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The Global Wealth Report published in 2015 estimated that the number of middle-class citizens in China had reached 109 million, ranking first in the world (over America). The vast urbanization and China’s consumption-led economy contribute to the rapid growth of Chinese middle-income consumers. The change of lifestyles and the trend they are leading are of great importance to market strategy making.
Chinese Middle Class Overview
With the growth of the Chinese economy, urbanization has been expanding rapidly. There are now around 725 million people living in big cities and the number continues to grow. Among which, 260 million middle-class households hold disposable income that is above the national average and their consumption accounts for almost 70% of total household consumption. As the number of middle-class households rises, their household consumption is expected to triple in the next ten years, reaching 26-27 trillion yuan. Driven by the rebalancing between the West (economy) and the East, the proportion of urban middle classes living in Beijing, Shanghai, Guangzhou, and Shenzhen will fall from 40% in 2002 to 16% by 2022. Back in 2002, nearly 85% of the middle classes were distributed in the eastern coastal regions but due to the slow rebalancing to West and North China, this number will fall to 60% by 2022. Although most middle-class citizens are from the top 41 cities in China, an increasing number of which are springing up in the low-tier cities. From coastal areas to the inland, the lifestyles, consumption concepts, and purchasing power vary greatly.
In the inland areas or some small low-tier cities, the residents are relatively more conservative when making purchasing decisions compared to those who live in big cities. Whereas a common principle shared by these middle-income consumers is that they usually prioritize the quality above all other standards even when they are known to be quite brand-oriented. Since the middle classes are growing everywhere in the mainland, foreign companies do not need to adhere their target markets to those more developed ones, especially the four first-tier cities where the market share almost approaches a saturation phase. The purchasing power of the middle-class in first-tier and second-tier cities are considerable but on the other hand, the consumers are more sophisticated and loyal to the companies where they have already made some purchases. In comparison, in lower-tier cities that are seeing rapid growth, there will be more market opportunities and untapped consumption power, but at the same time, China will face more difficulties in the distribution and retail’s logistic. Companies may take all the information into consideration before taking a decision.
Chinese Middle Class Changing Lifestyles
The Chinese middle class has a preference for western brands. More than 70% of the middle-income consumers are buying well-known international brands. But in recent years, since consumers have gained more insight into the markets, their purchasing decisions are no longer merely brand-oriented. Quality now becomes their first standard. Daxue classifies middle-income consumers into four types: progressive affluent spenders (18% of respondents), trendy-aspirers (28%), value-led buyers (26%) and conservative spenders (28%). The first two types are more likely to buy western brands, but more than 80% of the respondents claimed that quality was their first consideration. The conservative spenders even regarded well-known brands or luxuries as a waste of money for they weighed durability and quality over brand names; as a result, in certain situations, they are more inclined to buy domestic brands.
Chinese consumers contribute to around 30% of the global luxury consumption, and domestically, the middle-class consumers account for 70% of the luxury market. The top listed items they have been purchasing are handbags, clothing, jewelry, shoes and cosmetics. The high luxury spending by those middle-class consumers is mainly to flaunt and indicate their social status. Yet, surprisingly, these consumers are relatively younger than those in western countries, ranging from 18 to 35 years old. In high-tier cities, luxury consumers are less likely to stay loyal to one brand and they tend to shift their taste from one to another, following the current trend. If foreign luxury brands want to maintain the loyalty of Chinese consumers, they can not only rely on their brand names; instead, it is more important that they appeal to the consumers’ changing tastes and the current fashion. One positive note is that there are far fewer domestic luxury brands to compete with; therefore, the foreign luxury brands enjoy a higher reputation among the consumers. Moreover, driven by the growth of the middle class in low-tier cities, foreign luxury brands are expected to gain a considerable number of new consumers in the following years.
