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How to cash in on consumer boom

By Zhou Yan (China Daily)
Updated: 2008-10-24 11:07

Higher living standards and increased choices have fostered an appetite for premium products among affluent Chinese consumers, according to the latest survey from management consulting firm McKinsey & Company.

It found that 15 percent of consumers are willing to pay at least 60 percent more for high-end consumer electronics products, and up to 300 percent more for personal care products. Consumers with a monthly income above 5,000 yuan tend to be more willing to pay a premium, the report showed.

"We've noticed the emergence of an upper-middle class which has higher demands regarding goods and services," said Chen Yougang, principal at McKinsey. "Chinese consumers are getting more sophisticated and confident."

McKinsey interviewed 5,000 to 6,000 consumers for the report, representing 90 percent of China's GDP, 80 percent of its disposable income and 60 percent of its population across city tiers.

The company forecast that these high earners would account for one-third of all urban consumers and half the value of all consumption by 2015.

However, multinational companies targeting mass-market consumers will come under pressure from a wave of more sophisticated and aggressive domestic firms. As most multinationals traditionally focus on high-end consumers, they have struggled to translate their products into offerings suitable for the mass market, and consequently have found it hard to gain a foothold.

The good news is that both groups can capitalize on this emerging premium pricing opportunity by building a mixed portfolio of products.

"China still represents a gold mine for companies wanting to look for growth opportunities, but competition in China is becoming more and more intense," said Max Magni, principal and head of McKinsey's consumer practice in Greater China.

McKinsey noted that the gap between average and premium prices is widening, and if this trend continues, it will lead to the polarized consumption patterns familiar in the West.

In addition, it's not only the wealthy who are willing to pay more. Premium products also attract younger consumers. According to the company's statistics, one-third of 18 to 24 year-olds claim they "always pay a premium for the most expensive and best product". On average, they are willing to pay 1.4 times their monthly income to get the most up-to-date mobile phone.

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