(Part 2) McKinsey Annual Chinese Consumer Survey 08: Accelerating demand for premium products
This is part two in a four part series of post that breaks down the recently published 2008 McKinsey Annual Chinese Consumer Survey. Click here to read Part I, “Growing Importance of Regional Differencesâ€
Who is considered middle-class in China? McKinsey defines the mass market as families with monthly income levels below 5,000RMB per month, with the upper-middle class earning excess of 5,000RMB per month. I am currently reading Tom Doctroff’s “Billions: Selling To The New Chinese Consumer†and I like how he does not assign a set income bracket to classify the middle class. Doctroff defines middle income individuals as those “with enough disposable income to purchase non-essential goods.†After all, you can stretch 5,000RMB a lot further in a place like Wuhan than you can in a major urban center like Shanghai or Beijing. Whichever definition you choose it is the middle class, an approximate 100 million, which is leading the demand for premium products in China.
What high-end products are consumers willing to buy?
According to the McKinsey survey Chinese consumers are willing to pay more for products in these six categories:
One consideration in purchasing high-end products is safety. When considering products like facial cream and toothpaste Chinese consumers are willing to pay more money to ensure the product they buy is safe for them and their families. With product safety scandals a relatively common occurrence in China, consumers are willing to use their discretionary income to buy brand name high-end consumer products for their reputation of safety and quality.
Two other findings worth taking note of:
1) 1/3 of the respondents within the age range 18-24 reported that they “always pay a premium for the most expensive and best products†– Wealthy individuals are not the only ones who pay for premium products. Generation Y consumers are more brand conscious and are willing to save significant portions of their monthly incomes to make big purchases.
2) The results of the survey suggest that companies should build a mixed portfolio of products. Companies that target the mass market, should develop strategies to encourage consumers to trade up to premium products. On the other side, companies that already target the premium market should carry their brand down to the mass market. These trends could potentially lead to companies competing with one another at both ends of the market.
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