TNS China

Lower tier markets and the financial crisis

Moving to lower tier markets

Concomitant with the spread of economic prosperity from large cities and coastal areas of China to inland and lower tier cities, the market for consumer products is also expanding to wider geographical areas. While the sword of current economic crisis hangs perilously over China, there are indications to suggest that the economic measures initiated by the Chinese government to stimulate domestic demand (particularly the plan to spend 4 trillion yuan in the next 2 years) will actually accelerate the spread of consumer products to lower tier cities and rural China.

Penetrating China

According to a survey done by AmCamb Shanghai among its members in 2007, 40% of the surveyed companies had no presence in the lower tier markets. Even successful companies like McDonald’s only operate in 120 of the over 600 main cities and 20,000 towns in China – not to mention the countless villages which dot the country. The fact remains that the companies operating in the big cities are only scratching the surface the four top cities only account for 3% of the population – in fact the total urban population together is only 45% of the population of China. It is not surprising, therefore, that the most successful companies in China are those who have been successfully able to penetrate the lower tier and rural markets of China.

Though the transition from the large metros to the lower tier and rural markets is imperative for growth, it is not always very easy to implement. The lower tier cities and rural areas differ significantly from the large cities in many ways – not only in lower incomes but also in terms of the profile of the consumers, the way we can access them, the retail infrastructure, consumers’ media habits and the way they think and make brand choices. Marketers need to carefully decide their expansion strategies, and modify their marketing tactics in tune with the local consumer preferences, lifestyle and habits.

Financial crisis and China

In the meanwhile, as the world bemoans its financial woes, after some debate, a consensus seems to be emerging among the economists about the potential impact on the Chinese economy. China, most now opine, can not escape unscathed from the global financial mess. The official figures also suggest a slow down (GDP growth of 9.9% in the first 3 quarters of this year, 2.3% lower than the same period last year) and a shadow of nervousness over job cuts and future uncertainty mars the mood of the Chinese consumers.

The biggest worry comes from the likely impact on Chinese exports. China is the factory of world, and its low priced products sit smugly on the shelves of Walmart in America, from where the consumers have been transferring them on to their large shopping baskets with a flourish and getting past the tills with their over stretched credit cards. With American consumers losing their jobs, seeing their houses plummet in value, and their credit cards less yielding, the Chinese products seem to sit longer on the shelves, and the orders for factories in Guangdong seem to be approaching a drought.

In anticipation of further accentuation of the impact on growth, the Chinese government is naturally and logically hastening to stimulate the domestic demand. A few days ago the State Council announced that China will spend a generous 4 trillion yuan over the next two years to offset adverse global economic conditions by boosting domestic demand. This money will be spent on 10 major areas – which include rural infrastructure, build more affordable housing, including rural housing, transport, raising average incomes – particularly in rural areas.

While all these measures are targeted at stimulating the overall domestic demand, their effect is likely to be even stronger in lower tier markets, including rural markets. In essence, the importance of lower tier markets in China has received a big boost from the global economic crisis. This stimulus package will give a fillip to the lower tier markets in a number of ways:

• Firstly, it will provide employment opportunities related to the investment in infrastructure and other accelerated economic activities in rural China. It is estimated that investment in railway construction alone will create 6 million jobs.
• Secondly, the government plans to spend on poverty relief and try to raise the income of the lower income groups to raise their consumption ability, thereby facilitating another objective of the Chinese government – that is narrowing the ever increasing urban rural income divide.
• Thirdly, it will increase physical access to lower tier and rural markets through construction of new and improved road and railways infrastructure and hence ease the expansion of distribution networks.
• Lastly, by providing low cost housing, it will increase the disposable income available to lower tier residents.

While the stimulus package would boost the overall economy, it would also ensure that the benefits accrue more to the lower income consumers, and those who are away from the more accessible large cities, and thereby paving the way for faster expansion of consumer goods to lower tier markets.

Written by Ashok Sethi, TNS China

www.tnsglobal.com

Financial crisis with Chinese characteristics

Observing the process of making jiaozi (Chinese dumplings) is an interesting experience. A long and thick strand is extracted from the pile of dough, broken into little pieces, each piece rolled into a thin pancake skin and stuffed with ground meat, chopped green vegetables, or egg. These little parcels are finally steamed, boiled or fried and served steaming hot with a dip of vinegar and optional chillies and mashed garlic. While observing the process and enjoying a portion of jiaozi and last week in a small roadside shop near Xizang Road in Shanghai, I was somehow reminded of the packaging of sub-prime loans into delicious looking structured investment vehicles, which were steamed into respectability by the credit agencies and picked up by the financial community with as much relish as I was raising the jiaozi to my mouth.

As if reading my thoughts, the restaurant owner who was rolling jiaozi, broke my reverie with a sudden question, “How is the financial crisis affecting India?” Given the universality of basic education in China, the level of general awareness (though not necessarily the degree of appreciation of the issues) tends to be high. It was not a surprise, therefore, that the dumpling roller from a village in Shandong province seem familiar with the global meltdown and curious about how it is affecting the world. His dumpling business in downtown Shanghai, however, he felt was not particularly vulnerable to the global crisis of confidence.

