Saturday, April 25, 2015

Do Chinese consumers have an environmental conscience?

It is evident that Chinese consumers like everywhere else in the world reflect a consumption pattern that is governed by their beliefs, values and ideals. In a research conducted by GfK in 23 countries, 72 % of the Chinese consumers claim that they only buy those products which match their values, beliefs and ideals.  In fact, the ardor of this expression is one of the highest in the world and the Chinese consumers seem to surpass the consumers in most developed countries in the intensity of their expressed emotion. 

That concern for the environment is among these guiding values is clear from the fact that Chinese consumers in most research studies, as in this one, avidly proclaim a strong environmental conscience and also demand responsible behavior from companies. 73 % of them (7th highest among the 24 countries studied) say that they are plagued by guilt when they indulge in an environmentally unfriendly manner. Their demand from brands and companies is even more exacting - 80 % of them feel that brands and companies have to be environmentally responsible. Here again the Chinese consumers are ahead of most developed countries in their standards.

The key question, of course, is will the Chinese consumers pay a premium for an environmentally friendly product? On this, the results in the market so far have been disappointing and there is no evidence of consumers paying more for an environmentally friendly product - as we see them paying for a safe product. Chinese mothers are buying infant milk formula and other baby products from all over the world at the highest prices. However, they don't seem to reflect a similar enthusiasm for products which are less of a strain on the environment. Tesla, the premium fully electric car, which has become an environmental badge in the U.S. seems to have had limited traction on the Chinese roads so far. Even in terms of common environmentally friendly practices such as shunning plastic shopping bags or buying products with reusable or light packaging the Chinese consumers are not really holding a beacon to the rest of the world. 

What do marketers and policy makers need to bridge this gap between espoused values and actual behavior? The key to achieving this is to link the desired positive behavior to a clear consumer benefit. Consumers seldom pay to assuage their conscience, but invariably do when they see a clear and meaningful benefit. Less pollution and safer environment are clear candidate benefits that can be dangled in front of the consumers.  Benefits don't just need to be functional or tangible - emotional benefits could also hold a powerful sway.  The related emotional pay off in this case could be potent - particularly if it relates to the long term protection and health of their children. Chinese consumers will pay if they feel that the premium that they pay today will create a better and safer world for their children tomorrow. The key to a more desirable behavior and premium for environmentally friendly products lies in converting the guilty conscience into a powerful emotional benefit that the Chinese consumers can identify with.  

Written by Ashok Sethi

Sunday, July 6, 2014

The Brand Divorce

In 2013 3.5 million Chinese couples filed for a divorce - an increase of 12.3% over the previous year. The Chinese marriage is in a crisis and more and more Chinese are choosing to part ways with their partners and live on their own. Of course many more, particularly educated women (often referred to as shengnu - leftover women or victorious women - depending on the character for "sheng" and your point of view) are choosing not to cast their lot with anyone at all. Similar statistics are hard to come by for the number of Chinese consumers who divorce the brands they have been using, often after years of relationship. However it is clear that the consumers' predilections in personal lives are also reflected in their purchase behavior and brand choice. Chinese purchase behavior is characterized by promiscuity and flirtatiousness, and often resistant to settling down in a faithful and long lasting relationship. What are the root causes of this Chinese detachment and is there a commonality between what is causing the Chinese to shed their bonds with their partners and with their brands? 

Why do so many Chinese marriages end up in a divorce? And do similar reasons prompt them to cast aside the brands they were once in love with? Research shows that there are four main reasons which prompt the Chinese couples to part ways. 

First and foremost it is an erosion of trust. It could be a lack of trust in the spouse's fidelity, or financial conduct or the single-mindedness of the devotion. The brand marriage is also rocked by a lack of trust. Chinese consumers are prompt in divorcing a brand which they feel cannot be trusted - whether it is in terms of safety, quality or honesty. Of special note here is the aspect of safety, where many consumers feel let down by brands which offered products which could harm the health of the consumers and their families.

The second cause of marital discord and subsequent break-up is financial differences. Who should pay the mortgage or the maintenance, where and how should the savings be invested and who should command the household finances. Brand marriage is also rocked by financial differences. Chinese consumers decide to divorce the brand if they feel it is charging them too much and isn't really giving them a good value for their money. Value assurance is perpetual challenge for brands and they need to continuously monitor their perceived worth in the consumer mind.

