Chinese Consumer Behavior

Rising standards of living and a greater share of disposable income dedicated to non-essentials lead to the fact that Chinese consumers focus more on recreational activities and higher-end goods and services. It is expected that this trend will fuel an accompanying increase in entertainment demand, including traveling (Chinese Consumers in 2020: A Look into the Future, 2014). So, understanding of the Chinese consumer behavior, his needs and influences on buying patterns has become very essential for businesses. This essay will focus on different approaches to segmentation of a Chinese consumer, his key desires, spending patterns and, finally, behavior differences.

Chinese consumers’ breakdown

Different sources provide different approaches to segmentation of the Chinese consumers, though some similarities can still be traced. Let’s consider the consumer segmentation provided by the Euromonitor Passport Survey which introduces five consumer types in China ((Figure 1) together with the key traits and demographics (An Introduction to Chinese Consumer Types, 2015). Results are based on responses to Euromonitor’s flagship Global Consumer Trends survey 2013.

 

Figure 1. China - Consumer types breakdown (source: Euromonitor International, 2013) 

• Undaunted striver – it is a confident, trendy, optimistic, image conscious status seeker whose average household income makes US $64,965. This segment is represented by 58% of females.
• Struggling questioner – it is a modest, indecisive, unconfident, stressed-out individual who does not like extremes. This segment is mostly represented by 55% of males (high proportion of renters) with average household income of US $ 44,230.
• Secure traditionalist – it is an independent, unpretentious person who lives on his own terms and is focused on getting by. The segment is represented by 57% of males with average household income of US $36,508.
• Savvy moderate – it is a purposeful, engaged, middle-of-the-road, civic-minded strategic spender. The segment is represented by 57% of females (high proportion of home-owners) who on average make US $ 53,804 per year.
• Cautious saver – it is a frugal, health-conscious, family-oriented person with average household income of US $35,079. 54% of this segment  is represented by women.

In the context of our business case the most attractive seems to be the first segment of Undaunted strivers. They are confident enough to go on traveling individually and have enough money for that. Traveling may be considered by them as a way to show off, to contribute to their status and stay in the mainstream. Besides, it is a great opportunity to be exposed to new experiences and authentic world-known brands.

According to another segmentation, developed by Motivation International B.V. (Figure 2), the 5 main personas among the Chinese people are distinguished (Ariaans, 2016).  The research was conducted in the biggest Chinese cities (Beijing, Shanghai, Xiamen, Guangzhou etc.) among the respondents who expressed a desire to travel to Europe within the next 3 years. As a result, the following personas were profiled: Socializers (1%), Conservatives (13%), Achievers (44%), Creatives (14%), and Challengers (28%) (Ariaans, 2016).

 

Figure 2. Five main personas of Chinese consumers (source: Motivation International B.V., 2016)

Again from our business case perspective the most important segment is Achievers which represents almost half of the respondents. Based on the most prominent characteristics such as income, personal values, interests this segment overlaps with the Undaunted striver segment described above. Achievers are also confident, goal-oriented, value status, like to cross boundaries, discover different cultures and must-see places. They want to get the most out of the journey and interested in fully arranged holidays. So, I find this segment (call it Achievers or Undaunted strivers) to be the most attractive for targeting from the commercial point of view.

Key consumer desires 

According to Goldman Sachs research results (The rise of China's new consumer class, 2015), the spending of Chinese consumers can be broken into seven main categories which can be seen below (Figure 3).

Figure 3. Seven key Chinese consumer desires (source: Goldman Sachs research, 2015)

So, as the incomes rise, Chinese people tend to spend more on non-essential products such as beauty items, technology, interior improvement and luxury goods. Traveling is also on the spending list, falling into Having More Fun category. Currently Chinese people spend only 9,2% of their personal income on recreational activities—including travel, dining out, sports etc. This is much lower than in other countries (e.g. in USA it is 17.3%) (The rise of China's new consumer class, 2015). That gap means that as incomes rise, this category has a quite good potential for growth. Though only 3% of Chinese have passports, the numbers of tourist arrivals into different cities are growing. The majority of Chinese travelers still choose neighboring countries (Korea, Japan, Vietnam, Taiwan etc.) as their main points of destination. However, Europe as a destination also has a potential to grow. According to Goldman Sachs, in 2025 22,5 mln. of Chinese tourists will travel to Europe, compared to 10 mln. in 2015 (Sander, 2016).

Key spending patterns of Chinese tourists and reasons behind

Speaking about the main purposes why Chinese travelers go abroad, the following 4 main reasons can be singled out (Sander, 2016):

• Leisure 75%
• Shopping 44%
• Visiting friends/relatives 7%
• Business 6%

It is obvious that desire for entertaining activities and shopping experience prevail. So, what spending patterns of Chinese tourists can be traced? As can be seen from the Figure 4 below, more than 50% of the travel budget goes for shopping.

 

Figure 4. How Chinese tourists spend their money (source: China Outbound Tourism Research Institute, 2014)

The question may pop up why does shopping account for the largest share of the travel spend? There are several reasons behind that: 

• Lack of trust into domestic products.  After a number of domestic quality scandals, Chinese are increasingly concerned about the safety and authenticity of products. That’s why they prefer to buy “real” products abroad in order to be protected from deception.

