China consumers regain confidence

The good news for brand marketers in China, many of whom have been watching the Government’s policies to stimulate domestic spending, is that consumer confidence in China has bounced back to a record level previously seen in 2005.

But while confidence levels are up across the board, according to the latest Chinese Consumer Confidence Report, jointly released by The Nielsen Company, a number of trends are emerging that will impact how marketers and brands engage with Chinese consumers.

One of the most significant developments has been a narrowing of the gap between prosperous east China and the rest of the country and between tier 1 cities and the lower tier markets. Mitch Barnes, president, The Nielsen Company, Greater China, says that while last year the improvements were mostly seen in the upper tier cities, the past two quarters have seen lower tiers catch up. Nielsen also notes that central China experienced the greatest lift in consumer optimism, as did the village level rural markets, something that can be attributed in a large part to better job prospects and an increase in industrial output.

“We have definitely seen higher confidence levels in the lower tier cities because of infrastructure improvements,” adds Richard Dale, chief planning officer at Leo Burnett China. “Their daily lives are getting better.”

Brands are already grasping this new opportunity, in many cases shifting their attention away from the traditional tier 1 consumers. “There’s a big push among many of our clients to ensure we have ample geographic coverage in smaller cities and towns,” says Hans Lopez-Vito, executive planning director, BBDO China.

But amid the growing optimism in China, marketers should note that an uplift in confidence might not necessarily lead to a boost in consumption. As incomes rise, Chinese are spending more than before, but they are also saving more.

“To increase the role of domestic consumption in the economy, China needs savings to grow slower than income,” says Barnes. “But at the moment, consumers are still feeling the strong motivation to save because of increasing housing prices and concern over increasing healthcare costs.”

Dale sees a similar set of concerns driving the push to save, noting that in some instances, these concerns have become so pronounced that they are paradoxically encouraging people to consume more. “Property values are hitting optimism and a lot of people are feeling locked out of the property market,” he says. “On the other hand, we do see people beginning to spend because they now feel an apartment is out of reach.”

Lopez-Vito argues that while spending on everyday needs has not grown, and in some areas has even declined, he has seen a huge rise in spending on more lifestyle-oriented categories. “This demonstrates how important it is for a brand to be seen by consumers as part of their universe of aspirational experiences.”

Industry comments

Hans Lopez-Vito, executive planning director, BBDO:
We did see consumer confidence rebounding in tier 1 cities starting mid-2009  However, this rebound never really reached the same historic highs achieved during the ‘pre-crisis’ periods of 2008.  So, indeed, tier 2 cities and townships - especially in the western and central parts of China - are where the larger opportunities for growth lie.”   

Mitch Barnes, president, The Nielsen Company, Greater China:
“Consumer sentiment has improved in China and the improvement is broad-based. In 2009, the improvement was In the upper tier cities, brands are increasingly in a battle for market share, so effective marketing is the key to growth.  In the lower tier cities, many brands still have good growth opportunity from increasing distribution.”

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This article was originally published in the 20 May 2010 issue of Media.