Mainland China is a thriving marketplace. Growth will continue to be robust as more surviving Chinese migrate into consuming Chinese. And if you know how to speak to them, you can make a lot of money. But doing business in China is hard as the mainland Chinese consumer is challenging and unique. This month’s column focuses on the 10 things you need to know to successfully and profitably engage the Chinese consumer.
1: Read and Write Mandarin: Almost no one speaks English. And those few that do, don’t speak it well. In order to be successful in mainland China, one must be fluent in Mandarin (Pudon-hua), both written and spoken. And that’s just a base level. I was in Beijing last week on business. In one of my meetings, I couldn’t understand what was being said. I later found out that it was because the speaker was using the local Beijing dialect and not Pudon-hua. Fortunately, my associate was from Beijing and was able to ask them to switch to Pudon-hua.
2: Understand Local Culture and Customs: In order to be successful, you need to have “insider” knowledge of the current mainland Chinese culture and trends. Groupon China learned this the hard way when it offered a selection of restaurant cuisine deals only to find that the only deals that were of interest were for those restaurants offering Chinese cuisine. Home Depot also learned that the DIY market is frowned upon in China. And Porsche offers a backseat in its Chinese models when it realized that their target market prefers to be driven.
3: Friends & Family are Everything: The Chinese have been persecuted for their religious and political beliefs. As a result, privacy is top priority. The Chinese hate to give out information to people outside their “friends and family” circle. And if they do provide information, it may not be truthful. This is why if you want to do consumer research you need to make sure that the company you choose has a direct relationship with its panelists.
4: The Rise of the Little Emperors: The one-child policy has altered the purchasing power landscape by shifting the culture of group think under Mao to the individual. With millions of “only” children entering adulthood, they have a strong desire to be unique and to differentiate themselves from their peers. To them, luxury goods enable them to reflect their individualism. And, they have the buying power to purchase their heart’s desire. They basically have six income streams from their mom, dad, and four grandparents. Each person gives them money telling them “not to tell anyone.” When asked why they made their most recent luxury goods purchases, panelist’s responses included: “not wanting to follow others, to be myself, don’t blindly follow the trend, believe in my own taste, liking unique things, and liking only what I like.” And this individualism has spilled over to older generations as well. Chinese people no longer want to be one of the crowd PERIOD.
5: There is No One China: China’s market is regionally fragmented. There is no such thing as a truly national market in China. It is a mistake to view mainland China as “one country.” As a result, luxury goods companies must address each region separately.
6: Invest in Second- and Third-Tier Cities: Luxury market leaders such as Louis Vuitton have saturated first-tier cites and are aggressively moving into second- and third-tier markets. China has been the biggest and fastest of all the industrialized revolutions. In the space of 26 years, China’s GDP grew by a factor of 10. It took the U.K. 70 years after 1830 to grow by a factor of four. Goldman Sachs forecasts that China will overtake the U.S. in terms of GDP in 2027, according to “In China’s Orbit” in The Wall Street Journal.
7: The Art of the Deal: Chinese LOVE discounts. Discounting is the number one promotional tool. It’s not about the size – they just want to receive something. I remember walking the Beijing market with a newly minted billionaire and waiting while he negotiated the price for a $20 item. After 10 minutes of heated haggling, he emerged triumphant having received $1 off the purchase price. For brands such as Chanel, Hermes, and Louis Vuitton, buyers said they would be motivated to buy more if these brands offered promotional items such as gift with purchase, frequent buyer points, and tickets to special events.
8: Education is the key to conversion: Money is not the reason mainland Chinese do not purchase more luxury goods. The primary reason is that most Chinese consumers possess limited knowledge of the brands. “Why is this handbag worth so much money?” is the common question. Luxury goods are a relatively recent phenomena and mainland Chinese need and want to be educated on a brand’s history. One panelist cited Hermes’ scarves exhibition at the Shanghai Art Museum in 2007 as a great example of a brand effectively educating the mainland Chinese consumer of the value and quality of the Hermes franchise.
9: Beauty is the Portal into a Brand: We conducted a survey of over 300 newly minted Chinese billionaires and their families. Over one-fifth of our panel did not report purchasing a designer handbag, watch or piece of fine jewelry over the past 12 months. However, over 80% of respondents indicated that they had purchased beauty or fragrance items from these brands. Importantly, 100% of respondents said they were planning to purchase additional products from the same brands with 80% saying that handbags would be their next product to be purchased. And of those who purchased either a designer handbag, watch or piece of fine jewelry, 47% owned multiple pieces of the same item and 23% owned a beauty or fragrance product belonging to the brand.
10: “More Please”: Luxury goods companies can leverage mainland China luxury goods customers’ desire to be unique and stand out from their friends by offering limited-edition and the “latest and greatest” to their mainland China boutiques. Importantly, they will buy if they know that they can only purchase the items in mainland China or in limited availability (e.g., Tokyo, New York and Paris).