golden weeks

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Welcome

This report, The Chinese GoldenWeeks in Fast Growth Cities, canbenefit brands and retailers currentlyin Chinaor planning to be presentin the near future.

It examines the purchasing attitudesand behaviors of consumers in

China's fastest growing cities duringthe Golden Weeks. Golden Weeksgenerally refers to Spring Festival, orChinese New Year, as well to the twoholidays we highlight in this report,Labor Day in the spring and NationalDay in the fall. They are shoppingfestivals.

These consumers represent themajority of Chinas urban population.They live not in Shanghai, Beijing orother world-class centers, but in whatoften are designated Tier 2 and Tier3 cities. In household income many ofthese cities are just two years behindShanghai and rapidly closing the gap.Their Golden Weeks spending is asignpost of Chinas broad and rapidlyrising middle class.

Winning the attention and approval

of these consumers, especially duringthe key Golden Weeks sales periods,

is an unparalleled opportunity toposition for long-term growth in theworlds largest market. This reportprovides insights necessary to createthe strategies and tactics that canlead to solid and sustainable success.

Chinas government established

the spring and fall Golden Weeksjust over a d ecade ago t o ba lancean export -dr iven economy bystimulating domestic consumerspending. Today, Labor Day andNational Day are periods whenconsumers seek the best deals onbig-ticket home electronics, digitaldevices and appliances. And withtime off from work to relax withfriends and family, consumers alsoincrease their FMCG spending.

Weve marshaled the unparalleledmarket knowledge and expertise ofWPP companies in China to revealthe intricate workings of the GoldenWeeks and to explore up-closeand in great detail the life stagesand need states that influence howconsumers in Tier 2 and 3 cities live,shop, evaluate brands and make

purchasing decisions.

Ethnographic researchers fromAdded Value spent several weeksdu r in g t h e p r e pa r a t io n a n dpurchasing phases of the Labor Day2012with three families from twoTier 2 cities, Nanjing and Wuxi. Theyobserved and interacted with severalgenerations of the families in their

homes, interviewed them about theirpurchasing needs and accompaniedthem on shopping trips. Internationalphotojournalist Cecilie stergrendocumented this field research andher work illustrates this study.

This research, and the insightsand commentary contributed byother China-based WPP agencies,was informed by the proprietaryintelligence of BrandZ, the worldslargest and most comprehensivesource of brand equity knowledgeand insight, available exclusively toWPP companies and clients. The WPPcompany contributors to this reportand their contributions include:

Added Value Extensive originalresearch and fresh insights about thelives, shopping habits and purchasing

decisions of consumers in Tier 2 and3 cities

BrandZAnalysis of how Chineseconsumers view the efficacy andemotionality of home electronics andappliance manufacturer, retailer andFMCG brands

CNRS-TGIMarket penetration levelscomparing various international

and Chinese home electronics andappliance brands, including TVs,air conditioners, refrigerators andwashing machines

Hill+Knowlton StrategiesInsightsinto the business and PR landscapesurrounding Golden Weeks

Kantar Worldpanel A three-yearreview comparing the relative influenceof the spring and fall Golden Weeksand Chinese New Year on householdspending, specifically FMCG products

Millward Brown An original survey,specifically for this report, into howconsumer purchasing attitudescorrespond to various holidays on theChinese calendar, focusing especiallyon the Golden Weeks in Tier 2 and 3cities

Mindshare An analysis of spendingacross TV, print, online and othermedia in the run-up to the spring andfall Golden Weeks

Ogilvy Action Insights about theimpact of social media on purchasebehavior and the role of shopper

marketing

We organized all of this originalresearch into a comprehensive three-part text and photo narrative thatclearly presents the findings and theirpractical applications.

Part 1: Golden Opportunitiessets the context, expanding on thesignificance of the Golden Weekspurchasing period, the growingimpact of Lower Tier cities andthe rising importance of brands. Itexplains what people buy duringGolden Weeks, where and how theyshop and what brand manufacturersand retailers need to know to succeed.

Part 2: Shopper Journeysfollows three families during theirGolden Week shopping cycles, frompreparation through purchasing,delivery and installation. Thesecase studies illustrate and reinforce,in photographs and text, the

knowledge outlined in Part 1. Callouts provide additional insights andanalysis of relevant brands.

Part 3: Best Practices | Shopper

Marketing and Mediadescribes the current marketing andmedia environment and highlightsopportunities for brand owners to mosteffectively and efficiently communicatein the run-up to the Golden Weeks andduring the holidays.

The Chinese Golden Weeks inFast Growth Cities becomes partof our rapidly growing library ofWPP BrandZ reports for buildingand sustaining valuable brands.These reports include: the annualBrandZ Top 100 Most ValuableGlobal Brands, BrandZ Top 50Most Valuable Chinese Brands, and

BrandZ Top 50 Most ValuableLatin American Brands as well asThe Chinese New Year in NextGrowth Cities.

To download complimentary copies,please go to www.brandz.com. Youllfind smart phone apps at www.

brandz.com/mobile. For our free iPadinterative magazine for the BrandZTop 100 Most Valuable GlobalBrands go to the Apple app storeand search for BrandZ 100. You'llalso find apps for the Latin AmericaTop 50 and for the Chinese NewYear report. Please see page 157 forfurther details.

I urge you to read The ChineseGolden Weeks in Fast Growth Citiesin order to fully appreciate theenormous opportunity that awaitsbrands and retailers that desire tocompete throughout China and areready to invest in understandingthe cultural nuances required tomake their ventures successful.The report offers just a glimpse ofthe extensive insightful and usefulmarket knowledge produced by our

combined WPP capabilities.

Located in Bei j ing, Shanghai,Guangzhou and many other citiesand provinces, WPP companieswith all our significant resources,including over 14,000 employeesin Greater Chinaare here to helpyou gain competitive advantage. Weoffer insights, advertising, digital,

PR, promotion, marketing, media,retail and shopper marketingtheknowledge and implementationnecessary to understand China andbuild and sustain brand value.

To learn more about how to applyth is exper t ise to benef it yourbrand, please contact any of theWPP companies that contributedto this report. Turn to page 161 forsummaries of each company and thecontact details of key executives. Orfeel free to contact me directly.

Sincerely,

David Roth

WPP

[email protected]


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ContentsKey Insights 5

Part 1: Golden Opportunities

Golden Weeks Dedicated to Shopping 13

Secondary Cities Drive Primary Growth 17

The Rapid Rise of Brand Importance 21

What People Buy 25

The Buying Process 29

How People Shop 35

Where People Shop 41Rules of the Game 45

Part 2: Shopper Journeys

Introducing the Shoppers

The Convenience Shopper 51

The Guanxi Shopper 57

The Smart Shopper 63

Case Studies: Shopping with the Families

The Convenience Shopper 69

The Guanxi Shopper 83

The Smart Shopper 95

Part 3: Best Practices

Shopper Marketing: Home Electronics and Appliances 117

Shopper Marketing: Fast Moving Consumer Goods (FMCG) 135

Media Investment 149

BrandZ Mobile 157

WPP Resources 159

WPP Company Contributors 161

Credits 163


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5 THE GOLDEN WEEKS THE SHOPPER JOURNEYS 6

Key insights for brand and retailer successduring the Golden Weeks

Sell where most people live.

Establishing a brand in Shanghaiand the other Chinese world-classcities is important. But the vastmajority of Chinas increasinglyaffluent consumers dont live inthose metropolises. They can befound in the hundreds of LowerT ie r c i t i e s wh e r e h o u se h o ldincome, appreciation for brandsand consumer sophistication areincreasing rapidly. These consumersrepresent enormous potent ia lpurchasing power. Understandingand reaching them is critical for anyretailer or brand manufacturer intenton doing business in China.

Reach people who need your

products to improve their lives.

Households in Tier 2 and 3 cities areexperiencing Life Stages and NeedStates that drive major purchases.Many people are buying new homesfor the first time. And in China, newliving space is delivered as an emptyshell that requires total outfitting fromfixtures to furnishings. Other people,having enjoyed growing affluence fora few years, now are ready to replaceor upgrade their electronics andappliances.

Prepare perpetually.

Golden Weeks happen several timesa year, so brands and retailers needbe perpetually prepared. Althoughjust a few of weeks on the calendar,the holidays can occupy the minds ofconsumers for months.

Learn how consumers prepare.

Our research revealed that mostconsumers go through a three-phase process: Perception (I have torepair, replace or upgrade a product),Preparat ion (What brands andretailers do I want to consider?) andPurchasing (Where can I negotiatethe best deal?). Brands and retailersneed well thought out strategies andtactics for each phase.

Know the shopper strategies.

M o st sh o ppe r s a do pt o n e o fthree strategies to cope with thedemanding task of negotiating thebest deals during Golden Weeks,our research discovered. Linked toboth the size of their purchases andto their individual personalities, thesestrategiesconvenience shopper,guanxi shopper and smart shopperdetermine how much time and effortshoppers will devote to each of thethe three phases of Golden Weekspreparation. The combination of athree-phase preparation processand three shopper strategies formsa matrix. Every intersection of thematrix is an opportunity for tailoredcommunication.

Participate. Its imperative.