The mood elsewhere in China, however, is somber and in fact had been since the beginning of this year. According to a newspaper report, the number of people seeking psychological counseling in Beijing has doubled since the beginning of the year, and 85% of these are worried about possible job loss.

The stock prices started tumbling earlier this year and wiped out over half the value of most large companies listed on the Shanghai stock exchange and the savings of many who were enticed to the market by its heady ascent. Once a favorite pastime of the urban Chinese, including retired government workers and grizzled grandmothers, betting on the stock market has turned out be a regrettable indulgence.

The first Chinese victims of the current global financial crisis are the migrant workers who power the exports of cheap toys, garments, shoes and other such products to the Western world. Toy factories in Guangdong province of China are already closing and workers forced to go back to the villages they came from and again face the subsistence existence based on a tiny plot of land. Many, however, are likely to come back to the cities and seek employment in more export-proof industries of China.

Among the general Chinese population, the consumer confidence index is down from a high of 100.8 in October 2007 to 91 in September 2008 (a moderate decline when compared to the plunge in the US consumer confidence from 61.4 to 38 in just a month as reported by the Conference Board). Thrifty by nature and not afflicted by the profligate habits of their American counterparts, the confidence dip in China has not so far translated into a drastic tightening of purse strings or a cataclysmic reduction in consumption. However, the Chinese brow is also writ with worries about the future, queues outside popular and premium restaurants are getting shorter, and the shopping bags carried around luxury shopping malls seem lighter.

According to the latest data, the Chinese economy grew 9% in the third quarter of 2008, a dazzling performance compared to a 0.5% decline in Britain but a poor fizzle as compared to a blistering 11.9% growth in the same period of 2007 in China. When it did grow at this scorching pace, the talk was often of “overheating” and the government often voiced concern and attempted to rein the economic horse on steroids. But this strain has made a sudden reversal, and the People’s Bank of China cut interest rate for a second time in three weeks to reinvigorate the economy.

While not fully immune to the global virus of uncertainty and anxiety, the Chinese definitely show a higher resistance and resilience. While a relatively healthy and vibrant economy still growing at a 8%+ clip definitely helps, it is the Chinese psyche which possibly also contributes strongly to this feeling. As my colleague Eric Tai remarked “The Chinese have a saying –“Weiji jiu shi zhuanji” or “opportunity arises from crisis”. This positive thinking will definitely help the Chinese tide over the crisis with greater aplomb and the Chinese resilience should help cushion some the pain caused by unrestrained greed and excesses of the Western financial establishment.

Written by Ashok Sethi, TNS China

www.tnsglobal.com

Imagine – a Unicef luxury watch!

Defining luxury goods

While there could be many ways of defining luxury goods, possibly one key element of all the definitions will be that the functional benefit that the consumer gets out of buying luxury, though substantial, normally does not commensurate with the price paid, and the deficit is made up by emotional gratification. While emotional gratification also constitutes an important part of delivery in mass market products, the difference is that for mass market products the balance of delivery is tilted towards functional benefits, whereas for luxury products the balance gets skewed in favour of emotional payoffs.

If this premise is accepted, we need to explore whether it is possible to expand the range of emotional gratification that the consumer may get from spending a large sum of money, which does not offer commensurate functional gratification. The emotions that the luxury goods marketers have traditionally been exploiting have been prestige, class and exclusivity. Luxury advertising often portrays its users as being unique, belonging to an exclusive clique and admired and fawned upon by others.

New emotional gratifications

Human beings are complex animals and have a range of emotional needs. While needs for prestige and admiration are well established, and it is also known that consumer is willing to pay to satisfy these needs, it should be possible to go beyond these into new areas of gratification. I hypothesise that it is possible to go beyond these clichéd emotional gratifications and persuade the consumer to pay luxury prices for a range of products and services, offering newer types of emotional gratifications.

These needs include a need to feel responsible, helpful and leading a worthwhile existence. “Giving back” to the society is an often theme heard among those who have made it and feel that they owe something. I present below three new avenues for luxury goods. These avenues, I feel, will not only lead to profits for companies who explore these, but will also contribute to the good of society.

Green luxury

More and more hybrid cars are getting sold in the developed world. Sold at a significant premium, functionally they offer little more (in fact a little less, some will argue) as compared to the conventional gas guzzlers. However, the purchase is fueled by (pun intended) a need to prove (to oneself as well as others) of being a responsible consumer. More extreme is the example of cars run on fuel cells whose only emission is pure water – which in spite of the enormous cost is finding retail customers in the US and is considered by some to be the ultimate environmental status symbol. As environmental awareness increases, consumers are keen to reduce their carbon footprints and are willing to pay more for products and services which are environmentally friendly. Luxury good opportunities exist in areas of personal vehicles, energy solutions and green homes as also for a range of products and services which espouse environmentally friendly production and distribution methods.

Responsible luxury

The 2006 film Blood Diamonds created awareness about conflict diamonds and made one wonder whether the beautiful stones you are sporting are tinted in the blood of innocent people who are exploited and killed for profiteering and diamond money. RugMark is an international nonprofit organization which randomly inspects the looms of companies that agree to employ adults only and provides a child-labor free certification for rugs. With cost pressures and competition, companies have been going out of their way to cut costs. While doing that some have also fallen to the temptation of cutting corners. Luxury goods buyers will pay a premium for the emotional satisfaction that their joy of owning the product which is not produced at the cost of exploitation of others. Luxury good buyers will pay more for consumption for products certified to be made ethically and responsibly.

