IMPLICATIONS FOR MARKETER

Understanding Chinese rural consumers

Alex MariUniversity of Lugano (USI), Switzerland

visiting student at Central University of Finance and Economics (CUFE), Beijing, China

ABSTRACT

Purpose – The current study aims to examine the purposes that modern literature suggests to marketers with respect to consumption patterns of Chinese rural consumers, their sources of product information, communication's channel status and successful ways to advertise products and services.

Considering the great interest that rural areas development has for national and multinational companies, can be significant to analyze current academic theories on the topic pointing out concrete and remarkable differences between urban and rural society.

As the rural consumers adopt the consumption patterns of urban consumers, more and more opportunity would be explored. In a future perspective, a substantial business opportunity is represented by the influences that younger generations will have upon their families. For that reason particular emphasis will be addressed on media and advertising consumption of rural children and their perception of brands.

In addition, many studies underline the lack in research in this area. Western theories applied to deal with rural consumers obtained scarce results during the past. In this respect, I personally assume that an in-depth analysis of the actual consumer behavior contest is necessary to develop further marketing strategies targeting rural consumer.

Beijing, Jenuary 2008

Course of International Management

An executive summary for managers and executive readers can be found at the end of this article.

Literature Review

In 1979 thanks to Open Policy established by Vice Premier Deng Xiaoping, Chinese economy has enjoyed a rapid growth. At that time, most of the residents of the rural areas were engaged in farming activities. Recent findings show that agriculture's share of employment dropped steadily from 69 percent in 1980 to 45 percent in 2005 (State Statistical Bureau, 2007). Despite two decades of economic growth, China still face a deep-rooted economic divide between urban and rural areas. Even do, higher quality life standards were verified in both rural and urban areas, there is an increased gap related to personal income. By 2005, the annual per capita income of urban and rural Chinese have been 10.493 Yuan (about 1175 €) and 3.254 Yuan (365 €) respectively. The urban-rural income inequality has been attributed to Chinese government's decades-long restrictive policy on rural-urban migration (the household registration system, Hukou) and its continuous urban-biased welfare polices (Yao, 1999). In addition to income inequality, the difference in quality of education children receive also affects their ability to seek and access information. One of the main consequences of poor educational system in rural China is that children may not be able to access information in an active way. As researchers found, the direct consequence is that they rely more heavily on personal sources in obtaining market information (Chan and McNeal, 2007).Lu and Peng (2000) analyzed the rural consumption structure noticing a significant improvement in living standards. This was demonstrated by the fact that rural households are spending greater share of income on food items, housing, education and recreational services. The Engel coefficient, i.e. the percentage of expenditures on food in total consumption expenditures, was 37 percent for urban households and 46 percent for rural household (State Statistical Bureau, 2007).After survival has been assured, rural consumer begin to spend more and more of their income on non-necessities and cultural/educational consumption goods and services.In order to maintain stable economic growth and minimize negative effects of the actual world financial crisis, the ultimate government's goal is rely more on domestic consumption.

According to Global New Wire, China has been shifting the focus of its proactive fiscal policy from stimulating investment to strengthening low-income earners' purchasing power. As China's rural economy continues to develop, an increasing number of multinational corporations (MNCs) will expand from urban areas into rural regions. China promises many opportunity of fast expansion, however, the presumption of China as a homogeneous market often makes it difficult to access market demand and enact effective strategies (Cui and Lui, 2000).

Chinese rural life profile

Chinese government defined rural areas as a population of 780 million people among which, in 2006, there were 210 million children under age 15. A rapid rate of urbanization can be noticed analyzing the changes reported by United Nation. According to them, urban population increased from 31 of the total in 1995 to 41 percent in 2005. In that year, urban residents contributed two-third of the total retail sales (6.7 trillion Yuan). Even do, it is China urban areas that are producing most of its economic growth, the ten largest cities are made up by only 4 percent of the total China population, accounting for approximately 22 percent of earning power.This disparity in consumption is not only attributed to inequality in income, but also to poor retailing distribution network, insufficient after-sale service, and slow income growth (Zhang, 2003). According to Rogers (1960), urban and rural society differ in family, group relationships and values. One particular aspect of rural families is that they are more likely to see children as economic assets. In fact, while profiling the rural families, emerged that 12.2 percent of them tended to export their family members to the urban are as cheap labour so that the whole family income, and subsequently living standards, could be improved (Chen, 2008). This phenomena should be kept in mind considering the vast migrant population that already influence the attitudes of their local culture. Therefore, being opinion leaders they represent a segment that need to be targeted. Moreover, rural families are more likely to retain educating, entertaining, religious orientations and protection function.

