The following post is from Frontier Strategy Group expert advisor, Richard Brubaker’s All Roads Lead to China blog. The post is called Quality in China. Is it Valuable Enough to Pay for?
While the typical conversation about “quality” in China will be one of manufacturing failures, I was asked by a good friend to comment about my thoughts on whether or not the “Chinese” market was ready as a consumer of quality.
A topic that I would say I brush past on a regular basis as in the last few years it is easy to see there is a market of Chinese consumers who are looking to enjoy a higher level of standard in products (middle market and luxury), but more widely there was a mass who were engaging in what I call fear based consumerism as a result of the countless consumer scandals in China.
And in answering her questions below, I really felt it was best to focus on the later group because (in my mind) these are the consumers that are going to be far more interesting, stable, and loyal in the future. And that for all the hub bub of China’s growth in luxury, it will ultimately be the middle market where firms focused on “quality” should be focusing their efforts.
Question 1: How will Chinese consumers be thinking about Quality (Durability, Safety, Longevity, etc) for products in 3-5 years
This is ultimately the question that will drive brands nuts going forward because there are going to be some very clear markets that develop, and some which pop up and then die quickly, all depending on the “consumer”.
If one views the government as a consumer who is looking to by “quality” for their projects (think cleantech, healthcare, security, etc). This is a very large market already, and is one where the “buyer” is looking for quality (even in the face of domestic innovation policies), and it is a market that is largely owned by foreign firms like CISCO, GE, and NALCO
If the market is of the average consumer, this will obviously re-frame a bit, but buying quality if becoming something important to them, particularly if one considers food, children, and healthcare markets. In these markets, there is a lot of anxiety, and foreign pharma and overseas Organic labels are selling at a premium to the local alternatives.
… and this trend will only continue consumer income increases, awareness of local product safety issues increases, and access to “quality” items increases.
Question 2: Will they pay more
Yes. They already are.
Looking at food alone, you have markets for local organic and imported organic, which both carry a premium.
In areas of education, parents are more likely to pay the 20% premium to send their kids to Disney English, than to the even the best nationally branded schools, and there are parents who are (currently) willing to spend the 20% premium to send their kids to the nationally branded English schools than to a local English school
.. and in the area of healthcare, Shanghai and Beijing hospitals have up to 50% “waidi” patients who have opted not to visit local/ provincial options. They are seeking the best in care, and are willing to pay (above and below the table) what it takes. Even if that means selling land.
Question 3: What will be top of mind for them
Depends on category, but product safety will be one of the biggest drivers for consumers to seek out, and remain loyal to, a product. However performance and durability will also be at the top of the list. There will be a point where consumers locally understand that there are some products whose short term savings will have a much higher long term cost due to their design, materials, etc, and these consumers will begin moving towards quality in that regard as well (even at a premium) so as to reduce their own time suck.
Question 4: How should companies be thinking to cater their offerings towards these needs
Companies that succeed will be the ones that understand the undercurrents the best. A lot of firms who have entered China do so without considering the big picture. They have researched a specific market, or group of people, in a vacuum environment without considering the what ifs, and a year later they are shuttering operations (or hemorrhaging cash keeping it on life support)
Entering the market doesn’t just require a good product, it also requires good technical support (for the development of future products) and after sales service (for when things go wrong), and anyone who is operating a model without either is either going to burn out quickly or have a pack of angry consumers banging on their door. Either way, they are not developing a loyal consumer base.