Warc, 23 September 2014
BEIJING: Many Western brands have got their positioning wrong in China, according to a leading industry figure, who argues that they are out of step with the market and too focused on a very small number of middle-class urban consumers.
Breaking down the figures, Chris Baker, managing director of digital agency Totem Media, pointed out that the total commonly given for the number of consumers in the Chinese middle class was between 300m and 400m, based on a household income threshold of just $9,700 a year.
"It's clear that it's not the same middle class as marketers coming from the US or EU are accustomed to," he wrote in Campaign Asia-Pacific. He suggested that these marketers were in reality fighting over an urban audience of around 43m whose household income was $17,000 or more.
Further, there were plenty of brands aiming at consumers at the top end of that segment who made more than $37,000. That amounted to a total of 7.68m, "which is similar in size to Sweden, although still not as affluent on a per-household basis".
Multinationals, said Baker, "appear to be mis-sizing the current opportunity, getting segments wrong and following up with tactics that don't fit the game as well as local competitors". They were ahead of the market in that they had applied a global strategy, affixing themselves to an imagined affluent persona and were now waiting for the market to catch up.
Chinese brands, in contrast, are in step with the market, he said, with products and prices that match the expectations of the growing middle class. Xiaomi, the smartphone manufacturer, was a perfect example of this – it overtook Samsung in Q2 2014 to become the top smartphone vendor in China with a market share of 14%.
"It's unclear whether most global brands are going to be able to penetrate the market much further with prices that are so out of step with the majority of consumers," he said.
While consumers might aspire to such brands they were more likely to be actually buying Chinese products. Overseas brands, he suggested, needed to create products aimed at lower price points and to follow the example of Xiaomi in developing the facility to run online sales and promotions.
Data sourced from Campaign Asia-Pacific; additional content by Warc staff