Chinese Consumers’ Complicated Relationship with Foreign Brands
Over the past decades as China has opened up and grown economically, the number and wealth of Chinese consumers exposed to and wishing to buy into Western culture has grown exponentially. Once almost unattainable luxuries, Western products have become desirable hallmarks of the sophisticated and wealthy consumer. Whether in Food & Beverages, Fashion or Filmmaking – Western products have been generally assumed to be better designed, higher quality and worth the increased price over their domestic alternatives. Indeed in 2011 a study by China Market Research group showed that 85% of Chinese consumers preferred foreign brands to their domestic equivalents.
In recent years we have seen this trend play out in the rise of ‘Cross-Border eCommerce’, an explosion in Chinese luxury spending and an increasing desperation among foreign brands to enter the Chinese market. According to McKinsey, travel abroad has compounded this, with 48% of Chinese overseas travellers claiming it revealed Chinese products to be of poorer quality and 39% claiming it showed them Chinese brands were less premium than their foreign equivalents.
Now, however, this relationship is changing and becoming significantly more balanced. According to a recent study by McKinsey’s China office, whilst Chinese consumers are still interested in Western products, they are ever more discerning.
As shown below, in a lot of cases and with money no object, Chinese consumers now actively prefer local brands to their foreign equivalents.
Source: McKinsey China
This trend has continued for some time too, in 2012 for example Chinese domestic electronics brands took 43% of the total market share in China, but surveys this year reveal that they now account for 63% of sales in China. Likewise in the case of the personal care & beauty market, Chinese domestic brands’ market share rose from 61% to 76% in 2017.
We can also see this in FMCG goods, where local brands have seen the bulk of sales growth from 2013-2016.
So what is the mechanism that is driving this shift and how can you optimise your business around it?
WHY IS THIS HAPPENING
In short, it is happening because Chinese consumers have become significantly more discerning spenders.
Rather than weighing country of brand origin heavily in decisions, Chinese consumers now look more holistically at a product’s performance, design and functionality when deciding to buy.
What’s more, Chinese consumers now increasingly see Chinese brands in a new light – where once a by-word for poor quality, dubious safety (especially in the F&B industry) and unoriginality, they are now viewed as uniquely suited to the Chinese consumers. In the beauty space for example, domestic brands have surged because they cater solely to Chinese tastes, as opposed to foreign brands that to some extent sell a vision of European beauty.
To add to this, Chinese consumers are increasingly aware that many foreign brands, though designed elsewhere, are actually produced in China. This further breaks down some of the older stereotypes alluded to above. After all – why should Chinese consumers pay a premium for a foreign product or avoid a domestic product if both were made in China? This is particularly the case when it comes to consumer electronics. Where Apple products in particular were once both a symbol of user wealth and high quality American design, Chinese brands like Xiaomi, Huawei and OnePlus can now match their quality at a fraction of the price.
This has also led to a blurring of the lines between foreign and domestic brands, to the point at which many consumers can’t tell or don’t recognise the difference between the two. In the chart below you can see this in action – despite Olay and Danone being American and French respectively, a majority of those surveyed considered them to be foreign brands.
Source: McKinsey China
WHAT DOES THIS MEAN FOR MY BUSINESS?
This trend has had a balancing effect on the worth of foreign and domestic brands in Chinese eyes. As a result foreign brands can no longer assume that they will sell in China because of their origin alone. As the research above shows, foreign brands must instead demonstrate their unique advantages over their Chinese competitors on a level playing field – something that requires deep knowledge of the Chinese market and the Chinese consumer.
One company that has done exactly this is Dyson, which grew Chinese sales over 200% in 2016. Though its products cost substantially more than local competitors, its unique British design and innovative functionality have allowed it to rise above local competitors.
An indication of the scale this demand for premium imports in China is that one Chinese courier service, SF Express recently announced it is launching a new service that will verify a product has been genuinely shipped from outside of China. Aimed at raising the confidence of online shoppers in China buying foreign goods, this is just one indication that despite Chinese consumers’ new nuance, the market for foreign goods in China is still growing at an explosive rate.
With Cross-Border eCommerce bringing selling into China within budget for most British SMEs, this is an excellent time to enter the Chinese market.
And when you do, we’re here to help.
TongDigital is an agency at the forefront of social commerce and digital marketing in China. We focus on social commerce through WeChat, social media marketing, digital PR and media buying in China.
In the past we’ve helped brands from Anya Hindmarch, to Chelsea Football Club, and Whittard of Chelsea. If your brand needs to capture market share in China – get in touch.