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Monday 22 June 2009
Plenty to play for in targeting the wealthy
Marketers are aware of the sudden and fast-growing prosperity enjoyed by Chinese consumers, and many are already seeking to serve the wealthiest. Our study of 1,750 wealthy households highlights just how much there is to play for.
Marketers are aware of the sudden and fast-growing prosperity enjoyed by Chinese consumers, and many are already seeking to serve the wealthiest. Our study of 1,750 wealthy households highlights just how much there is to play for.
Last year, the number of urban households with a minimum annual income of 250,000 yuan (HK$283,375) reached 1.6 million. Survey respondents had an average annual income of US$80,000.
The number of wealthy households in China is likely to grow at an annual pace of about 16 per cent for the next five to seven years.
By 2015, China will have more than 4.4 million wealthy households, making it the world’s fourth-largest country in terms of its number of wealthy households after the United States, Japan and Britain.
Just how quickly marketers will have to move to keep pace with wealthy consumers is illustrated by the fact that about half of today’s wealthy consumers were not wealthy four years ago, and more than half of those who will be wealthy in five to six years are not wealthy today.
China’s wealthy consumers are much younger than their foreign counterparts: about 80 per cent are under 45, compared with 30 per cent in the US and 19 per cent in Japan.
Spending habits can change quickly when market growth is so explosive. For example, only a few years ago, Chinese consumers made most of their luxury goods purchases abroad. Today, they make 60 per cent of their luxury goods purchases at home.
The wealthy are concentrated in the east and central south regions. The four richest “tier-1” cities (Shanghai, Beijing, Guangzhou and Shenzhen) account for about 30 per cent of wealthy consumers; the top 10 are home to about 50 per cent compared with about 25 per cent in the top 10 US cities. Marketers wanting to target China’s wealthy naturally tend to focus on its two richest cities, Shanghai and Beijing, where competition is already fierce.
There is a danger, however, that companies underestimate the importance of the smaller cities. Indeed, three-quarters of the growth in the wealthy consumer segment will come from consumers who do not currently live in tier-1 cities.
The biggest brand names often go unrepresented in Chengdu or Wenzhou, even though Chengdu has more wealthy households than Detroit, and Wenzhou as many as Atlanta.
As expected, our research showed sharp differences in attitudes and behaviour between wealthy and mainstream Chinese consumers. For example, the wealthy have a greater preference for foreign brands, are more willing to pay a premium, and are more likely to try new technology.
The wealthy, like other Chinese consumers, not only spend huge amounts of time in front of the television, but also surf the Net.
Thus, while television is an effective way to reach them, our study showed that internet advertisements and blogs have far greater impact on the wealthy than on any other consumer.
Wealthy consumers also spend more time and money outside of the home than other consumers: 17 per cent of their household income is spent on dining out, while mainstream consumers spend just 7 per cent.
Marketers should also take note of one striking difference between wealthy consumers in China and their peers elsewhere in the world. For example, China’s wealthy appreciate the functional benefits of any particular purchase - the quality, material, design, craftsmanship - more than wealthy consumers elsewhere.
Companies that can start shaping the tastes and buying behaviour of wealthy consumers now will be poised to succeed in this highly attractive but increasingly competitive market.
Vinay Dixit is a senior director of McKinsey’s Asia consumer centre and Yuval Atsmon is an associate principal in the Shanghai office
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Plenty to play for in targeting the wealthy
Vinay Dixit and Yuval Atsmon
22 June 2009
Marketers are aware of the sudden and fast-growing prosperity enjoyed by Chinese consumers, and many are already seeking to serve the wealthiest. Our study of 1,750 wealthy households highlights just how much there is to play for.
Last year, the number of urban households with a minimum annual income of 250,000 yuan (HK$283,375) reached 1.6 million. Survey respondents had an average annual income of US$80,000.
The number of wealthy households in China is likely to grow at an annual pace of about 16 per cent for the next five to seven years.
By 2015, China will have more than 4.4 million wealthy households, making it the world’s fourth-largest country in terms of its number of wealthy households after the United States, Japan and Britain.
Just how quickly marketers will have to move to keep pace with wealthy consumers is illustrated by the fact that about half of today’s wealthy consumers were not wealthy four years ago, and more than half of those who will be wealthy in five to six years are not wealthy today.
China’s wealthy consumers are much younger than their foreign counterparts: about 80 per cent are under 45, compared with 30 per cent in the US and 19 per cent in Japan.
Spending habits can change quickly when market growth is so explosive. For example, only a few years ago, Chinese consumers made most of their luxury goods purchases abroad. Today, they make 60 per cent of their luxury goods purchases at home.
The wealthy are concentrated in the east and central south regions. The four richest “tier-1” cities (Shanghai, Beijing, Guangzhou and Shenzhen) account for about 30 per cent of wealthy consumers; the top 10 are home to about 50 per cent compared with about 25 per cent in the top 10 US cities. Marketers wanting to target China’s wealthy naturally tend to focus on its two richest cities, Shanghai and Beijing, where competition is already fierce.
There is a danger, however, that companies underestimate the importance of the smaller cities. Indeed, three-quarters of the growth in the wealthy consumer segment will come from consumers who do not currently live in tier-1 cities.
The biggest brand names often go unrepresented in Chengdu or Wenzhou, even though Chengdu has more wealthy households than Detroit, and Wenzhou as many as Atlanta.
As expected, our research showed sharp differences in attitudes and behaviour between wealthy and mainstream Chinese consumers. For example, the wealthy have a greater preference for foreign brands, are more willing to pay a premium, and are more likely to try new technology.
The wealthy, like other Chinese consumers, not only spend huge amounts of time in front of the television, but also surf the Net.
Thus, while television is an effective way to reach them, our study showed that internet advertisements and blogs have far greater impact on the wealthy than on any other consumer.
Wealthy consumers also spend more time and money outside of the home than other consumers: 17 per cent of their household income is spent on dining out, while mainstream consumers spend just 7 per cent.
Marketers should also take note of one striking difference between wealthy consumers in China and their peers elsewhere in the world. For example, China’s wealthy appreciate the functional benefits of any particular purchase - the quality, material, design, craftsmanship - more than wealthy consumers elsewhere.
Companies that can start shaping the tastes and buying behaviour of wealthy consumers now will be poised to succeed in this highly attractive but increasingly competitive market.
Vinay Dixit is a senior director of McKinsey’s Asia consumer centre and Yuval Atsmon is an associate principal in the Shanghai office
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