Charitable luxury

While charity balls is not a new concept, a charity Louis Vuitton handbag is. Unicef attempts to raise money by selling products under its brand but offers little more than New year cards, some trinkets and toys. The challenge for luxury goods manufacturers is to sell more to the buyer and make them indulge in frequent purchases. In doing that they need to find new appeals and draws. While on the face of it, the concept of luxury handbags while the poor are starving may be repellant, but the combination of the two is practical and offers a win-win situation for the buyer, the seller, and the poor. I feel that there is scope for selling luxury goods, with the sales linked to donations for the needy. In doing that we will enrich the emotional satisfaction of the buyers and also contribute to charity (meeting the emotional needs of the rich and the functional needs of the poor!).

Written by Ashok Sethi, TNS China

www.tnsglobal.com

Moral Debate in China

Despite repeated aftershocks, the dust is slowly settling on the devastation of the Sichuan earthquake and the Chinese media coverage has shifted its focus to celebrating the Olympics. In all the heart-rending destruction and devastation, there are two episodes from the earthquake which generate a quizzical smile. The first of these is the story of Fan Meizhong, a school teacher who ran for his life when the quake struck, leaving his students behind. Fortunately, his school remained standing and none of his students were hurt. However, the aggravating fact was that he later, in a fit of candidness, admitted to abandoning his wards and defended his action as guided by his own sense of morality and the natural instinct of self-preservation. He proclaimed that he loved his life and that he would not sacrifice it for anyone. Only safety of his daughter (not even his mother) could induce him to sacrifice his own life. Expectedly this proclamation elicited a huge hue and cry from the general public. Nicknamed “Run Run Fan” in light of his action, faced swift condemnation and was fired from his job. Not only that, it even prompted the Ministry of education to issue a new State ethics regulation, which says that protecting the students is a moral obligation of the teachers.

While Fan’s detractors have been more numerous as well as more strident, the media has not been devoid of a few who have dared to praise him for his honesty. Fan could have kept quiet and possibly lived with a nagging feeling of guilt throughout his life. But he chose to publicly expunge it and in a way proclaim his innocence while admitting his guilt.

The second incident is perhaps even more intriguing. Jiang Xiaojuan, a 30 year old police woman in Jiangyou city in Sichuan province and a mother of a six month old child, breastfed six children who lost their mothers in the earthquake. Caught in the act by a press photographer, Jiang expectedly faced profuse showers of praise and approval. Clearly this was a unambiguous case of selfless compassion, of a member of the police force behaving with uncharacteristic tenderness and care. While most agreed to this, what caused the debate among the Chinese was her subsequent promotion to assistant commissioner of public security for the city. While her action was clearly commendable, the resultant promotion, the Chinese public felt, was not justified - as compassion alone, however heart-felt and moving it may be, is not an adequate criteria for elevation to a senior position in the police department.

The Western media and political leaders are obsessed with what they see as absence of democracy and free speech in the China. Some even go to the absurd length of saying that the country suffers from a moral vacuum. The lively and open debate around the Run Run Fan and Jiang Xiaojuan shows that it there is spirit of debate and moral discussion which is alive and vibrant in China – it is just that the issues that the West considers as the core of morality are perhaps not the same as the ones that excite debate and passion among the Chinese. West needs to resist the temptation of judging every country and every person by the single minded view of Western morality and democratic ideals. The Sichuan earthquake revealed a profile of the country which is compassionate, considerate and reflective. There is a sense of balance and intense reflection on what is right and wrong. Recognizing such a mindset, the West needs to let go, relax and let China find its own path at its own pace.

Written by Ashok Sethi, TNS China

www.tnsglobal.com

The Colours of China

The red envelop

Red is the most “Chinese” of all colours. “Hong bao”, literally a red envelop, is one of the most fundamental parts of Chinese life and is traditionally used to house money which the adults gift to children on Chinese new year. The concept is extended to any kind of gifting (voluntary or obligatory), including gift to the married couples, to employees from the company boss, but most importantly to grease the palms of those who wield the power to make your life easier by conferring favours or removing impediments. A little money in the red envelop makes people more malleable and more amenable to extend a helping hand. Red is very special colour in China – the most auspicious of colours, a colour which is steeped in tradition and a colour of celebration. Red is also sexy, warm, vibrant and exciting. It is one of the favourite colours in China – though not the most favourite.

The heavenly blue –favourite of Chinese

In fact it is blue, which is the favourite of the Chinese – for both men and women and young and old. If red symbolizes prosperity on earth, blue connotes the heaven and the sky. If red is exciting blue is calming – and preference of blue over red indicates that given the hectic existence that the Chinese are leading (and perhaps the turmoil that they went through earlier), they now prefer serenity and peace over excitement. Blue offers that feeling of tranquility and also manages to stay cheerful and modern. Blue apparel is particularly favoured by both men and women – including shirts, trousers, suits and also skirts for women. Paying a heavy cost of economic development in terms of urban pollution, blue is also a color the Chinese are seeing less and less of – as formerly blue skies bear a depressing grey and erstwhile limpid water looks turbid and muddy.

