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Across China: China’s Wealth Gap WidensAcross China: China’s Wealth Gap Widens
Chan Man Lok (1013 638) Cheung Ka Ying (1066 685)Luk Sin Hing (1137 197) Wong Lok Hang (1166 837) Yan Tak Ming (1012 165)
MKT221 Marketing in the Chinese MainlandMKT221 Marketing in the Chinese Mainland
AgendaAgenda
Key differences between first-tier, second-tier and third-tier markets in China
in terms of their preference for foreign vs. domestic brands
Key differences between first-tier, second-tier and third-tier markets in China
in terms of their preference for foreign vs. domestic brands
Opportunities for foreign brands in rural markets and Suggestions for products and strategies developed in rural markets
Opportunities for foreign brands in rural markets and Suggestions for products and strategies developed in rural markets
Variation of Chinese Consumers’ consumption values and marketing responsesVariation of Chinese Consumers’ consumption values and marketing responses
Influence of regional differences towards marketing strategies in China and Comparison of effectiveness of a standardized approach vs. localized strategies
Influence of regional differences towards marketing strategies in China and Comparison of effectiveness of a standardized approach vs. localized strategies
ConclusionConclusion
1) What are the key differences between first-tier, second tier and third tier (small town) markets in
China in terms of their preferences for foreign VS
domestic brands?
First Tier Second Tier
Third Tier
Highest Medium Low
Quality Life Excellent Good Poor
Brand preferred
Foreign Brand
Foreign Brand
DomesticBrand
Consumption Expenditures
Highest High Low
Income*
*Disposable income ( 可支配收入 ) Reference: China Statistical Yearbook-2006 By National Bureau of Statistics of China
Match them up!
• Beijing
• Guizhou
• Guangdong
• Guangxi
• Shanghai
• Zhejiang
• First Tier?
• Second Tier?
• Third Tier?
Suggested Answer
Beijing First Tier
Shanghai First Tier
Guangdong Second Tier
Zhejiang Second Tier
Guangxi Third Tier
Guizhou Third Tier
First TierBeijing
Shanghai
Second TierGuangdong
Zhejiang
Third TierGuangxi
Guizhou
Highest Medium Low
Quality Life Excellent Good Poor
Brand preferred
Foreign Brand
Foreign Brand
DomesticBrand
Consumption Expenditures
Highest High Low
Income*
*Disposable income ( 可支配收入 ) Reference: China Statistical Yearbook-2006 By National Bureau of Statistics of China
Per Capita Annual Income of Urban Households by Sources and Region (2005)各地区城镇居民平均每人全年家庭收入来源 (2005 年 )
Disposable income (可支配收入 )
02000400060008000
100001200014000160001800020000
FirstTier
SecondTier
ThirdTier
BeijingShanghaiGuangdongZhejiangGuangxiGuizhou
Reference: China Statistical Yearbook-2006 By National Bureau of Statistics of China
Household Consumption Expenditure by Region (2005)
各地區居民消費水平 (2005) yuan ( 元 )
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
First Tier SecondTier
Third Tier
Beiing
Shanghai
Guangdong
Zhejiang
Guangxi
Guizhou
Reference: China Statistical Yearbook-2006 By National Bureau of Statistics of China
Foreign VS Domestic brands
4 Key Differences
• Income• Price
• Quality• Reputation
First Tier Second Tier Third Tier
Income High Medium Low
First Tier Second Tier Third Tier
Income High Medium Low
Price Less Important
Important Very
Important
Adidas VS Doublestar 双星
• Football shoes• Market price:$499
• Football shoes• Market price: $59
Which one would you choose?
First Tier and Second Tier would choose…
even though the price is much higher!!!!!!
Doublestar,We are so
Sorry!
First Tier Second Tier Third Tier
Income High Medium Low
Price Less Important
Important Very
Important
Quality VeryImportant
Important Less
Important
Rich Chinese prefer foreign brands
Reference: By Wang Zhuoqiong (China Daily) Updated: 2008-02-21 08:49
1,800 respondents with an annual income exceeding $16,000 in Beijing, Shanghai ,Guangzhou
Respondent Preferences
36.3 % Foreign brands
19.8 % Up-market domestic
brand
Chinese parents favor foreign-brand toys
For wealthiest, foreign-made brands are seen as safer for kids
A mother and son shop for toys in a store in Shanghai, China. Chinese families who can afford it are opting for foreign-brand toys.
