2018 China GDP September quarter was reported at 6.5% growth rate, significantly slower than the average rate of the past 30 years. Retail shopping has slowed with it. The stock market is slumping. China’s currency has lost some of its value. The trade war launched by US President Trump has left many Chinese feeling less optimistic than before. Anxiety, aging issues, sky-high housing prices are among the frequently referenced terms.

Welcome to China’s “consumption downgrade”,  a potentially worrisome development for Beijing and the world. For years, the conversations in China were about “consumption upgrades”. As the economy took off, China’s middle class — now more than 400 million strong and still growing —  spent those bigger paychecks. It traded up from local brands to Nikes, from cheap phones to iPhones, from tea to $5 Starbucks lattes. Not to mention those security guarded long queues in front of Chanel Louis Vuitton and Gucci stores in Hongkong, Europe, and Australia.

Multiple aspects of consumption downgrade 

There isn’t a universally agreed definition about the term among Chinese media and business landscape. There are indeed some aspects of consumers behavior change.

Buy cheap to save money. Consumers choose the products with cheap price and average quality. Taking a comparative example here in Australia, A mum may be more inclined to take one dollar bottle water Woolworth’s brand water off the supermarket shelf than two-dollar Mount Franklin bottled water. In this scenario, the quality level drops as prices drop.

Be selective on what to spend what not.  Economic conditions are not ideal, people have to be more diligent on living expenditure, choose cut consumption items, or be selective on what to and what not to. For example, those “monthly emptiness”, referring the people running out their money before their next salary pay, may not turn up at a friend gathering of spending over 150RMB, 30 dollars. In this scenario, experience level drops as prices drop.

Consuming concept changes. Some consumers are no longer have the strong willing to pay a premium price for premium brands. Interestingly, this kind of mindset shift occurs after the increase of living standard. Initially, consumers are not used to or have not purchased those premium brand products, they believed the pricier the better. Until they realized that quality of premium priced product and mid-level priced product are not much different. Therefore they changed their mindset and are more inclined to make purchases of higher quality-price ratio. Coach bags have gained much more growth comparing with Chanel bags in China for the last 24 months.

Consumers buy in different ways.  Consumers would buy in group purchase model to gain an advantage of low price thanks to the mobile app technology which is making the group purchase with anonymous people a no-brainer task.

Winners of Consumer Downgrade

Consumption downgrade is a change in the buying structure, habit and shopping concept for some consumers not for everyone. However, it is not that scary as it may sound to brands and manufacturers. It occurs at the same time while some customers are upgrading.

On the flip side, consumption downgrade creates massive commercial opportunities, especially for China’s hugely populated market. Who are the winners in the wave of consumption downgrade?

Pin Duo Duo, a group buy APP.

Pinduoduo is a group buy App,  users can launch group buys with friends, families, workmates or neighbors or even the people unknown, to buy stuff at cheaper prices. Pinduoduo’s daily active users, daily transactions surpassed JD.com, becoming the 2nd largest Chinese eCommerce platform next to Alibaba.

65% of Pinduoduo sales come from regional areas and 3^rd tiered cities and below where 50% JD.com’s sales come from 1^st and 2^nd tier cities.

To most city dwellers, it is a comprised action to cope with ever-increasing economic pressure by shopping on Pinduoduo. While those consumers in rural areas have benefited from gaining cheap, affordable access to a variety of products offered across the country which would have been impossible without Pinduoduo’s group buy model.

MINISO fast fashion store chain.  While you probably like shopping in 2 dollar stores in Australia for Halloween, Christmas or birthday party gigs, China’s counterparts have gone far massive scales. MINISO is known to sell a majority of its products priced at 10 RMB. The brand expanded to 2000 stores in China within 3 years, sales reaching 10 billion RMB, 2 billion Australian dollars.  It is a legendary record in the retail industry. 50% of their 5000 categories of product are priced under 10 RMB.

Many companies are trying to grab the commercial opportunities driven by so-called “ the era of consumption downgrade”.

Conclusion

Chinese consumers are now away from a single-minded direction. It can be complicated, it can be a mix both consumer upgrade and consumption downgrade, and even in different dimensions.

We have heard optimistic comments made by marketing peers and some Australia brands that that mid-class, residents in tier 1 and tier 2 cities and post 90, and post 2000, they are in the process of consumer upgrade, so they are going to welcome foreign goods, particularly Australian consumers goods are highly appreciated. This insight is only partially true, idealism and romantic. Simply putting up a shingle and yelling your brand offers Australian premium made product hoping to have people lined up to pay a higher price, has become a naive imagination.

