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3 Common Pitfalls When Targeting the Chinese Consumer

Last year, Chinese consumers bought $9 billion of luxury items — the second highest in the world. Retail sales there soared 18 percent with firms like Apple and Yum! generating billions in revenue in the same year.

The Chinese consumer is the greatest growth story of the next decade as rising incomes, greater access to credit and financial services and a drop in household savings spurs more consumption.

Ed Jones | AFP | Getty Images

But even as Western brands rush in to cash in on China's massive spending power, not all of them will be as successful as the likes of Nike, which earned around $800 million in profits on nearly $2 billion in revenue.

Many may well end up retreating from the market as Home Depot did, or fail to live up to expectations like eBay,because they've failed to understand the evolving Chinese consumer habits.

So, what are the common misconceptions about the Chinese spender?

For one, Western brands need to understand there is no Chinese middle class in the American context. In the United States, the middle class tends to be a fairly static socio-economic group. People are born into it and their children and grandchildren tend to retain similar middle class habits like shopping at Macy's , driving Ford cars and visiting the Disney theme parks during vacations.

In China, however, the habits of the middle class are often described as anything but static. With many rags-to-riches stories doing their rounds across the mainland, many believe they, or their offspring, can also be wealthy. This optimism mirrors the conditions American Baby Boomers grew up in during the post World-War II era.

As a result, brands positioned in the middle like Marks and Spencer or Gap tend to get lost because consumers do not want to present themselves as middle class. They prefer to buy mass luxury items like Louis Vuitton or BMW to show their class distinction. They dress to impress, to show their sophistication, in preparation for the true wealth they believe is around the corner.

Another mistake many brands make, is not localizing either their products or advertising campaigns to local tastes.

Truly global brands retain their heritage but localize for domestic tastes, something Nike has done very well. The sports wear and equipment supplier, which boasts recognized sports icons like Michael Jordan and Tiger Woods in their stable of celebrity endorsers, has also tapped on Chinese sports heroes like hurdler Liu Xiang or tennis player Li Na in their local ad campaigns, who would resonate better with Chinese consumers.

Finally, too many foreign firms target the wrong age group. China's biggest spenders tend to be at least a decade younger than in the West; the average age of a Mercedes buyer in China, for example, is 39 years old; versus the 53-year-old baby boomer in America. Younger Chinese remain extremely optimistic about their careers and are proud that China has become a superpower. They expect 10-20 percent increases in their annual salary and are more willing to buy on credit so that they present the image they want. Based on my firm's poll of 5,000 consumers across 15 cities, consumers under the age of 32 had an effective savings rate of zero.

China offers great opportunities for foreign brands seeking profits. In order to win the market, brands need to target the right age groups, create an emotional connection with consumers and understand evolving consumer habits and preferences.

Shaun Rein is the founder and managing director of the China Market Research Group (www.cmrconsulting.com.cn) a strategic market intelligence firm, and is based in Shanghai. Follow him on Twitter at @shaunrein. He does not own stock in any of the companies mentioned.