Reference: MSNBC NEWS updated 1:56 p.m. ET Dec. 16, 2007 http://www.msnbc.msn.com/id/22262800/
• Quality and safety issues are drawing more attention as incomes rise and upwardly mobile Chinese grow more health conscious.
• Chinese families who can afford it opt for foreign-brand toys — even if they are made in China.
Reference: MSNBC NEWS updated 1:56 p.m. ET Dec. 16, 2007 http://www.msnbc.msn.com/id/22262800/
First Tier Second Tier Third Tier
Income High Medium Low
Price Less Important
Important Very
Important
Quality VeryImportant
Important Very
Important
Reputation Important Important LessImportant
• 3 shops in Beijing (First Tier)
• 1 shop in Shanghai (First Tier)
• 1 shop in Guangdong( Second Tier)
Third Tier cities? SORRY, NO SHOP!
Market share of mobile phone
NokiaMotorolaSamsungSony Ericsson ZTEHuaweiBirdothers
70% cellphones in China are foreign brands
Reference: (Xinhua) By China Daily Updated: 2007-09-05 11:51
2) Do Chinese consumers from
different regions vary in their consumption values and marketing responses, such as quality- price
tradeoff, husband-wife dyad, decision making style, reactions to
promotion and sales, service expectations, and perhaps even their
complaint behavior?
Regional Differences
REGIONS
Central China
(Hua- Zhong )
East China
(Hua-dong)
Difference(s)
Q: Consumers from which region concern more about the quality rather than price?
Reason(s)
1. Quality- Price Tradeoff
Reference: 中国消费者行为报告 (2005), 盧泰宏
Regional Differences
REGIONS
Central China
(Hua- Zhong )
East China
(Hua-dong)Difference(s) Price sensitive> quality
sensitivePrice sensitive < quality sensitive
Reason(s) product’s attribution Care the product’s benefits and valuesDon’t care the products well-known or not (brand-image)
fashionable brand imageCare the well-known or not
1. Quality- Price Tradeoff
Reference: 中国消费者行为报告 (2005), 盧泰宏
Regional Differences
REGIONS
East China
(Hua- dong )
Northwest China
(Xi-bei)
Difference(s) durable products buy the necessities which are inexpensive
Reason(s) higher income Enhancing the quality of life
lower income
2. Products
Region Total Revenue (RMB)
Shanghai (East China) 14173976
Jiangsu (East China) 13226753
Shandong (North China)) 10731250
Zhejiang (East China) 10665964
Beijing (North China) 9192098
Liaoning (Northeast China) 6752768
Total revenue of Top 6 regions
Reference: National Bureau of Statistics of China
Total revenue of Last 6 regions
Region Total Revenue (RMB)
Hainan (South China) 686802
Ningxia (Northwest China) 477216
Qinghai (Northwest China) 338222
Tibet (Northwest China) 120312
Reference: National Bureau of Statistics of China
Region Washing Refrigerator Computer PickupAir-
Conditioner
Machine Camera (set) (set) (set) (set) (unit)
Beijing 104.96 104.02 89.16 16.25 146.47
Liaoning 87.88 88.19 32.88 5.72 14.29
Shanghai 97.30 104.40 81.10 9.90 168.30
Jiangsu 99.38 91.89 46.35 5.34 123.92
Zhejiang 91.45 97.79 59.47 5.24 146.89
Shandong 93.28 90.96 45.64 5.09 74.40
Hainan 56.33 67.00 26.21 2.98 45.80
Tibet 95.00 88.00 19.00 6.00 5.00
Qinghai 98.41 80.74 21.68 2.99 Ningxia 89.61 79.48 23.15 0.67 6.68
Reference: National Bureau of Statistics of China
Number of Major Durable Goods by Region (2005)
Number of Necessities by Region (2005)
Item
Eastern Northwestern
Region Region
Grain (kg) 72.16 75.57
Fresh Vegetables (kg) 107.91 122.56
Edible Vegetable Oil (kg) 8.20 9.26
Pork (kg) 20.07 23.14
Beef and Mutton (kg) 3.38 4.29
Milk (kg) 20.15 18.71
Nuts and Kernels (kg) 3.19 3.15
Coal (kg) 47.64 78.46
Reference: National Bureau of Statistics of China
Regional Differences
REGIONS
East China , Southeast China
(Hau- dong, Hau-nan)
Northwest (Xi-bei)
Difference(s)
Q: Does “husband” dominate the whole China as the decision maker?