Australian businesses need to put in more effort to dig further about Chinese consumers behaviors and reconsider the core of business: to provide value, scalable and affordable product and services to your customers. We, WeChat Apply team are the specialized experts who know what’s happening in China with first-hand insights, feel free to get in touch with us.

About WeChat apply

WeChat apply is an award-winning China WeChat digital marketing agency based in Sydney. Working across all aspects of the marketing solutions like WeChat promotion, WeChat Official Account Registration, WeChat KOL, WeChat Mini Program Ad. and so on, we will ensure you have a solid marketing strategy together with perfectly delivered campaigns. Wechat apply  will transform your China online marketing to increase your lead generation, brand awareness, and market engagement.

The post Consumption Downgrade in China appeared first on WeChat Official Agency.

While the last 2 years have witnessed brutal for brick-and-mortar stores worldwide, China’s retailers have experienced a “new retail” revolution, driving an increasingly stronger national consumption.

It is fueled by pioneering technology companies like Tencent, Alibaba, JD.com and involves traditional shopping center owners, Wanda, Suning, etc. A key milestone erected near end of 2017, Tencent, who owns WeChat, becoming the first Chinese firm to be worth more than $500 billion and surpassing Facebook to be the world’s fifth-most valuable company.

New Retail is merging online, offline and logistics all together create a dynamic new world of retailing.

The changes that initially predicted by Jack Ma of Alibaba are arriving so swiftly and so dramatically that each month seems to bring with it a big new preview of what retailing will look like everywhere, as China sets a pace for the rest of the world. Indeed, with millions of mom-and-pop stores now taking on new life as order-and-delivery stations for e-commerce, with food delivery platforms such as Meituan 美团fulfilling more than 18 million orders per day, and with more than 60 times more mobile payments than the US, wherever retailing is headed, China is already there.

For international brands hoping to sell in China, survival means moving equally fast to capture this future ahead of competitors, both incumbents and digitally savvy upstarts. It won’t be enough merely to keep up. Brands will be required to get ahead and help shape the vast changes, even as they completely overhaul the rules of engagement.

Consumers

People are no longer viewed only as consumers. The most forward-thinking brands now also see them in the role of co-producers. In the past, with relatively limited consumer insights, it was sufficient for a brand to identify target consumers and determine their needs. Now, armed with a comprehensive—and dynamic—profile, brands have new missions, such as finding ways to stimulate consumer needs, identifying look-alike consumers and turning consumers into brand ambassadors who effectively co-create the brand.

Merchandise

Products are advancing from commodities to being part of the consumption process and an integrated consumer experience. As the old business-to-consumer (B2C) model evolves from the simple goal of meeting mass demand to a world of consumer-data-inspired personalized products and delivery, the best brands are determining how to integrate products with the overall experience of not only shopping but learning about a product, using it and recommending it.

Stores

Stores have extended from online-only or offline-only into a seamless Omni channel experience that’s fully integrated, in which people shop while enjoying content or while spending time on social networks, for example, as well as in stores or on e-commerce platforms. Among the new moves that winning brands are making to get ahead: creating occasions beyond the constraints of time and location.

How should brands change?

The strongest positioned brands take a systematic approach to outpace rivals to outpace rivals in New Retail. They are gaining an edge by using the emergence of New Retail as an occasion to build a new consumer-centric model while at the same time creating operations that are more efficient. 

Build a new framework with customers and data

The best brands start by acknowledging—and acting on—two fundamentals of New Retailing. They need to put customers at the heart of their operations, with full consideration of the end-to-end customer experience, from awareness to purchase to referral. In addition, they commit to embedding data and smart technology into their operations, breaking down the data silos within their organization for cross-function interconnection and extending their links with the broader ecosystem. In the past, they may have used internal CRM data to provide insights that informed functional business decisions. Now they need to continually refine the data and engage in test-and-learn exercises to develop and act on broader, deeper and constantly changing consumer insights.

Develop new flexibility and efficiency in R&D, supply chain, marketing and distribution

New Retail is having a big effect on every corner of a brand’s operations. Yet companies can transform those operations to take advantage of retailing’s new realities while making them more efficient in the process. For example, as they continually hone products to serve personalized consumer needs, brands must adapt to shorter R&D cycles. Pioneering companies now take an interactive approach to R&D that allows for timely changes in design and planning based on real-time consumer behavior. Importantly, they also view their consumers as participants in the R&D process, engaging with them early in product development, conducting consumer testing before production and connecting frequently before a product launch to enhance loyalty.

