Solving the conundrum
With a growing, well-connected and increasingly discerning middle class, China is the great prize of the East
China’s breakneck transformation into one of the world’s leading digital economies shows no signs of abating. Quite the contrary, it continues to evolve and set new and often leading trends globally, within an increasingly complex landscape as consumers, technologies and businesses continue to respond to, and create, change.
Despite its sheer size and scale — China is home to the world’s largest single collection of citizens and has a growing internet population outnumbering the US, Indonesia and Brazil combined — winning over Chinese consumers is by no means guaranteed. In fact, accessing the customer wallet, maintaining or growing that share of wallet and fostering loyalty are all becoming harder day by day.
Two consumer stories
To understand the consumer is to understand China’s future and this is borne of two very different paths.
First are those consumers trading up. Characteristically middle class and above, they tend to reside in tier-one and tier-two cities, such as Beijing, Shanghai, Shenzhen, Hangzhou and Nanjing, and are typified by higher and increasing disposable incomes, busy lifestyles, and westernized consumption habits driven by access to premium and foreign brands and lifestyle experiences.
In contrast, the second path sees a more value-driven, rather than quality or brand-driven, consumer. Typically middle class and below, these consumers reside in tier-three, four and five cities, and tend to face shorter working hours, yet a further stretched family budget, and therefore, have the incentive and time to seek value-for-money brands, experiences and retailers.
Despite this distinctively dual-track development of Chinese consumers, and the very different Five Mys that organizations will encounter in seeking to understand the individuals behind these profiles, they do share one clear commonality as technology is playing an increasing and profound role in addressing the twin constraints of watch and wallet.
“It’s easy to understand the allure of the increasingly affluent middle-class consumer, dominant and growing across China’s sprawling first and second tier cities,” notes Christoph Zinke, head of global strategy group, KPMG China and Asia Pacific. “But it would be a mistake to overlook the less affluent yet equally motivated citizen across all tier cities. They’re increasingly connected, increasingly graduating from feature phones to smartphones, and have new and unmet needs in equal measure — even if different to their more affluent peers.”
The scale and sophistication of China’s online environment are unique — and the story is not over yet. China’s consumer chases novelty, giving new players plenty of opportunities to enjoy astonishing growth rates. The players that dominate this, the world’s largest online market, must reinvent themselves continually to stay ahead.
Benny Liu and Honson To, Chairmen, KPMG China
Normally, yes, I get information about products and service on my social media, especially WeChat and Taobao. And then, as all of us know, WeChat plays a very important role in our life and work. Everyday, every hour, yes, we use it.
Godfrey, 30, Guangzhou
[Artificial intelligence] can do lots of things that people don’t want to do, and they provide more precise ability to help people to solve problems. I do think that AI will make our life easier in the future.
Angel, 52, Shanghai
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The rapid growth and deep societal influence of social media is evident all around the world, but few countries can match China’s dramatic adoption rates.
Take WeChat, the country’s leading super-app, discussed in detail in our inaugural Me, my life, my wallet report. Far from its origins as a humble messaging app, its function now permeates seemingly all aspects of the Chinese consumer’s life, from shopping to travel, or payments to gaming. And in the seven short years since its launch, it has amassed a staggering one billion monthly active users.
Yet beyond what may now be considered traditional social media, Chinese consumers are also at the forefront of the true social revolution of user-generated content (UGC).
This entered the mainstream in the mid-2000s, an expression coined to somehow respond to the growing democratization of information, media and content, and to label the resulting outputs created and shared by us all as individuals and consumers. Yet the origins of the term seem somewhat paltry in today’s context, where UGC is enacting significant influence on how Chinese consumers search for, evaluate and act.
TikTok and Little Red Book are two such examples. TikTok, or Douyin, which less than 2 years following launch became the world’s most downloaded app in the first quarter of 2018, enables its 500 million monthly active users to create and share music-enhanced video content and has spawned numerous viral trends, as well as careers. Little Red Book, or Xiaohongshu, meanwhile, connects millions of Chinese consumers, who share content, ideas, recommendations, bargains and shopping tips, and help drive fashion, luxury and beauty sales. A more advanced version of its Western equivalent Pinterest, Xiaohongshu has quickly established itself as the world’s largest community-based e-commerce platform and recently completed a funding round with a $3-billion valuation, led by Chinese retail behemoth Alibaba.
This growth in social e-commerce isn’t the preserve of China’s growing middle class and more affluent population. Pinduoduo, for instance, an e-commerce platform that leverages the social habits of our second, more value-driven group of Chinese consumers — to whom it has brought consumption opportunities and options previously out of reach — processed 5.3 billion transactions in 2017, less than 2 years after being founded.
The rise of such UGC platforms is fostering a growing trust in key opinion leaders (KOLs), who are increasingly able to monetize their status, with brands clamoring to leverage their influence over Chinese consumers. And their commercial reach goes far beyond the Instagram and Pinterest influencers of the West, with KOLs active in almost every sphere of China’s online life, extending into such areas as business and finance, not just the lifestyle niche inhabited by social influencers in the US and Europe.
of Chinese consumers say an
engaging social media presence is
important among the brands they
consistently purchase from
of Chinese consumers think chatbots
are ‘cool’, ahead of a global average of 24%
“China’s consumers enjoy novelty,” said Jessie Qian, head of consumer markets, KPMG China. “Combined with the vast scale of this dynamic market, this means innovators can quickly achieve huge scale.”
What does all this mean? We already know that Chinese consumers are mobile-centric; little surprise that, according to our survey, 73 percent would rather lose their wallet than their phone, in stark contrast to any other country surveyed. We already know that super-apps and mega-platforms play a significant role in their lives. But the seemingly unrelenting, ubiquitous nature of technology in this market means Chinese consumers’ time and attention is more fragmented than ever, more complex to understand, and more challenging for organizations to secure.
