The next stop for China's economy: "Meeting mainstream consumers" - Alibaba Research - Small businesses, big times
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The next stop for China’s economy: “meeting mainstream consumers”
Source: 199it Published time: 2013-01-05 09:43 Views: 475 Comments: 1
In 2020, China’s consumption will surpass the United States. Tao Dong, chief economist of Credit Suisse Asia, boldly predicts that in terms of global consumption power market share, the United States now accounts for about 30%, while China only accounts for about 5.4%. By 2020, China will surpass the United States and become the world’s largest consumer market.
Ma Xiuhong, deputy director of the Foreign Affairs Committee of the National Committee of the Chinese People’s Political Consultative Conference, once said that it is expected that China’s total retail sales of consumer goods will reach 10 trillion US dollars in 2020, which is equivalent to the size of the Eurozone market today.
What will China’s consumers look like by then? A McKinsey report depicts the image of China’s mainstream consumers in 2020.
The most “smart” consumers
“Despite the increase in income, he or she remains pragmatic, but begins to pay more attention to the emotional appeal to personality, and loyalty to the brand has also increased. Most people have changed their shopping methods, shortened the shopping time in physical stores and accepted emerging shopping channels.”
Chinese consumers are famous for their pragmatic consumption concepts, and this characteristic will not change even if their income increases. They often set a budget before deciding to buy, then evaluate the practical functions of the product to determine which features are worth spending money on, and then look for the best deals.
McKinsey’s report shows that these deeply ingrained values are unlikely to change in nearly a decade. Chinese consumers will maintain their “smart” shopping style: they will take the time and trouble to conduct pre-purchase research. When “price comparison” becomes more convenient, the savvy characteristics of Chinese consumers will become more obvious.
However, as the consumer market matures, consumption expectations will also increase. This is the rule, and Chinese consumers are no exception. By 2020, they will grow from primary consumers pursuing basic functions (such as the durability of electronic products, comfort of clothing, taste of food and beverages, etc.) to mature consumers with higher requirements for goods and services. For example, health is not only listed as an important consideration by most consumers when purchasing food, but also applies to products such as facial cleanser and laundry detergent.
By 2020, emotional factors such as whether products can reflect their personality will greatly affect the purchasing decisions of Chinese consumers, which also reflects that consumers pay more attention to self-expression. As incomes increase, consumers’ personal awareness continues to increase, which is consistent with trends in other countries or regions. Indeed, corporate emotional marketing must apply not only to goods such as cars and personal care, but also to mass merchandise such as milk and laundry detergent.
Niche brands may become more popular in the future. Volkswagen brands have so far been very successful in China, in part because when consumers buy their first refrigerator, car or mobile phone, there are few indicators of quality and safety to rely on other than brand and name recognition. As consumers gain more purchasing experience, they will feel more secure when trying niche brands and regard purchasing niche brands as a way to reflect their individuality.
Although Chinese consumers love brands, their brand loyalty is far lower than that of Western consumers. They often like to choose from several favorite brands.
Another McKinsey survey shows mixed prospects for the future: On the bright side, China’s young and affluent classes are more loyal to brands, but on the other hand, the number of brands Chinese consumers can choose from has increased significantly in recent years.
In the past decade, modern retail channels began to appear in China, much later than many countries. In China, shopping is seen as a family leisure activity, not just an essential purchasing process. In the next ten years, more and more consumers will experience the joy of shopping, especially those immigrants working outside and consumers in small and medium-sized cities. However, the demand for this kind of shopping and entertainment will gradually weaken, partly because shopping malls are no longer novel to Chinese consumers, and partly because the emergence of many forms of entertainment provides people with choices, which also promotes the development of the entertainment industry and personal consumption.
The novelty of shopping continues in e-commerce. Living in busy and crowded big cities, consumers crave more convenience and e-commerce can meet their needs.
By 2020, e-commerce will contribute 14% to 15% of retail sales, and certain categories such as consumer electronics may contribute as much as 30% to 40% of retail sales. The proportion of daily necessities in total e-commerce retail sales will increase from the current 1% to approximately 10%. The increasing number of mobile devices supporting online shopping, the rapid development of online payment and the logistics industry have promoted the convenience and safety of shopping.
Chinese consumers will grow into the most dedicated and experienced online buyers.
This mainstream Chinese consumer in 2020 is both clear and blurry in front of us. What is clear is that China has to choose this path, so “others” must exist. Against the background of rising manufacturing costs, the influence of the Chinese market has begun to increase, and China’s becoming a consumer society suddenly has different practical significance; what is vague is that some problems stand in the middle of this road, and it is still unclear whether “others” can become what we imagined.
What is missing from transformation?
There are still 8 years until 2020. What is missing most in China’s transition to a consumer-oriented society?
What China lacks most in its transition to a consumer-oriented society is institutions - laws, regulations and strict market management that are conducive to residents’ consumption. In other words, if a country’s people are to be open to consumption, then the country’s institutional system must serve residents’ consumption.
