Chinese Consumer Market

5/25/2018 Chinese Consumer Market

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The Chinese Consumer Puzzle - Placing Branded

FMCG in the Chinese Market

Matthias Schramm and Markus Taube

THINK!DESK China Research & Consulting and University of Duisburg-Essen

1 Who Is the Chinese Consumer?

After coming home from a grueling ten-hour workday at the marketing

agency, Li Chunhua checks the Haier refrigerator in the new three-room

apartment she and her husband bought last year. The fridge is nearly

empty, except for a nearly depleted bottle of Chinese-brand milk she

bought for her daughter (because of the cool advertisement with the young

girl dressed as a taikonaut) and a can of the expensive Japanese beer herhusband likes to drink after dinner. She has to go and do some shopping.

Li Chunhua puts on her no-name coat and the fake, but still fancy Nike

shoes she bought on the street market close by and goes out. On the way to

the bus stop she recalls the discussion with her husband last night. He

wants to buy a car. They could apply for a credit although friends have

told her that is still a hassle. Hm, anyway a car would be nice - they would

be able to go more often to the new hypermarket on the outskirts of the

city. Her husband said he would like to buy a German-brand middle-class

car but what is in a name? Or a brand for that matter? These cars arenow produced in China as well And these new Chinese brands, they

have a better design - Western style with Chinese characteristics, she

chuckles, and they are cheaper, probably better value for money. She de-

cides to buy one of these car magazines to learn more about them. Ah,

here comes the bus

China a market of 1.3 billion consumers. Each of them eager to spend hismoney on brand-name toothpaste, candy bars, refrigerators, TV sets, mo-bile phones, sports shoes, and cars. That is the myth. Rapidly rising in-comes in an economy that has been featuring close to double-digit growthfor the last ten years simply must have set the scene for strong and dy-


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12 Matthias Schramm and Markus Taube

namic consumer demand. That is the mantra repeated over and over again.But what is reality?

Li Chunhua, whom we met in the opening paragraph, certainly is one ofthose Chinese consumers who exert a spell on the global consumer goodsindustry. But she certainly does not represent the average Chinese con-sumer. Instead, she stands for the new affluent urban upper middle class,which has distinctly different behavior compared to the remaining one bil-lion plus Chinese consumers. Li Chunhua and all of her compatriots, how-ever, are united by their experience of a rapidly changing consumer land-scape. In quick succession completely new concepts have been introducedand are now shaping their consumer behavior:

the sellers market, formerly characterized by long cues and little prod-

uct variety, has been substituted by a buyers market featuring an abun-dance of goods and variety,

marketing campaigns (by companies interlocked in fierce competition)have become as omnipresent as political propaganda in former days,

brand names have been introduced as a completely new concept inproduct differentiation,

the retail sector has been revolutionized and given way to completelynew shopping concepts like hypermarkets and e-platforms, and

consumer credit has become available, paving the way for consumers tosatisfy all their dreams that are inspired by the media.

As a consequence of this onslaught of new concepts and patterns, not onlyis consumer behavior in China not homogeneous, but it is anything butstable as well. Buying patterns, product and brand preferences, etc. are stillin a state of flux and prone to change quickly. All these market facets anddevelopments make it extremely difficult to enter and prevail in theChinese consumer market.1

The first issue to be tackled, however, is to define the relevant market.

What are the real dimensions of the Chinese consumer market? Looking atthe statistical data it becomes obvious that Chinas private consumer is noexception to the dynamic developments of the Chinese economy. In 2004retail sales increased by 12.53% to 4,484 bn yuan RMB (ca. 460 bn euro)and in 2005 they grew by another 12.6% to 5,049 bn yuan RMB (ca. 490bn euro).2In 2006 similar growth rates are expected. These figures alreadymake China one of the largest ten retail markets worldwide today, and

1 Kotler, et al., 2003.2 All data exclude restaurant trade, catering and the like (National Bureau of Sta-

tistics 2005). In comparison, total retail sales in Germany 2005 amounted to361 bn euro featuring a year-to-year growth rate of -1.0% (HDE 2005).


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Placing Branded FMCG in the Chinese Market 13

given its exceptional growth rates, China might rise to number five in thenext few years.

