To do business successfully in China, or anywhere for that matter, you must remember one of the first rules of marketing: Know thy customer. The demographics of the consumer class in China aren't like they are in the West, and you need a good grasp on who your customers are and what they want if you want to compete with Chinese businesses.

Unlike in the West, most of the money in China belongs to people who are younger than 45. Because of the Cultural Revolution in the 1960s and '70s, people older than 45 generally aren't well educated, live in government subsidized housing, and have spent the bulk of their careers in state-owned enterprises. The younger generation is better educated and is more likely to work in private firms, including foreign-invested enterprises.

Chinese consumers show important regional differences in their buying habits. You may very well need different approaches in different regions. Many factors determine how people will react to your offering, but here are some tendencies that may hold true:

  • Northern Chinese aren't quite as price sensitive as other Chinese. They're more likely to pay for convenience instead of shopping around to compare prices.
  • Chinese people in the central coastal areas tend to shop around and try to play stores off one another for a better price. They usually go for the best deal.
  • Southern Chinese (particularly Guangdong province) are used to getting good products at low prices. They've had access to factory overruns at deep discounts for many years.

You also have to be aware of lifestyle differences among consumers, so do a lot of research on your particular targets in each market you want to sell into. Shanghai, for instance, is generally more avant garde and Western-friendly than Beijing. But contrary to what you may think based on the two cities' reputations, young Shanghainese tend to be closer to their parents and lead more stable lifestyles. Beijing's 18- to 35-year-olds are more attuned to the rest of the world — particularly to pop culture — than are the youth in Shanghai or any other Chinese city. Beijing's youth are also less traditional than in any other part of China, which may explain why Beijing is the center of China's rock and pop scenes.

In China, you do consumer research the same way you do it in the West. The advantage for foreign companies is that most Chinese companies don't bother (or don't know how) to do consumer research. For Chinese companies, just throwing ideas on the shelves and seeing whether they sell is usually cheaper and faster. If you're going to compete with Chinese offerings, market research can give you an edge.

In China, doing intercept interviews is usually more effective than doing focus groups because when the Chinese do focus groups, they tend to be a little embarrassed about speaking in front of each other.