Vinay Dixit is the Senior Director of Asia Consumer Centers in McKinsey & Company and leads the Insights China by McKinsey service line. He joined McKinsey’s Shanghai office in February 2008 and has led several significant studies on Chinese consumers. His most recent publications include, “The coming of age: China’s new class of wealthy consumers” and “One Country, Many Markets – Targeting the Chinese consumer with McKinsey ClusterMap”.

The China Observer: You co-authored a report last year that found China will host the world’s fourth-largest number of wealthy households by 2015. Who are China’s luxury consumers? In terms of age dispersion, are luxury consumers relatively younger than their counterparts in developed markets?

Vinay Dixit: We define Chinese wealthy households with an annual income of RMB 250,000 and above. In terms of Purchasing Power Parity, this translates to US$ 67,000 annual income. Please refer to the slide below for ranking of countries in terms of wealthy households.

One key difference of Chinese wealthy consumers when compared to their counterparts from other countries is their youth. On an average, they are about 20 years younger than their cousins in US or Japan. We do expect that the wealthy consumers in China will retain this characteristic in the next decade as well.

The China Observer: The 2009 McKinsey Consumer survey emphasized that companies should no longer assume the existence of a homogenous “China market” and monolithic block of 1.3 billion consumers, adopting a one-size-fits-all China strategy. The survey introduces the “cluster map” approach to China market strategy. How will this alter the business models of foreign luxury companies trying to gain a foothold in China beyond tier-1 cities?

Vinay Dixit: The last decade has seen remarkable changes in China – those relating to consumer evolution, infrastructure development, income levels and consumption patterns, to name a few. Our research (based on 30,000 consumers studied across ~60 cities since 2005) clearly shows that a “city-cluster” framework is fast replacing the “city-tier” approach when it comes to targeting the Chinese consumers.  Several key attitudes are now becoming more and more consistent in a geography of 250-300 km radius around key cities, irrespective of the tier in which these cities are.

This has significant implications in both “where to play” and “how to play” decisions of the companies. It provides significant clues towards choice of geographic areas that companies could prioritize in their launch and expansion plans on one hand, as well as on how to customize their go-to-market strategies in these chosen geographies on the other. Ultimately, we believe that this framework can significantly support a prioritized, sustainable and profitable expansion of a company’s business in China

With respect to luxury consumers, we see significant differences in their profile and attitudes across various cities and regions in China. We introduced the concept of 7 wealthy consumer segments in our last years study – even within the tier-1 markets of Beijing and Shanghai, we see significant differences in composition of the wealthy consumers. The differences in other tiers and geographies are even starker.