Reason(s)
3. Husband-wife dyad
*Reference: Husband-Wife Decision Making in Purchasing and Renewing Auto Insurance
(2005), Terry L. Childers and O. C. Ferrell
Regional Differences
REGIONS
East China , Southeast China
(Hau- dong, Hau-nan)
Northwest (Xi-bei)
Difference(s) Husband-wife dyad Having a decision between the husband and wife
Father- son dyad Husband is decision maker
(husband-dominant)
Reason(s) Higher educationOccupational prestige of
women
Lower education levelLower status of womenMan works outside, Woman
works inside
3. Husband-wife dyad
*Reference: Husband-Wife Decision Making in Purchasing and Renewing Auto Insurance
(2005), Terry L. Childers and O. C. Ferrell
Example:East China Husband and wife may share responsibility for paying
the bills (about 50% half of each) and also make a payment decision together
Northwest Husband is decision maker of buying house and washing
machines.
Reference: Modeling Affective Processes in Dyadic Relations via Dynamic Factor Analysis (2003),
Emilio Ferrer and John R. Nesselroade
Regional Differences4. Decision making style
REGIONS
North China, Northwest China
(Hua-bei, Xi-bei)
Southeast China, Central China
(Zhong-yuan)
Difference(s)
accept the new products and innovations new function of products the cycle of using the products is shorter use tradition marketing channel
productsdo not concern it is well-
known or not Concern the product’s valuethe cycle of using the products is longer
Reason(s) Hedonism conversation
thrifty
*quality affects their decision making
Reference: 中国消费者行为报告 (2005), 盧泰宏
Example Northwest China
likes face to face to the teller of the bank and don’t like e-commerce and e-shopping
Regional Differences5. Brand Loyalty
REGIONS
North China
(Hua-bei)
East China
(Hua-dong)
Difference(s)
Higher brand loyalty
(*TOI: 90)
Lower brand loyalty
(*TOI: 7)
Reason(s) Traditional culture transmission: Nostalgia (Lower preference of new products & brands)
More developed economy Various choices of brands
# Remarks: East China – Shanghai: strongly influenced by Western culture
– Jiangsu: similar culture with Shanghai?*TOI – Time Orientation Index (reflects retention trend of formed
consumption habit)
Reference: 中国消费者行为报告 (2005), 盧泰宏
Regional Differences5. Brand Loyalty
*TOI – Time Orientation Index (reflects retention trend of formed consumption habit)
Reference: 中国消费者行为报告 (2005), 盧泰宏
90
7
76
35
0102030405060708090
NorthChina
East China NortheastChina
SouthChina
TOI
Regional Differences5. Brand Loyalty
REGIONS
North China
(Hua-bei)
East China
(Hua-dong)
Difference(s)
Higher brand loyalty
(*TOI: 90)
Lower brand loyalty
(*TOI: 7)
Reason(s) Traditional culture transmission: Nostalgia (Lower preference of new products & brands)
More developed economy Various choices of brands
# Remarks: East China – Shanghai: strongly influenced by Western culture
– Jiangsu: similar culture with Shanghai?*TOI – Time Orientation Index (reflects retention trend of formed
consumption habit)
Reference: 中国消费者行为报告 (2005), 盧泰宏
Regional Differences6. Social Group Influence
REGIONS
Southwest China
(Xi-nan)
East China
(Hua-dong)
Difference(s)
Q: Consumers from which region has a stronger social group influence?