Fig. 1. Structural Composition of Chinas Retail Sales (Source: National Bureauof Statistics, THINK!DESK China Research & Consulting).

The Chinese retail market, however, is markedly different from markets ofsimilar size in the United States, Japan, and Europe. First of all the Chi-nese market for consumer goods is still dominated by primary consumerneeds. Expenses for food and food articles are extremely high while othercategories are fairly under-represented (see chart 1). Secondly, purchasingpower and consumer behavior differs dramatically between the Coastal

Belt region and the Western hinterland as well as inside these regions be-tween urban and rural areas. While there exists a small group of peoplethat earn incomes on par with European standards, the majority of house-holds still lives on incomes below the threshold level of US$1,000, whichis used to demarcate the borderline between subsistence living and con-sumerism. All in all it seems warranted to classify no more than 80-100million people in China as potential customers for the branded products offoreign producers. But given this definition of the relevant target group, itis still no easy undertaking to address the group as a whole, since they areanything but homogeneous: Although the target group amounts to onlyroughly the size of the German population, it is spread over a huge land-mass. Furthermore, it includes people of very distinct local cultures and


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socialization patterns, people with very different tastes and shopping hab-its.

Based on a representative survey in Beijing, Wuhan, and Chengdu3theauthors have tried to find some answers to the most pressing questions thatface the consumer goods industry in China. In Chapter 2 we will look atwhether Chinese consumers have already developed distinct brand prefer-ences. And what standing do foreign brands have in the Chinese market -are they regarded as of superior value or do Chinese consumers prefer tobuy domestic products? Chapter 3 addresses the question of where andhow the Chinese consumer can be met and approached with branded prod-ucts. In Chapter 4 we will conclude with some thoughts on how to prevailin the Chinese consumer market.

Between the lingering myths and glittering facts it is still a

hard task to determine the real dimension of the Chinesemarket for FMCG: the urban population of 1st- and 2nd- tiercities is a good approximation but 3rd- and 4th-tier cities arenext in line and will be the battleground in the future.

The Chinese market for consumer goods is still dominatedby primary consumer-needs: Expenses for food and food ar-ticles are extremely high.

Consumer behavior in China is anything but stable. Buyingpatterns, as well as product and brand preferences are still ina state of flux and prone to change quickly.

2 Brand Perceptions and Preferences

Do Chinese consumers have a positive attitude towards brands? Li Chun-

hua would surely be confused about such a question: Her daughter likesthe famous Chinese milk brand mengniu, her husband celebrates his Japa-nese beer, and Li Chunhua herself loves her Nike shoes even if they arefake ones. But Mrs. Lis case aside, this simple question is not as easy toanswer as it may seem:4Brands and especially their sudden omnipresence

3 The survey is based on data collected in 2005 during more than 1200 face-to-face interviews with consumers in the cities of Beijing, Wuhan, and Chengdu.The project was carried out in cooperation with the China Economic Monitor-ing Center of the National Bureau of Statistics of China. All data referred to inthe following and not marked otherwise are based on this survey conducted byTHINK!DESK China Research & Consulting.

4 Hui, et al., 2001.


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in daily life are a fairly new phenomenon for Chinas consumers. WhileEuropean and US consumers have been accustomed to brands and brandedproducts for more than a century, in China the first (international) brandsdid not appear until the early 1980s. Asked about their attitude towardstheir new glimmering and shining world full of brands, nearly two-thirdsof all consumers stated that they are confused because there are so manydifferent brands. Moreover, half of all consumers agreed that differencesamong brands and non-branded products are hard to discern.

At first glance this situation would seem to be a catastrophe for all brandmanagers, but it turns out that things are not that bad. Chinese consumersare generally positive towards brands but they are focused on a rathersmall evoked set, i.e. only few brands per product range are kept in mind

that are not simply known but regarded as acceptable with respect to im-age, price, etc and in line with ones own lifestyle.5Only a minority of allconsumers asked said that they prefer to buy non-branded products. Andeven more importantly, they are willing to support their favorite brandseven if they are more expensive than other products: 75% are willing topay a premium for their favorite brand. Only a small fraction of all Chi-nese consumers is unwilling to pay more for brands (chart 2).