From mega-platforms to super-ecosystem
Meanwhile, China’s two most dominant internet platforms, Alibaba and Tencent, are continuing their vast ascent beyond the internet into the physical world, striving to extend and strengthen their walled ecosystems.
The power of these platforms is already beyond question. Consider that Alibaba alone reported sales of $25 billion on China’s latest Singles’ Day shopping event, more than three times the 2017 Cyber Monday sales of all US online retailers combined.
However, in spite of their sheer scale and dominance, neither player is willing to rest on their laurels, in recognition of constantly evolving and evermore demanding Chinese consumers.
Both are in a constant search to enhance and enrich the customer experience. Increasingly connecting the digital and ‘real’ world with value-adding services that further permeate the Chinese consumer’s life, from physical retail to food delivery to leisure pursuits such as cooking classes. Aggressively hunting for new innovations and hanging on to their entrepreneurial origins by running extensive investment portfolios, spanning start-ups and new technologies across both the related and the abstract, from auction firms to estate agents to film studios. Encouraging new consumption behavior through subsidies, even as their cost advantage, such as heavily subsidized logistics, is being eroded by an evermore connected nation.
“The dominant players already benefit from a strong network effect, but they want to reinforce that and ensure their platform not only caters to every consumer whim, but also leading and shaping consumption behaviors,” says Wei Lin, partner and Global Strategy Group consumer & retail advisory lead, KPMG China.
These mega-platforms already have the most critical resource to stay ahead of the competition — data — and they are collecting it to a scale and level of granularity that few other companies could comprehend. As our survey revealed, China’s consumers are more prepared to trust their information to tech companies than any others we polled. “Data is an incredible resource for any company, but the Chinese internet companies have an enormous amount of it and are very skilled in using data to build compelling services,” said Anson Bailey, consumer & retail leader, Asia Pacific, KPMG China.
of Chinese consumers say they’re
actively saving for retirement —
the highest among our eight
of Chinese consumers say they follow
people that curate information for
them — markedly ahead of a global
average of 45 percent
Growth, but at what cost?
Scratch the surface of this dynamic market and a conundrum emerges.
On the one hand, increasingly connected Chinese consumers, with an already insatiable appetite for technology, seem a ripe prospect for domestic and foreign brands seeking growth. On the other, however, with such dramatic advances in technology and the convenience offered by the mega-platforms, China’s consumers have become more demanding, with ever-increasing expectations, and arguably increasingly spoilt for choice.
“The real disruptor in mainland China is the consumer,” added Zinke. “The Chinese consumer is ahead of the curve and is providing a glimpse into the future for the rest of the world. The change and disruption being witnessed in this market is not caused by technology, it is being accelerated by it.”
The cost of switching between brands and retailers is minimal. New entrants compete fiercely on price, driving down the concept of loyalty, and putting pressure on margins and company profitability. Superior experiences, deep personalization and smart technology are the entry point for any brand or business. But the future growth of this nation, 40 percent of whom, official figures suggest, are yet to be digitally connected, may come at a cost.
“The 21st century will undoubtedly be looked upon as the Asian century, as a more energized and confident young consumer is met by an emerging stronger ecosystem and new operating models across the region,” commented Bailey. “Expectations are rising sharply, leaving some at risk of falling behind as the Asian consumer becomes ever more demanding in areas such as e-commerce fulfillment. Yet progressive retailers and e-commerce players, those who learn to collaborate and integrate, are able to develop innovative solutions to respond to these pressures. Increasingly, the globally-minded, tech-savvy consumer is no longer confined to the West — organizations around the world need only look to the East as the consumers of China and Asia truly come of age.”
She’s a famous user who has, I think, more than 1,000 followers and she introduce many makeup, and I followed her and I bought some lipsticks, which is really hot.
Wang, 27, Xiamen
I wish there was a way to stop text messages from coming through. So in China … spam comes in the form of SMS text messages, and there’s just no way to stop it. I get about 15 to 20 a day. It’s really invasive.
Daniel, 30, Shanghai
China: emerging themes
- Product discovery and purchasing is through domestic social media platforms
- Brands and logos are a source of social capital
- Established, larger brands are more trusted to keep data safe
I won’t let out my data easily unless I trust the company. I would prefer to trust a chain or a famous company.
Wanqing, 23, Guangzhou
- Unwanted brand communication often comes via phone calls or messaging
- Respondents feel their time is wasted by irrelevant or intrusive advertisement
- Information filtering is used, but there is a preference for bespoke solutions so useful information is not blocked
Sometimes I feel interrupted and bothered by pop-up game advertisements because my time and attention are consumed.
Bobby, 40, Wuhan
- Voice assistants are predominantly seen as a novelty, with state restrictions on certain services limiting their usefulness
- Intentional disconnection is uncommon and is generally unwelcome
- Messaging is seen as a convenient and less intrusive form of communication
Sometimes you need to control the quantity of all this information you receive. It is very important for you to balance your life.
Godfrey, 30, Guangzhou
- Work and family take up significant amount of respondents’ time
- Time is an important commodity, with complaints about not having enough common
- Media consumption and leisure often fit around these responsibilities and are measured on whether they
were a valuable use of time
I spend too much time working.
Ziyu, 26, Guangzhou
- Quality is important. Buying cheap necessities is seen as a false economy
- The hunt for the best for children means budgeting is often neglected
- Investment is seen as important, with property particularly popular
I think that it’s the quality of the daily necessities. I wouldn’t compromise on the quality of daily use items.
Biwan, 31, Beijing