Marketing to the Middle Classes - China - June 2013

INTRODUCTION
In this report we answer the key questions
 DEFINING THE MIDDLE CLASS
 CONSUMER RESEARCH
Abbreviations
EXECUTIVE SUMMARY
 KEY ISSUES
The impact of regional development on the Chinese middle class
Attitudinal differences across key middle class segments
Balancing financial security and material wealth
Adapting Western lifestyles in the home, leisure and entertainment and social dining
Figure 1: Discretionary spending on household items, by target groups, March 2013
Figure 2: Discretionary spending on dining out, by target groups, March 2013
Polarisation of middle class consumption – tightening belts on the “nice-to-have” luxuries
“LOHAS”: promoting health and sustainability
What we think
THE EMERGING MIDDLE CLASS
Key points
Chinese middle class on the rise
Figure 3: The growth of china’s middle class, 2000-15
Increasing average incomes and a high savings rate
Figure 4: Growth rate of incomes and expenditure of urban households, by region, 2009-11
High savings rates in China…
The incentive to reduce the savings ratio
Figure 5: Changes in lifestyle habits – “I put more money into savings”, by monthly personal income, February 2013
Home ownership on the rise
Figure 6: Type of primary residence, April 2012
Middle class consumers prioritise clearing their mortgage
Figure 7: Middle class housing situation, March 2013
Increasing car ownership
Figure 8: Middle class car ownership and plan to purchase of cars, March 2013
Multinational and local private companies are lifting consumers into the middle class
Figure 9: Employment status, March 2013
KEY ISSUE: THE IMPACT OF REGIONAL DEVELOPMENT ON THE CHINESE MIDDLE CLASS
Issues at a glance
Economic growth in Central and Western region drives middle class growth
Figure 10: GDP and growth rate in Eastern region, 2012
The Northeast starts to shine
Figure 11: GDP and growth rate in Northeast region, 2012
Henan leads the way in Central China
Figure 12: GDP and growth rate in Central region, 2012
“Go West” initiative attempts to boost growth in Western China
Figure 13: GDP and growth rate in Western region, 2012
What it means
KEY ISSUE: ATTITUDINAL DIFFERENCES ACROSS KEY MIDDLE CLASS SEGMENTS
Issues at a glance
Psychographic and demographic profile of China’s middle class consumers
Figure 14: Consumer segments amongst the middle class consumers, March 2013
Progressive affluent spenders
Trendy-aspirers
Value-led buyers
Conservative spenders
What it means
KEY ISSUE: BALANCING FINANCIAL SECURITY AND MATERIAL WEALTH
Issues at a glance
Regardless of personality type, the middle class share several key traits
Financial products for today and for the future: to enjoy and to safeguard
Figure 15: Factors that lead to a happy life, March 2013
A desire to plan for the future shapes the middle class’s priorities
Figure 16: Current financial situation, March 2013
Emotional needs must be balanced against financial security
Figure 17: Proportion of cash that spend on different expenditure items, by household income, 2011
Opportunity to offer variety of insurance plans to customise according to middle class’s lifestyle risks
Figure 18: Insurance in China, by value, 2009-11
Figure 19: Investment/planned investment for future security, October 2012
Middle class investing in their children’s education
Figure 20: Type of children’s education, April 2012
Multigenerational support for education costs
Figure 21: Financial impact of children's education, April 2012
A need to understand that education is an obligation, not just an option
Figure 22: Examples of education planning products offered by HSBC, June 2013
Consumer finance sets off along with the growth of the middle class
Poor customer service is holding the market back
Credit card rewards can potentially benefit different middle class profiles
Figure 23: Credit card ownership, April 2012
What it means
KEY ISSUE: BALANCING WESTERN CULTURE AND LOCAL ACCEPTABILITY
Issues at a glance
The influence of Western culture and “face”
Figure 24: Any agreement with shopping habits, March 2013
Cross-cultural differences in brand associations
Middle class’s demand for “Westernised” housing and home environment
Figure 25: Monthly expenditure on household and electrical items, March 2013
A hunt for high-quality products
Figure 26: Discretionary spending on household items, by target groups, March 2013
IKEA successfully targets the middle class’s home living aspirations – Western, contemporary, innovative and price
The lessons to be learned from IKEA’s Western competitors
Promoting Western and international dining experiences
Figure 27: Discretionary spending on dining out, by target groups, March 2013
Figure 28: Agreement with attitudes towards full-service restaurants, by income, August 2012
Figure 29: Monthly expenditure, by target groups, March 2013
Foreign foodservice outlets’ geographic expansion strategies to attract more potential middle classes
Changing restaurant formats to appeal to more sophisticated tastes
Foreign foodservice outlets offer exceptional experiences
A chance to expand Western-style social dining into lower tier cities
What it means
KEY ISSUE: POLARISATION OF MIDDLE CLASS CONSUMPTION CREATES LARGE MARKET GAP FOR MID-LEVEL BRANDS
Issues at a glance
Some are spending but financial insecurity and price sensitivity barrier to greater consumption
Figure 30: Changes in financial situation over the previous year, by target groups, March 2013
Figure 31: Discretionary spending, by target groups, March 2013
Figure 32: Agree with shopping habits “I am happy to pay a high price to have the latest gadgets”, by target groups, March 2013
Figure 33: Father's/ Mother's working background, April 2012
The battle between conformity and individualism
Financial insecurity intensifies the need to project status