The Golden Weeks are nationalshopping holidays that happen twicea yearin the spring and fall. Salesrise sharply for the key Fast GrowingConsumer Goods (FMCG) categoriesand they spike dramatically for homeelectronics, appliances, mobilephones, laptops and other digitaldevices. Golden Weeks participation isimperative for brands and retailers thatwant to compete in China. The holidaysalso are an important of indicator ofretailer and brand strength. If youreparticipating in Golden Weeks and notwinning your fair share its important tounderstand why.

Or dont participate.

Its possible to succeed in Chinawithout taking advantage of GoldenWeeks shopping. But why dothat? Ignoring the Golden Weeksopportunity is equivalent to skippingthe December holiday season. Youcould forget the fourth quarter anddepend on the rest of the year to makethe annual numbers. But would you?

DONT MISS GOLDEN OPPORTUNTIES TARGET FAST GROWTH CITIES MOBILIZE TO WIN UNDERSTAND THE PROCESS

1 2Understand the interrelated roles of

brands and retailers.

Brand owners and retailers in Chinaare engaged in a shifting balanceof power, as they are elsewhere.The balance is unfolding somewhatdifferently in China, however. Insome categories, such as consumerelectronics, manufacturers still exertsignificant control over pricing. Thisdynamic is particularly apparentduring the Golden Weeks whenstores are overwhelmingly staffedwith sales people employed bybrands rather than by retailers. Buteven as brand owners create much ofthe buzz inside the store during theGolden Weeks, the retailers overlaya storewide marketing message, todraw crowds to the location ratherthan to any particular brand.

3 4


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Differentiate with shopper

marketing.

Reta i le rs and brands need tocommunicate long before theGolden Weeks to get the attentionof consumers while theyre searchingonline, reading newspapers orwatching TV. Theres a lot of noisearound Golden Weeks. And just beinglouder doesnt cut it. Getting themessage heard requires a 360-degreeshopper marketing approach thatreaches the consumers at differenttimes in many different ways.

Communicate online.

High visibility is critical during thepreparation period when consumersare research ing products anddeciding what brands to include ontheir consideration list and those toignore. Much of the research happensonline. Its important to be presenton consumer forums and micro-blogs, as well as in traditional media,so that when consumers finally visita storephysical or virtualtheyveencountered the brand messagemany times.

Engage in the store.

Shoppers are bombarded in thestores by a cacophony of messagesfrom sales people representingdifferent products and promotersmarch ing the a is les and loudlyadvocating for their brands. Fromthis undifferentiated noise, shoppersneed to deselect brands in orderto form a consideration list. Brandsneed to devise in-store promotionsthat cleverly continue the brandstory communicated during the run-up to the Golden Weeks. A succinctreminder of a brand's core values andemotional appeal can help it standout from all the promotional noise.

Connect emotionally.

Chinese consumers increasinglyexpect product quality. And afterdecades as the worlds factory,Chinese suppliers know how todeliver it. Theyre less experiencedc o n n e c t in g e m o t io n a l l y w i t hcustomers, however. As qualityand reliability increasingly becomehygiene factors, Chinese brandsand fore ign brands compet ingin Chinahave an opportunityto differentiate more sharply bymatching functional excellence withemotional appeal.

Win trust.

Chinese consumers have exhaustedtheir patience with products that failto meet expectations or prove unsafe.A brand that consistently deliverson the efficacy and safety of itsproducts will gain customer approval.Conversely, theres little room left forerror. An unsafe product can destroycustomer trust and devastate hard-won market share overnight. Duringthe Golden Weeks the best dealusually wins the sale. But the pricenegotiation wont take place untilthe shopper trusts that the retaileroffers genuine quality merchandiseand reliable delivery and installationservices.

Dont forget the free gifts.

The free gifts added when a dealis closed may seem trivial. Thesegifts are not trivial to the recipients.They re important cu ltura l andemotional expressions of respectthat signal to shoppers that theirpatronage is valued.

Manage the margin.

Its easy to get caught up in thebuying and selling frenzy of theGolden Weeks and, while dealingwith a complicated mix of layereddiscounts and promotions, lose trackof the overall margin. When thathappens its possible to sell a hugeamount of merchandise but makelittle or no money.

Anticipate tomorrows Golden

Weeks.

The Golden Weeks wi l l rapidlyevolve. The holidays will becomesomewhat less chaotic, althoughthey will remain essentially Chinese.In researching the Golden Weeks oftoday we also tried to distill insightsthat point to the future.

Expect success in China to become

more difficult to achieve.

As Chinas economy slows, growthwill be not just about getting aslice of an ever-expanding pie. Itincreasingly will be about gainingmarket share. Thats in part becausethe countrys success to date hasproduced more sophist icatedconsumers and more and toughercompetitors.

GET ON THE CONSIDERATION LIST STAY ON THE CONSIDERATION LIST TAKE NOTHING FOR GRANTED ANTICIPATE CHANGE

5 6 7 8


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GOLDENOPPORTUNITIES

GOLDEN OPPORTUNITIES 109 THE GOLDEN WEEKS

Part 1:


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11 THE GOLDEN WEEKS GOLDEN OPPORTUNITIES 12

In the Lower Tier city of JuRong,entertainment attracts shoppersto the electronics productsmarket where both local andnational retailers operate stores.Crowds, always importantfor brands and retailers, holdspecial significance in China. Ina country of 1.3 billion peoplethe absence of a crowd cansuggest a problem.

GOLDEN WEEKS DEDICATEDTO SHOPPINGNew holidays added to Chinas ancient calendar


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Labor Day

National Day

Spring Festival

New Year

Mid-Autumn Day

Dragon Boat Festival

Womens Day

Christmas

Valentines Day

Tomb-sweeping Day

Childrens Day

77%

73%

54%

37%

22%

7%

6%

4%

4%

2%

2%

The Chinese ca lendar is f i l ledwith holidays and festivals thatcommemorate traditions deeplyembedded in the nations 5,000-year-old heritage and follow the rhythm ofthe lunar calendar.

The spring and fall Golden Weeks arenot among them.

Ancient and traditional holidaysinclude:

Spring FestivalAlso known as Chinese New Year, itsa time for family reunions, gift givingand customs to bring good luck inthe coming year.

Tomb-Sweeping DayAlso known as Qingming, its atime in the spring for rememberingancestors.

Dragon Boat FestivalAlso known as Duanwu Festival, itcoincides with the summer solsticeand is celebrated with special foodsand dragon boat races.

In contrast, the government ofthe Peoples Republic of Chinaestabl ished the spr ing and fa l lGolden Weeks in 2000, specificallyto stimulate domestic consumptionand better balance the export-drivennational economy. It designated twoweeklong vacation periods, one inthe spring and another in the fall.

The government fixed the datesof these new consumption-drivenperiods on the secular calendar,coinciding with important communistholidays. Labor Day falls on May 1,which is International Workers Dayand National Day, on October 1,celebrates the founding of the PRC in1949.

In a 2008 reform of the nationalholiday calendar, the governmentmodified the length of the springGolden Week. The time off from workstimulated increased spending onshopping and travel, as intended, butit also disrupted normal commerce.

Labor Day now is celebrated for threedays and National Day is celebratedfor seven. By shortening the springholiday period the governmentserves the twin imperatives of g rowthand stability. Since both GoldenWeeks are recent inventions neitheris associated with traditional giftgiving.

Both holidays are pure shoppingfestivals. In fact, of all the holidays onthe Chinese calendar, National Day isthe one most dedicated to shopping,according to the 2012 GoldenWeeks and Chinese Public Holidaysurvey completed by Millward Brownspecifically for this report. The surveyinvestigated purchasing behavior inTier 1, 2 and 3 cities.

Consumers in all tiers view thetraditional holidays as times forleisure, family reunion or tourism. Incontrast, 64 percent of consumerssay that shopping is the main activityon National Day, the fall GoldenWeek. Similarly, Labor Day, thespring Golden Week is viewed asan important shopping time by 37percent of Chinese consumers across

Tiers 1, 2 and 3.

C o n su m e r s a l so v ie w S p r in gFestival, or Chinese New Year, andthe secular New Year as importantshopping holidays. These holidays,which focus on family gatheringsand enter ta inment , produce aspike in FMCG sales. Although theGolden Weeks are known as thetime of year for deep discounts onbig-ticket home appliances andelectronics, people are off from work,entertainment increases and FastMoving Consumer Goods (FMCG)sales also surge.

Three-quarters of consumers in Tier 2 and 3 cities say that the Golden WeeksLaborDay in the spring and National Day in the fallare the periods of the year they mostassociate with shopping and promotions.

Golden Weeks are the key periods for purchasing home electronics. In Tier 2 and 3 cities,44 percent of consumers named National Day as most important holiday for electronicsshopping and 26 percent said Labor Day is the second most important.

The Golden Weeks are for shopping Golden Weeks shopping focuses on appliances and electronics

Source: Millward Brown 2012 Golden WeeksShopper Behavior Survey

Source: Millward Brown 2012 Golden Weeks Shopper Behavior Survey

GOLDEN WEEKS DEDICATED TO SHOPPING

National Day

Spring Festival

Labor Day

New Year

Mid-autumn Day

Dragon Boat festival

Tomb-sweeping Day

1% 7% 15%

3% 2%

6%2% 1%

4% 13% 23%

15% 26% 25%

33% 14% 22%

44% 36% 6% 86%

69%

66%

M os t im port an t 2 nd i mp or ta nt 3 rd i mp or ta nt


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Greeting shoppers at anelectronics store, clowns blowup balloons and twist theminto animal shapes for children.Their presence adds to thecarnival feeling of the holidayand makes it welcoming for

families.

