Reasons Why China is a Huge Market Expensive, Brand Name Products
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Reasons Why China is a Huge Market Expensive, Brand Name Products
Chinese consumers have had an extensive brand consciousness, which has influenced their consumption (Atsmon, Dixit, Magni & Maurice, 2010). China’s economy has not been spared by the global recession and has experienced its fair share of troubles of slower and bumpier growth pace. Despite this fact, consumption growth has maintained consistent growth, and it is still tracing an up trajectory.
The Chinese government has relaxed restrictions and introduced favoring policies to enable consumers to buy luxury goods. Chinese local brands have significantly reduced price gaps to be competitive with overseas markets. The government has spearheaded several consumption-focused economic and environmental policy developments. The government intends to shift the Chinese economy towards domestic consumption as opposed to export-based growth.
Retail therapy is a growing trend among Chinese consumers. To combat negative feedback, Chinese consumers have promptly indulged in purchasing luxury goods to achieve positive emotions, lift self-image, and self-expression. Brands in china strategize by expressing a general feeling of self-reward and value to capitalize on the Chinese consumers’ emotions. As such, expensive brands that have successfully appalled the target audience regarding promoting consumer personality have gained steady popularity.
This paper focuses on studying how demographic trends, repatriation, and digitization have helped China’s consumption rate and growth withstand time and global recession to remain unbowed.
Overview of China’s Consumption Pattern
In China, increased consumption is due to two main factors. Increase in population size and an increase in disposable income due to improved economy. With a population of over 1.4 billion, China is the most populated country in the world. The Chinese workforce is a little short of 60% of the total population. The majority of China’s population being economically productive has been a great contributor to economic growth. Consequently, China has an excellent consumption capacity, growing with population growth and economic empowerment.
However, in a few decades, China is expected to undergo some demographic transformation. The dependency ratio is projected to double to 24% by 2030 and rise all through after that. A saving culture policy is likely to be adopted by the government for pensions, which may lead to reduced consumption of less necessary products and services in the future.
Consumption growth in China goes hand in hand with the consumption pattern. Today, Chinese big spending and consumption are shifting from daily necessities to IT products, entertainment, traveling, housing, and insurance, more so health.
According to the China National Bureau of Statistics, by 2018, 50% of china’s population were smart mobile users, leading to the popularization of tech-adoptive buying channels.
Also, the Chinese government has influenced the consumption growth and a pattern by expanding government procurement, establishing duty-free shops raising the income of moderate and low-income families, among other efforts.
Regarding China’s age structure, the Majority population as of today is within the millennials age bracket. They provide a considerable workforce and consumer market for products. However, the projected demographic transformation may cause a shift in the consumer market as well. An increase in dependency ratio due to the old population’s increase will reduce most Chinese consumption capability. Instead, a lot of income will be channeled to care and support of the older population. Indulgence spending among the general population will decline, and expensive brands may lose popularity significantly.
The Rapid Expansion of Upper-Middle Class
The middle class constituted 74% of China’s private consumption in urban areas and 58% of personal consumption in the whole country. Middle-class private consumption is projected to reach $2.3tr by 2022, more than double the level of a decade past (Barton, 2018).
Industrialization has led to an increase in middle and upper-class families. Consequently, the per-capita income of the Chinese population has increased tremendously. The consumer market for Chinese products in various sectors of goods and services has increased due to increased affordability.
Today, the middle class constitutes the majority of China’s population. The upper-middle-income class promptly engage in indulgence spending, owing to the substantial disposable income. The middle-income class borrows and copies the Upper-middle income class’ spending behavior.
The increased income has also played a massive role in enabling the middle-income class to be well connected, both in-person and through the internet. The number of Chinese internet users in urban areas as of June 2020 was 76.4% and 52.3% in rural areas. The increased internet access has led to the significant growth of e-commerce activities. China’s e-commerce market is the largest in the world.
Emerging Role of E-commerce
The eCommerce platforms have helped consumption growth by increasing companies’ brand reach and overcoming the challenges of distribution. China’s e-commerce market is the world’s fastest-growing, accounting for 50% of its online transactions. Alibaba, an e-commerce giant, started and is based in China. Amazon is also cashing in big time in the Chinese e-commerce market.