In black and white

While colors like red, pink and yellow bring up vivid imagery and associations, for practical use black and white rule the roost. Black is considered prestigious and sophisticated and a favourite color not only for apparel (suits, trousers and even skirts fro women) but also for cars, mobile phones and other electronic equipment. Traditionally, associations with black in China have not been very positive, but modernization has bestowed the color with respectability and even prestige. Same holds true with white – while traditionally associated with funerals, it does not bear that stigma now. In fact, white has been adopted as a color of the dress that an urban Chinese bride will wear at her wedding. White also has associations of purity, and is also seen as bright and calming. It is a color for shirts and underwear for men and women, but also shoes and skirts for women. Of course it is the desired color of the skin and Chinese women spend a fortune on whitening lotions and fairness creams. It is the most popular hue of paint for the walls (along with cream) of the living room and the bedroom – though for children’s room, many would prefer a warmer and more cheerful shade of pink. White also forms the name of China’s most popular tipple – bai jiu (literally white spirit or wine) – a potent potion that causes much grief at wedding banquets and other parties, as victims (the newly married couple or the hosts) fall in exhaustion and inebriation after interminable rounds of obligatory “gan bei” (bottoms up) with the guests.

The sexy pink opportunity

Pink is expectedly seen as the most feminine and sensuous color, but is also strongly associated with children. Men are most turned on by pink, though women find black to be sexy. It is the favourite color among women to paint the bedroom walls with – their husbands may have to settle for this for the sake of marital bliss, and the joy of sharing the wife’s bed – though their own preference lies with white and cream. While more men and women go for the obvious choice of black and silver for mobile phones, notebook computers and television sets, a sizeable opportunity exists for pink among women in these product categories. With increasing participation of women in durable purchase and other areas of decision-making which have traditionally been dominated by men, the manufactures of these products may well give a second look at the feminine and sensuous pink for cars, mobile phones and laptops.

The green revolution

Green also finds favour with the Chinese – a bit more with men, as women are drawn to many more colours. While green is one of the favourite, it lacks a unique personality – other than being cheerful. Though green does not feature very high in the external or internal apparel of the Chinese, more and more environmentally savvy Chinese will like the companies to sport this colour in a spirit of environmental sensitivity. In fact, from that point of view, green is the most important colour of 2008 – as consumers show higher and higher levels of environmental awareness and willingness to pay a premium (and even suffer a bit of discomfort) in their bit to preserve this earth for the future generations.

The coming of gold and silver

A home to many dynasties, China well recognizes gold and purple as symbols of royalty. Gold is also seen as bright, prestigious and an obvious, if kitsch, symbol of the rich. Gold is the second most auspicious color after red, and the third most “Chinese” shade (after red and yellow). Always a better judge of value, gold is closer to women’s hearts than men – and they are willing to colour their hair with this and some even paint their toe nails in glittering gold.

Silver also has a sizeable following (and increasing in popularity). Considered vibrant and bright, the most distinctive attribute of silver is its modernity. It is the second most popular color for electronics equipment and automobiles (black being the most popular) – in fact among women it is nearly as strong as black and even preferred.

Marketing of colours

While the “little red book” (a compilation of quotations from the Chinese leader Mao Zedong) is reduced to a mere tourist attraction, the colour red still resonates in China and the consumers feel that it will be one of the most fashionable colours of 2008. Other colours which are likely to be seen more prominently in 2008 are prestigious black, shining silver and glittering gold. Colour holds strong associations in the mind of the Chinese consumers which are steeped in traditional, but tempered with modernity. Understanding and monitoring these as they evolve further, would be an important distinction between companies which reach for the gold and those who face red in their balance sheets.

Based on an online research among 403 Chinese, aged 18-44 and living in key tier 1 and tier 2 cities of China. The research was conducted by TNS, the largest marketing information provider in China, and the second largest research agency in the world.

Written by Ashok Sethi, TNS China

www.tnsglobal.com

The tremors that moved the nation

It was in the TNS China office on the 28th floor of Finance Square in Shanghai, where I sat with a concept test brief in my hand, in deep contemplation on how to add value to the research design, when my cogitation was interrupted by the tinkling of the blinds against the windows. Before I could get time to puzzle about why the blinds were moving inside the building with all the windows tightly sealed, I realized that it was not just the blinds but the whole building which seem to have broken into a gentle dance. If my colleagues were frightened at the realization that we were experiencing an earthquake, they did a great job of disguising their fear and with great aplomb and composure we started shuffling down the stairs to evacuate the building (including me, with the concept test brief still in my hand). The tremors were persistent and I kept on feeling the building’s sway right till our dreadfully slow descent to the 20th floor. After that, while the earth seemed to have steadied itself, the legs had acquired a momentum of their own and I kept feeling the sway for quite some time to come.

Finally out of the building, we were puzzled at the strange occurrence – Shanghai has almost never had an earthquake and it was the first time that most of us experienced the trembling of the building and having to evacuate it under the fear that it will collapse on top of us. While engaged in animated discussion, some irritated and some relieved with the unexpected break in the office monotony, little did we realize the tragedy that had taken place more than a thousand kilometers away in Sichuan province. While the Finance Square kept standing and did not bury us in its steel and mortar blocks, 900 school children in Dujiangyan city near the provincial capital Chengdu, were not as fortunate. Nor were thousands of other children and adults, who could not escape their schools, factories and homes in time and were trapped under plies of rubble. Gradually the magnitude of the disaster unfolded in front of us, numbing us with grief and stupefaction.