SECONDARY CITIES DRIVEPRIMARY GROWTHBrand potential seems inexhaustible


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12,000/$1,888

10,000/$1,573

8,000/$1,259

6,000/$944

4,000/$629

2,000/$315

2003

Tier1

2 00 4 2 00 5 2 00 6 2 00 7 2 00 8 2 00 9 2 01 0 2 01 1

Tier2 Tier3

Tier 2 and 3 cities drive Chinas futureeconomic growth and the health andexpansion of brands.

To fully benefit from this potential,brands already in China and thoseplanning to enter must understandthese markets and their consumers.

Thats why this report looks closely

at consumer attitudes and behaviorduring the Golden Weeks in thesemarkets. The years key shoppingholidays yield important insightsabout how consumers purchase big-ticket and FMCG brands.

The t ie r designat ions roughlyc o r r e spo n d t o t h e c o u n t r y ' sadministrative divisions. Tier 2 citieshistorically were provincial capitals andTier 3 cities were smaller provincialcenters. The designations can bemisleading. Theyre not about size.

The rise in household income in Lower Tier cities is keeping pace with the growth in Tier 1.Between 2003 and 2011 Tier 2 average monthly household income more than tripled. Asaverage monthly income continues to rise rapidly, Tier 2 and 3 cities experience growingaffluence and purchasing power increases.

Source: CNRS-TGI

In 1368, with the defeat of theMongols and the dawn of the MingDynasty, when Nanjing again becamethe capital of China, the city hadexisted for almost 2,000 years andits population already totaled about500,000. Today, as an industrialcenter with over eight million people,Nanjing is about the size of London.

Nanjing is one of two case studycities in this report about GoldenWeeks shopping. The other city,Wuxi, is slightly smaller. In almostany other nation cities this size wouldbe top tier. In China theyre Tier 2.

Historically, Western companies havefocused on Shanghai, along withBeijing, Guangzhou and Shenzhen,the giant metropolises along China'scoast, a region long familiar withinternational trade and forced tobe especially hospitable to foreignpowers by the Treaty of Nanking thatended the First Opium War in 1842.

But these Tier 1 cities account fora total of only around 60 millionpeople , or about 5 percent ofChinas 1.3 billion population. Andwhile Shanghais GDP expanded bya healthy 7 percent during the firstquarter of 2012, according to Forbes,the GDP of Nanjng grew by over 10percent and Wuxi by 9 percent.

The steady growth in month lyhousehold income in Tier 2 and 3cities provides a clear indication ofhow dramatically purchasing poweris increasing. As household incomecontinues to rise sharply in the Tier 1cities, Tier 2 and 3 cities are keepingpace. Poverty remains a challenge,but overall Tier 2 and 3 householdincome lags Tier 1 by only two years.

The average monthly householdincome of a Tier 2 city in 2011(6,412/US$1,008) was roughly thesame as the average householdincome of a Tier 1 city in 2009.Put into perspective, Tier 2 andmany Tier 3 cities are equivalent inhousehold income to Shanghai andBeijing just two years ago. But heresthe difference: There are 34 Tier 2cities and 249 Tier 3.

This year, for the first time, Chinaspopulation balance shifted frompredominately rural to more than50 percent urban. This urbanizationtrend seems relentless. Today 236Chinese cities have populations ofover 500,000, compared with 51cities in 1980, according to the UN.Over 160 of Chinas cities exceedone million in population.

This rapid rise in household incomehelps improve living standardsacross China. People can meettheir everyday needs with more andhigher quality FMCG products. Andproducts that fulfill their wants, suchas home electronics or even cars,become more affordable.

NanjingPOPULATION 8.1 millionGDP 615 billion/$97 billion

Nanjing was established about2,500 years ago as a fort andsubsequently served as thecapita l o f many dynast ies.Residents suffered a brutalmassacre in 1937 during theSino-Japanese war. Today, thecity is a center of industrialinvestment that includes a broadpresence of both Chinese andmulti-national companies.

WuxiPOPULATION 6.4 millionGDP 688 billion//$108 billion

Established about 3,000 yearsago, Wuxi is located along theGrand Canal, the thousand-m i le wa t e r wa y da t i n g t oanc ient China. Hi stor ica l lyWuxi flourished as a center foragriculture and silk and by thetwentieth century the city hadbecome one of Chinas leadingtextile producers.

The Tier SystemTier 1:(3 cities)Beijing, Shanghai, Guangzhou

Tier 2:(34 cities)Mostly provincial capitals

Tier 3:(249 cities)Prefecture cities

Tier 4:(368 cities)County level

Tier 5:Smaller than county level

The tier system divides Chinascities into tiers that reflect theadministrative division of thecountry into a hierarchy thatincludes provinces comprisedof urban prefectures subdividedinto counties and then smallcities and rural areas.

Cities shift tiers as they changein size. Despite this fluidity,tiers are a useful devise formarketers developing plansto reach a country as vast anddiverse as China.

Average Monthly Household Income Rising Rapidly

Home ownership is rising rapidly inthese cities. And more people willbe in the most acquisitive life stages:getting married, starting families,moving into new homes, furnishingapartments, replacing and upgradingappliances and consumer electronics.The potential for brands, particularlyduring the Golden Weeks, seemsinexhaustible.

SECONDARY CITIES DRIVE PRIMARY GROWTH


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The preparation for GoldenWeeks and the actual shoppingcan be hard work. But peoplealso see the holidays as atime for fun and shopping canbecome a family outing.

THE RAPID RISE OFBRAND IMPORTANCE

Attitudes changing quickly throughout China


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Brand rapidly is becoming animportant purchasing considerationamong consumers throughout China.

Growth in the value of the BrandZTop 50 Most Valuable Chinese Brandsillustrates the point. The Top 50increased 16 percent in value in 2011to $325 billion, led by technologyand FMCG.

International brands should continueto enjoy a favorable position in Tier1 cities, according to these data, andwith the exception of categories, suchas luxury, that remain the province ofinternational brands, Chinese brandsface a major opportunity in Tier 2 andTier 3 cities.

That said, the preference for domesticover international brands dependssomewhat on the consumers needstate. This variation is apparent duringthe Golden Weeks. When buyingFMCG products to meet everydayhousehold needs consumers tendto prefer Chinese brands. Fordiscretionary products that fulfillwants, such as the desire for a big-screen TV, other factors like "face"may influence consumer purchasedecisions and could perhaps benefitinternational brands.

This new receptivity to brands affordsbrand owners a unique opportunityto connect with consumers now,as they re forming the ir brandpreferences, rather than later whenaffiliations become more fixed.

The speed of change in China makesthe need for action urgent. But thesituation also is complicated becauseattitudes toward brand are evolving indifferent ways in in Tier 1 and LowerTier cities.

Especially in the Tier 1 cities inEastern China, consumers for a longtime have embraced internationalbrands for personal esteem and toproject status. Consumers in thesemarkets also rely on brands forreassurance about product qualityand safety.

As brand becomes more importantin Lower Tier cities, the interest ininternational brands should grow.International brands can prepare forthis evolution by understanding Tier 2and Tier 3 consumers and introducingbrands in relevant ways. But time isshort. Lower Tier shopping attitudesare quickly evolving.

The gap between how Tier 1 andTier 2 and 3 consumers feel aboutshopping in nice environments, forexample, closed dramatically in justthe past three years. The changereflects the growing affluence andshopping sophistication of consumersin Lower Tier cities. Saying they likea nice shopping experience doesntmean that consumers in thesemarkets are willing to pay extra forit, of course. And media plans foreffectively reaching this audience willdiffer by tier.

45.3%

2009 2010 2011

49.2%

51.2%

In just a three-year period, between2009 and 2011, the percent of peoplethroughout China who believe brandmatters and affects how others view themincreased significantly.

Source: CNRS-TGI

Brands matter throughout China

Tier 1 consumers preferred international brands while Tier 2 and Tier 3 consumerspurchased Chinese brand products.

The preference regarding international and domestic brands sharpened over the three-year period between 2009 and 2011.

Attitude shifts over the past three years reveal that consumers in Tier 1 and Tier 2 and3 cities agree on at least one purchasing-related question. They all like to shop in niceenvironments.

Source: CNRS-TGI INDEX=100

People who agree, "I prefer to buy imports compared with domestic products." INDEX=100

Source: CNRS-TGI

Percentage of people who agree, "I like to shop in a nice environment."

Source: CNRS-TGI

But the preference for international or domestic brands differs by tier

The preference sharpened over time

But the gap can close quickly

Residents in Lower Tier c it iestend to be less affluent and theirpurchasing decisions more practicaland price driven. To these consumersthe funct iona l ity o f a brand ismore important than the status itconfers. In addition, the Lower Tierpreference for Chinese brands is inpart nationalistic. Consumers in thesecities tend to believe that Chinesecitizens should buy Chinese products.