Fig. 2. General Attitude towards Branded Products (Source: Representative Sur-

vey in Beijing, Chengdu and Wuhan, THINK!DESK China Research & Consult-ing).

5 THINK!DESK, 2005.


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This must read like good news to the international branded FMCG indus-try. They have had a head start on their Chinese competitors and lead interms of brand management, brand image, design, and quality. But nothingstays as is for eternity. Chinese companies are learning fast, and then thereis the Chinese consumer. While in the early years foreign brands had beenperceived as a class of their own, far ahead of domestic brands, today for-eign and Chinese brands are more or less understood as direct contenders.Parameters like the purpose and overall setting of consumption have astrong influence on the choice between foreign and Chinese brands.

When comparing perceptions of foreign and Chinese brands, distinctdifferences can be seen, but certainly not a simple good bad dichot-omy. Both foreign and Chinese brands are viewed as having specific

strengths and weaknesses (chart 3). Foreign brands are perceived to becharacterized by high quality, state-of-the-art technical features, and highprestige, with the prestige effect dominating all other characteristics. In allareas of conspicuous consumption foreign brands are used to display socialstatus. Only 24% of all Chinese consumers disagree with the statement thatforeign brands are of high prestige. At the same time, however, nearlythree-quarters of all consumers think that foreign brands are too expensive.In comparison Chinese brands are associated with good quality and an ex-cellent cost/performance ratio. And what is more, Chinese products are

seen as more trustworthy than foreign brands nearly 65% state that theytrust Chinese brands more than foreign ones.

Fig. 3.Perceived Characteristics of Foreign and Chinese Brands (Source: Repre-sentative Survey in Beijing, Chengdu and Wuhan, THINK!DESK China Research& Consulting).

Taking a closer look at the hidden preferences guiding Chinese consumerbehavior, it becomes obvious that next to parameters such as prestigeand performance, other factors are growing in influence that are not di-rectly connected with the respective product and brand (chart 4). Growing


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nationalism in combination with a lingering anti-American sentiment isprobably the most important of these external factors determining pur-chase decisions.6More than half of all consumers surveyed say that theyfeel an obligation to buy local Chinese brands wherever and wheneverpossible in order to support the national economy and local employment,as well as make a contribution to Chinas ascent in the global arena. Thisspecial kind of nationalism known in other countries only in a muchweaker form and summarized as buying local effect creates a type ofbackground noise against which claims and images of individual brandsare weakened.

Fig. 4.Model of Brand Choice (Source: Representative Survey in Beijing, Wuhan,and Chengdu, THINK!DESK China Research & Consulting).

The brand managers of the mengniumilk, which Li Chunhua buys for herdaughter, have made use of this background noise and positioned theirbrand as patriotic, with their advertisements celebrating Chinas achieve-ments in space exploration. Foreign competitors, however, are in a di-lemma: Although nationalistic messages obviously help to sell products,they cannot credibly start advertisement campaigns praising the achieve-

ments of the Peoples Liberation Army, for instance. They can, however,lose tremendously in terms of popularity if they strike the wrong note. The

6 Schramm, et al., 2005.


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case of Nike, which allowed a NBA basketball player to defeat a Chinesedragon (Chinas foremost national symbol) in an advertisement, gives aperfect example of the dangers of playing against the nationalistic senti-ment. Nike had to stop the campaign and apologized publicly their im-age, however, remains seriously spoiled. Yet, the problems that foreignbrand managers face do not stop here: When trying to communicate thatthe respective foreign brand product is manufactured in China and is inline with the idea of buying local the prestige effect dissolves and theconsumers willingness to pay premium prices may diminish dramatically.

