The Chinese Consumer: Still Projecting and Protecting

Contemporary Chinese society, still Confucian to the core, is driven by: 1) the need for societal acknowledgment and 2) diffused insecurity. Mainland consumer behavior, characterized by status projection and risk avoidance, reflects these truths.

Status and Public Consumption. The Chinese consumer, pulled between conformism and ambition, regard brands as tools for success, not self-actualization or fulfillment. Publicly consumed products command huge price premiums relative to goods used in private. All leading mobile phones, for example, are international. Even in tier five and six cities, Nokia commands a 40% market share, despite significantly higher retail prices relative to local competitors. Sony's Handycam, a product brandished outside the home, boasts 50% market share. However, Sony televisions are still niche. The leading household appliances are, without exception, cheap domestic brands such as Haier, TCL and Changhong.

The "public display" imperative leads to fundamental positioning differences versus what works in Western markets. Benefits should be "externalized," not "internalized." Even for luxury goods, individualism -- "what I want, how I feel" -- does not work. Shower gels should not promote "sensory indulgence." They should help a woman begin the day with a kick. Beauty products must help "move her forward," "get her man," or "open doors." Automobiles, now a middle-class "must buy," should make a statement about a man on the way up. Sports cars -- "thrill vehicles" -- are not big sellers. BMW, a middle kingdom winner, has fused its global "Ultimate Driving Machine" proposition with a Chinese declaration of ambition. Passat, Honda, Toyota, Ford and Buick are also positioned as status vessels. Even beer must do something. In Western countries, "letting the goods times role," or "making weekends great" is enough. Fun is fun. In China, Pilsner must: 1) bring people together, 2) reinforce trust, and 3) optimize opportunity for mutual (financial) gain.

The importance of public display is also a critical consideration in shaping business models. Starbucks in China is not a comfortable environment -- i.e., an urban retreat -- in which coffee is sipped. To conform to Chinese taste, the company: 1) broadened the sandwich menu, 2) identified prime site-to-be-seen real estate, and 3) expanded average store size. From day one, it successfully established itself as a public place in which professional tribes gather proclaim affiliation with the new generation elite. Both Pizza Hut and Haagen Dazs have built mega-franchises based on out-of-home consumption.

Insecurity and Price Sensitivity. The Chinese still do not feel "safe." On a daily basis, they confront: shredded safety nets, lack of institutions that protect individual wealth, contaminated dairy products and other risks to home and health. Therefore, consumers' instinct to project status through material display is counter-balanced by conservative buying behavior, at all socio-economic levels. Protective "benefits" are fundamental. Even high-end paints must establish anti-toxicity before move on to "colorful" self-expression. Baby formula, rooted in immunity claims, commands huge price premiums in both middle class and mass markets. Chinese on average take ten times as many antibiotics as people in other countries. Safety is a key benefit for Mercedes and Ford Fiesta buyers alike.

The Chinese will never spend freely. Savings rates will always be higher than in the West. There is no question China's consumer economy will expand as incomes rise. So will purchasing power. (In most urban areas, homelessness is not a major problem. There are beggars but not many.) But price-sensitivity runs deep because the average Joe is skittish about keeping up. One anonymous viral e-mail that made the rounds in late-2010 as inflation was picking up steam said it all:

"Can't afford to be born because a Caesarean costs RMB50,000; can't afford to study because schools cost at least RMB30,000; can't afford to live anywhere because each square meter is at least RMB20,000; can't afford to get sick because pharmaceutical profits are at least 10-fold; can't afford to die because cremation costs at least RMB30,000."

Beyond ever-rising prices, investment opportunities are limited; the Shanghai and Shenzhen stock markets are riskier than gambling casinos. To boot, health care is a tattered quilt of patchy coverage. (Low-paid surgeons receive bribes from patients and kick backs from drug manufacturers.) Even wealthy consumers are wed to cash. They shy away from multiple credit cards and on-line "virtual" transactions. Most cars are still purchased without loans.

New Media, Traditional Values. Finally, digital technology has not transformed consumer behavior at an elemental level. "Young China" is savvier than a decade ago. New media has broadened awareness of the outside world. However, Chinese netizens' underlying conservatism is clear. First, on-line transactions, while growing rapidly, are still relatively infrequent, particularly when compared to the high levels of digital penetration in major cities and, increasingly, smaller towns. According to the China Internet Network Information Center, by 2008, only 25% of Internet users have bought something online, and most of these purchases involve off-line cash-for-product exchanges. The barriers are no longer technological; many people simply do not feel "safe" making electronic payments. Safety-seeking China is "high touch"; tires must be kicked. Second, so-called digital liberation is anonymous. Social networking sites such as Weibo (China's Twitter) and Kaixing Wang (China's Facebook) are popular platforms of self-expression. But even the angriest on-line protesters hide behind avatars and pseudonyms. To quote one on-line gaming fan: "I can be gay. I can be king of darkness. I can be whoever I want to be because no one knows who I am." A joint survey conducted by JWT and IAC supports the importance of on-line anonymity. In response to the statement, "I feel free to do and say things I wouldn't do or say offline," less than a third of young Americans agree and a large majority (41%) disagrees. Among Chinese respondents, almost three-quarters agree (73%), and just 9% disagree.

Consumer culture is advancing. But buying decisions will always reflect Chinese cultural realities.