2022 was probably the worst year that most Chinese consumers can remember. However the abrupt scrapping of Zero Covid altered the trajectory of the market, so whilst the geopolitical scene may be still tense, looking at Chinese consumer behaviour shows some interesting trends.

The Scars of 2022 are still to be felt

The anxiety caused by the unpredictability of life in China last year has certainly left its mark, with many consumers suffering from a kind of Covid burn out, and consumer confidence in Q4 at a record low.

The business environment is pretty tough right now, but compared to many other markets around the world, China’s economy appears to be fairly resilient with low inflation. In fact foreign direct investment increased hugely during 2021 and the first half of 2022.

The sudden about turn by the government in December regarding the 0 covid policy triggered a massive covid wave across the country (it’s estimated that around 80% of the population had covid in the past 3 months), but most had recovered in time for the CNY holidays. Geopolitically things remain tense and probably will do throughout 2023, but that doesn’t seem about to impact the economy.

Those factors combined with the fact that the Chinese are traditionally “big savers” & have now recognised the need more to care for themselves, leads to the trends I’m about to look into below.

Premiumisation: what are Chinese consumers buying?

This isn’t something new. In fact pretty much any trends report on Chinese consumer behaviour in the past 5 or 6 years would probably have premiumisation as a driver of growth.

Millions of Chinese have entered the middle class, with many attaining income levels that make them upper-middle or even high earners, and a further 71 million Chinese are expected to rise into the middle class in the coming 3 years.

Pre-covid that improvement in income and social status was often demonstrated with a wave of consumption in order to be seen consuming. You know, the big name brands, the luxury bags or clothing, an expensive car or watch…

Those hedonistic days are gone, but after a year of limited options when it comes to rewarding yourself, Chinese consumers are looking to trade up and buy something more premium than they would have in the past. They expect to receive tangible benefits for their money though, so brands need to consider how to justify the higher price.

I’m seeing this across a range of segments be it infant formula, skin care, clothing or sports equipment.

Purpose is become an additional aspect of this premiumisation trend that was perhaps less important in the past, but is now able to claim a higher price tag as consumers are prepared to pay for values.

More Considered Spending

On the other hand though, consumers are also being more careful with their money and getting value for money has become more of a priority. Whilst lots of families increased their savings during the pandemic, others lost their jobs (especially young people) meaning that they don’t have the same levels of financial stability as previously.

They have become more rational and conservative. No longer “proud” of spending more money, they are competing to save and only buy what they think they need. Deep discounts are no longer the main trigger because most hold out for higher quality. There is a profound focus on self-care, life’s little luxuries and personal comfort. They are still fond of customized service and fresh concepts, but they must be worth it.

Josh Gardner

China is such a huge market that you always have to look at any trends in a more nuanced way as behaviour varies between regions and also generations, and income brackets. However, compared to the US or Europe there is a cultural focus on saving more so pure consumerism is unlikely to be a long term mantra.

According to the Oliver Wyman agency, 52% of consumers are looking to ensure they get more value for money in 2023, whilst 57% are spending more time checking to see they get the best deals.

There’s less impulse buying, and more of an attitude of only buying when you need something… This also goes hand in hand with rising sustainability awareness, especially among younger consumers. It’s relevant across all income groups and so you see people getting more creative and shopping around to ensure that they really get the best deals.

It doesn’t necessarily mean that consumers are trading down or buying lower quality items, just that they take the time to buy what they want at the best price.

The biggest impact of a comparative slowdown, is that Chinese consumers have become far more discerning in terms of value. In categories, where ‘hype’ or ‘flash’ purchasing been a regular fixture – such as cosmetics and health supplements – consumers are now doubling-down on product benefits. It would be no exaggeration, to say that purchase in many FMCG categories has seen a shift from consumer mindset from “shopping as a hobby” to “shopping as an investment”.

Jerry Clode

Health and Wellness became more of a priority

Same as in many regions, people have become more aware of their own mortality and Chinese consumer behaviour in 2023 will further reflect that with a focus on health and wellness products.

Products and services that fall under the umbrella of “preventative measures” can be expected to do well. What are Chinese consumers buying? That may range from immunity boosting foods to sports equipment, health insurance, medical checks and mental health counselling.