Source: Chan, K. And McNeal, J (2006)

Sources of product information in rural China

According to the findings of a recent survey conducted by Chen Qimei and He Yi, to effective deliver commercial messages to rural consumers we need primary to understand their media consumption and their sources of product information. The analysis showed that most of the families (96 percent) hold a television. As a consequence rural Chinese consumer ranked TV commercials as the top source of information (77.58 percent in 2001 as compered to 37.5 percent in 1987), see figure 1.On the other hand, the importance of both personal communication (i.e. 'family') and direct experience with the product (i.e. 'oberving at market') had diminished (Chen, 2008). Commercial messages delivered through Internet and new media have low penetration in consideration of the fact that only 2,8% of households owned a computer. In addition, it has been proved that different information sources is significantly related to product-specific contexts. As you can see from table 9 (Appendix), TV commercials are still top choice across all the product categories but other information sources vary across the four product categories took into consideration. Although, 96 percent of the rural families owned a TV and 77.58 percent use the TV commercials as primary source of information, only 22.62 percent trust these messages. As we will see later on, trustworthy of TV commercial decrease with age and for that reason youngsters represent the most strategic segment for marketers.Differences in perception of sources credibility are

mainly due to the nature of product category and lifestyle. For example, for soft drink purchase half of rural Chinese consumers trusted their personal experience while for dietary products is needed an external source (only 2.17 percent of consumers learn by themselves). Since the perceived risks for these kind of products are quite high, consumers rely upon their in-group for the most trustworthy product information. I assume that for highly involved purchase category, urban consumers rely more on several information sources like Internet or salespersons, while in rural society peers' recommendation becomes the most credible source. Hence, the assumption that world of mouth communication should be used as strategic tool to promote products high in social risk.

Attitudes toward the whole marketing mix

A recent study on rural consumption patterns shows that urban and rural consumer are different in terms of attitudes toward the whole marketing mix: product price, product promotion, brand names and product distribution. This obvious consideration is due to the lower levels of hierarchy of needs that rural consumer occupy. As a result, the difference in needs among these two societies drives toward the usage of different product to reflect the improvement of their living standards. For example, rural consumers listed houses (29.2 percent), color TVs (22.2 percent), telephones (4.8 percent) and cars (3.5 percent) as products considered to reflect improvement of living standards. Differently, for urban consumers soon after houses (33.6 percent) were indicated: PCs (9.3 percent), air conditioners

(8.6 percent), color TVs (8.6 percent), and cars (8.5 percent). The results suggest that there still exists a huge difference in terms of ideal material possession (status symbol) between rural and urban consumers.Also, it is expected that new symbolic consumption patterns emerging among urban consumers, such as PCs, air conditioners, will ultimately spread to the rural consumers (Sun and Wu, 2004). In the same survey were asked respondents to describe their ideal projections about future. In this case, both rural and urban consumers ranked the need for safety (physical and psychological) as important concepts. The main difference reside in the fact that rural consumers revealed their psychological needs indicating “well-to-do” and “materially rewarding” as adjectives to describe their future. On the other hand, need for self-enhancement was found in urban consumers that selected “natural” and “spiritually enriched” as main important concepts. Taking Maslow's hierarchy of needs as model to judge these results, I assume that since the motivations and values are located upon different levels of pyramid, the commercial messages aimed to reach the attention and to achieve sales, should differ among areas. Furthermore,a substantial difference in consumption habit has been found when considering shopping places. In that case is easy to understand the reasons why urban consumers were found more sophisticated when compered with rural consumers. Urban consumers were more likely to shop at stores with high quality customer service and in well-known stores, whereas rural consumers acquire goods that are not available at home, mainly in traditional markets. The main reason is that they reside in areas where there is a lack of infrastructure and the market is several hours journey from home and is open once a week (Pennington, 2002).For many rural consumers, going to gigantic shopping malls in the city areas might be simply a once-a-year experience (Sun and Wu, 2004).In addition, an easy access to shopping outlets lead consumer to consider shopping as entertaining group's activity. This could be one reason why the majority of rural consumers (56.9 percent) going shopping alone compered with 37.1 percent of urban ones. The most frequent shopping partners for rural consumers are friends (18.5 percent), followed by spouses (13.9 percent) and children (4.5 percent). Analyzing the findings emerged that in rural regions, friends can wield bigger situational influences than spouses. With respect to product price, rural consumers were more price-conscious and consequently more likely to compere prices among sellers and negotiate over