Box: Country of Origin

Chinese brands are no longer underdogs but have long acquired the nec-essary knowledge to compete with its international competitors. Fur-thermore most often they get closer to their customers, understandingtheir needs and wishes and are able to adopt this knowledge fast. In ad-dition their rise is backed by growing nationalism which manifests itselfin a tendency towards buying local. Against this background the pres-tige effect of foreign brands seems to be the last refuge in which foreign

brands are save and unchallenged by their rising local rivals. But in or-der to cut costs to remain flexible in the cut-throat competition of Chi-nese FMCG markets, nearly all foreign branded products are producedin China. At first glance this seems to be an advantage as buying localor buying Chinese to support the local industry and strengthen localemployment remains one main trend. What sounds like a good opportu-nity to create a strong mixed position turns out to be one of the greatestthreads two examples demonstrate the resulting challenges also for

German companies:1) A leading German producer for high quality white goods all madein China is challenged by his largest Chinese Competitor Haier. Onestrategic marketing option might be to develop a label Made in Chinato indicate the close tie between the German brand and its Chinese Con-sumers. This option was tested using conjoint-analyses during a con-sumer survey in Beijing and Wuhan carried out by THINK!DESK ChinaResearch & Consulting. Using only the prestige effect of their brand theGerman company was able to reach a (calculated) market share of

61.5% despite of the strong Chinese competitor. While using the newstrategy and adding a label marking the product as Made in China themarket share drops to only 53% (Chart 5).


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Fig. 5. Market Share of German Brand vs. Largest Chinese Competitor(Source: Representative Survey in Beijing and Wuhan, THINK!DESK ChinaResearch & Consulting).

Overall this case shows that it is crucial to clearly determine the brand-ing and positioning strategy, because an opaque brand image will lose inany case. Localizing a brand is a difficult task that should be imple-

mented carefully in order not to dilute the brand image.2) Selling cars on the Chinese market is a tough business. Althoughgrowing fast, the Chinese market is burdened with overcapacities andcut-throat competition between all major international players and somedomestic ones. The German VW AG was one of the giants in this mar-ket, selling cars in China for nearly 20 years. Within five years the giantstumbles and only recently has lost its leading position. What happened?During the 80s and 90s VW and his JV-partner had in fact nothingless than a monopoly using it to sell nearly obsolete models no longersold on international markets. In the course of Chinas economic uprise,its opening up and the recent WTO joining international and local com-petitors joined the market. Today the market is no longer a sellers mar-ket but a buyers market dominated by technical innovation, design, andimage. Today VW is associated with a dusty producer for cadres andseen as a Chinese more than a foreign company. Although as technicallyinnovative as its international competitors VW image is that of a localcompany with all it negative side-effects (Chart 6). Buying a car in

China still is a privilege reserved for a few well-off consumers andthey want to show their special status. The image of the respective brandis a crucial factor in their purchasing decision where the prestige effectdominates all other factors.


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Fig. 6.Images of Selected Automobile Brands (Source: Representative Surveyin Beijing, Wuhan, and Chengdu, THINK!DESK China Research & Consult-ing).

In general, a brand image must be chosen carefully with respect to thetarget group, as well as all Chinese and international competitors. In ad-dition, sustaining that image is even more important in order to avoid

confusing the consumer with a misty and blurred brand image.

The omnipresence of brands in daily life is a fairly new

phenomenon for Chinas consumers the majority is con-fused about this shining new world.

Chinese consumers are generally positive towards brands,and nearly three-quarters are willing to support their favor-ite brands.

Chinese consumers differentiate between Chinese and for-eign brands: Foreign brands are perceived to be high pres-tige while Chinese brands are trustworthy.

External factors strongly influence purchase decision, therising nationalism above all.

3 Branded FMCG The Retail Sector as Gatekeeper

All in all, we can conclude that most Chinese consumers have a positiveattitude towards brands not necessarily foreign ones of course. At the


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same time branded products demand sophisticated retail formats in orderto convey specific images and intangible product attributes. The battle forthe Chinese consumer will therefore be decided by the ability to attractChinese customers to shopping environments where branded products canbe presented in an adequate fashion. Based on this consideration, super-and hypermarkets might be understood as the gatekeepers for the brandedFMCG industry. But where does the Chinese consumer do his shopping?

Following Mrs. Li on her daily shopping tour, we will probably be sur-prised as to where she will take us. Her first stop leads us to the still omni-present traditional street markets somewhere along a back road. Despitethe fact that new laws and regulations have been adopted to close some ofthese markets (due to the SARS epidemic, avian flu and other threats) and

shift demand to (new) retail formats, traditional street markets still play amajor role in the shopping behavior of Chinese consumers.7Even in largemetropolitan areas most Chinese consumers visit street markets daily, withthe overwhelming majority visiting more than once a week (chart 7). It ismostly fresh produce that are bought on these markets. Branded products,however, are seldom found.