Reason(s)
*CII – Collectivism & Individualism Index (reflects collectivity of consumption behavior)
Reference: 中国消费者行为报告 (2005), 盧泰宏
Regional Differences6. Social Group Influence
REGIONS
Southwest China
(Xi-nan)
East China
(Hua-dong)
Difference(s)
Stronger social group influence (*CII: 58) Collectivism
Weaker social group influence (*CII: 0) Individualism
Reason(s) Rugged topography: Less influenced by Western culture Traditional culture transmission: Diligent & abstemious (Less interest of upgrading & changing products)
More developed economy Various choices of brands Pursuit independent lifestyle & freedom
*CII – Collectivism & Individualism Index (reflects collectivity of consumption behavior)
Reference: 中国消费者行为报告 (2005), 盧泰宏
Regional Differences6. Social Group Influence
*CII – Collectivism & Individualism Index (reflects collectivity of consumption behavior)
Reference: 中国消费者行为报告 (2005), 盧泰宏
58
0
23
40
0
10
20
30
40
50
60
SoutheastChina
East China North China South China
CII
Regional Differences6. Social Group Influence
REGIONS
Southwest China
(Xi-nan)
East China
(Hua-dong)
Difference(s)
Stronger social group influence (*CII: 58) Collectivism
Weaker social group influence (*CII: 0) Individualism
Reason(s) Rugged topography: Less influenced by Western culture Traditional culture transmission: Diligent & abstemious (Less interest of upgrading & changing products)
More developed economy Various choices of brands Pursuit independent lifestyle & freedom
*CII – Collectivism & Individualism Index (reflects collectivity of consumption behavior)
Reference: 中国消费者行为报告 (2005), 盧泰宏
Examples Southwest China (Xi-nan): Not like outstanding apparel Prefer to buy products that
relatives & friends recognized good enough
East China (Hua-dong): Increase in demand of small but
spacious studios/ apartments with well transportation & property management in Shanghai
Regional Differences5. Social Group Influence
Regional Differences6. Reaction To Promotion & Sales
REGIONS
Southwest China
(Xi-nan)
East China
(Hua-dong)
Difference(s)
Stronger reaction to price-relevant promotion & sales (*LSI: 51)
Stronger reaction to non-price relevant promotion & sales (*LSI: 25)
Reason(s) Rugged topography: Less influenced by Western culture Traditional culture transmission: Diligent & abstemious (Pragmatism Style)
More price-sensitive
More developed economy More influenced by Western culture Less price-sensitive More emphases on branding
*LSI – Long-term versus Short-term Index (reflects traditional consumption characteristics of being diligent & abstemious)
Reference: 中国消费者行为报告 (2005), 盧泰宏
Regional Differences7. Reaction To Promotion & Sales
*LSI – Long-term versus Short-term Index (reflects traditional consumption characteristics of being diligent & abstemious)
Reference: 中国消费者行为报告 (2005), 盧泰宏
51
25 26
0
10
20
30
40
50
60
Southwest China East China North China
LSI
Regional Differences7. Reaction To Promotion & Sales
REGIONS
Southwest China
(Xi-nan)
East China
(Hua-dong)
Difference(s)
Stronger reaction to price-relevant promotion & sales (*LSI: 51)
Stronger reaction to non-price relevant promotion & sales (*LSI: 25)
Reason(s) Rugged topography: Less influenced by Western culture Traditional culture transmission: Diligent & abstemious (Pragmatism Style)
More price-sensitive
More developed economy More influenced by Western culture Less price-sensitive More emphases on branding
*LSI – Long-term versus Short-term Index (reflects traditional consumption characteristics of being diligent & abstemious)
Reference: 中国消费者行为报告 (2005), 盧泰宏
Examples Southwest China (Xi-
nan): More prefer sales promotion:
incentives like discounts & free gifts
East China (Hua-dong): More prefer advertising,
public relations, personal selling & direct marketing: brand building like product exhibition & singing concerts
Regional Differences6. Reaction To Promotion & Sales
Regional Differences8. Service Expectation
REGIONS
Southwest China
(Xi-nan)
Northwest China
(Xi-bei)
Difference(s)
Emphases on after-sales service
Low service expectation of choosing & purchasing products
Reason(s) Traditional culture transmission: Diligent & abstemious (*LSI: 51) Less frequency of repeat consumption
Passive & negative consumption behavior (*MNI: 100) Put responsibility to “ 緣” (fortune/ luck) Purchase by gut feelings
*LSI – Long-term versus Short-term Index (reflects traditional consumption characteristics of being diligent & abstemious)
*MNI – Man-Nature Orientation (reflects passive & negative consumption behavior)
Reference: 中国消费者行为报告 (2005), 盧泰宏
Regional Differences9. Complaint Behavior
REGIONS
Difference(s)
No Significant Difference Among Regions Relatively Less Complaint
Reason(s) Similar *MNI Passive & negative consumption behavior Purchase by gut feelings Low product expectation Put responsibility onto “ 緣” (fortune/ luck) rather that to product/ service providers when under expectation
*MNI – Man-Nature Orientation (reflects passive & negative consumption behavior)
Reference: 中国消费者行为报告 (2005), 盧泰宏
Regional Differences9. Complaint Behavior
Question 3
How regional differences affect
marketing strategies in China?