lifestyle easily explain this phenomena. At the same time, particular relevance should receive some of the statements loaded higher in the survey in order to understand rural consumers attitudes toward both domestic and foreign products. Inland consumers declared: “I pay much attention to product price, so I like to buy inexpensive and functional products” and as a consequence “Nowadays domestic products are not bad in quality, and less expensive than imported products. So I will buy domestic products”. High level of price-conscious is strictly related to adaptation of innovative product. Due to limited risks they are willing to take, rural consumers were more likely to buy products that were already used by everyone else and to adopt the product recommended by reliable sources like friends and relatives. Sun and Wu pointed out that, with the development of consumer advertising, that is especially available on TV, the gap between rural and urban consumers in terms of product innovation might become smaller and smaller.Moreover, findings suggest that rural consumers are more suspicious of mass media advertising. This is probably due to neither conveniently available nor affordable nature of the items advertised. Since rural consumers are not likely to use the products advertised, messages deliver through TV commercials are hard to believe for them. For that reason I assume that some messages might negatively impact on consumers attitudes toward a product, especially those create to satisfy complex needs. On the other hand, trustworthy decrease by age and therefore to target messages to children represent a strategic move, considering the great influence on their families.According to Sun and Wu, although marketers invest heavily in retail advertising and in-store promotion to build brand equity, the lack of retailing structure decreases the chances for rural consumers to be exposed to these marketing promotions. Thus, urban consumer are often overwhelmed with commercial messages and the rate of attention/attractiveness will be consequently lower. Studies have shown that responses to advertising are more positive in countries with newer advertising industries (Zhao and Shen, 1995). Moreover, some manufactures have considered rural China as a secondary market and channeled poor quality products to the rural market. In the same research emerged a big difference in brand attention among the two societies. Rural consumers responders agreed with the statement “A brand name does not matter, as long as it is functional” while speaking about brand consciousness, whereas urban consumers loaded higher on such statements as “I pay particular it than urban consumers.

Differences in income and attention to brand name. I like to buy well-known brands” and “the product we buy should be high-end”. To compere urban and rural brand recall respondents were given ten daily product categories and were asked to name two best brand each category. More than half of the rural consumers could not name any brands in such product categories as PCs, refrigerators, fragrances, cell phones and cars/trucks. Considering that some of these products are not widely available in rural households it is obvious to face low rate responds (for example, PCs are owned by only 2.8 percent of households). For instance, asking a boy to recall specific women's brand, i.e. low interest and less attractive, the results might be discouraging even in urbanized area. Having said that, I assume that brand recall is strictly linked to the utility that a product has for the responder whether this is a functional or emotional utility. Although advertisement targeting children begin to appear in CCTV (China's national TV station), these budget represent only a small portion of the total expenditure.

Rural Children media and advertising consumption

According to the one-child policy in China more and more Chinese families will enter into the 4-2-1 patterns, which stands for four old people being the parents of the husband and wife, the couple themselves and their only child. Therefore, Chinese children represent an enormous potential market because of their growing purchases and their enormous influence on family purchase decisions (McNeal & Yeh 1997). As children grow cognitively and socially, there is a growth in their parental influence strategies, consumption motives and values. Even families in remote parts of China experience television advertising as a new form of cultural authority in installing the idea that consumption leads to a happy childhood (Jing, 2000). Thus, in 1997 McNeal and Yeh found out that Chinese children's influence on family purchase was about 68 percent while for U.S. Children was only 45 percent.Ward in 1974 defined consumer socialization the process by which one could learn about products, their brands and recall outlets where they can be bought. Generally speaking, children learn consumer behaviour patterns primary from parents and secondly from socialization agents like peers, school, stores and media. Moreover, as Moschis and Churchill pointed out,