In the United States, all tap water has reached drinking level and can be consumed with confidence; you don’t have to worry about the food sold on the market being poisonous, because they have been strictly inspected; consumers don’t have to worry about all the clothes and shoes sold in the market being fake, because they have also been strictly inspected; the United States has a way to require all manufacturers exporting manufactured products to the U.S. market not to use the highest quality grade… Any violation of regulations and counterfeiting in the U.S. market will face strict penalties, and may even cause manufacturers to go bankrupt. This is not only the case in the United States, but also in the European and Japanese markets. Strict systems ensure that developed countries around the world become the safest consumer markets in the world.
In comparison, the situation in the Chinese market is far different. Although luxury goods are selling well in the Chinese market, the Chinese market is still very chaotic. A typical example is that melamine milk powder, which caused the death of several children and affected 300,000 children in 2008, has made a comeback this year! Recently, relevant domestic departments have discovered incidents of melamine exceeding the standard in Gansu, Qinghai, Jilin and other places, with the highest exceeding the standard reaching 500 times! This is another serious food safety incident that occurred only half a year after the multiple melamine “recovery” incidents involving Shanghai Panda Milk Powder and Shaanxi Jinqiao Milk Powder at the end of 2009. In addition to vicious incidents such as melamine milk powder, many counterfeiting incidents such as waste oil, fake medicines, and fake wines are emerging in the domestic market.
Can a healthy consumer society be born in a market with such a bad consumption environment? Unless this market undergoes major institutional reforms.
Many people in the domestic market complain that China has the “world’s assembly factory” but no world-class brands. Now that we have money, we also want to buy world brands. However, not everyone buys this approach. It is said that not long ago, Shanghai Fuchs Company announced that it had acquired part of the shares of Italian fashion company Prada (PRADASPA) and sought to control it. However, although Prada is in huge debt, no member of the Prada family sold their shares to Chinese businessman Lu Qiang because they were worried that “if they are handed over to the Chinese, the quality and style will deteriorate.”
Control of brands is a typical feature of a consumer-oriented society. For a long time, China has not been a consumer-oriented society, and it has not taken people’s consumption seriously. Therefore, it is normal not to master brands, manage and use brands. The way we intervene in globalization is to “work hard” from the low end of manufacturing.
China’s transformation into a consumer-oriented society has just begun. In this journey, what is most lacking is not funds or technology, but strict systems and laws. If this cannot be achieved, it will be difficult for China to emerge as a consumer society.
Another key is to ensure the rapid and stable growth of residents’ real income and lay a solid material foundation for consumption growth.
The report of the 18th National Congress of the Communist Party of China released on November 8 proposed that by 2020, the GDP and per capita income of urban and rural residents should be doubled compared with 2010. This is the first time that the CCP has clearly stated the goal of doubling residents’ income.
The reform of the income distribution system cannot remain in the planning and envisioning stage. It is necessary to find the entry point for the income distribution reform and achieve a substantial breakthrough in the initial income distribution reform.
The next step is to accelerate reforms such as income distribution to promote rapid growth in consumption. Because if some measures are taken to address the income gap among residents, it will only help to increase new consumption enthusiasm.
For example, the introduction of inheritance tax, even if the starting point is low, around 10% (30% to 40% is already 30% in foreign countries), will still be effective. For some wealthy people with huge amounts of property, they will consider early consumption or property transfer, which will play a certain role in expanding consumption.
In terms of value-added tax, even if it is lowered by a symbolic point, it will generally ease the pressure on enterprises, thereby increasing residents’ income and promoting consumption growth.
Data shows that the consumer confidence index of residents across the country is currently relatively high, and areas with rapid consumption growth are gradually shifting to rural areas and third- and fourth-tier cities.
The latest Nielsen survey shows that the confidence index of China and the United States, the two major global economic powers, has increased, reaching 108 points and 83 points respectively. Among them, in the fourth quarter of 2011, the consumer confidence level in rural areas of China ranked first in the country, reaching 114 points.
Since the initial income distribution involves the issue of interest redistribution, it is difficult to implement, and the government should find a substantial breakthrough.
In the future, when adopting new policies to expand consumption, appropriate exploration in tax exemptions, tax rebates, interest discounts, etc. may be considered. For example, the consumption tax on some products currently subject to consumption tax, such as automobiles, cosmetics, etc., will be moderately adjusted. For those goods that were once luxury goods but have now become mass consumer goods, the consumption tax rate should be gradually lowered, or consumption tax should no longer be levied.
When the support effect of existing consumption policies is attenuated, we should deeply explore support objects with consumption growth potential. For example, based on the characteristics of China’s economy entering the middle and late stages of industrialization and the peak period of urbanization, service consumption such as housekeeping and elderly care should be included in the scope of policy support in a timely manner to promote the Chinese economy from the middle and late stages of industrialization to the era of service economy, promote the transformation of the economic development model from focusing on economic growth to balancing multiple goals such as stabilizing economic growth and improving people’s livelihood, and guide the rapid growth of service consumption.
Only by effectively solving the above two keys can we truly meet the mainstream consumers we imagined in 2020. ‘via Blog this’