The major regional differences• Disparate income• Divergent lifestyles• Consumption patterns
Different consumer readiness and responsiveness to marketing efforts
Different marketing strategiesMarket Segmentation & Product DifferentiationMarket Segmentation & Product Differentiation• Selection of target markets• New product introduction & positioning• Sales & distribution logistic issues• Growth & expansion strategies
• Higher income and education level result in greater readiness and frequency of purchase of foreign goods and luxury products.
• Yuppies: better educated, wealthier , more receptive, early adopters & trend setters
• High end products, fashion, lifestyle-related goods, etc.
For Foreign companies,
Per Capita Annual Income of Urban and Rural Households
Year
Per Capita Annual Disposable Per Capita Annual Net
Income of Urban Households Income of Rural Households
Value (RMB) Index Value (RMB) Index
2000 6280.0 383.7 2253.4 483.4
2001 6859.6 416.3 2366.4 503.7
2002 7702.8 472.1 2475.6 527.9
2003 8472.2 514.6 2622.2 550.6
2004 9421.6 554.2 2936.4 588.0
2005 10493.0 607.4 3254.9 624.5
2006 11759.5 670.7 3587.0 670.7
Reference: China Statistical Yearbook 2007
Statistics on People's Living Conditions in 2006Item Urban Rural
Annual Per Capita Consumption Expenditure of Urban 8697 -
Households (yuan) Annual Per Capita Living Expenditure of Rural - 2829
Households (yuan) Traffic Condition Number of Automobile Per 100 Urban Households (unit) 4.32 -
Number of Motor Cycles Per 100 Rural Households (unit) - 44.59
Per Capita Domestic Expenditure on Tour (yuan) 766 222
Culture Rate of Radio Broadcast Coverage of the Population (%) 95.0
Rate of TV Coverage of the Population (%) 96.2
Number of Color TV per 100 Households (set) 137.4 89.4
Number of Computer per 100 Households (set) 47.2 2.7
Percentage of Household Expenditure on Education, Culture and Entertainment (%) 13.8 10.8
Health Percentage of Resident Expenditure on Health Care (%) 7.1 6.8
Reference: China Statistical Yearbook 2007
Marketing Techniques
• Advertising (TV Broadcast)
• Sales promotion
• Personal Selling & Public Relations
• Large TV networks & quality programming
• Sweepstakes and contests with weighty prizes, e.g. cars and overseas trips
Standardized Approach vs.
Localized Strategies in China
Standardized approach • Globalization & Westernization
• Human Universals with similar attitudes, lifestyles & aspirations
• Global brands, Standardized products
• Superior Quality + Social Status
Localized Strategies• Adopt local market conditions & consumer preference • Deployment of local talent • Use local celebrities to endorse their products e.g. Nike ads (Liu Xiang)
strategy of “Glocalization"
• Globalization + Localization• localize global brands to Chinese context, even
regional extent• Idea of a single China market is inadequate &
some how misleading• Lead to misconceptions about the opportunities
and risks in China• In stead of mass marketing approach, more
MNCs today focus on a specific target market and to position the products accordingly.
