show off their status, or seeking basic functional benefits in products. Now, however, millions of consumers are adopting spending behaviors and patterns that are very similar to those in the West.
For example, emotional needs and individuality are beginning to speak to consumers who live in wealthier cities such as Beijing and Shanghai. In McKinsey’s 2012 Chinese Consumer Report, 21 percent of people surveyed said “showing my unique taste” is one of the key factors influencing their buying decisions, compared with only 7% to 11% in other cities. These consumers are also more interested in products with attractive designs, rather than focusing on the “durability” and “functionality” of the products.
This explains why many Chinese consumers are willing to pay premium prices for quality products and services. Instead of showing off big brands, they are beginning to enjoy fine things for personal indulgence. This shift in attitude happened in a remarkably short period of time, marking the increasing sophistication of Chinese consumers.
Loyal Brand Enjoyers
Chinese consumers have been bombarded with overwhelming choices of brands – all within a short period of time. They tend to hop from one brand to another to try out different things. But this is changing quickly. As they gain more knowledge about brands and what makes them distinctive, Chinese consumers are becoming more discerning in choosing their favorite brands and sticking with them.
The same McKinsey report indicates that brand loyalty has increased dramatically among Chinese consumers. In personal care products, 43 percent of people surveyed this year said they tend to purchase the same brand, compared to only 26 percent who said so last year. Among consumers of chocolate, 33 percent of those surveyed this year agreed with the statement “I only buy my favorite brand,” whereas only one-fifth said so in 2009.
The brand loyalty levels among sophisticated Chinese consumers are on par with those in the United States and Europe. Again, all this happened in a matter of a few years.
Almost 400 million emerging middle class consumers reside in smaller cities in inland areas. These new consumers have just gotten beyond the basics such as food and shelter. Their attitude towards consumption is more traditional than those in coastal areas. They are more price-sensitive and focused on basic functional benefits in products. For example, in apparel, they wanted comfort; in food and beverage, they craved taste; in consumer electronics they prized durability.
In the 2012 McKinsey Chinese consumer report, 52 percent of people surveyed in inland cities cited “importance of reliable brand” as the top buying factor, whereas only 26 percent of consumers in coastal cities agreed with the statement. By contrast, only 6 percent of consumers in smaller cities considered “emotional needs” as important in their purchasing decisions, compared to 36 percent of consumers in coastal cities who believed so.
What’s more interesting is that the difference in attitude between consumers in inland and coastal areas remains significant even though their income levels are similar. For example, barely one-third of consumers in inland cities “are willing to spend money to reward themselves,” whereas nearly half of the consumers in coastal cities with similar incomes agree with the statement.
This means that in order to reach the mass consumers in inland areas, companies need to diversify their product portfolios and design products with fewer fancy features but stronger basic functions.
Younger Chinese consumers are distinctive in their own right. They are more self-indulgent in their purchasing, more individualistic in their wants, and more loyal to their favorite brands. They are acting more like their developed country counterparts.
For example, 45 percent of consumers under age thirty-four surveyed in the McKinsey report said they spend on personal care products purely for their own enjoyment, compared with 37% of consumers aged 35-65 who said so. Unsurprisingly, younger consumers are also more Internet savvy. 44 percent of them said they need the Internet to help make purchasing decisions, while only 16 percent in the older age group depend on the Internet in their purchases.
2013 will be a big year. Not only will it be the largest e-commerce market, China will also likely to be the largest retail market in the world. In order to succeed in this must-win battleground, companies need to think out of the box, develop innovative products that are relevant to Chinese consumers’ tastes, and adjust their marketing strategies to reach diverse groups of customers.
(A version of this article was originally published on Forbes.)