Fig. 7. Frequency of Visits to Various Retail Formats (Source: RepresentativeSurvey in Beijing, Wuhan, Chengdu, THINK!DESK China Research & Consult-ing).

But as also shown in chart 7, Chinese consumers are increasingly drawn tosupermarkets as well. Nearly two-thirds of consumers in Beijing, Wuhan,and Chengdu visit a Chinese hypermarket at least once a week, while one-third visit a foreign supermarket. There is no doubt that buying behavior ischanging and will continue to change quickly in the near future.8 Chainstores do their best to present fresh products to their customers, and theyoffer value added services such as ready-to-cook meals, cut fruit and

vegetables, and even freshly made ready-to-eat delicacies to create an al-7 THINK!DESK, 2005.8 Hu, et al., 2004.


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ternative to traditional street markets and attract modern, well-off custom-ers. What is missing, however, is a comprehensive regional coverage even in urban areas. Super- and hypermarkets are most often located faroutside the residential areas, following strategic patterns designed forEurope and the USA. In China, however, this strategy does not fully meetthe needs of a society in which the majority still does not possess a car andis dependent on public transport or its feet.

Fig. 8. Retail Sales by Chain Stores in Various Cities in % of National Total(Source: China Chain Store & Franchise Association, THINK!DESK China Re-search & Consulting).

Nevertheless, the modern retail sector paves the way for branded productsin China. The branded FMCG industry therefore does have access to asubstantial part of consumers in metropolitan areas and has the opportunity

to address its (potential) clientele in the desired fashion. This opportunity,however, is subjected to harsh regional barriers. Unsurprisingly, the distri-bution of new retail formats like super- and hypermarkets follows the ex-pansion of purchasing power. As a result these new types of distributionoutlets are not yet widespread, but rather concentrated in a small numberof metropolitan areas and can address only a small part of the population.Taking chain stores as a proxy for those sophisticated retail formats thatare in a position to adequately present branded FMCG to the customer, it

can be shown that only 12.5% of Chinese retail sales (560 bn yuan RMB,roughly 58 bn euro data for 2004) are generated in these distribution out-lets. Looking at their regional distribution, the accessible market, as seenfrom the perspective of the international branded FMCG industry, takes


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the form of a group of isolated island scattered in a vast ocean. But heretoo, extremes abound: 50% of the sales volume is generated in three citiesonly, eight cities make up for three fourths of total sales, 35 for 90% of allsales by chain stores (chart 8).

Mrs. Li, however, is proud to live in one of Chinas metropolises andloves her urban living. Having finished her shopping on the street mar-ket, she moves on she still wants to buy some toiletry articles and beerfor her husband. After a 30-minute bus trip she enters the large Hualianhypermarket, a Chinese chain store company. Although an equally largeFrench hypermarket, Carrefour,lies within walking distance, Mrs. Li, likemany other Chinese consumers, prefers the Chinese store. Many foreignstores, even though they have adjusted their product range to Chinese buy-

ing habits, seem unable to strike the right note in order to attract Chinesecustomers. Chinese stores still have a better image concerning their prod-uct range, the overall freshness of products and their pricing.

Fig. 9.Revenue of Selected Chain Store Companies in China 2004 (Source: ChinaChain Store & Franchise Association, THINK!DESK China Research & Consult-ing).

Thus, the branded FMCG industry has to rely above all on Chinese part-ners in order to address their clientele. Although a substantial number offoreign retail companies has already entered the Chinese market cur-rently more than 100 the latter is still dominated by domestic companies.The leading international companies in China, Carrefour, Wal-Mart, andthe German Metro-Grouptogether account for only ca. 27 bn yuan RMB(2.8 bn euro) total revenue (in China), not even half of the total revenue of


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Chinas retail giant Shanghai Bailian (chart 9). The total market share offoreign retail companies in 2004 adds up to no more than 2.6%.