Figure 34: Agreement with shopping habits, by target groups, March 2013
Balancing quality, price and branding and still standing out from the crowd
Figure 35: Any agreement with shopping habits, by target groups, March 2013
Figure 36: Agreement with shopping habits, by target groups, March 2013
Growing demand for small luxury and “masstige” brands
Figure 37: Any agreement with shopping habits, by target groups, March 2013
Fast fashion finds a foothold amongst the middle class
Some international brands are struggling to find a place in the mid-market
Middle ground brands to fill a market void
Local companies are starting to build stronger brands
Chinese brands can appeal to international customers as well as the domestic middle class
What it means
KEY ISSUE: LOHAS: HEALTH AND SUSTAINABILITY
Issues at a glance
Middle class more concerned about health and lifestyle
Figure 38: Agree with descriptions of healthy lifestyle, by monthly personal income, November 2012
Busy urban lifestyles make the concept of slow living popular
Figure 39: Factors that lead to a happy life, by target groups, March 2013
LOHAS – emerging awareness of healthy lifestyles
LOHAS concept food and beverage and dining to target the middle classes
Bringing the LOHAS concept into the restaurant sector
Eco-tourism: Middle class looking to get back to nature
Eco-resorts start to gain traction in China
Moving towards eco-living in the future
What it means
APPENDIX – CURRENT FINANCIAL SITUATION
Figure 40: Current financial situation, March 2013
Figure 41: Current financial situation, by most popular factors that lead to a happy life, March 2013
Figure 42: Current financial situation, by next most popular factors that lead to a happy life, March 2013
Figure 43: Current financial situation, by most popular discretionary spending, March 2013
Figure 44: Current financial situation, by next most popular discretionary spending, March 2013
Figure 45: Current financial situation, by other discretionary spending, March 2013
APPENDIX – CHANGES IN FINANCIAL SITUATION
Figure 46: Changes in financial situation, March 2013
Figure 47: Changes in financial situation, by most popular factors that lead to a happy life, March 2013
Figure 48: Changes in financial situation, by next most popular factors that lead to a happy life, March 2013
Figure 49: Changes in financial situation, by most popular discretionary spending, March 2013
Figure 50: Changes in financial situation, by next most popular discretionary spending, March 2013
Figure 51: Changes in financial situation, by other discretionary spending, March 2013
Figure 52: Changes in financial situation, by demographics, March 2013
APPENDIX – FACTORS THAT LEAD TO A HAPPY LIFE
Figure 53: Factors that lead to a happy life, March 2013
Figure 54: Most popular factors that lead to a happy life, by demographics, March 2013
Figure 55: Next most popular factors that lead to a happy life, by demographics, March 2013
APPENDIX – MONTHLY EXPENDITURE
Figure 56: Monthly expenditure, March 2013
Figure 57: Monthly expenditure, by current financial situation, March 2013
Figure 58: Monthly expenditure, by changes in financial situation, March 2013
Figure 59: Most popular have done in the last three months expenditure, by demographics, March 2013
Figure 60: Next most popular have done in the last three months expenditure, by demographics, March 2013
Figure 61: Most popular plan to do in the next three months expenditure, by demographics, March 2013
Figure 62: Next most popular plan to do in the next three months expenditure, by demographics, March 2013
Figure 63: Monthly expenditure – neither, by demographics, March 2013
APPENDIX – REPERTOIRE ANALYSIS
Figure 64: Repertoire of monthly expenditure have done in the last three months, March 2013
Figure 65: Current financial situation, by repertoire of monthly expenditure have done in the last three months, March 2013
Figure 66: Changes in financial situation, by repertoire of monthly expenditure have done in the last three months, March 2013
Figure 67: Monthly expenditure have done in the last three months, by repertoire of monthly expenditure have done in the last three months, March 2013
Figure 68: Repertoire of monthly expenditure plan to do in the next three months, March 2013
Figure 69: Current financial situation, by repertoire of monthly expenditure plan to do in the next three months, March 2013
Figure 70: Changes in financial situation, by repertoire of monthly expenditure plan to do in the next three months, March 2013
Figure 71: Monthly expenditure plan to do in the next three months, by repertoire of monthly expenditure plan to do in the next three months, March 2013
Figure 72: Repertoire of monthly expenditure have done in the last three months, by demographics, March 2013
APPENDIX – DISCRETIONARY SPENDING
Figure 73: Discretionary spending, March 2013
Figure 74: Most popular discretionary spending, by demographics, March 2013
Figure 75: Next most popular discretionary spending, by demographics, March 2013
Figure 76: Other discretionary spending, by demographics, March 2013
APPENDIX – SHOPPING HABITS
Figure 77: Shopping habits, March 2013
Figure 78: Any agreement with shopping habits, by current financial situation, March 2013
Figure 79: Any agreement with shopping habits, by changes in financial situation, March 2013
APPENDIX – CLUSTER ANALYSIS
Figure 80: Target groups, March 2013
Figure 81: Current financial situation, by target groups, March 2013
Figure 82: Changes in financial situation, by target groups, March 2013
Figure 83: Factors that lead to a happy life, by target groups, March 2013
Figure 84: Monthly expenditure, by target groups, March 2013
Figure 85: Discretionary spending, by target groups, March 2013
Figure 86: Any agreement with shopping habits, by target groups, March 2013
Figure 87: Target groups, by demographics, March 2013