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The Study: China’s Generational Gap Strikes Again
Chinese consumers’ love for luxury brands became widely known in the last decade. So much so that France has now launched a Visa specifically designed for Chinese shoppers. It is a way to show status in a country where “showing off” is an integral part of the culture.
In a recent study, OMD China interviewed 2500 people from 1st to 4th-tier cities and they came up with some pretty interesting results concerning the youngest generation of consumers in the Middle Kingdom. First of all it comes as no surprise that health is still the number one factor (across the board) when it comes to deriving happiness.
After this universal factor the generations start to drift apart. 37% of the respondents born post-90’s define money as their main source of happiness, against 43% for the older generations. This trend was most pronounced within the urban areas of the first and second-tier cities. Which indicates that the gap is not only generational, but also geo-local.
The Geographical Gap: We Want What We Don’t Have
It is a mistake to talk about the “Chinese Market” as a whole. In truth it is much more relevant to describe China as a cluster of smaller markets. That is why big cities are sorted into tiers. Shanghai and Beijing as the richest are considered “Tier 1” while less developed ones will be further down the scale. These inequalities across provinces are the result of the policies in the early years of China’s opening to world trade, which made the coastal areas the main focus of economic development.
Today however, rising salary and higher real estate prices are making top-tier cities too expensive for many industries. Leading them to relocate in neighbouring, more cost-effective provinces. This was also made possible by the Chinese government’s huge investment in infrastructure with many new highways, railways, and airports built. China is now more connected than ever before.
The main benefactors of this trend are the provinces seeing companies coming to them. Their population gets richer as a result and starts to aspire to the same level of wealth the first-tier cities enjoy. The lower tier cities represent a potential market of 800 million people. It is a given that they will not all be able to purchase high-end luxury goods. However, the middle and upper-middle class are rapidly growing there and are also a good target for the industries with a medium price ranges. Mass market smartphones such as Xiaomei are incredibly popular because of their cheaper price in these cities. Apple have even launched a competitive, cheaper model to try and increase their share in this market.
Bottom Line: Is this trend bad for business?
Short answer: No. If you are in the luxury industry do not burn the shop for the insurance money quite yet. The need to “show-off” in China is here to stay. Showing status and keeping “Face” will always be of the utmost importance for Chinese consumers.
However, the cultural and economic environment is changing, becoming more refined and diverse as the market evolves. Listen closely to your consumers, especially the younger ones as they are the key for future growth. Provide them with an experience that they can share, an experience that ties into their lifestyle and which they aspire to. Moreover, be cautious of the “One country, One strategy” approach, as cultural, economic and language disparities are evident across China.