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What MNCs Must Know to Win Consumers in China

2015-05-19 · New York

Multinational companies will need to develop smart digital strategies in order to capitalize on “the coming millions of new global Chinese consumers,” according to Professor Sun Baohong, CKGSB’s Associate Dean of Global Programs and Dean's Distinguished Chair Professor of Marketing.

 

Dr. Sun painted a vivid picture of Chinese consumer trends and discussed strategies for capturing global market share in China in front of an audience of more than 100 senior human resources executives and chief learning officers at the GlobalBusinessNews Conference at AIG’s New York office on May 19, 2015.

 

CKGSB Professor Sun Baohong gives an executive briefing on The Coming Millions of New Global Chinese Consumers at the GlobalBusinessNews Conference at AIGs New York office on May 19, 2015

 

Among the highlights of her executive briefing:

 

What Consumers Are Buying

 

“Chinese consumers are changing very, very fast,” Dr. Sun said.

 

“Right now, they are spending the most on products concerned with safety—specifically organic food, safe toys and other genuine-branded products that can be trusted to meet global standards.”

 

“They’re willing to pay a premium for this,” Dr. Sun said, noting that Chinese consumers will pay double, sometimes triple the price of the exact same item you would find in the US. Chinese tourists traveling overseas see how much cheaper the prices are and purchase a lot of goods while visiting as a result.

 

There is also an increasing demand for products geared toward promoting healthy lifestyles, such as pharmaceuticals, sports apparel and manufacturing.

 

Additionally, education is a major service Chinese consumers are willing to spend on, and there is also a need for financial services to help families manage the wealth they accrue as educated professionals.

 

Though the height of the market for luxury items may have passed, Dr. Sun said US and European luxury brands are still highly sought-after commodities. Thanks to the power of social media, more Chinese consumers are familiar with global standards of quality than ever before.

 

High-end multinationals should be careful, however, not to overdo their availability and marketing. For example, Gucci, Dr. Sun said, is a brand that has become so widespread in 1st-, 2nd- and 3rd-tier cities in China that it is no longer perceived as “luxury”.

 

The younger generation also likes to see a retro or nostalgic Chinese element in its products. Louis Vuitton, for example, had success with an earring shaped like a Chinese lantern.

 

Multinational companies must adapt to the Chinese market in these ways, Dr. Sun said. If not, she said Chinese companies will rise up to take their market share.

 

Meet the Little Emperors

 

So who are these consumers? As parents are traditionally spending their money on only one child, Chinese consumers are unique.

 

“China has lots of ‘little emperors’ because of the one-child policy,” Dr. Sun said.

 

Education is at the top of the spending list for these children, as well as information and communication technology products.

 

How Multinationals Can Win in China

 

Digital strategies will be critically important for multinational companies, Dr. Sun said.

 

Recent data shows that the average Chinese consumer has spent $50,000 in online shopping over the last ten years, and that number will only grow in the future, Dr. Sun said.

 

Multinationals need to recognize that the Chinese people “only rely on social media (for information); they don’t trust traditional media because it is controlled by the government,” Dr. Sun said.

 

But China’s social media and digital landscape is different from that of the US. The big players aren’t Google, Apple or Amazon, but rather innovative Chinese companies such as:

 

  • Taobao, an e-commerce and social media platform that combines the functions of Amazon, eBay and Facebook;
  • Baidu, a search engine in the vein of Yahoo;
  • Alibaba, an e-commerce platform that features an innovative payment method called Alipay, similar to PayPal;
  • Tencent, whose WeChat app is the most popular communication platform among Chinese people both domestically and abroad.

Developing a presence on these digital platforms will be key for multinationals, but the language barrier is an obvious problem, Dr. Sun said.

 

Multinational companies will need to partner and collaborate with Chinese companies to overcome these and other challenges.

 

Multinationals should also recognize that they sometimes have an opportunity to reinvent themselves for Chinese consumers, Dr. Sun said. KFC in China, for example, often combines two adjoining restaurants: one that features traditional American KFC food and another that caters to local tastes. Similarly, Pizza Hut in China has positioned itself as a fine-dining destination for fancier items like steak and black rice with coconut milk.

 

However, multinationals will face increasing competition from rising Chinese companies and must be mindful of the advantages of the “home team”: a deeper understanding of consumers, stronger distribution networks, shorter reaction time to changing markets, leaner operations and a willingness to take risks for innovation, Dr. Sun said.