China – An Update

I am spending a few weeks in China. This time, I sense a really big change in the Chinese marketplace. Not only has income level risen dramatically since my last visit a few years ago, but the Internet has become an even more pervasive force in Chinese consumers’ daily life. I confess that I have not done extensive research about marketing and consumers in China. But there are a few notable observations that I would like to share with my readers.

Discretionary Spending on the Rise

When I graduated from college in 1996, I was paid slightly over 1000 Yuan (about $140) a month as an assistant editor at a publishing company in Beijing. Today, my college classmates are often paid more than ten times that working in their professional jobs. Without a doubt, the standard of living has increased dramatically in China. As the cost of basic living items (excluding housing) is still pretty low, Chinese consumers in metropolitan areas are enjoying more and more discretionary income. This has boosted spending on discretionary items such as travel and automobiles. A lot more consumers are traveling both within China and aboard. Having a car is also becoming more commonplace.

Housing Gap

With the high population density in China, housing (sold by square meters) is still expensive and is one of the largest expenses in many consumers’ budget. In popular metropolitan areas such as the capital city Beijing, condominiums cost from a few thousand yuan (= a few hundred dollars) per square meter to upwards of $10,000 per square meter, which puts the price tag of a 2000sqft condo at $1.8 million. Real estate is also where the big gap comes in. While some consumers can barely afford a decent-sized dwelling, others are buying multiple homes (and even more amazingly, having all of them paid off already). These latter buyers have helped make the already expensive housing market even less affordable. As a result, the Chinese government has imposed a limitation of three homes per household. If you want to buy more than that, you will have to pay by cash and won’t be able to obtain a mortgage for it. The purpose of the regulation is to help bring housing price down so that more consumers can afford a decent home.

Groupons Extremely Popular

Chinese consumers love a great deal. With the help of the Internet, companies are reaching out to consumers with attractive offers for their products. One particularly popular promotional technique is groupons (group coupons). Basically visitors to a groupon website choose an incredibly low-price offer that they are interested in. When the pre-specified number of signups is reached, these consumers get to buy the product at the low price. For instance, a complete meal at a local restaurant may be offered at half the price or even lower. The idea is to use such groupons to introduce one’s products and services to a large group of consumers. Similar business models have been tried in the US during the dotcom era. But none of them was very successful, due to low adoption rate. In China, the sheer size of the marketplace makes this business model much more feasible, and many groupons’ imposed threshold is reached within an hour of their initial posting. Many Chinese workers are rumored to spend a large amount of work time scouting such groupons online.

Cards instead of Cash

It has been a while since Chinese consumers first started using plastic cards. But a few years ago, most cards are ATM cards mainly used to withdraw cash. Today, both debit/check cards and credit cards have become more common. Many retail establishments accept such plastic cards as payment. When it comes to e-commerce, however, the situation is slightly different. It is not very common to pay by credit card for an online transaction. Instead, consumers usually pay at product delivery, which is often handled by small delivery firms rather than large companies such as Fedex or UPS. This personal delivery system works well in China for two reasons: high population density in metropolitan areas, and low-cost labor. As a result of this personal delivery system, taking payment at delivery becomes a low cost option compared with paying transaction fees for credit cards.

Social Media is Developing

Social media is evolving with its own unique flavor in China. While websites similar to Match.com and Classmates.com have been around in China for years, there are still no dominant social networking websites in China. Both Twitter and Facebook are still blocked or function intermittently in China. I am also having trouble using my Google Reader here. Blogs and discussion boards are popular in China, however. Their topics range widely from daily living to making money in the stock market to social issues. Another unique phenomenon is social networks formed around games. There are a few popular gaming websites, and many consumers avidly participate in such communities.

Mobile Advertising Adoption Ahead of the US

Mobile advertising is a daily phenomenon in China. Most mobile users receive tons of promotional text messages on their cellphone. These messages are typically free to the receivers. But because of the sheer volume, many consumers ignore these messages by either not opening them or deleting them right away. So the effectiveness of such mobile ads is unknown. Internet access on the mobile phone is also commonplace in China, but usually at 2G speed. This is about to change, however, as the technology gets updated.

All in all, I am quite amazed by how far China has come along in just a few years. No wonder my mom, who visited me in the US last year, called me poor.

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