Pre-2020 many of the population had experienced first hand the negative effects of pollution in China’s mega-cities and this is driving the rise also in environmental awareness combined with governmental measures such as recycling and air improvement.

Health is true wealth. Having tasted a different flavor in the past 3 years with ups and down unlike any other in the past 2 decades, people will gravitate more towards checking back of packs, aka, ingredients or source of material, how natural is it, etc., more than before. Functional efficacy will once again become far more important than just emotional appeal.

Nishtha Metha

The focus is on whether products actually meet the claims they make, are safe and contain natural ingredients. China has had so many scandals (food, children’s vaccines…) that it’s now really essential for brands to make sure they “walk their talk” in terms of transparency. Greenwashing won’t, well pardon the pun, wash.

There are plenty of options in China to help demonstrate transparency: you can share content showing your production process behind the scenes, you can use blockchain technology to track each step of the supply chain or you can add a QR code to allow the consumer to check product details and the quality guarantees of a specific batch of product.

Local vs. International: do Chinese consumers prefer local brands now?

It’s not really an either or situation. International brands still have that whiff of prestige, however the local challengers have massively improved their quality so it’s not a straightforward decision.

China has been fairly cut off from the world the last 3 years and it’s fair to say local brands have really been on the rise. According to Mintel the percentage of Chinese consumers who try to buy from local companies rose from 61% to 74% between March 2021 and September 2022.

That’s partly due to an increase in national pride, but also simply due to local brands massively catching up with or even overtaking their international rivals. It’s not just down to attractive prices either, although those are always a benefit (see also the point above about rational purchasing) but the locals react faster to trends and are closer to what consumers really want, whilst having the courage to make bold decisions.

International brands can partly counter that by showing how they are also contributing to the local economy, perhaps by purchasing raw materials in China or having part of the production located there. Whatever happens, it’s important to take all sustainability commitments seriously & be transparent. To say that Chinese consumers prefer local brands would be far too simplistic a view.

Return to Travel – is the world ready?

After 3 years within their own borders, many Chinese are looking to travel overseas in 2023. Of course there are still many people who fear infection or who don’t trust that the rules governing travel will remain stable, however it seems that especially later in the year, this situation will also improve.

Short haul destinations such as Singapore, Thailand & Bali (as well as Hong Kong & Macao) are likely to be most popular for the beginning, and this may impact the luxury goods business if consumers are choosing instead to invest in travel experiences.

For sure, many tourist destinations around the world will be looking forward to an influx of big-spending Asian tourists.

Chinese Consumer Behaviour needs to drive your Brand Decisions

China isn’t, and never has been, a market for cookie cutter solutions so to succeed you need to be able to think differently and pivot fast. It’s not going to be enough to review the market quarterly with your partners – this needs to be an ongoing process. To win in China, you have to be able to take bold decisions and execute quickly on them, otherwise you will lose out to the local brands for sure.

If you want to cut through the noise in China’s red ocean market then it’s essential to have a really in depth knowledge about what motivates your customers and how the market is evolving. That depth of knowledge is nigh on impossible to achieve without regular market visits where you can really observe first hand what is happening. Once you have that basis then you need to provide the right information at each step of the customer journey to ensure it’s YOUR products or service that consumers remember.

You need to identify all the relevant touchpoints and create native content for them. Remember Chinese consumers are really savvy when it comes to researching their purchases so providing more in depth information than is necessary for other markets can be one way to stand out in the crowd. If you don’t articulate how your product features, technical innovations or social initiatives differentiate you from the competition, you won’t be able to command a price premium and risk losing ground in the mainstream.

Addressing concerns about authenticity and safety can be complicated but as I mentioned above there are steps that you can take. Be careful if you choose to work with KOLs as this can be risky in China – right now you might be better to work with micro-influencers or regular consumers as brand ambassadors in order to show the relevance of what you do. This spreads your risk of exposure in some scandal with a major KOL.

The final piece of advice applies to all markets but especially China. Make sure that your supply chain is not only qualified to predict demand, but also to react to abrupt shocks or radical policy changes.

China speed is of the essence with all of these points… It’s no good waiting for the perfect decision, you’ll need to be bold and make decisions based on potentially incomplete information and execute fast if you want to compete with the speed of innovation of the local brands.

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Kathryn

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