THE RAPID RISE OF BRAND IMPORTANCE

125

120

115

110

105

100

95

90Tier 1 Tier 2 Tier 3

Iprefertobuyimportscomparedwithdomesticproducts

Ibuygoodsproducedby myowncountrywheneverIcan

130

120

110

100

90

80

Tier 1 Tier 2 Tier 3

2009 2010 2011

80

70

60

50

40

30

20

10

0

2009 2010 2011

Tier 1 Tier2 Tier 3

These contrasting attitudes, especiallyrelevant during the Golden Weeksshopping periods, are documentedin the China National ResidentsSurvey, syndicated market and mediaresearch conducted by TGI and basedon 93,000 annual Chinese consumerinterviews.


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Shoppers crowd into narrowaisles lined with refrigeratorson one side and washingmachines on the other. In blueshirts, eight sales people mostlyrepresentatives of the severalChinese brands, includingHisense, Midea, and LittleSwan, demonstrate products

and answer questions.

WHAT PEOPLE BUYBig-ticket electronics spike but FMCG grows too


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Chinese holidays are associated withmany product categories.

Sales of gift items, food for cookingholiday meals and alcohol peakduring Chinese New Year, alsoknown as the Spring Festival. FMCGpurchasing increases during theGolden Weeks, too, especially theweeklong National Day observance inthe fall when people spend relaxationtime with family and friends.

But the government invented bothGolden Week periodsNationalDay and Labor Day in the springto drive consumption, and theseholidays are best known as the timewhen sales of big-ticket purchasesof home electronics and appliancesspike because brands and retailersoffer the years deepest discounts.

Consumers prepare months beforethe holidays, researching online andconducting in-store reconnaissance

to compare brands, features andprices. Many, with new homes, arebuying everything at once. Wellinformed, they shop during theholidays determined to negotiate thebest deals on products for the homethat make life more comfortable(appliances) or pleasurable (consumerelectronics).

During the Golden Weeks holidaysconsumers purchase a wide variety ofdigital devices, appliances and homeentertainment. In Tier 2 and 3 cities,mobile phones, air conditioners, TVsand refrigerators top the list of itemspurchased, according to our study ofholiday purchasing, which focusedparticularly on Labor Day, the springGolden Week holiday.

Although shopping for high-ticketelectrical products dominates theGolden Weeks, consumers alsoenjoy their days away from work inother ways, spending more timewith families and at gatherings withfriends. These activities drive arelated increase in FMCG sales.

Mobile phones, air conditioners, TVs and refrigerators are the most sought afterelectronic purchases during Labor Day in Tier 2 and 3 cities.

Consumers in Tier 2 and 3 cities spent less than Tier 1 shoppers during the 2012 springLabor Day Golden Week. But consumer spending in Tier 2 and 3 was strong. Thenumber of consumers with a significant basket size5,000 to 9,999 ($786 to $1,570)was almost comparable in Tier 1 and Tiers 2 and 3.

Not unexpectedly, given the family focus of Spring Festival, the Chinese New Year,FMCG spending rises 85-to-95 percent during the holiday. During fall Golden Week,when consumers focus primarily on electronics shopping, FMCG sales still increasesubstantially, by 20-to-30 percent.

Source: Millward Brown 2012 Golden Weeks Shopper Behavior Survey Source: Millward Brown 2012 Golden Weeks Shopper Behavior Survey Source: Kantar Worldpanel (*) Indicates second sampling within the month

Phones, AC, TV and fridges top shopping lists Tier 2 and 3 basket s ize lags Tier 1, but not by much Fal l Golden Week gives FMCG sales a second boost

The FMCG sales increase doesn'thappen automatically. It requiresFMCG brands to plan and actaggressively, increasing pack sizesand introducing more premiumoptions, for example. Brands thattake actions like these will enjoy asales lift. Those that don't will miss amajor opportunity.WHAT PEOPLE BUY

Sales of food and dairy, in particular,increase during the Golden Weeks.Alcoholic beverage sales also rise.These sales increases dont matchthe levels reached during ChineseNew Year, when feasts, entertainmentand family reunion are central to theholiday observance. Nevertheless,the sales hikes are substantial,research by Kantar Worldpanelreveals.

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9

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erUS

$79

500

-999

US$7

9-157

1,000

-1,999

US$157

-315

2,000

-2,999

US$

315-

472

3,000

-4,999

US$472

-785

5,000

-9,999

US$7

85-1,575

10,00

0an

dab

ove

US$1

,575

and

abo

ve

Tier1

Howmuch did you spend during this LaborDay?

Tier2&3combined

35

30

25

20

15

10

5

0

Mobil

ePho

ne

AirC

ondition

er

TV(flat

only)

Refrige

rator

Laptop

s

Washin

gMachin

e

Table

tCom

puter

Digit

alCa

mer

Desktops

Micr

owaveO

ven

Video

Came

ra

35

30

25

20

15

10

5

0

Whatdid you purchase during laborday ?130bil

120bil

110bil

100bil

90bil

80bil

70bil

60bil

50bil

40bil

30bil

20bil

10bil

US$20.5bil

US$18.9bil

US$17.3bil

US$15.7bil

US$14bil

US$13bil

US$11bil

US$9.4bil

US$7.8bil

US$6.3bil

US$4.7bil

US$3.1bil

US$1.6bil

0

July2009

August

September

October

November

December

January

2010

*January

February

March

April

May

June

July

August

September

October

November

December

*December

January

2011

February

March

April

May

June

July

August

September

October

November

December

*December

January

2012

February

March

April

May

June

CNY

Golden Week

Percentofconsumers

Percentofconsumers


16/86



17/86


In-store promotion paradesare a standard Golden Weeksfeature. Adding to the noiselevel and crowding, theyheighten the retail excitement.These young women in identicaluniforms are promoting aChinese brand mobile phone.A script they recite in unisonis broadcast from smallloudspeakers hanging fromtheir waists.

THE BUYING PROCESSSeeking the best deals on electronics



18/86

The Golden Weeks primarily are atime when consumers shop for big-ticket consumer electronics andappliances. They begin their GoldenWeeks purchasing activity online andlong before the holidays.

These are considered purchases,mostly for home electronics, digitaldevices and appliances. A three-level hierarchy of needs and attitudesdrives the process.

Life StageWhat major eventsmarr iage,new home, growing child needingstudy spaceare happening in theshoppers life?

Need StateWhat purchasingrepair, replace,upgradeneeds does this Life Stagetrigger?

StrategyBased on the t ime and ef for trequired, what shopping strategyconvenience, guanxi, smartwill theshopper use to satisfy the purchasingneeds?

Its important for brands to engagewith consumers early and focuson Life Stage because Life Stageis an accurate forecaster of need.Knowing Life Stage enables brandsto anticipate both the productsconsumers plan to buy and thestrategy theyll adopt to buy them.

Marriage, for example, signals aneed to set up a new home and buymany big-ticket items. Consumersplanning to spend substantial sumsoften adopt a smart shopperstrategy. They research extensivelyand negotiate price intensively. (Pleasesee How People Shop on page 36.)

China's approach to new home orapartment development in partdrives the size of the purchase. Thenew space is delivered as an emptyshell that needs to be finished by thenew owner.

Li fe Stage is the key dr iver o felectronics purchases. Consumersdev ise of ten-e laborate gameplans for getting the best deal onelectronics during the Golden Weeksholidays. These plans divide intothree phases: Perception, Preparationand Purchasing.

PERCEPTIONThe process begins with a perceivedneed usually driven by Life Stage.Consumers ask themselves a series ofquestions to clarify what they need tobuy and when and where they needto buy it.

What do I need? Am I in the market for an upgrade,

replacement or new purchase?

I f I m upgrading, why am Iupgrading? Is it for a functionalreason (I want more power and

efficiency) or for a brand reason(I want to go from a basic to apremium or international brandand satisfy status needs)?

When do I need it? Can I defer the purchase until the

holiday or not?

Is my purchase essential or not?What impact will lacking this itemhave on my life? Is its importanceessential (a refrigerator) or limited(a small appliance)?

Where should I buy it? Do I need just one item or do I

have a bulk purchase to make?

Do I know anyone who can helpme get the best deal?

Can I group buy with other peopleto get an even better deal?

PREPARATIONThe preparation period begins weeks,even months, prior to Labor Day orNational Day. To consider productfunctionality, brand options andprices, consumers visit both brandand retailer websites. In Tier 2 and 3cities, 66 percent of consumers visit aphysical retailer prior to purchase and40 percent check out online offers,according to our Millward Brownholiday survey.

Although consumersbegin the buying processlong before the GoldenWeek holidays, often withextensive online and in-store research, retailersdont prepare stores withpoint-of-sale promotion

materials until perhaps aweek before the holidays.Brands also wait untilsoon before the holidaysto activate in the store.Because most storesmerchandising look similar,retailers and brandshave an opportunity todifferentiate.

Brand & retailerpreparation

INSIGHT Consumers check pure online siteslike Taobao or 365Buy to purchaseand also to find a reference price fora transaction that might ultimatelytakes place in a physical store.Consumers add to their knowledgeby networking with family and friendsand checking Chinas many microblogs. Word of mouth is the mostimportant information channel in Tier2 and 3 cities.

Word of mouth is an important information channel for consumers in Tier 2 and 3 cities.They also search online, particularly viewing brand websites, and TV remains significant.


Word of mouth is an important information channel

THE BUYING PROCESS

Upgrading brands and replacement of oldproducts are the main drivers of purchasesin Tier 2 and 3 cities.