While natural disasters are inescapable and we have little choice but to stoically and philosophically accept their tragic consequences, the subsequent human ineptitude and neglect which often compounds the misery is definitely preventable. Fortunately, China’s response was in sharp contrast to the apathy of the Generals of Myanmar when faced with the devastating cyclone which struck the country a few weeks ago. Chinese Premier Wen Jiabao was in Sichuan within hours of the earthquake. With a megaphone in hand and moist eyes, the nation saw him addressing the victims in a tremulous voice, offering condolences, reassurance and hope. It was clear in the days to come that the country mobilized every possible resource to rescue those who were still alive under the rubble and offer relief and succour to those who suffered the most.

It was a tragedy that touched the hearts of the people throughout the country. In a wave of sympathy, the people are reaching for their wallets, donating blood, volunteering to work in the affected areas, even offering to adopt the children who lost their parents.

It will be a while before China can forget the tragedy that struck it out of the blue and traumatised the nation. Those who lost their loved ones, their homes or livelihoods will possibly live the rest of their lives with indelible physical and emotional scars. However, it will also be a while before China and the world can forget the efficiency, promptitude and compassion with which China dealt with the tragedy. It is reassuring to see that it is not only the Chinese mind which has transformed the country into an economic powerhouse, which deserves praise, but that its heart is also in the right place.

TNS China employees have made personal donation of RMB 80,000 so far for those who are suffering from the wrath of the quake.

Broadband and narrow incomes

Largest number of internet users in the world

“Largest” and “biggest” are appellations often conferred on China – for an increasing number of categories China is already the largest, one of the largest, or soon to be one of the largest markets in the world. Accordingly, China is home to the largest number of mobile phone users, television viewers - and now internet users. Researchers from China Internet Network information Center (CNNIC) counted 210 million internet users by the end of December 2007. This was a cool 73 million more than an year ago – an astounding growth of 53.3%. The number fell just short of the 215 million internet users that are believed to reside in the United States. However, due to the relatively stable number in the US, and the expected continuation of the heady growth in China, it can be safely inferred, that based on normal projections, China now is the home to the largest number of internet users in the world.

However, the development of the internet in China has taken a unique path and character, and marketing companies need to carefully study the nature of this development. China’s internet offers substantial opportunities – but to identify these one needs to look carefully at its unique character and texture.

User profile

While comparatively, the internet users enjoy better economic conditions than others, in absolute terms purchasing power of Chinese netizens is relatively modest – with nearly 3/4th of them having an income of less than RMB 2000 (around USD 285) per month (Source: Statistical Survey report on the Internet development in China – CINIC, January, 2008). Clearly, then this group does not offer an enormous market for lucrative e-commerce and other money spinning internet related commercial activities seen in the Western markets. In fact, as many as 53 million of the 210 million internet users live in villages (currently the per capita disposable income in rural areas is less than 1/3rd of that in urban areas). This rural thrust is because of the Chinese government’s decision to use technology as a tool for narrowing the widening urban-rural chasm and help its rural citizens benefit from the country’s prosperity.

Broadband and iCafes

While the incomes of the users are low, their mode of access is sophisticated. Most internet users use a fast broadband, and not dial-up to access the internet. Given the relatively low incomes, it is not surprising that a large proportion of Chinese internet users – particularly the younger users - access the net at internet cafes. Additionally, the use of mobile internet is on the rise and with over 500 million mobile phone connections in the country, its increasing utilization to access the internet augurs well for mobile phone related internet opportunities in China. This “out of home” character of internet access on the phone and in iCafes is unique to China and also shapes the way the Chinese use the net and its position in their lives. iCafes, in fact, have the potential for developing into a broader marketing channel than merely a source of providing internet access.

Not an elite tool

The changing composition of the internet users seems to suggest that it is no longer a tool for the elite and the well educated. Internet in China is now finding a broad base and helping to equip the consumers with information and entertainment. In fact unlike the West, the most frequent use of the net is driven by social and entertainment needs – particularly to download music and video, to keep in touch with friends through instant messaging and also access online news. The traditional uses for the net such as e-mail is significantly lower than in the West. While e-commerce is not totally missing – the popular Chinese sites such as www.taobao.com (consumer targeted equivalent of eBay in China) and www.alibaba.com (directed at businesses) have unique business models and characteristics specific to China. E-commerce in China is far from the faceless, large item, credit card facilitated purchases seen in the West, but is based on sales of small but relatively unique, hard to find articles, and given the absence of wide acceptance of credit cards, and apprehensions of the users, often payment is based on cash on delivery.

Web 2.0

Web 2.0 thrives in China with as high as 2/3rd of the internet users having uploaded something or contributed to the net in some form or the other. The users seem to be generous in sharing pictures, and also magnanimously share music and video (often, though not confined to, with themselves as stars). Xu Jinglei, a popular Chinese actress and film director, has the world’s most visited blog (http://blog.sina.com.cn/xujinglei ) with 86.97 million clicks in 18 months. Blogging is popular in China as it allows an easy avenue for expression, which has traditionally been hard to find in China. Blogging has caught the imagination of the Chinese who use it to express their views, share their feelings and express their personality.