Similarly, brands are reinventing supply chains, making them flexible enough to adjust to real-time frontline sales results and the more accurate estimates enabled by artificial intelligence, the Internet of Things, block chain and other emerging technologies. Companies selling in China are at the forefront of this movement to use smart technology.

The most advanced among them integrate with all parties in the supply chain, analyzing the full spectrum of available data to improve visualization, analysis and supply chain automation. They make the required investments to choose the right service providers, manage the data and improve the operating efficiency of their supply chains.

Nestlé has reaped significant benefits from its “One Set Inventory” unified supply chain, which serves different channels (business to business, business to consumer, offline to online and others), sharing both logistics service and inventory. From a single hub, Nestlé ships to different channels instantly, choosing the destination based on insights generated by real-time data. The move has dramatically improved turnover efficiency, with the online product shortage rate dropping from 22% to 5%. It has lowered logistics costs, reducing cross-region delivery from 60% to 10%. In addition, the new supply chain setup has improved delivery timeliness for Nestlé. Now nearly 80% of orders are delivered the same day or next day.

New Retail changes the game in marketing and consumer management, too. The digital ecosystem that encompasses purchase, payment, delivery and all the other customer touchpoints provides the opportunity to reach consumers whenever and wherever they are online. That is why winning brands have extended the horizons for digital marketing. For them, online is not limited to a sales channel but becomes a consumer-centric closed loop for unlocking business potential. These companies collect data whenever a consumer uses an app to hail a taxi or process a payment. They integrate offline and online data. From this composite of transactions they gain insights that help them develop and deliver personalized marketing messages to the same customer touchpoints, constantly refining what they learn and how they market. It’s a shift in philosophy that turns marketing from a brand expense to a brand asset.

Finally, distribution is being reinvented with New Retail. Under the old and painful multilayer network, stores—especially traditional trade—had limited control and transparency, there was a lack of sufficient data and the costs of distribution were high for limited channel penetration. Leading brands now rely on streamlined electronic route-to-market (e-RTM) models that help them reduce costs with fewer levels, expand their coverage, and gain visibility into real-time inventory and sales data while improving point of sale and channel relationships. A key lesson they’ve learned as they build and adapt to these new digital route-to-market approaches: honing brand strategies to gain the most from e-RTM and thoughtfully selecting business partners based on the unique characteristics of their product categories.

Transform the organization and operating model for digital

Building a framework and operations around customers and data are critical for brands hoping to master New Retail. However, those big moves will not yield sufficient results without redesigning the organization to make full use of New Retail’s power. Among the most important considerations: The organization structure needs to allow for seamless coordination among functions, something that traditional organizations rarely accommodate. Also, the organizational design needs to reflect the company’s stage in its digital transformation. For example, in a company in early days—in which digital’s major role is that of a new sales channel—the digital team will be most effective if it operates within the sales unit. However, for companies much further along on the digital transformation, digital should be a standalone business unit that integrates resources across all functions, with a decentralized and agile operating model that fosters fast decisions.

While the ultimate goal is to be able to move quickly, brands need to recognize that developing enterprise-wide agility does not happen overnight. It is a multistaged journey that typically takes two to three years to complete.

Many brands entered the era of New Retail not only with limited capabilities for acquiring and analyzing data, but also with organization structures and operating models that make it difficult to share and act on insights gained from that data. Winners understand the need to organize for data.

As New Retail takes root, the brands that thrive will acknowledge that the changes they make today—the new capabilities they develop and the operating model they devise—won’t necessarily help them a year from now. New Retail is a work in progress that will require brands to constantly refine and reinvent themselves for new occasions, new formats and the steady flow of new ideas that will define retailing tomorrow.

About Wechatapply

Wechatapply is an award winning China WeChat digital marketing agency based in Sydney.Working across all aspects of the marketing solutions like WeChat promotion, WeChat Official Account Registration, WeChat KOL, WeChat Mini Program Ad. and so on, we will ensure you have a solid marketing strategy together with perfectly delivered campaigns. Wechatapply  will transform your China online marketing to increase your lead generation, brand awareness and market engagement.

The post How brands Adapt to China’s New Retail Era appeared first on WeChat Official Agency.