Marriages also crumble and the couple become distant when their interests and needs start diverging. Brand marriages also crumble when the consumers' interests and needs change and the brands are not able to adapt to the changing needs. Consumer needs are evolving and becoming more sophisticated. Brands need to sharpen and contemporize their proposition to keep up with these changes.

Finally marriages flounder when the love starts to disappear and the relationship becomes a functional dependency and loses the emotional bond which brought the couple together. Couples keep their relationships vibrant and fresh by tender touches, emotional gestures and meaningful communication. Brands in China also need to learn to sustain the romance and keep the marriage healthy and long lasting. 

Managing consumer brand relationships becomes so much easier when we try to understand them with the metaphor of human relationships. Is your relationship with your consumers a healthy and stable marriage or is it a marriage-on-the-rocks?

Written by Ashok Sethi
Ashok is the Managing Director for GfK Custom Research in China

Wednesday, March 5, 2014

Chinese Manufacturing and Indian Service

The Ministry of Commerce in China recently announced, that the nation has toppled the US and taken the crown of the world’s largest merchandising trader.  Much of this achievement is based on an extraordinary success in manufacturing. China has clearly established its name for its manufacturing prowess. Half its gross domestic product is accounted for by manufacturing. Its plant and factories, churning out huge quantities of washing machines, refrigerators and mobile phones, cater to the insatiable demand of consumer goods in China and also cater to the global appetite for cheap goods. China is the largest trading partner of 120 countries, including India, and with most of them enjoys a favorable balance of payments situation because of successful export of its merchandise. China hence has developed capabilities to efficiently produce these goods not just to meet its own demand, and export to the whole world.

There are several factors which provided a fertile ground for the development of China’s manufacturing industry. China's manufacturing strength is due to its entrepreneurship, good infrastructure and efficient supply chain. The manufacturing boom also occurred at the cusp of huge urbanization, when millions of young Chinese villagers were free and eager to move out to supplement their meagre agricultural income and willing to work as cheap labour in factories. But the manufacturing industry also owes a debt to the fact that as a people, the Chinese are prone to follow instructions, stick to processes and work in a disciplined manner - exactly what manufacturing calls for.

On the other hand, services, though growing healthily, remain a weakness of the Chinese economic model. The Chinese tend to apply the same uniform standards and processes to services, which they employ to manufacturing. This often results in a sub-optimal offer, as services intrinsically have a higher variability in its demand. A three star hotel in China will nearly uniformly provide you clean rooms and sheets, a functioning television and a passable restaurant – but seldom anything more.  The Chinese service model is based on the principles of assembly line of the manufacturing process. The service is divided neatly into different processes and a standardized delivery of a basic quality is designed for each element. Standardization rather than customization is the goal. Airport staff at boarding gates in Chinese airports play recorded "thank you" messages while they scan the boarding cards. “If you have to thank every customer, why not have a recording to spew it out than leave it to the whim of fickle humans,” the Chinese think. 

Indians on the other hand are free-spirited, creative creatures of their own whim and will. They need variety and opportunity for creativity and extemporisation. Manufacturing is stifling for the Indians - it is the creative, on the feet servicing which is their forte. Unlike China’s manufacturing dominated GDP, it is the services which reign supreme in India, accounting for more than half its GDP.

The Indian service model, is based on the concept of customised service, which results in more tailor-made and specific solutions for the customer, often resulting in a higher level of problem solving and satisfaction. However, the Indian service also embodies a high level of variance.
 A three star hotel in India will show high variation with a quality of facilities and service which could, on one end rival a five star hotel, and on the other hand offer barely liveable accommodation.
Additionally, the Indian model is vulnerable to the whims of fancies for the people who are providing the service.  If you are lucky, you will be greeted with a beaming smile, solicitous attitude, and made to feel like a king. On a bad day (her bad day, which soon becomes your bad day too) you may be scowled at and blamed for interrupting her well-deserved rest.
But most of all, her behaviour and attitude will be based on what she feels the particular customer deserves. Coming from deep notions of a class based society, the behavior will often depend upon at what level or class of society does the person behind the counter pegs you at. Hence, if you are neatly dressed, exude an air of confidence and sophistication, you may be greeted with a smile. On the other hand if you present a bedraggled appearance and are classified as ordinary riff-raff you may be treated with perfunctory callousness. While flexibility is an asset for Indian service, extreme variability is a weakness. Indian model could do with a bit of standardization and learn from the highly homogeneous, low variance output of the Chinese

In this context India's software industry is clearly vulnerable to competition from China. In the long run Chinese are likely to prove themselves to be better in writing code than the Indians - though Indians may still hold an edge in the systems analysis and design. Surely this presents an obvious opportunity for cooperation and collaboration between the two countries.

