There was a frenzy in the lobby of my office building recently. Lines snaked from the entrance of the China Mobile office around the lobby. The buzz was so palpable I thought the telecom giant might have hired some celebrity, Justin Bieber or Katy Perry perhaps, to be a brand ambassador.
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Two women look at a jewelry display in a luxury shopping mall in Shanghai. Following in the footsteps of Japan, China has become the world's second-largest consumer of high-end fashion, accessories and luxury goods.
Then I thought maybe China Mobile had finally secured a deal with Apple to sell the iPhone. I asked a 20-something woman in the swelling crowd what the excitement was all about. She responded, “They are giving away free cooking oil if you add more phone minutes into your account.”
Her response said it all. The most pressing problem facing China’s economy right now is soaring inflation that last month clocked in at 6.2 percent, which is damaging consumer confidence.
Most of the people queuing up outside the China Mobile office were white-collared office workers whose incomes are rising faster than inflation. They drive Volkswagens tote Coach bags and wear Estee Lauder cosmetics; yet, they were clamoring in excitement for cooking oil like teenagers trying to catch a glimpse of Taylor Swift.
My company interviewed 500 consumers in five cities last month. We found consumer confidence to be at the lowest point since the start of the financial crisis in 2008 with dissatisfaction largely stemming from inflation.
However, there is a silver lining. Women consumers in China are still willing to spend, but how and what they spend on is changing dramatically. Western brand managers need to understand these changes and adjust their product selections as well as marketing messages or else they will make mistakes and end up retreating from the market as Best Buy and Barbie did.
Instead of cutting back on spending, we found the vast majority of women - perhaps surprisingly given the overall gloom - were spending more. However, they were seeking value more than ever before in their purchases.
The shift towards value rather than price sensitivity bodes extremely well for brands with premium and luxury positioning like Nikeand Cartier. For instance, the vast majority of women said that instead of buying bright colored blouses that could only be worn once in a while, they were buying shoes, wallets and jewelry they could wear every day.
Even though actual purchase prices were high per piece, women told us they considered their purchases as good value because they could use them every day. As one 32-year-old women in Beijing responded, “I am willing to spend a thousand dollars on a handbag from Louis Vuitton that I can carry to work and out with friends on weekends rather than $50 on a bright red revealing shirt that I can only wear during specific seasons and occasions.”
Women also reported they increasingly planned what they wanted to buy rather than buying on impulse. They often spent time online on websites like Sina or Baidu before going shopping to get an understanding of products and how other consumers viewed them. Women spent more on brands that had consistent brand stories and positioning.
Brand managers are going to have to spend time creating more emotional connections with consumers, which might mean localizing campaigns and products for them specifically and reaching out to more consumers online than before.
Consumer confidence overall is dropping in China because of rampant inflation. However, the greatest effect in terms of limiting purchasing power is on China’s poor. But their pain is having little effect on retail sales because they never contributed much to retail sales in the first place.
On the good side spending is actually growing for the aspiring middle classes and above. To capture this growing segment, brand managers need to understand that women consumers are more focused on value rather than price and are researching their purchases.
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.
He is the author of the upcoming book “The End of Cheap China: Economic and Cultural Trends that will Disrupt the World” published by John Wiley & Sons in the U.S. He does not own shares in any company mentioned. Follow him on Twitter at @shaunrein.