Written by Andrew Kuiler, CEO @ The Silk Initiative
In our recent post about whether the behavior of fast-evolving Chinese consumers can be predicted accurately, we responded to an article by McKinsey in which they revealed, among other emerging trends, the marked increase in consumer spending in premium categories. This week at The Silk Initiative (TSI), our Executive Director of Client Strategy, Manohar Balivada, shares his take on the implications of this “premiumization” for brands and marketers.
It’s common knowledge that China is fast emerging as the world’s premier economy and, in part, driving a good chunk of global growth. Being a fast-paced economy also means that the consumers are maturing rapidly in terms of consumption and in the process, upgrading their choices.
This behavior has both pros and cons for marketers, depending on which end of the value chain they are playing on, and the breadth of their offering.
On the more positive side, upgrading means willingness to spend more for better quality, safer and value-added products that certain brands offer. Irrespective of the trigger, the fact remains that consumers are parting with more money, and that can only be a good thing for marketers offering those products. On the flip side, for some, it also means losing consumers to companies perceived to be offering those better products.
As one might expect, for international companies with a presence in China, more consumers upgrading in their choices, or aspiring to do so, is good news, as often international products are superior in quality, or at least that is the perception that most Chinese consumers currently have. However, one study by OMD China on “The Future of China” earlier this year pointed to a rising strength of local brands in terms of Chinese consumers’ perceptions of quality. With this in mind, international brands here would perhaps do better to emphasize their origins, the quality of their ingredients and also in the process, better understand and forge an emotional connection with the consumers.
Indeed, Chinese brands are coming of age as they realize the potential in offering better quality products. An example of this phenomenon would be Nongfu Spring, a brand that, after arguably hitting rock bottom a few years ago with a “quality crisis” with its low-end bottled water product, has now completely rebounded and repositioned by developing a range of premium beverages. Furthermore, the company has won design awards for the packaging of its premium range of waters and macha teas.
Bright Dairy, too, has gotten in on the act by offering its consumers a premium variant of its packaged milk brand. In the food category, Pan Pan (盼盼) has expanded its portfolio of products by offering higher end cakes in addition to the more basic variants that it started with.
We also observe that domestic brands are increasingly using their brand names to forge an emotional connection with consumers and to emphasize the quality of their products. This means some of these brands will move up the value ladder and start to compete with international brands. A case in point is Chinese smartphone manufacturer Huawei using international celebrities like Scarlett Johansson to promote its high-end smartphone, the P9. This not only resonates emotionally with Chinese consumers, it appeals to international audiences as well.
Invariably, this means that competition will become fiercer up the value ladder as more and more Chinese consumers upgrade their choices.
Implications of this upgrading could be profound. Marketing and communications, as well as activation strategies, would need to be tailored to this emerging behavior. Multiple motivations could be at play when consumers decide to upgrade their choices. Investigating these motivations will help better understand this behavior and the decision-making processes behind it. Emphasizing value and creating emotional bonds above and beyond reassurances about hygiene aspects, for example, are essential for brands to stay relevant to consumers and be a brand worth upgrading to.
In the weeks ahead, we will be investigating this phenomenon as part of our commitment to better understand Chinese consumers in the food and beverage space.
On November 23 and 24, TSI will conduct 2 focus groups with a range of consumers who all claim to have upgraded their choices across a variety of food and beverage sub-categories.
We will investigate the following key topics:
- Triggers for consumer premiumization in China
- Psychological motivations or need-states for premiumization
- What exactly does premiumization mean to consumers
- Impact of premiumization for brands and marketers
- Implications of premiumization for marketing and communications strategies
- Premiumization and activation
If you believe this investigation would be beneficial for your brand’s marketing strategy, contact us today to find out how to subscribe to a customized report. For more information, email: email@example.com