The economy of China has been on an amazing journey since market reform in 1978 shifted the emphasis from central planning to a market-based economy. Since then, GDP growth has averaged almost 10% per year and all the Millennium Development Goals were achieved by 2015. China has been the largest single contributor to world growth since the global financial crash of 2008.
Economists have generally focused on these wider growth numbers, but as business competition has increased there have been many changes in the way that Chinese consumers behave. In the era of central planning, Chinese consumers had very little choice. There was no competition for their business or need to encourage customer loyalty – today this is completely reversed.
In many cases, companies and services are launched today specifically because of customer demand. Take a look at one of the giants of e-commerce in China, Alibaba, for an example of a company that has changed the way that customers interact with brands. This is an extract from a 2018 report published by Citron Research:
“Amazon’s market cap is about 70% larger than Alibaba’s yet China’s e-commerce market alone is going to be larger than the rest of the world… by 2020, Asia is projected to account for 66% of global e-commerce sales with China accounting for 58%.
Alibaba has a more dominant e-commerce business than Amazon… though Amazon claims about 40-50% of all online US retail sales, Alibaba claims about 80% of all online Chinese retail sales. While most commonly referred to as ‘The Amazon of China,’ Alibaba has a differentiated business model from Amazon… If investors needed a catchphrase this would be more appropriate: ‘The tollbooth to middle class consumption in China.’”
There are some more unusual aspects to consumer behavior in China that are a result of the rapid development of the market. As this feature in Forbes magazine describes:
- Loyalty: Many customers of branded products are buying brands that either did not exist or were not available to their parents. There is very little intergenerational brand loyalty.
- Demographics: The biggest spenders are younger and female – smart brands are focusing attention on this demographic.
- Digital: Chinese consumers both discover and purchase products digitally – if you don’t have a strong digital footprint then you cannot sell in China.
- Novelty: Chinese customers love novelty – try launching new products even if they are not available in other markets.
China is the second largest economy in the world and has over 1.3bn people. It is on track to surpass the economy of the USA and yet the way that consumers behave in China is quite distinct. Chinese customers are driving how traditional and emerging businesses need to behave because they have adopted a complete digital ecosystem much faster than markets such as the US.
Many American and European companies are now looking to China for ideas on what consumers will be expecting next. It makes sense because these customers are now defining how companies can sell to and interact with them in the twenty-first century. The customer really is in control of the brand relationship and the future of their own experience.