Upgrading and replacement

drive purchasingMore than a quarter of consumers in Tier2 and 3 cities begin planning for LaborDay shopping a week before the holiday,while a third focus on shopping a monthbefore the holiday and 10 percent beginplanning even earlier.


Consumers plan shopping weeks,even months in advance

Upgrade brand

Why did you make your purchase? (MA)

Replacements

Firsttime purchasenewhome

Upgrade mode

Replacements

Firsttime purchasemarriage

Tier2&3 combined

43

54

20

0 10 20 30 40 50 60

28

5

13

When did you start preparing foryour Labor Day purchase?

1-2 day in advance

3-6 days

1 week

2-3 weeks

1 month

More than 2 months

26%

7% 35%

9%

13%10%

Magazine 1 % 4% 3 %

Radio 2 % 2% 4 %

LCD 1% 4% 4%

Bus body/subway 2% 4% 4%

Portal website(i.e. Sina automotive) 4% 3% 6%

Social media (i.e. Kaixin001, Weibo) 2% 6% 6%

Outdoorads 2% 6% 9%

ProfessionalBBS 6% 6% 6%

Newspaper 9% 7% 9%

Search engine(i.e. Baidu, Google) 15% 16% 8%

TV 10% 16% 13%

Recommended by friends/family 24% 12% 14%

Brandwebsite(i.e.Brandofficialwebsite) 20% 12% 12%

M os t im port an t 2 nd i mp or ta nt 3 rd i mp or ta nt


19/86



20/86

Promotions engage everysense. Retailers switch on allentertainment electronics andappliances and aisles fill withthe sound and light of TVs,the aroma from rice cookersand other appliances and, asthese shoppers discovered, thesteam blown from humidifiers.Touching and trying products isexpected. Salespeople circulatewith free water.

HOW PEOPLE SHOPShopping strategies for winning a deal

37 THE GOLDEN WEEKS

INSIGHT


21/86

Growing affluence, home ownershipand access to consumer goods drivesthe growth of high-ticket purchases inChinas Tier 1 and Tier 2 cities. Acrossall Life Stages and Need States,these Chinese consumers believethat the more time and energy theydevote to researching and shopping,the better deal theyll get during theGolden Weeks holidays.

But devotion varies by shopper.D e p e n d i n g o n f i n a n c i a lcircumstances, time available, sizeof purchase and personality Chineseconsumers in Tier 2 and Tier 3 citiestypically adopt one of three shoppingst rategies for research ing andpurchasing home electronic productsand appliances during the GoldenWeeks.

The strategy selectedconvenience,smart or guanxidepends on how aconsumer balances the need to gainthe best possible deal against thetime and energy required to achieveit, our research by Added Value inNanjing and Wuxi revealed. Thestrategies form a continuum.

At one end of the cont inuum,convenience strategy shoppers

invest less than full time and energyto the purchasing process but willaccept less of a discount. Anchoringthe other end of the continuum, thesmart shopper strategy is adopted bypeople willing to devote enormoustime and energy in pursuit of the bestpossible deal.

CONVENIENCEA d i s c o u n t i s i m p o r t a n t t oconvenience shoppers and theyrewilling to exert a certain amount ofeffort to obtain it. Otherwise, theycould pay full price before or afterthe holiday periods and avoid all ofthe holiday hassle. But convenienceshoppers make a trade off, sacrificingsome discount for time and energysaved.

The convenience shoppers expectto get at least the averageabout15 percent discount for Labor Dayand National Day transactions. Timeconstrained consumers, and thoseneeding only a few relatively low-price items, are more likely to selectthe convenience strategy. Theyllmove through the entire shoppingprocess, including research, but athigh speed.

HOW PEOPLE SHOP

Although this description sounds asif it could fit western shoppers, thereare important differences. In theWest, all shopperswhether makingminimal or maximum effort to achievethe best dealwould have access tothe same pricing information.

Thats not the case in China where, inthe electricals sector, the best priceusually is not the one that appears onthe shelf, in an ad or on a website.Its the price that emerges only afterintense face-to-face negotiation. Thelack of immediate price transparencydisadvantages the convenienceshopper.

Although consumers viewLabor Day and GoldenWeek as the time to findthe best deals, the levelof shopper involvementisnt always determinedby income. Even the mostaffluent people engage inserious shopping becausefinding the best deal isimportant for self esteem,or face. Especially withhome electronics, Chineseconsumers gain esteemnot just from havingpurchased the right brand,but also from havingpurchased the right brandat the best price.

It's all aboutgetting a dealbut not just aboutgetting a deal.

INSIGHT

Shoppers are sophisticatedand often tireless asthey network online andwith friends and familygathering intelligence thatwill help them negotiatethe best deal. Salespeople

need to be well preparedbecause, to avoiddisadvantage and losingface, shoppers are unlikelyto negotiate without beingextremely knowledgeable.And well preparedsalespeople gain morepower in the negotiations.

Salespeople needto be as preparedas shoppers

INSIGHTThe guanxi shopping strategy can befound anywhere along the continuum.These shoppers, who expend variousamounts of time and energy on thebuying process, ultimately dependon a personal relationship, or guanxi,to achieve what they hope will be thebest possible deal. Variations existwithin each strategy.

39 THE GOLDEN WEEKS


22/86

GUANXIOf the three shopping strategies,Guanxi is the most distinctivelyC h i n e s e . I t e m p h a s i z e s t h eimportance of a personal relationshipto obtain the best deal.

Guanxi is a relationship, or a network

of re lat ionsh ips, in which thepartners invoke mutual obligationas a kind of currency to obtainand reciprocate favors. Over time,the ledger of benefits given andreceived must balance. In the GoldenWeek context, the guanxi shopperrequests a favora good dealfromsomeone in a position to deliver it, abrand manufacturer or retailer friend.

Although vouchers and gifts are important purchasing incentives and emotional drivers,consumers overwhelmingly rank direct discounts as the most important type of money-saving offer.


Consumers prefer direct discountsShoppers who intend to use guanxitypically contact their friend earlyin the shopping process. Likeconvenience shoppers, they hopeto exert minimum effort. Shoppersmore determined to secure thebest possible deal dont depend

exclusively on guanxi. They firstresearch and gather all availablediscounts before asking a friend forthe best possible deal. These guanxishoppers act like smart shoppers.

Guanxi can be tricky. It can shortenthe shopping process but, becauseof the nuances of a personalrelationship, guanxi cant guaranteethe best deal.

SMARTThese shoppers do the most intensiveand thorough job of research eitherbecause theyre naturally disposedto behave that way or theyre aboutto spend a large sum of money on ahigh-ticket item or large basket.

Especially in the fast-growing LowerTier cities, these smart shoppersoften are in a Need State drivenby rising affluence. They may befurnishing a new home, for example.In these circumstances, savings oneach item helps and can add up toa substantial amount for the totalpurchase.

Smart shoppers check prices online,visit many stores, find all availablediscounts and vouchers f romwhich they construct and evaluatecompetitive offers. Because thisprocess takes time, smart shoppersenlist help.

While convenience and guanx ishoppers usually visit stores alone orin small groups, shoppers who adoptthe smart strategy are more likely tobe accompanied by an entourageof friends and family across multiplegenerations. This support group helps

with some of shoppings physicaltasks, such as obtaining vouchers.

The group does not act as an advisorycounsel, however. It helps executethe Labor Day or National Day gameplan, but the person making thepurchase ultimately decides whatdeal to accept.

81%

21%

9%

34%

34%

14%

9%

35%

35%

14%

4%

4%4%

1%

Direct discount

Gifts

Voucher

%

500

Strongly l ike L ike

Dont l ike Strongly dont like

Just so so

Golden Weeks shopping isbased on a paradox. In anenvironment where theresno price transparency,because the sticker pricemeans little, there is totaltransparency becauseeveryone knows that the

sticker price means littleand, through networking,everyone can learn thebest deal.

The transparencyparadox

INSIGHT


All the major brands employ


23/86

All the major brands employpeople to draw attention inretailer-owned stores and directshoppers to their departments.This salesperson promotesMotorola at a Suning store,while the girl at the left in thephoto looks at a list of availablemobile phone numbers.WHERE PEOPLE SHOP

Shoppers crowd the leading electronics retailers

43 THE GOLDEN WEEKS


24/86

Having selected a shopping strategyfor winning a good deal on whitegoods or home electronics duringthe Golden Weeks, consumers needto decide not only on the productbrands they most desire, but whereto purchase them.

People often begin their researchonline. They may start with a searchon Baidu, China's dominant searchengine and the world's largest afterGoogle. And theyll check out Tencent,Chinas largest online communitywith as many users in China alone asFacebook has worldwide.

In fact, shopping research is a keygrowth driver of social networkingin China. Consumer reviews, ratingsites, forums and discussion boardsinfluence the purchase decisions ofChinas Internet users.

WHERE PEOPLE SHOP

Consumers are more likely to purchase from pure online brands like Taobao and360buy rather than the online sites of bricks and mortar retailers.


Some consumers purchase onlineBeyond using the Internet to compareproduct features and pr i ces ,Chinese consumers exchange retailintelligence, including the discountsand vouchers available at specificstores and even experiences withparticular salespeople.

Some consumers purchase online.They tend to consider purchasingfrom the pure online brands such asTaobao (52 percent) or 360Buy (47percent), rather than the online sitesof the bricks and mortar leaders.