Most of the middle class will spend their leisure time on entertainment, dining out and traveling. As Chinese middle-income consumers are quite family-oriented, they spend lots of time with their family and close friends. They usually prefer dining out for different kinds of reunions, especially for family and friend’s gathering. After dinner, they normally won’t go directly home but go somewhere else to prolong the reunion, such as seeing a movie, singing karaoke, or playing cards. This is one major reason why the catering industry and the entertainment industry are seeing great increases in total consumption. In the higher-tier cities, the middle-class consumers nowadays do not consume for simple entertainment; instead, they are trying to pursue a healthy and balanced lifestyle. Those new forms of entertainment such as yoga, tea ceremony, pottery art making etc. are increasingly popular among the Chinese consumers.
Traveling is another prominent leisure consumption among the Chinese middle class. China outbound tourism grew from 10.5 million visits in 2010 to 109 million visits in 2014. The total outbound expense in 2014 reached 16.48 billion dollars with the growth of 28% compared to 2013. More than half of the tourists in 2014 were middle-income consumers and almost 87% of the tourists were between the age of 21 to 40. The top three destinations in 2014 were Thailand, Hong Kong, and France. Although Asia still occupies more than half of the destination locations, America and Europe have been enjoying a swelling expansion in the market share. To most middle-income consumers, traveling has become a light luxury recreation product.
Inclination to a healthier lifestyle
With high work pressure and the occurrence of sub-health problems, the middle class is keenly aware of the importance of a healthy lifestyle and most of them have already adapted to healthier life habits, including their purchasing choices. Concepts of food consumption are putting more emphasis on healthy diets so brands concerned with green food are more likely to be trusted and adopted by consumers. Although Chinese citizens are more concerned with their healthcare than ever before, the healthcare market in China is still under-served. The increasing aging population and rising rates of chronic disease are calling for a more developed Chinese healthcare system. Therefore, the current situation leaves many opportunities for foreign companies to fill this market gap.
E-commerce and Social Medias
The high adoption rate of computers and smartphones among the Chinese middle class has accelerated the growth of E-commerce and M-commerce. The “shopping carnival” on Nov.11th (China’s Single Day) on Alibaba witnessed the rise of the new Chinese middle class (the generation after the 80s and 90s). 49% of the Taobao members age from 25-35 and their average consumption on Taobao has been over 4,000 yuan per month. The 14% aged from 19-25 has a great potential in consumption power and rise strikingly faster than the 80s. Although members from first to third-tier cities account for most of the online consumption, the consumption power underlying the lower-tier cities cannot be neglected. With a careful management of the great market opportunities on Taobao, Uniqlo, and other companies successfully expanded their business in many low-tier cities. And this was not the only case. With Jingdong, Mogujie, Dianping, and many other emerging online retailers or mobile applications entering the E-commerce and M-commerce, the overall online consumption has been rising at an exponential rate. While shopping online, the middle-income consumers still prioritize quality over price and brand but imported products account for 25% of their total online consumption.
Social medias have an overwhelming influence on Chinese netizens. Companies are recommended to use social medias in China as their essential strategy to promote on a large scale. But online promotion has its advantages and disadvantages. More than 60% of the middle class are viewing comments and recommendations on Weibo, WeChat, and other popular platforms. Most of them are women with high consumption motives and are susceptible to other people’s opinions on the products they are not acquainted with. Once you capitalize the social media to promote your products, the high exposure and miscellaneous feedback it gets will on one hand bring you more potential customers, but on the other hand, these comments may form a biased image of your products. Knowing what appeals to your potential customers and knowing what caters to the trend, the online promotion will be a powerful tool.
Case study: Mobile Application–Xiaohongshu.
This app used to serve as a platform for Exchange & Share on cosmetics. After it gained a certain number of female users, it started to sell foreign cosmetic brands at decent prices. When they reached a customer base that was large enough for business expansion, they extended their business into snacks, household articles, bags, shoes etc. Now it is a successful Retail & Exchange & Share platform for thousands of Chinese women, especially within the middle-class.
Above all, the Chinese middle class is a great goldmine for foreign companies to explore. What it has shown by now is just the tip of the “gold-berg”.