Need for information

The explosion of the net and the overwhelming embrace from the Chinese populace needs to be seen in the context of the enormous degree and the incredible pace of change which has swept the Chinese society. Change implies an increase of opportunities, a multiplication of choices and the concomitant need for information and advice to exercise these choices. Unlike the countries which developed gradually over a longer period of time, the traditional Chinese information systems could not keep pace with the change. The traditional information network and media was anyway designed to pass the party doctrines to the citizens, and inculcate values of moderation and conformity, not to inform them about how they can improve their consumption of products and services. In other societies, consumption and choice is guided by experience of others, word of mouth, and experience passed down in families and friends. Today multitudes of Chinese are going abroad on holidays, buying automobiles, buying apartments, and have no one to turn to for information and advice in their immediate family or close circle of friends who have done these before. It is not surprising then that internet fills this vacuum and takes the role of the source of information and the guide.

The marketing opportunity

For marketing companies the rapidly expanding reach and influence of the net in China has created a new set of opportunities and challenges. On the positive side, they have a powerful medium with which to reach their potential consumers, inform them, educate them and woo them. The direct reach and the interactive nature of the medium provides it with the kind of engagement potential that the traditional media is just not able to offer.

Secondly, with the strong development of Web 2.0 in China , the flow of information between the manufacturer and the Chinese consumer has truly become a two-way phenomenon, and manufacturers need to tap into the enormous bag of consumer creativity. Companies are already using the net to encourage user contribution to the development of their brands, marketing communication and product portfolio. The net offers the opportunity to use the consumers, not merely to test products and brands, but to participate in their creation.

Thirdly, internet in China expands the reach of the marketer – as while many companies are still confined to operating in larger cities, internet has already achieved significant penetration in rural areas and small towns through internet cafes and community computers. Marketers need to think about how they can exploit this opportunity.

Fourthly, internet in China provides a tool for information dissemination but also creating a positive word of mouth. By actively providing detailed information, and engaging consumers to share their experiences in a controlled way, marketers can spawn off effective word of mouth campaigns for their brands.

Lastly, the potential for word of mouth can also backfire if the media is left unmonitored or if the response and redressal of grievances is not swift. Marketers need to make sure that they closely monitor what is being said about them and their brands, and take prompt corrective action if something seems amiss.

Chinese ratatouille

As millions of Chinese boarded their trains, buses and planes to get back to work after celebrating the commencement of the Chinese new year of the rat, many would have perhaps reflected back at the travails of their journey home to meet their families. Many, in fact could not make it home at all, a victim of mayhem in transportation as a result of the worst snow to hit China in over 50 years. Not positive press for China in the year of the rat - the year in which China will don the mantle of the Olympic host and bask in the glory of their achievements as the world gazes with awe and amazement.

While the bite of the snow still gnaws, it also encourages reflection on the state of the nation and the challenges it faces on the march to fulfill its ambition to become a moderately prosperous society (xiao kang shui ping, in Chinese). The plight of the near 200 million immigrant workers who faced the brunt of the frost is not the least of these. While fueling the improvement of the rural living conditions in countryside through remittances from the urban workplace, they continue to live a miserable existence in the cities. Subject to shady contracts, some times below legal wages, and little leave and social welfare, the workers provide the cheap labour at the country’s economic engines in its factories and construction sites. The relatively well healed urban dwellers often look at them with fear as the “haves” often look at the “have-nots”.

In spite of the harsh existence that this group ekes out, they are still responsible for bringing money to the otherwise impoverished countryside. The Chinese countryside was the first to prosper after the communal land was carved into smaller pieces and given to individual families for cultivation. However after the initial flush of improvement, the small farm sizes have failed to grow the incomes of the farmers, who are facing a mounting cost of living in terms of healthcare and children’s education facilities which the socialist state so far provided them at affordable levels. The Chinese government is paying special attention to this as evident in their development plan, embodied by the slogan of a “new countryside”.

While the rural residents learn to cope with these basic challenges, the urban folks face the rising real estate prices, making housing more and more inaccessible. The housing prices in 2007 rose as high as the buildings with the houses. Buying houses, is a new way of spending new money in China – just 15 years ago there were no houses to be bought, nor was there much money to buy anything. But now buying a house has become a de rigueur pre mating condition and the steadily rising price line is converting many young Chinese into fang nu (house slaves) as a result of having burdened themselves with frightening mortgages. The alternative is forced bachelorhood, if they couldn’t muster up the courage to take the loan (even if they did muster up the courage to ask the hand of the loved one in marriage!).

While the real estate was in the ascendance in the just concluded year of the pig, its flight paled into insignificance when compared to the 96.7% increase in the Shanghai composite index. For the 136 million Chinese who climbed onto the stock bandwagon, buying houses became a lot easier with this gift from the financial markets. However the many others who balked at what they saw as the irrational exuberance of the market, rued the fact that they did not have the courage to haul their hard earned savings to the nearest brokerage. However with the over 10% decline that the market has seen this year (over 40% decline from the dizzy heights of the peak in 2007) they are now congratulating themselves at their foresight.