Example: McDonald
•Global image•Universal slogan: I’m lovin’ it•Local taste & dialects •Campaign : Spice up 2008
http://www.mcdonalds.com.cn/minisite/spicy_up_2008/?sec=show
Example: Nokia in China
Nokia in China
Localized Strategies
Product Segmentation
•Tailoring Products for China
• 4) Major urban markets are saturated and very competitive. How do you assess the opportunities for foreign brands in rural
markets? What kind of products and strategies will do well there?
Opportunities for foreign brands
After cancelation of agriculture taxes in 2006, Zhuang Jian(a senior economist with the Asian Development Bank. ) said, "These measures will help improve the rural areas' consumption environment and increase rural farmers' consumption power.“
competitive
marketers are looking for extending their product categories to an unexplored market
educational level no. of available intellectual labors
Governmental supports construction of infrastructures e.g. electronics, highways and mass train railway system
Lots of lands + lower rent lower the TC
Growth of Income and expenditure in Rural community
Reference: China Statistical Yearbook 2007
Opportunities for foreign brands purchasing power of the rural community
After cancelation of agriculture taxes in 2006, Zhuang Jian(a senior economist with the Asian Development Bank. ) said, "These measures will help improve the rural areas' consumption environment and increase rural farmers' consumption power.“
marketers are looking for extending their product categories to an unexplored market
educational level no. of available intellectual labors
Governmental supports construction of infrastructures e.g. electronics, highways and mass train railway system
Lots of lands + lower rent lower the TC
Opportunities for foreign brands purchasing power of the rural community
• After cancelation of agriculture taxes in 2006, Zhuang Jian(a senior economist with the Asian Development Bank. ) said, "These measures will help improve the rural areas' consumption environment and increase rural farmers' consumption power.“
Competitive
• marketers are looking for extending their product categories to an unexplored market
Governmental supports construction of infrastructures e.g. electronics, highways and mass train railway system
Lots of lands + lower rent lower the TC
Number of High-school graduates in different provinces
Reference: China Statistical Yearbook 2007
Opportunities for foreign brands purchasing power of the rural community
After cancelation of agriculture taxes in 2006, Zhuang Jian(a senior economist with the Asian Development Bank. ) said, "These measures will help improve the rural areas' consumption environment and increase rural farmers' consumption power.“
competitive
marketers are looking for extending their product categories to an unexplored market
educational level no. of available intellectual labors
construction of infrastructures e.g. electronics, highways and mass train railway system
lower the TC
Infrastructures constructed in China from 1990-2005
Reference: China Statistical Yearbook 2007
Kinds of products corresponding strategies
Market Penetration
ProductDevelopment
Market Development Diversification
Current Market New Market
Current
Product
New Product
~Strategies~ Product Development
For existing goods to seek new markets
• review new demographic + geographic mkt
• MR whether the market is profitable
e.g. Lhasa ( 拉薩 ) not exploit yetGood infrastructure supports e.g. Tibet Sky
Railway ( 青藏鐵路 )Rapid economic growth ( increase 20% )
Case Studies
• Starbucks
1996 150 Coffee Shops in China + mainly in coastal cities
Current over 2000 Coffee shops in China
Occupy most of the cities and rural areas
~Strategies~Diversification
For new products to seek new markets
• category of products
• Diverse locations
• Cooperation with other related firms
• Highly practical
Case Study
Lacoste• diversity of products e.g. Shoes, clothes• Station in most of the cities and rural areas Over 400,000 items of
Lacoste products were sold at its 200 sales points in China in 2003 e.g. Shanghai, Xian, Jilin, Hubei, with total sales of about US$70 million
• Cooperation with other firms Chance of exposure to all Chinesee.g. International Tennis Federation, French Golf Federation
Reference: http://english.peopledaily.com.cn/200409/20/eng20040920_157655.html
Product Strategies• Practical, Necessities, quality-guaranteed
Price Strategies• Affordable, maintenance needed
Promotion Strategies• TV ad, Newspapers ad, Bus Stop ad, vehicles ad
Place Strategies• Downtowns, town centers, even stores in villages
Conclusion