Across China: China’s Wealth Gap Widens Chan Man Lok (1013 638) Cheung Ka Ying (1066 685) Luk Sin...

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

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

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

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

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 )

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

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!

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

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/

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

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

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

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

Number of Major Durable Goods by Region (2005)

Number of Necessities by Region (2005)

　　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　　　

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

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

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

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)

*TOI – Time Orientation Index (reflects retention trend of formed consumption habit)

0102030405060708090

NorthChina

East China NortheastChina

SouthChina

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)

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)

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

SoutheastChina

East China North China South China

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

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 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)

Southwest China East China North China

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

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 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

*MNI – Man-Nature Orientation (reflects passive & negative consumption behavior)

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)

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

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

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

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

Number of High-school graduates in different provinces

competitive

construction of infrastructures e.g. electronics, highways and mass train railway system

lower the TC

Infrastructures constructed in China from 1990-2005

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

Across China: China’s Wealth Gap Widens Chan Man Lok (1013 638) Cheung Ka Ying (1066 685) Luk Sin...

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