Overall consumption habits and buying behavior of Chinese consumersare changing fast. Even though some traditional elements like streetmarkets remain, the supermarket revolution is unstoppable. Traditionalmarkets will not vanish they represent an important safe haven for asubstantial number of consumers with medium to low and lowest income.9

But with super- and hypermarkets taking hold in more and more urban ar-eas, their importance for the overall buying behavior is decreasing. Alto-gether this is good news for the FMCG industry which relies on these newshopping formats in order to address their clientele. The first generation ofChinese super- and hypermarkets, however, might be understood as a

blessing as well as a curse to the branded FMCG industry. On the onehand, they mark the path to follow. While large Chinese and foreign chainstore companies slowly advance into Chinas Central and Western hinter-land, they pave the way for FMCG brands at the same time. On the otherhand, the highly fragmented market turns out to be a strong gatekeeperwith a lot of hands to shake on the way to the Chinese consumer. In orderto distribute products on a broad regional basis, a multitude of retail part-ners has to be involved. A one-stop solution to distribute branded prod-ucts on a national scale still does not exist.

The supermarket revolution is on its way and it is gather-

ing speed with the rise of chain stores, distributing brandsgets easier as western style super- and hypermarkets beginto dominate the retail sector.

Chinese consumers differentiate between Chinese and for-eign super- and hypermarkets. They like Chinese stores be-cause of their product range, freshness, and pricing. There-

fore, Chinese stores must be regarded as an importantdistribution channel in addition to international players likeWal-Mart or Carrefour.

Super- and hypermarkets mark the path to follow: Whileslowly advancing into Chinas 3rd and 4th tier cities theypave the way for FMCG brands.

9 Lo, et al. 2001.


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4 Management Implications

Who is the Chinese consumer? We have seen that there is no clear-cut an-

swer. The Chinese consumer market is highly fragmented. Substantialvariations in household incomes result in a situation where only compara-tively small parts of the population are in a position to demonstrate signifi-cant consumer behavior. At the time being the number of Chinese who arein a position to wield significant purchasing power may be in the range of80-100 million only. Since this group mostly inhabits Chinas metropolitanareas of the Coastal Belt, these are the urban areas that constitute todaysrelevant market for the international branded FMCG industry. WithChinas economic ascendancy showing no signs of weakness, however,

these islands of consumer markets will grow and be accompanied by moreand more cities moving beyond the threshold line of modern consumerism.For the foreseeable future, however, Chinas consumer market will remainan urban issue at least for international players.

How to address the Chinese consumer? Chinese consumers do have apositive attitude towards the notion of brands. However, there is no generalpreference for foreign brands. Many Chinese brands, most of them createdonly a few years ago, enjoy the trust of the Chinese consumers and holdtheir own against their foreign competitors.10While foreign brands excel interms of prestige and quality ratings, Chinese brands are valued for theirprice/performance ratio, and their superior ability to address the specificChinese desires of the customers. In addition environment-based factorshave a strong influence. Strong nationalistic sentiment has created a back-ground noise that provides domestic players with a natural advantage andcritically challenges foreign brand managers. What are the options to pro-moting foreign brands vis--vis their Chinese competitors and raising themto the evoked set of the Chinese consumer?

Given the heterogeneity of the Chinese market, it seems advisable todifferentiate marketing and brand-placement activities between differenttypes of local markets and their respective clienteles. Categorizing the cit-ies in various tiers indicating local purchasing power, openness to theglobal markets, etc. might be useful.11In this understanding, metropoliseslike Shanghai, Beijing, and Guangzhou would have to be classified as firsttier cities, while cities like Wuhan, Chengdu, etc. would classify as tiertwo cities. Both categories may be understood as the battlefield on whichthe branded FMCG industry presently fights for the Chinese consumer.

