State of the Nation: The lessons for marketers from post-Covid China
China's emergence from the Covid pandemic continues to attract speculation as the world watches to see if the country remains on track to become the world's biggest economy. In the latest State of the Nation, WE Red Bridge's Nicky Wang explores the post-covid lessons for marketers.
/ WE Red Bridge
C-level executives from leading multinationals are visiting China to witness the state of the market for themselves after three years of self-imposed isolation. Although most executives expressed optimism during their visits, first-quarter figures sent mixed signals. Domestic travel volume surpassed 2019 levels, yet total spending was comparatively lower. Luxury brands experienced a surge in sales and seemed the most confident about the future of the market, while other sectors voiced caution over the pace of recovery. As geopolitical tensions continue to rise, global brands are facing new barriers to market entry.
Very often, how a country deals with adversity provides insight into the minds of its consumers and businesses. China has experienced a series of ups and downs over the past three years — an economic boom in 2021, a pandemic-led downturn in 2022, the market rebound of 2023 — and the learnings gleaned from these are invaluable to your marketing strategy.
China remained optimistic amid severe COVID-19 restrictions
Despite experiencing some of the most severe COVID-19 restrictions in the world, nearly half of Chinese respondents felt positive about the outlook of the economy in 2022, far more than their peers in the United States (26%) or the United Kingdom (11%), according to a McKinsey survey of Chinese consumers. At that time, full or partial lockdowns over 70 cities across China affected the lives of more than 300 million people, with one in three consumers reporting a decrease in household income and savings.
A closer look at recent years uncovers significant shifts in the mindset of Chinese consumers. Concepts such as simplified living, community values and sustainable travel have all been gaining traction, pointing to changes in value and priority when it comes to domestic consumption.
Moreover, Chinese consumers are increasingly displaying a nationalist sentiment that finds expression locally at a city- or cultural-level, driven by the creative community and showcased in films, music, and artwork.
Such a distinct outlook and attitude make it apparent that, without a comprehensive level of localization, tried-and-tested global strategies are unlikely to work in this market.
Fast growing “niche” categories present creative opportunities
My least favorite question from clients: “How do I reach Gen Z in China?”
Gen Z is not a viable strategy. There are around 250 million Gen Z-ers in China, or about 75% of the entire population of the United States. Unless you have a huge media budget to blanket bomb the market, a generic Gen Z strategy will not work.
There are many ways to be more specific with your target. Niche markets in China, for example, aren’t really all that “niche”. Many new interests and hobbies have grown to attract substantial audience sizes over the last few years and offer great opportunities for brands looking to expand their customer base.
Camping is one example of a niche interest growing in popularity. According to iiMedia Research, the camping economy reached USD 10 billion in 2021, and around 15,000 camping-related businesses popped up in 2021 alone. Similarly, skiing has emerged as a booming industry since the Beijing Winter Olympics. The number of skier visits in China reached 21 million during the 2020/21 season, nearly double the number in 2015. Esports players reached 30 million this year, with a growing portion of the community being female. The list goes on.
All these growing niche categories present unprecedented opportunities for brands looking to branch out into the consumer space. The key to remember is that Chinese consumers are not afraid of picking up new experiences or beliefs, thus you must be prepared to keep up with radical changes on a constant basis. Identifying the right targets at the right time can reap handsome rewards.
Local competition will only intensify
Perhaps even more optimistic than Chinese consumers are the Chinese businesses.
Roughly 500 electric vehicle start-ups launched in the past decade, and Chinese car brand sales reached a staggering year-on-year sales growth of 22.8% in 2023. Despite the initial underwhelming results of Artificial Intelligence (AI) projects, investment in AI continues to accelerate in China, with leading local technology companies spearheading innovations. Local players in the consumer categories also continue to disrupt their global counterparts through partnerships with social platforms and optimized customer relationship management systems that scale creative production in record time.
In fact, while multinationals have grown very quickly in China in the past decade, they’ve done so considerably less quickly than local competitors.
Staying ahead in this fierce competition, however, does not mean doubling down on sales tactics. Uber’s mistakes in blindly chasing market share without fully understanding the complexity and nuances of the market are good reminders to always balance short-term revenues with longer-term goals.
And no, having 50% of your sales coming from one livestreamer does not set you up for success in the long-term. Would you feel comfortable with half your sales coming through a single volume retailer?
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Do not be fooled by the sheer size of the Chinese market or get hasty because many appear to be “winning” at the short-term game. Focusing on quality over quantity is often still relevant in China.
For sure, quantity is almost always cheaper to achieve than quality, but it is simply unsustainable if conversions are one-off and discount-based. During its initial market entry years, it cost Lululemon a whole lot more to acquire new customers in China compared to its other markets but focusing on attracting quality customers is precisely why, today, the brand leads its category for in-store transactions in the market. Building and constantly optimizing your own customer management platform is costly, but it is absolutely critical for retaining and expanding your customer base. Xiaomi is a case in point for how this is done.
And finally, if it were not already abundantly clear, the best way to understand China is to be in China. Or at least, make sure you have a trusted team and network of partners on the ground to feed you timely intelligence. Posts from “China experts” sharing how excited they are to be back after three pandemic years always amuse me — it’d be quite difficult to be an expert in the market without having been here through it all.
Nicky Wang, is the chief executive officer of WE Red Bridge.