While the issues confronting the Chinese are weighty, they have much to look forward to and bring back a cheer in the lives. Of course they will beam with pride when they will host the Olympics this year. In fact the pride is already on display as are the marvellous facilities, including the Bird’s Nest stadium and The Water Cube several months ahead of the schedule.

While the new apartments in the cities tax the bank accounts of the young Chinese who rush to acquire them, they offer distinctly improved living conditions from the old and cramped houses they inhabited earlier. The new owners are enjoying the modern acquisition and converting their homes into sanctuaries of comfort and privacy. The stores are brimming with goods to furnish the apartment and make it an exclusive abode, making its owners glow with pride.

The new middle class created as a result of entrepreneurship and well paying jobs from multinationals and Chinese companies bulging with corporate profits, are aspiring to a lifestyle of the Western elite. They visit bars, sip red wine, enjoy gourmet food, watch Hollywood films (including Ratatouille, dubbed into Chinese) and plan for holidays abroad. The chilling frost which heralded the year of the rat has done nothing to dampen the optimism and the enthusiasm of the urban Chinese who plan to continue the celebration into the year and many more to come. The year of the rat represents the start of a new cycle in the Chinese calendar – and perhaps for China too as it gets ready to stage the Olympics. Rat is believed to embody qualities of being quick witted, nimble and charming. “Rats” like to be in the thick of action, are sociable and are never late for a party – qualities which will undoubtedly be on display in Beijing during the Olympics.

The Traveling Chinese

Opening up the tourism business

In its inexorable march towards globalization and meeting its commitment to the WTO, China announced that it will permit joint venture tour operators to benefit from the booming outbound tourist business. So far the foreign and joint venture operators were restricted to participating only in the inbound and domestic travel business – though last year China did permit Hong Kong and Macau funded companies to start managing outbound tours to these two territories. While this change offers a tremendous opportunity for foreign travel agencies to secure a share in this lucrative market, it also poses a challenge of successfully meeting the unique needs of the Chinese overseas traveler.

Chinese tourists

This announcement offers a significant opportunity to foreign travel trade as the outbound Chinese tourism grows rapidly and “holiday abroad” becomes an integral part of the lifestyle of urban elite. One is used to the sight of monuments and galleries of Europe and other tourist attractions of the world being overrun by Handycam wielding Japanese tourists. However, the Japanese chatter at the Colloseum and the Louvre is likely to be drowned in Chinese twitter, as the number of Chinese outbound travelers for the first time last year, exceeded the Japanese.

It was only in 1984 that the first post liberation ordinary Chinese traveled abroad to Hong Kong. And it was as recent as 2004 that the first Chinese from the mainland visited Europe on a tourist visa. However within a short span of time, hordes of Chinese are heading abroad for a holiday. Over 40 million Chinese visited abroad last year – up 19% from 2006 – and it is believed that this figure will reach 100 million by 2015.

Choice considerations

While collectively Chinese consumers are a formidable force, individually the disposable income levels even in the big cities are still a fraction of the developed countries. It is not surprising, therefore, that the Chinese tourist carefully watches the budget while planning a foreign trip. However, interestingly, the figures suggest that, the Chinese tourists’ total spend on visits abroad is quite high. While the tourists scrimp on hotel and seldom dine in chic restaurants, they spend the savings on buying watches, jewelry and clothing – not just for themselves but as gifts for relatives, colleagues and friends back home. Apart from sightseeing and leisure over 40% of potential tourists mention shopping as a key reason for foreign tourism (a figure which goes up to 47% among female tourists).

Given the fact that for the Chinese traveling abroad is a relatively recent phenomenon, the excitement of travel is often mingled with a feeling of apprehension. The feeling is further compounded by a realization that lack of fluency in English or other foreign languages may create unexpected problems. As a result, safety is stated as an important concern while traveling abroad, particularly by the older consumers. This possibly also explains the fact that a large proportion of the Chinese tourists prefer to travel in organized groups. The younger tourists, however, are less concerned about safety and are happy to set off on their own.

Golden week

While most potential Chinese tourists state that the travel abroad will be during their “paid leave”, many hope to combine their leave with a “golden week” (one of the three week long holidays, achieved by compensatory working on weekends) to enable them to prolong the sojourn abroad. However, last year after much discussion and fanfare, China cancelled the May Day golden week and substituted it with holidays for three important traditional Chinese festivals. While the general response to this change has been positive, it is not surprising that the potential foreign visitors are a little perturbed by this and many of them feel that this cancellation will affect their ability to holiday abroad. The three new holidays, on the other hand, will offer opportunities for shorter trips to nearby destinations, which may increase in popularity.

America here we come!

Hong Kong was the first destination to welcome the mainland tourists, and its proximity, shopping allure, Disneyland and other attractions, still keep it at the top of the table of the preferred destinations of Chinese tourists.  Europe is next, and Southeast Asia and Australia figure next in line. US which is a very salient and influential country among the young urban Chinese, figures much lower down. However, this is not because of lack of interest in the country, as research has shown that US is greatly admired as a centre of arts, science and also for its significant tourist attractions.

The reason for this is the fact that even now the Chinese tourists can only holiday in those countries which are conferred an “Approved Destinations Status” (ADS). Other places can be visited but only on business, for education or to visit relatives. Only 20 destinations enjoyed an ADS status in 2002, but this has leapfrogged to 134 destinations now.

