Chinese consumers more cautious than Western counterparts BCG study finds

February 4, 2008

According to research by The Boston Consulting Group (BCG), including a survey of over 4,000 Chinese consumers, Chinese people are ready to spend - but not the way global marketers expect. BCG's survey findings and qualitative research are summarized in a new report, "Winning the Hearts and Minds of China's Consumers."

Too many marketers are looking at China as a "just-add-consumer-goods," early-stage version of the U.S. or Western Europe. The ones that succeed understand how Chinese consumers' attitudes toward spending are shaped by Communist-era political upheavals, deep-rooted cultural biases, generational splits and the different economic conditions of China's many local markets.

Over the past 15 years, disposable income in China has risen three- to five-times faster than in the developed world. China is expected to become the world's third-largest consumer market by 2010, and the second largest by 2015. But market size isn't the whole story, according to the report.

"Overseas companies are treating China as a generic untapped consumer market. They're throwing so many promises and products at consumers, who respond by quickly abandoning one brand to try another. Companies need to shift their focus from footprint expansion to much more detailed strategies - based on real understanding of the massive changes in China and their impact on consumers - that ensure lasting brand loyalty," said Hubert Hsu, a BCG senior partner who heads the firm's Consumer Practice in Asia and a co-author of the report.

(The BCG report involved a survey of 4,258 consumers in 13 Chinese cities, conducted by BCG's Center for Consumer Insight in Asia. It was supplemented by focus group interviews, home visits and "shop-along" trips to watch Chinese consumers in action.)

Chinese consumers are more cautious than their western counterparts
According to the survey, the majority of Chinese consumers - 48 percent - said they will increase their spending in the next 12 months - but by no more than 20 percent. Only 11 percent planned a greater increase, and 32 percent anticipated no change in spending.

The report attributes the caution to Chinese consumers' feeling pressured and insecure - especially those in their 40s, who were adults during the Cultural Revolution. For consumers in their 30s, stress regarding aging and work / life inhibits their spending. And even the so-called "little emperors" in their 20s report feeling pressured to start out their careers and marriages on the right foot. Savings rates in China are high - in part to make up for the lack of a social safety net. Only teens spend freely - but have less disposable income, according to the report.

Nonetheless, Chinese consumers are more likely to "trade up" - but in far different patterns - than Westerners
Nearly half - 47 percent - of Chinese consumers say they want to trade up, i.e., begin buying higher-quality items. Only 29 percent of U.S. consumers and 23 percent of European consumers express the same desire. But Chinese consumers are looking to trade up in different categories: In the U.S., consumers are most likely to want to trade up to better home appliances, and in Europe, it's apparel and footwear that lead. But in China, consumer electronics is the leading category. (66 percent said they would trade up in this area.) Consumer electronics rank only fourth in the U.S. and sixth in Europe, while personal care ranked third in China, versus seventh in the U.S. and eighth in Europe. Apparel and footwear - the leader in Europe - was eighth in China.