• High domestic pricing of luxury goods or non-availability of brands. Due to high import taxes it is cheaper for the Chinese luxury consumers to go abroad and buy products there. Sometimes, according to Euromonitor International, unique items are not available in their home country and Chinese luxury consumers are motivated to travel overseas and buy products in the brands' birthplaces (Chinese Consumers in 2020: A Look into the Future, 2014).  About 92% of 1,800 Chinese consumers polled were dissatisfied with the luxury brands' services at home, according to the 2014 China Luxury Forecast. Poor customer service and lack of knowledgeable staff in China were the main complaints (Chinese Consumers in 2020: A Look into the Future, 2014).

• Family/friends order lists. Purchases may not only be for personal use, but for friends and family members back home, adding to the total shopping trip value of each visitor (Zhang, 2016). It is important to understand that for this purpose a pre-travel research is made, including the analysis of brand websites, travel forums, price comparison, and tax refund information. So, in the majority of cases Chinese travelers know beforehand what, where and at what price they are going to buy (Zhang, 2016).

 Behavior differences between a Chinese and a European tourist

Cultural differences between these two types of tourists determine certain behavior patterns that they follow consciously or subconsciously. They have different expectations, mindset and background knowledge which influence their consumption habits, decision making process and overall behavior (Study of cultural differences of tourist behaviour: German, Chinese, Indian, 2014). Below is a table that briefly compares behavior differences between a Chinese and a European tourist.

Chinese tourist	European tourist
Chinese as collectivistic consumers make purchases to become similar with members of their group, they do not want to stand out in the group.	Europeans as individualistic consumers make purchases to differentiate themselves from others, to satisfy personal needs and emphasize their own personality and distinctiveness.
Chinese are more active in their spare time, and like to shop, sing in karaoke, play games more often than Europeans.	Europeans prefer to work in the garden, read a book or a newspaper, sit on the terrace or to do absolutely nothing.
When traveling in groups, always make a lot of noise, speak out aloud, expect hot water to be provided in hotels as well as in public spaces.	In the majority of cases travel individually or in pairs, respect other country’s culture, adapt to local rules.
Eating habits: expect to get hot meal 3 times per day, use chopsticks, smack lips (this indicates that the food is tasty).	Eating habits: expect hot meal once or twice per day, use folk and knife, consume silently.
For the guest treatment, according to the Chinese, hosts should escort their guests everywhere and provide them with a very tight itinerary; this, they believe, is courteous and high-quality service.	Western tourists perceive such hospitality as uncomfortable, intrusive, or lacking of trust. Prefer more relaxed program, free time for individual exploring of the city.
Chinese tend to buy a lot of souvenirs to commemorate their visit to a particular destination and fulfill social obligations by bringing home small presents. Like to bargain.	Europeans tend to buy less souvenirs, do not bargain, pay the indicated price.
Obtain travel information from tour companies, corporate travel offices, travel guides, rely heavily on recommendations from friends and relatives. Can be attracted to advertisement that focus on family or in-group benefit.	Obtain  travel information directly from the airlines, tourist websites, and state/city travel offices. Can be attracted to advertisements thatemphasize individualistic benefits and are persuasive.

Summing up, the Chinese consumer behavior has its own peculiarities and in order to target Chinese consumers, one needs to understand what specific segment he is focused on, what are the needs and desires of that segment, how it can be reached and provided with an excellent service living up to their expectations. The potential is big, but so is the challenge. To take advantage of this potential, businesses need to understand the Chinese mindset, adjust pricing policy, offerings and other practices to meet their specific needs.

References

An Introduction to Chinese Consumer Types. (2015, February 04). Retrieved from Euromonitor International : http://www.portal.euromonitor.com.saxion.idm.oclc.org/portal/analysis/tab

Ariaans, T. (2016, May 18). Personas NBTC. Retrieved from nbtc.nl: http://www.nbtc.nl/nl/homepage/actueel/nieuwsberichten/maak-kennis-met-ding-yi-en-zhang-xiang.htm

Chinese Consumers in 2020: A Look into the Future. (2014, February 03). Retrieved from Euromonitor International: http://www.portal.euromonitor.com.saxion.idm.oclc.org/portal/analysis/tab

Sander, E. (2016, September 26). Consumer Behaviour and Tourism (PP presentation).

Study of cultural differences of tourist behaviour: German, Chinese, Indian. (2014). Retrieved from suic.org: http://www.suic.org/wp-content/uploads/research3/mba_research/31Korakoch_TRAITHONGYOO.pdf

The rise of China's new consumer class. (2015, December 16). Retrieved from goldmansachs.com: http://www.goldmansachs.com/our-thinking/macroeconomic-insights/growth-of-china/chinese-consumer/index.html

Zhang, E. (2016, September 9). How to Attract China’s Connected Traveling Shoppers Before, During, and After Their Trips. Retrieved from jingdaily.com: https://jingdaily.com/how-to-attract-chinas-connected-traveling-shoppers-before-during-and-after-their-trips/