China Connect 2018: the rise of Made in China 2.0

1. “Made in China” is getting cool

China’s middle class of 300 million consumers (according to eMarketer) has a growing appetite for higher-quality pricier goods. But, interestingly, this hunger is more geared towards products “Made in China” than towards Western brands.

Chinese consumers are increasingly leaning towards local products
Source: McKinsey China 2017, consumer report

Who are these new consumers? According to Susanna Chiu, director of Li & Fung Development, they are heavy social media users seeking unique experiences. 70% of them are looking for personalised in-store experiences (source: PwC, Total Retail Study, 2017) – and they’re “ready to pay for it”, according to Romain Millet, CEO of Beaumanoir in China. The new Chinese consumer has not yet developed spending habits, and is thus fundamentally disloyal. A new product or service will be developed at great speed, and tested on a large panel of users from the beginning to ensure that it is on the right track. While Western brands take years to develop a product or service, Chinese brands move more quickly in terms of go-to-market. Each year, a brand will close several stores only to open new ones in strategic locations. The Chinese population is growing more sensitive to environmental issues, too. According to Delon Wang, Manger of Trends at Mintel, four out of ten Chinese consumers will pay more for products that are greener… And healthier! For example, a company called Miss Pao creates customised running “pods” in different neighbourhoods for a unique experience… as well as a flashy display of well-being and healthy living – new external signs of wealth in China.

2. From individualist to social in China

Social networks allow Chinese youth to seek the projection and protection that they need. They use social media “to express their emotions, liberate their creativity, and create real social currency,” explains Tom Doctorrof, Partner at Prophet.

All platforms in China should strive to be social-centric, then, to further the objective of Pride commerce, so dear to millennials (“I am what I buy”), and their quest for a protective community (“I am unique but I want to be part of a great like-mindedness”) – two needs that are naturally exacerbated in a country that had, until recently, a single-child policy. Among social networks, WeChat has become the central figure to all marketing strategies. As Pete Lin, General Director of We Are Social in China, put it, “your WeChat account is more important than your own website.”

Thomas Graziani, co-founder of WalkTheChat, has said that using influencers (or KOL, Key Opinion Leaders) multiplies ROI between five and eight times for a marketing campaign. Consumers in industries such as luxury goods are getting as much information from social media as from brand sites and vertical platforms. In short, as stated by Sam Flemming, CEO of CIC/Kantar Media: “social media entices consumers, but the sinews of war are in the transaction.”

Leveraging social media and making the best use of influencers are both central to marketing strategies in China, with the lingering question of whether ornot followers are real. To deal with this recurring issue, Miranda Tan, CEO of start-up Robin8, has proposed using a cryptocurrency (Profile Utility Token) to trace, approve, and remunerate each post and social user in China.

3. O2O stakes its claim in the user experience

The strong synergy between on- and offline, or O2O, has made certain industries take off recently, including ordering food and taxis, or even planning trips. In 2017, 44.5% of Chinese users had ordered a meal online – a 65% increase from 2016 (source: e-marketer). The success of online payment tools like Alipay and WeChat Pay (used by over 461 million of China’s 1.3 billion residents in 2017) is indicative of the O2O revolution. In February 2018, Chinese e-commerce titan Alibaba invested $1.3 billion in brick and mortars. Jean Baptiste Le Blan, General Director of Splio, explains that “offline is THE new channel to create opportunities today.”

Mobile phone technology use in China
Source: Mastercard, “Mobile Shopping Survey 2017”

4. The central role of AI in marketing strategies

Facial recognition has been an enormous success in China, especially in industries like beauty, retail, banking, and payment security.

Experiences using this technology, which has benefitted from Artificial Intelligence, is cropping up everywhere: from withdrawing money at A.T.M.s and paying in physical stores, to tracking in malls created solely for testing consumer behavior (like Shanghai’s Explorium). The ambition remains huge, as China hopes to triple its current coverage – 200 million cameras – by 2020.

In June 2017, the Chinese government implemented a plan to make China the world leader in AI by 2025. This initiative was jumpstarted when, in 2018, Alibaba alone invested $15 billion in AI research! As one of the biggest investors in the digital industry and start-ups, China has more surprises in store. Multiple Chinese brands are already gaining ground on Europe and the United States. Chinese brands are slowly finding their place, including titans like Huawei and Lenovo, startups like bike-sharing service OFO, or even Herborist (Jawha), a cosmetics brand distributed by Sephora and Birchbox.

5. Luxury goods, a reflection of Chinese demographics

China is also a huge consumer of luxury goods. The younger population’s buying power is exploding, and today the average consumer age is 25 – a 10-year decrease from a few years ago according to Eric Chan, CEO of SECOO, one of the biggest luxury e-commerce brands. Today, millennials have become the target of the Chinese luxury industry, and they alone represent 40% of buyers (compared to 30% for generation Z and 20% for baby boomers).

Millennials are the future for Chinese luxury brands, and they appreciate these products more and more as they distance themselves from traditional Western brands, which were more popular with their parents. Again, buying local is a growing trend, and one to watch in the coming years. Though millennials and generation Z were already responsible for 34% of revenue in 2015, this number should grow to 50% by 2025.

This article was originally published on Petit Web and translated from French by Niamh Cloughley.

Big thanks to Léa Kaniewski for her valuable help in writing this article.