The target group here has a generally positive attitude towards brands and

10 Gao, et al., 2003.11 A.T. Kearney, 2003.


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is willing to pay premium prices. However, consumers are still in a vari-ety seeking stage and exhibit little brand loyalty, brand preferences areshifting and remain fragile. In order to attain a strong brand position in thisenvironment, foreign companies need to focus strictly on their own coretarget group and address it directly. In depth knowledge of ones custom-ers (their expectations, wishes, etc.) is crucial intensified market researchmay be the key. Otherwise the danger of getting lost in an overall market-ing noise becomes excessive. In order to differentiate their own brandname from new Chinese brands and uphold a premium positioning, anyvertical or horizontal brand stretching initiatives should be refrainedfrom.12A strict focus and steadiness in respect of brand image is of utmostimportance in order to create a steady position in a fast changing environ-

ment with new brands coming and going. Their own brand portfolio mightbe enriched by the acquisition of well positioned Chinese brands espe-cially in order to provide customers with medium-end alternatives. In thelonger term, well introduced brands may gain by localization efforts,which position the brand closer to the Chinese context and may help tocounter the discriminatory background noise of Chinas omnipresent na-tionalism. However, this is a dangerous game as at the same time the creditof foreignness is lost with all its attributes of prestige, quality, etc.

Third and fourth tier cities constitute the battlefield of the future, but

are hardly accessible at the time being. A lack of purchasing power as wellas adequate retailing outlets prohibit comprehensive market entry strate-gies. However, it is possible to start making consumers acquainted with abrand name and attain an initial basic brand recognition. Following thisbroad concept, marketing strategies should focus less on a specific targetgroup and more on a broader group of potential customers. This is the timefor comparatively simple branding and positioning strategies. Starting withthe issues of quality and price, design and image should be treated as onlysecondary arguments for a purchasing decision. Adjustments in packagesizes and quantities sold might be necessary in order to facilitate price-based sales campaigns, while at the same time preventing a cannibalizationof strategies employed in higher tier urban markets. Point of Sales activi-ties may be employed as a primary instrument to address customers.

Where to address the Chinese consumer? The expansion of the interna-tional branded FMCG industry in China is restricted by the availability ofretail formats that allow for adequate product positioning and facilitate thedesired communication with the customer. Chinas retail distribution sys-

tem is in the process of a dramatic reorganization towards larger formatsand increasingly standardized chain store facilities. These modern formats,

12 Chen, Penhirin, 2004.


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however, are still greatly restricted in their regional coverage. The brandedFMCG industry in China still has to deal with a multitude of retail part-ners, each of them with very limited regional reach and its own particularsales concept. Bringing branded products to the Chinese consumer is still atroublesome, cost-intensive process with huge potential for improvements.A sit-and-wait strategy, where a brand producer simply waits for his re-tail formats to reach further and further into the market, may eventually re-sult in broad regional brand coverage. However, such an approach ishighly dissatisfying and drives the brand producer to take on a passiverole, making him dependent on third party activities for his own marketexpansion. Shop-in-shop concepts, where brand producers design theirown sales environments and place them in larger distribution outlets inde-

pendent of any chain store affiliation have proven to be a successful meansto steer regional expansion processes proactively.

There remains little doubt that China will become one key market of theyears to come. But it also holds true that success will not come easy: Chi-nese consumers are hardly understood or known at present, their prefer-ences are changing fast and brand loyalty is hard to acquire, Chinesebrands have matured to become serious competitors to foreign brands, anddistribution and supply chain management are still difficult. But despite allthe threads, the opportunities prevail efficient, continuous brand man-

agement based on solid knowledge of ones own consumers will help toconquer the worlds largest FMCG market.

References

A.T. Kearney (2003). Winning the China FMCG Market Growth Strategies foran Evolving Opportunity. A.T. Kearney Business Issue Paper.http://www.atkearney.de/content/veroeffentlichungen/whitepaper_practice.ph

p/practice/retail/id/48978 (2006-01-31).Chen Y., & Penhirin, J. (2004). Marketing to Chinas Consumers. The McKinsey

Quarterly. 2004 Special Edition China today, 63-73.Gao, P., & Woetzel, R., & Wu, Y. (2003): Can Chinese brands make it abroad?

The McKinsey Quarterly. 2003 Special Edition Global Directions, 54-65.Hauptverband des Deutschen Einzelhandels (HDE) (2005). Einzelhandelsumsatz

im engeren Sinne, http://www.hde.de/servlet/PB/menu/1017774/index.html(2006.01.31).

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