Ecommerce retail channel is a good and unstoppable revolution. According to Kuo, in 2010, transactions made on online platforms constituted 3% of the country’s total private consumption. By 2016, online transactions grew to an astounding 15 % of the personal consumption and projected to grow by 20% annually through 2020 (2016)
The popularity of e-commerce can be attributed to the offering of a variety of selection and fair prices. Also, e-commerce stimulates consumption growth by meeting the high number of needs that cannot be met over the over-the-counter retails.
The e-commerce popularity is profoundly due to consumer’s convenience. Consumers have more product variety to choose from and lower costs of search for products. E-commerce enables traders to sell directly to consumers and locate nearby suppliers saving time as well as expenses. Reduced expenditure by traders enables them to lower the cost of the goods for the consumers.
Millennials’ impact
China’s population ages between 23 and 38 years of age constitute 25% of china’s total population and 65% of real consumption growth in China. This age bracket is willing and financially able to spend on products and services.
Millennials are generally heavy spenders who spend their entire monthly income and readily take on debts to make purchases. Also, they are willing to pay more for the brands considered luxurious or unique. They seek class, sophistication, and unique experiences.
The significant millennials impact on consumption growth can be attributed to factors such as social pressure and their tech-savviness and high earning as productivity is at its maximum at this age.
By December 2019, 1.2 billion Chinese used 5G mobile phones, and 5G technology has also been adopted and gaining popularity. Today, social interactions and transactions are happening through mobile phones’ apps. Millennials have been the most significant adopters of technology. Consequently, they are more brand-informed and eager to embrace innovative trends and, therefore, a broad market basis for improved, fancy, and new products.
Most Chinese families play a supportive role in the consumption behavior of millennials as well. The older generation mounts social pressure on the young to lead better lives than theirs. In this regard, the older generation has adopted a saving culture to support their children financially to achieve their goals, contributing to a spending and consumption craze among millennials.
Chinese Consumer Behavior
The Chinese population has been generally studied, and some factors have stood out that contribute to the consumption growth and expansive markets for products domestically.
The biggest influencer for this consumer behavior has been social media. Social media platforms have promoted impulsive buying culture as the majority seek instant gratification. The increased consumer spending has led to a surge of consumer debt.
Women empowerment in China is also a key factor to consider while studying Chinese consumer behavior.
Boasting of material possessions and achievement is an emerging attribute of emerging and middle-class women in China. The Chinese women have significantly embarked on upgrading their lives’ quality and leading lavish lifestyles through better cars, homes, and fashion. Brands that have capitalized on this shifting trend and accommodated women-friendly promotions have cash in big time in china’s domestic market. The luxury brands are significantly tapping into this emerging trend.
Asian countries are, without a doubt, among the world’s leading adherents of tradition. Brands have recognized this and incorporated Chinese practices and culture in their products. Products that consider that have gained considerable and fast popularization within the Asian communities.
Strong Brands and Customers Brand loyalty
Chinese companies have extensively adopted brand awareness. Chinese, in general, are very brand-conscious. There has been a notable trend whereby most chinses are using brands to promote their social status, promote their confidence, and general gratification. Due to this fact, brands that are considered lavish and stylish has had successful sales in China. Many Chinese are willing to pay more for brands and value to maintain social status and societal classes or make a point.
The fashion industry has reaped most of the Chinese markets in as far as luxury buying is concerned. Chinese with surplus income will readily spend on many money brands such as Louis Vuitton, Gucci, and NE Tiger. Successful brands have utilized social media to target particular audiences. By creating a buzz and building a strong image around a product on social media platforms, brands have promoted themselves as upper class, sophisticated and stylish. The majority will pay high prices to acquire them.
According to a mob-psychology study, most people consider the most popular brands to be the most reliable compared to less familiar ones when it comes to selecting a product (Florack Palcu, 2017). Brands will, therefore, adopt numerous market strategies to popularize themselves among the China population. Marketers are providing product information to consumers to increase their awareness and understanding of the product. Product confidence among consumers will be achieved through product awareness, and as such, product consumption has the potential to grow.