Most consumers prefer to experiencethe merchandise firsthand and interactwith salespeople about productfeatures, prices and discounts. Theirvisits to home electronics retailersmay include regional brands, likeFive Star, and Chinas two nationalelectronics retailer leadersSuning,which operates a portfolio of morethan 1,500 stores, and Gome witharound 1,200 stores.

What stores consumers choose to visitdepends on several factors includingconvenience and past experiencewith the brand. Consumers oftenwill visit several stores during thepreparation period when theyreresearching. Ultimately, they spendmoney in the store that offers thewinning combination of product,price, trustworthiness and discounts,basically the best value proposition.

Although for consumersthe Golden Weeks are allabout winning the bestdeal, trust comes first.The price discussiondoesnt happen until

consumers trust thatthe manufacturer andthe retailer offer qualityproducts and reliablefollow-up. The need fortrust as a preconditionto price negotiationunderscores theimportance of brand.

Trust is moreimportant thanprice

INSIGHT

Most consumers prefer to purchase fromphysical electronics retailers and especiallyfrom the national brand leaders.

Tier 2 and 3 shoppers overwhelminglypurchased from physical stores duringLabor Day 2012, and from the retai lleaders Suning and Gome in particular.

Trust in the quality of the merchandisetops consumer considerations for selectingretailers. Price is important, but consumerslist it as their third concern following trust inquality and in after-sale service.




Most consumers prefer topurchase in physical stores

Tier 2 and 3 consumers mostlybuy at physical stores

Consumers shop wherethey trust quality

52%

0%

10%

20%

30%

40%

50%

60%

47%

Taob ao 3 6 0 bu y S u n in g G o me A m azo n .c n D an gd an g N ew e gg Dazhongdianqi

34%

30%

21%

16%

10%

6%

Tier 2 and 3 shoppers demonstrate thispreference for purchasing electronicsin physical stores, according toour Millward Brown research intoelectronics purchasing during LaborDay. Suning and Gome are the favoredpurchasing destinations by far.

60%

50%

40%

20%

30%

100%

90%

80%

70%

10%

5 7% 5 6%

12% 12%

4%

0%Suning Gome Fives tar MediamartDazhong

30

25

20

10

15

40

35

5

0

Oth

ers

Amaz

on.cn

Five

star

Suni

ng.com

Car

refo

ur

Dazh

ong

Gom

e.co

m.cn

Taob

ao

360b

uy

Gom

e

Suni

ng

Tier2&3 combined

34%

26%

26%

13%

17%

71%

59%

50%

44%

Quality ofproducts/guarantee the quality/

nocounterfeitorbroken goods

Aftersales service

Productprice

Productwarranty

Brand ofthe retailer

Location ofthe retailer

Range ofproduct

Sales Staff

In store environment



25/86

At the end of the shopping trip,preparing to return home, afamily organizes all its free gifts.Gifts close sales in a positiveway with a gesture that helpsshoppers feel good about theirpurchases and interactions withstore and brand salespeople.

THE RULES OF THE GAMEComplicated, ritualized, competitive and entertaining

47 THE GOLDEN WEEKS


26/86

Consumers, retailers andbrand manufacturersunderstand that theyreengaged in a relationshipand each has a role toplay. The role of thebrand manufacturer andretailer is to sell productsfor a profit. The role of

the consumer is to buyproducts at the bestpossible price. Whilethese are positions areadversarial, they also arecomplementary, a yin andyang that form a mutuallybeneficial relationship.

Manufacturers usuallyprovide discounts onindividual products, whilethe discount on top of thetotal purchase comes fromthe retailer. Manufacturersalso provide free gifts. Themyriad combinations ofmanufacturer and retailer

discounts and incentivescan make it difficult tocalculate final margins.Without sufficient analysisand oversight its too easyto sell a lot of merchandisebut make little or no profit.

The Yin and Yangof retail

The fragility ofmargins

INSIGHTINSIGHT

Almost three quarters of shoppers, 70percent, said that they were very orextremely satisfied with their Labor Daypurchases.

Almost two-thirds of shoppers, 64percent, said that they found the LaborDa y shopp ing ex per ienc e v ery orextremely pleasant.



Consumers are overwhelminglysatisfied with their holidaypurchases

And with the shoppingexperience overall

With time off for relaxation andentertaining during the GoldenWeeks, consumers increase theirFMCG purchasing. They mightpurchase larger or better knownbrands as a family treat or forentertaining. Beyond that, however,how they shop for FMCG doesn't

change much. In contrast, purchasingof home electronics and appliancesincreases dramatically during theholidays and consumer shoppingpatterns are much less routine.

Electronics stores filled with shoppersduring the Golden Weeks resembleretail crowds just about anywherein the world. But the magnitudeand style of price negotiating andmaneuvering is specifically Chinese.

What seems like a large modern storemay actually be a collection of leasedspace owned, staffed and operatedfor the benefit of a manufacturerbrand. This structure produces fierce

THE RULES OF THE GAME

inter-department competition withno incentive to benefit the overallperformance of the retailer.

Regulations govern the sticker priceshown on the shelf. But the priceon the shelf is rarely the final price.Shoppers understand this system and

visit the various brand departmentsto negotiate hard for the deepestdiscounts and other incentives.

In some instances, retailer salespeople escort shoppers throughthe store to better understand whatshoppers are buying and to assessthe margin mix and determine iffurther discounts to secure the salemight be possible.

Golden Weeks price competition canbecome so competitive, sales peoplesometimes refuse to put negotiateddiscounts in writing to preventcustomers from using these pricereferences to negotiate elsewhere.

Prior to checkout, with item-by-itemnegotiating completed, the shopperand retail sales person may engagein a final negotiation for a bundlediscount and possibly other benefitsthat close the deal.

Consumers, brand marketers andretailers embrace this intense processfor at least three reasons. First, itworks. All the participants benefit.Retailers and brand owners sell alot of merchandise and consumersreceive assurance that theyve gottena good deal on the products they

desire.

Second, i t s cu ltura l . S t rategicmaneuvering as a path to competitivesuccess is expected and respectedin China. Retailer and manufacturerattempt to ease the stress withritualized hospitality, providingshoppers with free water, hand fansto cool off and other small amenities.

Third, its expected. Changing thisroutine is possible, but it won'thappen soon.

1%5%

Extremelypleasant

4

3

2

ExtremelyStressful

30%

51%

13%

2%5%

Extremelysatisfied

4

3

2

Extremelyunsatisfied

22%

54%

16%


GOLDEN OPPORTUNITIES 5049 THE GOLDEN WEEKS


27/86

SHOPPERJOURNEYS

Part 2:



28/86

INTRODUCINGTHE CONVENIENCE SHOPPER

The family is replacing a brokenwashing machine.

Ding Jun, a 43-year-old supervisor

in a state-owned enterprise liveswith his wife and son in one of twomodest apartments that he inheritedfrom his parents. His mother XuZhihua, a 67-year-old widow, liveswith the family. Along with Mr.Dings salary, the family also receivesincome from his wifes employment.He Xiaoling, 40, works in a fashionshop operated by Mr. Dings brother.

The family considers a washingmachine espec ia l ly importantbecause 13-year-old Ding Guanjie,active in sports, changes his clothesthree or four times a day. And hisparents are concerned both abouthis hygiene and his appearance as itreflects on their status.

In the traditional way, the husbandis the key decision maker aboutelectrical items. But Mr. Ding haspostponed buying a new machine

because he likes tinkering and wantsto wait until Labor Day when heexpects to get a better price.

The family kept the current machinein the backyard where they hangclothes to dry, but theyll install thenew machine in the bathroom. InChina, washing machines usuallyare installed in bathrooms andsize is always a consideration. Inpreparation for the purchase Mr.Ding used his desktop computer toresearch online and narrow his choiceby brand.

He originally thought about buyinga Siemens unit, but it was expensive.He also looked at Little Swan, aleading Chinese brand. He visited

Taobao the online marketplace, andthe online site of electronics retailerSuning. Mr. Ding decided not to buyonline in part because he expectedto get a better deal during theholiday.

During a browsing trip to a store hediscovered a Whirlpool that fit thebathroom dimensions. Althoughhe enjoyed the shopping process,he did not research too intensively.With only one item on his shoppinglist, he didnt want to spend anoverwhelming amount of time tryingto negotiate for the best possibleprice if reasonable effort could yielda good price. Price remained animportant factor, however since thewashing machine cost perhaps 40-to-50 percent of his monthly income.

SHOPPER: Ding Jun

AGE: 43

LOCATION: Nanjing

INCOME: 8,000/mo. ($1,250)

LIFE STAGE: Married with a child

NEED STATE: Washing machine broke

SHOPPER STRATEGY: Convenience

IN-STORE TIME: 1.5 hours

ESTIMATED SAVINGS: 25 percent

W ife: He Xiaol ing Son: Di ng Guanji e


THE SHOPPER JOURNEYS 54


29/86

The couple convenes in theirdining area to discuss theirshopping needs. Their weddingphoto hangs on the far wall.

Xu Zhihua, Mr. Dings mother,lives with t he family. Shesresting in the yard where thefamily hangs clothes to dry.


30/86



31/86

INTRODUCINGTHE GUANXI SHOPPER

Gu Zhijie, 28, and Shen Juan, 26, areengaged to be married.