So far the US was not an approved destination for the Chinese tourists. Chinese could travel to the US (some 320,000 of them did so in 2006) but the travel was restricted to business, visiting friends or relatives or education. However, this has changed and US has just obtained an ADS status, and the first Chinese tourists may set off to the US as early as this spring. This is a source of great excitement to the Chinese to see a country which is a source of great interest to them, and which also exercises considerable influence through its popular art and entertainment. While the appreciating yuan against the dollar makes the travel cheaper for the Chinese, it is an opportunity for the Americans to lower their negative balance of payment by rolling out the red carpet for the Chinese and making them feel safe and at home.

Based on an online research among 403 Chinese, aged 15-44 and living in key tier 1 and tier 2 cities of China. The research was conducted by TNS, the largest marketing information provider in China, and the second largest research agency in the world.

Written by Ashok Sethi
The author lives in Shanghai and is the head of research methods and analytics for TNS.

The Eclectic Chinese

A holiday to sweep the tombs

Chinese traditionally bury the dead. However, after the enlightened communists took reign of the country, they very rationally declared that the priority for the land is for the living and not the dead. Chinese were told to cremate the dead, burials were banned as was the erection of tombs. Given this, it seemed surprising when earlier this month, the Chinese government declared Tomb-sweeping day to be a new holiday in China. Along with the Tomb-sweeping day, holidays were also declared for two other traditional festivals of Dragon Boat festival and Mid-Autumn festival. Are the Chinese re-discovering their traditions? After years of efforts to obliterate the traditional shackles, is the Chinese government now encouraging the people to celebrate their traditions? What makes it even more surprising is the fact that these holidays will replace the three day holiday observed for the May Day celebration – an occasion of symbolic importance to socialism, whose ideals the Chinese government still claims to espouse.

The three day May Day holiday was, in fact, used to be extended into a “golden week” by adding the intervening days to the weekend (the additional holidays compensated for by working on the preceding or following weekend). Before this declaration, China observed three “golden weeks” in a year – three week long holidays for the Chinese New Year, the National Day in October and the May Day celebration. This has been the policy since 1999, when the Chinese government decided that the citizens must get an opportunity to spend their new wealth and in the process further boost the economy. Now China retains two of these golden weeks, but has substituted the third with three one-day holidays for traditional festivals.

Rediscovering the traditions

The Chinese government, as one would expect, is governed more by practical logic than tradition or sentiment. The real reason for this change perhaps lies in the fact that the three golden weeks had started to create a mayhem by the en masse movement of millions of Chinese. The populace takes the opportunity to get out of their homes, visit their families or go for vacations. This causes an immense strain on transportation and other services, and people started complaining about the exorbitant prices, traffic snarls and poor service during these weeks. Additionally, for a country so dependent on foreign trade, it is perplexing as well as vexing for its international trade partners when they see the frenetic trade coming to an abrupt halt as often as three times a year.

However, apart from the rational, there are also emotional factors guiding the change. The Chinese, with their new found wealth and prosperity, now have a reason for celebration and pride. Embracing the old traditions, and practising the associated rituals with openness and confidence is a part of that resurgence of national pride. Chinese today not only want acknowledgment for their economic success, but they also wish to be applauded for their history and traditions. Chinese have set up Confucius Institutes in 50 countries, sent their terracotta warriors for display in the British Museum - all in an attempt to demonstrate that not only is this a country of extraordinary manufacturing prowess and technology, but also has a cultural richness which deserves noticing and appreciation.

Embracing the West

Not only does China seem to be rediscovering its own traditions, it seems to be embracing the ones from the West with equal gusto and enthusiasm. Christmas celebrations began early and cut-out figures of Santa Claus started appearing in shop windows of departmental stores from the middle of November. The silver bells, figures of reindeers, elves and snowmen jostle each other in almost a chaotic, almost desperate representation of the Christmas spirit. In a rousing finale, earlier this week large pictorial displays of Christmas scenes appeared in most office buildings and a Christmas tree with twinkling lights, encircled with gold paper covered pots of poinsettia embellish the entrance of every office or hotel.

For a country of atheists, this celebration of a Christian festival with such enthusiasm is perhaps baffling. However, Christmas in China is not about religion, but a modern paean to consumption and fun. Masses of people throng the streets, visit bars and haunt the stores for discounted products. Chinese celebration of Christmas, is a typical example of how China embraces the West to its own advantage and adapts it to selectively pick its best from their own point of view. So no Christmas cake or plum pudding – we prefer our dumplings (according to a TNS survey, Chinese consider no food in the world to be anywhere near their own) and no midnight mass – religion has no part to play here. But shopping, gifting, drinking and merry making is embraced with zest and passion.

The marketing challenge of understanding the Chinese consumer

Neither burdened with strong traditions and rituals, nor under the blind sway of the West, Chinese are behaving in an eclectic way in deciding what to embrace and what to discard. Their decisions are based on practical logic, commerce and now also a sense of national pride. For marketers it is essential to understand how the Chinese weigh several, often contradictory, arguments and pulls to make the decision. This is as true for which festivals to celebrate as it is for which products and brands to adopt. Only keeping a hand permanently on the Chinese consumers’ complex pulse can guide the marketers in the right direction.