Big brands in China, such as Huawei, understand this fact. As such, they invest millions of dollars annually in product promotion and awareness campaigns. As a result, they build strong customer loyalty.
Customers are, therefore, readily willing to pay more for the value and brand.
Industrialization and Urbanization
The increased rate of urbanization in China has attracted most companies and product manufacturers. Up to the 1940s, china had 69 cities. The number has multiplied to 670 by 2007, translated to ten times more. This rapid urbanization in China has played a chief role in consumption growth.
Rapid urbanization leads to increased income. The migrating workforce will have more consumption capability due to increased income. However, demographic structure projects this trend to be short-lived. Aging-population will lead to a decreased economically productive population. The aging population’s effect on consumption is negative, as the majority’s financial ability will be reduced. Therefore, China cannot solely rely on urbanization to sustain economic and, consequently, consumption growth.
According to Justin lin, World Bank chief economist, the focus of development activities twofold as more people move to urban areas. People living in the metropolitan area and china cities are enjoying average per capita incomes around three times higher than those living in the rural setting. The higher per capita in urban areas has translated to a more significant consumption level and a higher ownership rate, many consumer goods, and other durable commodities.
Industrialization is another undoubled key factor for China’s massive market. “if you want to develop you must industrialize” (Kiching, 1982). Chinas industrial revolution is one of the most important economic phenomena ever happened since the original industrial revolution. The modern industrialized economy has led china to produce mass commodities at a cheap cost and therefore affordable to any social class of people. As a significant influencer of economic growth, industrialization has reduced poverty among people in China, especially those living in rural areas. Chinas industrialization’s positive progress has grasped the opportunities provided by globalization, reaching out to a large consumer base.
Foreign Direct Investment (FDI)
As one of the market reforms in 1978, china has achieved success in economic growth with an average of 10 percent between 1978-99, the highest globally that period. FDI is one of the most radical in encouraging foreigners to invest directly, which has exponentially improved the Chinese economy. FDI affects income growth and market-oriented transition. FDI promoted Chinese market growth and brand through raising capital information, large-scale industrial activities, employment addition to the Chinese population, and increased government revenue through taxation.
The Chinese population has appreciated some foreign brands as well and readily consumed them. Due to this fact, some foreign brands have set a base in Chin to increase market dominance and consumption. Companies such as AT&T have had considerable influence in the china market for a long. Big retailers as Walmart have set presence in china and have impacted the consumption growth of the general population.
In conclusion, favorable factors such as rapid growth of the middle-class, demographic trends, and digitization have helped the Chinese market cope with global recessions and maintain a consistent consumption growth. Ultimately, the most significant influencer of the consumption growth in China’s age structure. The majority of China’s population is within the age that has been responsive to technology advancements, income-earners, and ready spenders.
Chinese companies have built reputable brands that have had a considerable command of market share. The Chinese people, culture, and government have significantly promoted domestic consumption and, consequently, brand-loyalty.
Deservedly so, it’s justified to deduce that companies that have taken into consideration the technological advancements, consumption patterns, and the Asian culture will thrive. On the other hand, those that disregard these factors are likely to be unpopular and fail.
References
China’s new pragmatic consumers. (2010, October 1). McKinsey & Company.https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/chinas-new-pragmatic-consumers
Barton, D. (2013). The rise of the middle class in China and its impact on the Chinese and world economies. US-China Economic Relations in the Next 10 Years: Towards Deeper Engagement and Mutual Benefit, 138-148
Three significant forces are changing China’s consumer market. (n.d.). World Economic Forum.https://www.weforum.org/agenda/2016/01/3-great-forces-changing-chinas-consumer-market/
Kiching, G. (1982). Development and Underdevelopment in Historical Perspective: Populism, Nationalism, and Industrialization. Methuen & Co., London, England, UK: ix.
(PDF) How does foreign direct investment affect economic growth in China? (n.d.). ResearchGate.https://www.researchgate.net/publication/4759303_How_does_foreign_direct_