During the two years theyve beentogether as couple hes lived by

himself and shes lived with herparents. Theyre now preparing tomove into an apartment togetherafter theyre married. In China, thatmeans purchasing all the itemsfrom appliances to decorationrequired to transform raw concretespace into a home.

Because this process is long andexpensive, shopping well and savingmoney is important. Both individualsare employed, Mr. Gu as a chauffeura n d M s . S h e n i n t h e f i n a n c edepartment of a small householdgoods company. Their parents aremostly retired and relatively well offfinancially, in part because of savingsand inherited property. Theyllgenerously help their children.

The grooms parents set the weddingdate, in a traditional way, afterconsultation with a fortuneteller whodetermined that the most auspiciousday would be in the fall. They will

organize the wedding dinner for450 guests. The brides parents willpay for all the electronic purchases.The couples shopping list includes:a refrigerator, a washing machine,two TVsfor the living room andthe bedroomand two room airconditioners.

Although the brides parents toldtheir daughter to spend what wasneeded, they also suggested abudget of 30,000 ($4,700). Thechildren appreciated the open-endedoffer but understood they had aspending ceiling appropriate for theircircumstances, which are comfortablebut not luxurious.

Mr. Gu initially shopped alone for themerchandise. After researching onlinepurposefully for a couple of months,he began his in-store research twoweeks before Labor Day with a

visit to Gome and then Five Star,electronics chains. He also visited alocal Wuxi retailer. During these storevisits he created a shopping list ofmodel numbers and prices.

T h e c o u p l e p u r c h a s e d t h emerchandise together during theholiday at a Five Star store wherea friend of Mr. Gu worked as asalesman. Mr. Gu had discussedhis shopping list with his friend andexpected that guanxialone, themutual obligations of this personalrelationship, would yield a significantdiscount. It didnt work out exactly asplanned.

SHOPPER: Gu Zhijie

AGE: 28

LOCATION: Wuxi

INCOME: 7,000/mo. ($1,100)

LIFE STAGE: Engaged to be married

NEED STATE: Furnishing new apartment

SHOPPER STRATEGY: Guanxi

IN-STORE TIME: 2 hours

ESTIMATED SAVINGS: 15-20 percent

Father: Gu HuijunGirlfriend: Shen Juan Mother: Jiang Hui Paternal grandmother:Chen Yuzhen

Paternal grandfather:Gu Changsheng




32/86

Before going shopping, Mr. Guconsiders his purchases, in theliving room of his apartment.

Several TVs fill Mr. Gu'sbedroom in the apartmentwhere he lives alone.




33/86

On another floor of the buildingwhere Mr. Gu lives, renovationstake place in the apartment thathe and Ms. Shen will occupyafter they're married.

In the living room of his parent'shouse, where Mr. Gu oftengoes for meals, he speaks withhis mother, left, a guest and hisgrandmother, in the wheelchair.



34/86

INTRODUCINGTHE SMART SHOPPER

In an apartment building the familyowns two units, the one they occupyand the one theyre renovating.

Because Chinese employers in thepast often provided apartments aspart of worker compensation, its notunusual today for people of modestmeans to own more than oneinherited unit. Ren Lu, 29, and ChenCheng, 28, fit this description.

They married three years ago andhave a two-year-old son, ChenRen Haoqian. Mr. Chen works as aconstruction engineer and Ms. Renas an office administrator. Theyrerelatively comfortable with a monthlyincome of 12,000 ($1,880) and ahatchback MG.

Ms. Ren is the decision maker about

all household issues, but becauseshe doesnt know how to cook, Mr.Chen prepares the meals. Both setsof grandparents live nearby, closeenough to help with childcare.

Ms. Ren began her research onlineand created a shopping list thatincluded two TVs, a 42-inch modelfor the living room and a 32-inchmodel for the bedroom. Her budgetincluded 5,000-to-7,000 ($785 to$1,100) for the living room TV, wherea prestigious brand is required tomake the right impression on guests.In the bedroom, where brand isless consequential, she expectedto spend around 2,000 ($315),probably on a Chinese brand likePanda.

She selected the Panda brand afterher online researched convincedher that certain Panda models areproduced in the same factories asmodels from Sharp, the Japanesemanufacturer. She also planned tobuy air conditioners for the rentalapartment and considered pricemore important than brand becausethe appliances are for tenants, not forher family.

SHOPPER: Ren Lu

AGE: 29

LOCATION: Nanjing

INCOME: 12,000 RMB/mo. ($1,880)

LIFE STAGE: Married

NEED STATE: Renovating apartment

SHOPPER STRATEGY: Smart

IN-STORE TIME: 4 hours

ESTIMATED SAVINGS: 35 percent

Husband: Chen Cheng Paterna l grandmother:Zhang Lixia

Maternal grandmother:Chen Guiying

Son: Chen Ren Haoqian




35/86

Although Ms. Ren is thedecision maker abouthousehold issues, Mr. Chenprepares meals for the familybecause she doesnt know howto cook.

Ms. Ren plays on the floor ofthe living room with their son,while her husband and motherrelax on the couch.


36/86


Soon after the washing


37/86

Case StudiesSHOPPING WITH THE FAMILIES

CONVENIENCEShopper

gmachine broke, Ding Junbegan researching onlinefor a replacement. Helooked at Taobao, the virtualmarketplace, and website ofSuning, the electronics retailerand considered Siemens andthe Chinese brand Little Swan.He decided not to purchasefrom Taobao because he wasconcerned about accountabilityif he encountered a problemwith the merchandise.Rather than purchase onlinefrom Suning, he felt morecomfortable judging the qualityand design of the product in aphysical store.

Two Chinese brandsHaierand Litt le Swandominatethe washing machine category.Across all tiers, 22 percent ofChinese washing machine ownersown a Haier brand machine and17 percent own a Little Swan.Panasonic and Whirlpool are themost represented foreign brands.

CNRS-TGI

BRAND PENETRATIONWashing Machines


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B dZ A l i SiB dZ B d B ildi T l


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BrandZ Analysis: Siemens

2012 TrustR ValueD

Siemens

overall 102 90

Tier 1 103 94

Tier 2 101 89

Tier 3 102 87

Category Average overall 99 101

Tier 1 99 101

Tier 2 99 101

Tier 3 101 101

Top 50 Most Valuable 106 112Chinese Brands

SiemensThe German brand Siemens is

wel l known in Chinas largest

cit ies and highly regarded for

its performance. These findings,

indicated by the thickness of the

Siemens BrandZ Pyramid in Tier

1, reflect the positive perception

of foreign brands among affluent

Tier 1 residents. The relative

thinness of the bonding level of

the BrandZ Pyramid indicatesthat although consumers respect

the functional performance of

Siemens, they feel little emotional

connection to the brand. The low

ValueD score suggests that the

brands premium positioning is

accompanied by a presumption

that its high priced. The data

also indicate that Siemens is less

established in lower tier cities

where Chinese brands are strong

and consumers value function over

status. Based on the body shape

and accessories of the Brand

Toy, the consumers see Siemens

as a familiar brand with strong

potential , a caring personal i ty

and somewhat different, probably

because of i t s international

pedigree.

Source: BrandZ

TrustRAn index, based on BrandZ data,

TrustR measures the extent to whichconsumers trust and are willing torecommend individual brands. Anaverage TrustR score is 100. A scoreof 105 or more is good, 94 or less ispoor. A high TrustR score correlatespositively with bonding, sales andbrand value.

www.brandz.com

ValueDAn index, based on BrandZ data,

ValueD measures the g ap b etweenthe consumers desire for a brand andperception of the brands price. Anyscore above 100 is relatively strongbecause it signals that the brandscores higher on desire than on price.ValueD h elps brands optimize theirsales, profit and market positioning.

www.brandz.com

Brand ToysBrand Toys are visual representations

of brand personality based on brandBrandZ data combined with anindex of social media buzz. Thisinformation dictates the Brand Toyssize, shape and expression. Eyeswiden to indicate charisma, whileheight increases and legs thicken toproject trustworthiness, for example.Brand Toys stimulate creative thoughtthat can lead to new marketing andstrategic insights.

www.brandtoys.com

BrandZ PyramidThe BrandZ Pyramid measures

consumer engagement with a brand.Engagement begins on a foundationof presence (familiarity with thebrand) and builds with successivelevels: relevance (meets needsand makes the consideration set),performance (proves functionalityand makes the shor t l ist ) andadvantage (provides benefits overthe competition). Strength at eachlevel correlates with increased shareof wallet and loyalty. Strength at thepinnacle of the pyramid, bonding(emot iona l engagement ) , canindicate active brand advocacy. Thenumbers on the pyramid show thepercent of consumers that engagewith the brand at each level.

www.brandz.com

Overall Tier 1 Tier 2 Tier 3

BONDING

ADVANTAGE

PERFORMANCE

RELEVANCE

PRESENCE

3 5 3

29

58

32

42

46

73

48

22

25

54

28

13

15

45

18

26

BrandZ Brand Building ToolsThe worlds largest source of brand equity knowledge and insight,

BrandZ is available exclusively through WPP companies.


INSIGHT



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Mr. Ding then investigatedprices at another Suningstore to see whether he couldfind a better deal. Once hehad another offer he againcalled and texted the originalsaleswoman to see if she couldmatch the deal.