Written by Ashok Sethi
Ashok is the Managing Director of GfK (a Global provider of market research and consumer insights) in China

Saturday, February 15, 2014

Digital year of the horse






Written by Ashok

Wednesday, October 16, 2013

Innovation in emerging markets

Quite often when people think of innovation they think of Apple and the iphone. That such innovation is also relevant for emerging and developing markets is proven by the fact that China has already become the second largest market for Apple. But there is more to innovation in emerging markets that producing cute gadgets. 

If we define the purpose of innovation as the process which leads to a better satisfaction of consumer needs, or an improvement in the quality of life of the consumers, we need to firstly look at the profile of the target population of the consumers in emerging markets and see what kind of innovations can they benefit from. While luxury goods may be booming in emerging markets, they also house over a billion people living below the poverty line. Even the emerging middle class in these markets has much more modest spending power than the middle class in the West. This implies that while the Western style innovation of smart technology and slick designs is still relevant in the emerging  markets, there is also a totally new kind of innovation required for consumers who are actively seeking improvements in their lives it terms of basic aspects such as clean and safe drinking water, affordable housing, better education for their children and basic services such as banking. It is not surprising then that m-pesa a mobile phone based money transfer service emerged in Africa and not from the developed markets.

Jugaad innovation

We often use the term "jugaad innovation" in the context of emerging markets. Jugaad innovation is normally used to describe, relatively low cost, problem solving, basic, grass-root level innovation that is often the result of consumer and manufacturer ingenuity, directed at solving some problems and improving the quality of life for consumers. In the Western context, innovation is expensive as it involves expensive R&D, scores of Ph.D's pouring over their microscopes to discover new magical formulas. Innovation is normally a long drawn process with very little short-term return. While companies like Lenovo and Huawei are engaged in this Western style investment, only the most successful companies can afford to put in these kind of resources. For most companies in emerging markets the only route is frugal innovation.

Secondly, most innovation in the Western world is top-down - as the consumer needs in most areas are actually well satisfied and  it is the companies, who in search of higher profits and beating the competition are looking for ways to provide that extra stimulation and thrill to the consumers. However in the emerging markets, innovation often starts at the grass-root level, as the consumers have unsatisfied needs and often resort to cheap and crude but still workable solutions to seek solutions for their problems.

Chinese digital innovation

While the Western companies lead in innovation for technology products, one of the most active areas of innovation in China is the technology services in the digital and mobile arena. True, the Westerns platforms of Facebook and Twitter are not accessible to the average Chinese- but they have something much more suitable to their needs - Weibo. Just as twitter, Weibo allows you to express anything in 140 characters. Of course in Chinese, each character is actually a word, and hence you can say a lot more in 140 characters in Chinese than you can do in English or most other languages. Weibo has attracted more than 300 m users within a few years and has become a platform for discussion of everything from brands to social issues to corruption. Through Weibo urban young Chinese have found a relatively open but still an acceptable way to express themselves. Weibo has emerged and evolved in a uniquely Chinese way to satisfy the needs of the Chinese consumers.  

Similarly while Western companies like eBay and Amazon have made little headway in China, the Chinese e-commerce platform Taobao has 600,000 vendors selling everything from tablet PCs to freshly slaughtered chicken. Taobao was able to innovate to address several resistances towards e-commerce in China - which included a mistrust between sellers and buyers, low penetration of credit cards and extreme price sensitivity. Both Weibo and taobao have developed not through top-down innovation but through their users who have moulded the platforms to best satisfy their needs.

Innovation in emerging markets is extremely important. Not only can it add to the coffers of corporations, it can change and even save lives. Of course, to be effective it needs to be anchored to the consumer needs and a discovery of what can enrich their lives.

Written by Ashok Sethi

Thursday, June 20, 2013

The emergence of seamless retail

The juggernaut of online shopping




The circuitous consumer journey



Online, offline and seamless..







Written by Ashok Sethi

Spring festival blues and commercial opportunities


Take me home



The road less travelled 


Meet your future son/daughter-in-law


Happy meals


Packaging for 'face'


Sleep well while you travel home


Written by Ashok Sethi