the more that children interact with the mass media, the more consumer socialization takes place. In other words, the amount of interaction with media appears to be positively related to learning consumer behaviour.Rural children pay more attention to television advertising than urban children while urban children pay more attention to other form of advertising (Chan, 2008). One of the reasons is that rural children consume more national television channels than urban ones. The most interesting research on media ownership and consumption among Chinese children comes from Chan & McNeal (2006). The two researchers found that home ownership of broadcast media is strictly dependent on age of children. As you can see in table 1, ninety-eight percent of rural children had television sets at home and three-quarters had color TV. Younger audiences like to watch cartoons, children's drama series, game shows and variety shows. Teenagers show more interest in sports programs and new programs (Bu, 1998). Latest innovation are not popular in rural families and less then ten percent own DVD players and computer at home. Even do, six percent of households owned a computer only half had access to the Internet. Thus, children's magazine and newspapers were not largely used while books have wider appeal. More than 85 percent of children aged 10 to 13 reported that they owned children's books and read them during the past month (Chan & McNeal, 2006).Related to time spent tails on media and other activities it has been found that about forty-one percent contributed heavily to daily agricultural activities and on the average they participated more in housework with respect to they urban peers. Also, “playing with friends” in one of the major activities in rural children daily life. Differently twenty-two of urban children do not play with friends at all, on daily basis. As it was presented in table 2 (Appendix), the gap in new media consumption generates a higher exposure of rural children to TV programmes. As a consequence, the attention of young urbans to advertising due to the wider media availability is spread on several sources, while the attention to rural children is concentrated mainly on TV commercials. In fact, other forms of advertising are not prevalent in rural China.Surprising, it was discovered a low ownership and consumption of children's newspapers and magazines among younger children. According to the authors, there is a lack of print media targeted younger children. The main conceptual problem refers to low attractiveness of contents (long stories with little illustration and pictures).

Moreover, local editions treat limited topic whereas, in the reality, there is an increased interest in the outside world. Secondly, is logistical problem due to the poor network distribution. Although rural girls and boys presented similarities to media access, they are extremely different in media preferences. Difference in time spent on broadcast and print media demonstrated that boys were more visual while girls were more verbal (Chan & McNeal, 2006). This analysis is consistent with previous studies (Greenberg, 1991) that have shown that children boys preferred active an exciting media content,

while girls preferred softer and more talkative formats. One of the most interesting results is the decreasing in attention to television advertising. Taking table 2 into consideration, I assume that attention to TV commercials dectease by age while the attention to other media increase (newspaper ads, radio commercial, billboard ads, Ads on transport vehicles, magazine ads). This may be due to children's improved literacy and ability to process information. In other words, that means shifting from a passive receipt of messages to an active search of information.

Table 1 – Household ownership of broadcast and print media

Table 2 – Attention to advertising

Source: Chan, K. And McNeal, J (2006)

Brand and advertising perception

In a recent research on children's perception of adverting and brands conducted by Professor Chan, is emerged that rural children are more likely to perceive television advertising truthful than urban children (table 3). As you can see in table 4, a higher percentage of rural children thought they liked or liked very much television advertising than urban children. In addition, rural children relied more on whether the commercial was endorsed by trustworthy persons as a basis of judgement about truthfulness of television commercials than urban children (Chan, 2008).Table 6 (Appendix) summarized children's perceptions of advertised and non-advertised brands. For both soft drinks and computers, rural children were more likely to perceive that the advertised brand is better, than urban children. However, the great confusion about brand concept was demonstrated by the high number of children reporting “don't know” answers.

I personally assume that the questions were to complicated for younger responders and I would probably use a more appropriate methodology integrating photos or videos to the questionaires.Confusion upon the brand idea can be also fed up by the wide consumption of counterfeit products. Children as well as their parents may not even know that they are counterfeit products. In fact, previous studies indicated that brand awareness is very low in rural regions (Sun and Wu, 2004). Their lower brand awareness is perhaps due to limited exposure to brands and this drives to the conclusion that rural children are more pragmatic. This lack in brand understanding, due to its abstract concept), suggests that rural children were less likely to use brand equity as a basis of judgement. Differently, could be argue that lower brand name consciousness is the result of less extensive brand equity campaigns targeting this segment of consumers.The results show also that rural children were more likely to put more trust in advertised brands than urban responders (Chan, 2008).