Two weeks later, during theholiday, Mr. Ding visited adifferent Suning store, closerto his home because it wasconvenient. But to double-check the Whirlpool offer, hecalled the saleswoman fromthe city center Suning on hermobile phone. She tried toset up an appointment withhim to arrange for the manysupervisor approvals shedneed to activate the promiseddiscounts. He set up theappointment.

In contrast tomost other markets wherestores are more widelydispersed, stores with likespecialties are clusteredtogether in China. Evenindividual brands often are

represented multiple timeswithin the same vicinity.The concentration ofstores facilitates intensivecomparison-shoppingin China. And it requiresbrands and retailers tocompete decisively.

Location,location,location

INSIGHT


Retail brand

INSIGHTBrandZ Analysis: Little Swan


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At this point, Mr. Ding knew thebrand and model number thathe wanted to purchase and wassimply working on the price,negotiating to see if he couldobtain an even better deal.Ultimately he found the bestdeal at the third Suning that hevisited.

The discounts offeredby a retail brand oftenvary by store location.This variation results fromseveral factors including:the multi-layered structureof discounts that includeboth manufacturer and

retailer deductions; anda high level of localautonomy to negotiatethe discounts. Thisphenomenon motivatesconsumers to shop atmultiple locations of thesame retailer.

discounts varyby location

BrandZ Analysis: Little Swan

2 3 3 2

44

73

53

35

47

75

56

34

45

74

53

32

38

66

46

34


BONDING

ADVANTAGE

PERFORMANCE

RELEVANCE

PRESENCE

2012 TrustR ValueD

Little Swan

overall 96 105

Tier 1 95 104

Tier 2 96 104

Tier 3 98 108


Tier 1 99 101

Tier 2 99 101

Tier 3 101 101


Little SwanThe Little Swan Chinese brand

specializes in producing washing

machines. It s wel l regarded

across al l t iers as a pragmatic

choice. The Value-D score, higher

than the category score overall,

suggests that consumers believe

Little Swan has achieved a good

balance between qual i ty and

price. But consumers have not

formed an emotional attachment

to the brand, as indicated by

the TrustR score, which is lower

than the category average, and

the relatively weak bonding level

of the BrandZ Pyramid. The

Brand Toy shape also shows that

the Little Swan brand hasnt fully

developed its potential, although

its familiar and projects a friendly

and caring attitude.

Source: BrandZ



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In the third Suning store,the sales person asked hissupervisor to see if they couldmatch or beat the existing offer.Unable to structure the dealwith the same combination ofdiscounts, vouchers and moneyback, the supervisor simplyoffered the bottom line priceof 3,500 ($550).

To qualify for the retailerdiscount, Mr. Ding needed toapply for a Suning VIP card.


Mr. Ding left the Suning storesatisfied that he got a goodprice and the cleanest deal.


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After qualifying for the SuningVIP card Mr. Ding proceeded tothe checkout.

An add-on gift of a frying panreinforced his positive feelings,sweetening the transaction withboth functional and symbolicbenefits. These low-value itemsreflect the Chinese gift-givingculture and help assure thatcustomers leave happy.

In China, Haier brand refrigeratorsa re found in more tha n aquarter of the homes that own arefrigerator. With the exceptionof Germanys Siemens, the brandowned by over 7 percent ofhouseholds with refrigerators,the other Top 5 brands bypenetration are Chinese.

CNRS-TGI

BRAND PENETRATIONRefrigerators



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Case StudiesSHOPPING WITH THE FAMILIES

GUANXIShopper

Prior to visiting stores Gu Zhijiechecked online to researchproducts and brands. For acouple getting married andsetting up a home, research,including word of mouth, isimportant for consideringbrands. The couple also spokewith their parents and friends.

Two weeks before the holidayMr. Gu began in-store researchby himself, at a Gome electronicsstore. A saleswoman walked theaisles with him, writing downmodel numbers, product featuresand prices. The saleswomanpersuaded him to consider adifferent Samsung refrigeratormodel. She offered him a pre-order form to guarantee the bestprice and avoid crowds on LaborDay. He passed up the offer.


BrandZ Analysis: Samsung

85 THE GOLDEN WEEKS


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Mr. Gu then visited a FiveStar location. He plannedto purchase a local washingmachine brand, Little Swan, butswitched to a Samsung becausethe Samsung salespersonpromised he would getsuperior quality for the sameprice. Mr. Gu also selected aSamsung refrigerator. For the

two air conditioners, however,he preferred the Chinesebrand Gree because its atrusted brand. He asked a fewtechnical questions about theair conditioners, but was nottoo interested in the brandsand features of the productsexcept for the TVs.

Source: BrandZ

BrandZ Analysis: Samsung

SamsungThe shape of the Samsung Brand

Toy suggests that the brand is

well known. The hat and pencil

accessories signify a brand thats

both in control and creative. Tier

1 consumers are most aware of

Samsung, however, and have

higher regard for its performance

and its advantages than consumers

in Tier 2 and Tier 3 cities, the

BrandZ Pyramids reveal. The

higher profi le that the Korean

manufacturer enjoys in the largest

cities reflects a trend that generally

characterizes foreign brands in

China.

2012 TrustR ValueD

Samsung

overall 100 94

Tier 1 104 94

Tier 2 99 97

Tier 3 99 87


Tier 1 99 101

Tier 2 99 101

Tier 3 101 101



BONDING

ADVANTAGE

PERFORMANCE

RELEVANCE

PRESENCE

35 33

41 39

5

71 68

47 46

51

57

85

60

60

7 5

19

25

30


BrandZ Analysis: Haier


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Mr. Gu ultimately selected a42-inch Sony 3-D TV for theliving room. After finishinghis research at Five Star, Mr.Gu also visited a local one-offelectronics store in a mall storewhere prices were somewhatmore competitive. However,because of issues of trust andfacepressure to purchasefrom a retailer his friends wouldrespecthe decided to buyonly from a national chain.

HaierHaier is especially strong in Tier

2, its home base. But the brand

has successfully established itself

throughout China, even in Tier 1

as shown by the wide and stable

BrandZ Pyramids. The thickness

of each level of the pyramids

illustrates consumer satisfactionwith Haiers overall performance.

Consumers believe that Haier has

an extremely attractive quality and

price proposition, as revealed by

the high ValueD score. The strong

TrustR score also reflects the the

high regard consumers have for

the brand's after-sales service.

Consumers admire the Haier

brand, as indicated by the body

shape of the Brand Toy. Haier is

one of the few Chinese brands that

has evolved into a multinational

pl ayer w i th a reputat i on fo r

consistent quality that consumers

dont often associate with Chinese

brands. The Brand Toys glasses

indicate that consumers see the

brand as somewhat different.

Haier ranks 29 in the 2012 BrandZ

Top 50 Most Valuable Chinese brands.

Source: BrandZ

BrandZ Analysis: Haier


BONDING

ADVANTAGE

PERFORMANCE

RELEVANCE

PRESENCE 92

81

8074

7468

24

96

86

30

98

84

75

21

84

75

67

59

20

75

With the exception of JapansSony, Chinese brands dominatethe list of the Top 5 TV brands.Among Chinese consumers whoown TVs no brand dominates,although Skyworth edges outthe competition. Over 6 percentof TV owners have a Skyworthmodel.

2012 TrustR ValueD

Haier

overall 107 127

Tier 1 102 123

Tier 2 109 130

Tier 3 111 128


Tier 1 99 101

Tier 2 99 101

Tier 3 101 101


CNRS-TGI

BRAND PENETRATIONTelevisions


BrandZ Analysis: Skyworth

89 THE GOLDEN WEEKS


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Two weeks later, on the firstday of the holiday sale, Mr. Gu,accompanied by Ms. Shen,visited the Five Star store wherea friend worked as a salesman.The couple looked at a 37-inch 3D Skyworth TV for thebedroom. They walked thestore collecting slips of paperwith model numbers and pricesfrom various sales people forthe products they intend topurchase.

SkyworthThe ValueD score summarizes thekey appeal of Skyworthprice.

The ValueD score, wel l above

the average for the TV category,

and almost equal to the average

for Chinas Top 50 most valuable

brands, indicates that Skyworth

projects a strong quality and price

proposit ion. Whi le consumers

might like more product features

from the brand, theyre willing to

compromise for affordability. The

Brand Toy indicates that the brand

generates a lot of chatter and that

consumers see it as generous and

kind. Greater emotional appeal

could help move the brand from

the bedroom to the living room.

Source: BrandZ

y y

2010 TrustR ValueD

Skyworth Televisions 97 111

Category Average 99 102Televisions


BONDING

ADVANTAGE

PERFORMANCE

RELEVANCE

PRESENCE

40

5

73

51

62


The couple expected guanxi,Mr. Gus relationship with thesalesman, to yield significantsavings. They were disappointedwhen guanxi yielded only a 5

91 THE GOLDEN WEEKS


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While the couple consideredthe TV options, Ms. Chentested the 3D glasses. She washaving fun, of course, but shealso was engaged in a first-handexperience of the product, animportant aspect of the sellingprocess in China.

Once they had all theirpaperwork, the couple waitedfor about half an hour to meetwith the salesman friend.

when guanxiyielded only a 5percent discount from their totalbundle. Because they reliedexclusively on

Documents

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