Table 3 – Perceived truthfulness of television advertising (N=2,990)

Table 3 – Liking of television advertising (N=3,239)

Source: Chan, K. (2008)

Practical implications for marketers

The current study has provided insights for marketers and advertisers to employ the right strategies to disseminate information and to reach successfully rural consumers. It also, suggests to marketers a guideline to target new rural generations and analyze the possible ways to influences their consumption patterns. In urbanized China, markets is mature and the competition will soon be aggressive. This process will increase the alternatives available to urban consumers who will become more and more selective upon products and commercial messages. Marketers cannot target these two society with homogeneous messages anymore. Since needs and desire are different among rural and urban consumers, different advertising appeals should be adopted. A strategic choice to sway rural consumer is to deliver communication messages towards opinion leaders. Due to the great influence that local opinion leaders have over the other community's members, I believe that direct marketing actions colud represent the most effective mean of persuasion. A key point of this study is the consideration that rural consumers are more conscious of product price. In this respect, packaging and product differentiation are extremely important. Fist of all, multi-tier consumption patterns allows marketers to position their products differently in rural and urban areas, and also potentially prolong their product life-cycle. One example has been P&G that after the initial price war with a local competitor decided to modify its products moving back to essential service in order to better fit rural consumer needs. In China, Porter's generic strategy cannot be largely used. Many companies in fact, are lowering product price while differentiating the product. Secondly, marketing should encourage product trial to enhance rural consumers' learning experience. For instance, some shampoo are sold in individually packaged items. Moreover, packaging has a strategic role helping to fit and meet the cognition need (e.g. graphic-oriented packaging design). This packaging should be used as an appeal for brand recognition. How was pointed out before, rural consumers might not be able to decode implied messages because of their lack of prior product knowledge. Considering the poor network distribution in rural regions, a marketing man should first of all figure out the probability of a product to arrive in a specific area. Before designing a promotional strategy he must be sure that a product can be reached by the consumer properly, otherwise, the

effect of the action is probably going to be negative.With this respect, product placement can be one of the most powerful marketing tools. For example, in this period there are several contests on CCTV where products appears in the programme showing both its functional and emotional characteristics (e.g. Nike in a reality on basketball game).In advertisement, marketers should use direct sales appeal rather than lifestyles or image appeals. However, it has been demonstrated that celebrity endorsement can be very influential, especially among children.Considering the more affordable budget needed to promote products and services in rural regions, one strategic move could be use this market as a laboratory, testing products and trying to generate an optimized marketing mix.

References

Chan, K. and McNeal, J (2006), “How rural children in China consume media & advertising”, Young Consumers, Bradford:2006. Vol. 7, Iss. 3, p.39

Chan, K. and McNeal, J (2006), “Children and media in China: an urban-rural comparison study” , The Journal of Consumer Marketing, Santa Barbara: 2006. Vol. 23, Iss. 2; p. 79

Chan, K. and McNeal, J.U. (2007) “Chinese children’s perception of personal and commercial communication: An urban rural comparison”, Asian Journal of Communication, Vol. 17 No.1, pp. 97-116

Chan, K. (2008), “ Chinese children’s perceptions of advertising and brands: An urban rural comparison”, Journal of Consumer Marketing , 25(2), 74-84

Chen, Q. and He, Y.(2008), “Sources of product information for Chinese rural consumers” , International Journal of Advertising, Eastbourne: 2008. Vol. 27, Iss. 1; p. 67

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McNeal, J.U. & Yeh, C.H. (1997), “Development of consumer behaviour patterns among Chinese children”, Journal of Consumer Marketing, Vol.14 No.1, pp. 45-59

Pennington, R. (2002), “Critical issues in Chinese Market communication development”, The Social Science Journal, Vol. 39 No.1, pp 83-94

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Rogers, E. M. (1960), Social change in rural society, Appleton Century Crofts, New York

State Statistical Bureau (2007), China statistical yearbook 2006

Sun, T., Wu, G. (2004), “Consumption patterns of Chinese urban and rural consumers” , The Journal of Consumer Marketing, Santa Barbara: 2004. Vol. 21, Iss. 4/5; p. 245

Zhang, X.(2003), “Problems to open up rural consumer markets and the counter measures”, Journal of Zhenjiang College, Vol. 2

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Appendix

Source: Chen, Q. and He, Y.(2008)

Table 5 – Amount of time spent daily on media and other activities (in minutes) (%)

Source: Chan, K. And McNeal, J (2006)

Table 6 - Children’s perceptions of advertised and non-advertised brands

Source: Chen, K. (2008)