By US-China Investment News contributor Mark Tanner
Next week sees the Year of the Rooster end as we embrace the Dog for the next 12 lunar cycles. Chinese regard the dog as an auspicious animal, one that is loyal and honest much like the wolfhound companion of the Chinese god Erlang. If a dog happens to come to a house, it symbolizes the coming of fortune. Yet anyone who has spent time in China will know that finding fortune takes a little more than a visit from a pooch.
Many of the trends we forecasted last year are still very relevant to finding fortune in China, but rather than repeating these, here’s a roundup of the 10 new trends that China Skinny expects to be the most relevant for brands and marketers in the Year of the Dog ahead:
1. Convenience 2.0
Convenience stores have long been among the fastest growing retail channels in China due to urbanites lives becoming increasingly busier. Convenience store grocery sales will grow 13% annually until 2025 according to Bain. Yet for Chinese consumers, expectations of convenience – fāngbiàn – are far greater than popping down to the local mart for a quick snack. With disruptive plays such as ecommerce, mobile payments and food delivery now mainstream in China, brands and retailers who don’t have a convenient end-to-end experience will fast become irrelevant.
Every touchpoint needs to be simple, digitally available and consistent across channels. Product and brand information should be easy to access and find. Avoid painful checkouts and long archaic queues (unless they’re fashionable like cream cheese tea) to appeal to an ever-less-patient Chinese consumer. There isn’t a category that won’t be affected, so we’d recommend a customer journey audit and rethink of marketing and processes.
2. New Retail is a Must-Have
Following on from convenient consumption, New Retail will marry convenience with experience, on the back of big data analysis and established logistics networks. This year is likely to see New Retail shift from a novel concept to the mainstream. Alibaba expects to grow its current 20-odd Hema grocery stores to 2,000 over the next three to five years, in addition to rolling out New Retail across its Intime, RT-Mart, Auchan and Suning chains, and a host of experimental retail such as vending machines selling everything from live hairy crabs to new cars.
Tencent is hard on its heels, with investments and inevitable digital integration with Carrefour, Yonghui, Wanda Plazas, unmanned WeChat stores and 1,000 7Fresh grocery stores in conjunction with JD and Walmart. Walmart and subsidiary Sam’s Club will likely learn from the experience and follow suit. With many of the main players now jumping on the New Retail bus it will become a hygiene factor – those retailers who don’t will be distinctively disadvantaged and less sustainable. It will no longer be a case of whether to incorporate New Retail, but how best to do it.
3. Brand Building More Multi-Dimensional
Branding in China isn’t just about WeChat posts, Youku vids and subway ads; Chinese are expecting brands to take them along for the ride, whether they’re online or offline. Although ecommerce and WeChat have been the buzzwords in China for the past few years (around 57% of China’s ad spend was online last year), 2018 is likely to see more brands offering digitally-integrated offline experiences to differentiate themselves from the increasingly crowded online world. A good example of this is experiential retail – yes it’s all tied in with New Retail above. Examples include Starbucks’ Reserve Roastery, New Balance’s brand experience store and Nestlé’s Hsu Fu Chi ‘taste workshop’. This type of innovation isn’t restricted to consumer brands, expect more B2B-focused initiatives like the training kitchens used by Fonterra and Royal FrieslandCampina, yet with much greater digital engagement.
4. Smart Selection of Lower-Tier Cities
Further to last year’s trend of lower tier cities, brands will not only target the less contested markets in the hinterland, but be much smarter about which cities they focus on. Smaller cities are leading the growth on Alibaba’s ecommerce platforms and have propelled social commerce Pindoudou to become one of the most popular apps in China. This is supported by increasing consumer wealth and sophistication, and improving logistics.
Ecommerce growth is both raising awareness of new products, categories and origins, but also providing deep data that can help determine local and regional preferences. Smart brands will utilise this data, coupled with regionalised trends and local distribution contacts to cherry pick the best cities to target.
5. Premium Digital Content
It wasn’t long ago when Chinese consumers expected everything for free online – fuelled by cashed-up tech firms giving away the crown jewels to acquire customers. The past couple of years has seen consolidation through mergers and acquisitions, maturing business models and tighter policing of IP-theft, leading to an increasingly array of paid-for-services online in China.
In 2017 Chinese spent $35 billion on apps – a 270% increase in two years and 133% more than American’s spent. Platforms like iQiyi, Tencent Video and Youku-Tudou are likely to benefit from the forecasted growth of paid video-on-demand subscribers from 144 million last year to 234 million by 2020 according to JP Morgan. Chinese consumers’ increasing acceptance of paying for digital services will open up many opportunities for smart brands and value-adds.
6. ESports – the Dark Horse
Most people know that China is a nation of gamers, but many aren’t aware of just how massive the eSports segment has become. By some accounts eSports generates more revenue than China’s film industry. Chinese watch over a billion eSport livestreams a month, and in November last year Beijing’s 91,000-capacity Bird’s Nest stadium was a sell-out for the League of Legends final.
Esports has become a legitimate profession in China, with at least 20 universities offering courses to fill the enormous talent gap. Half of the world’s top-10 paid eSports professionals are Chinese, providing Chinese with a legitimate source of national pride that they don’t get from other sports. The addition of eSports as a medal event at the 2022 Asian Games will only reinforce this.
For brands, the growth of eSports will increasingly enable marketing initiatives through livestreams, KOL endorsements, sponsorship, in-game advertising, product placement and even product development to reach the often-elusive Chinese millennial male.
7. Information Partnerships
More brands are realising that they can’t do it alone in a market as fragmented, complex and dynamic as China. Large corporations will sign more partnerships with companies like Alibaba and Tencent such as the recent WeChat and Lego and Alibaba and Ford deals. This won’t just be about tapping into their powerful marketing and sales channels, but gaining knowledge from their enormous deposits of consumer data. In addition, businesses who understand and can translate the market will become increasingly attractive partners for brands seeking to maintain or gain leadership in China.
Whereas more marketing services will become commoditised, brands will be increasingly prepared to invest in smart, differentiated strategies and product development that incorporate a holistic view of the Chinese market, rather than being limited by a segment-specific orientation.
8. Green, Natural, Healthy & Environmentally Friendly
Health has been a big trend for the past few years in China, but consumers’ understanding of health is maturing. Although there is a lot of hype around sustainability, the decision process remains most focused on the personal benefits of ‘green’ products. For example, with food and beverage there is a movement towards natural and unfiddled products with organic credentials enhancing the claims; in furniture it is formaldehyde-free-type considerations for safety of the family; in fashion, natural products are increasingly trumping polyester.
The growing trend towards sustainability is being assisted by Government policy and their media outlets, driven by Xi Jinping’s goal of environmental leadership and pledge to have blue skies in three years.
9. Artificial Intelligence
Artificial Intelligence has increasingly become a topic of conversation over the past few years, but expect it to ramp up a gear in China in 2018. AI is a biggie for China, and one that Beijing is throwing its support behind. The phenomenal use of smartphones online and offline, coupled with increasing surveillance and other initiatives, has seen consumer’s digital footprints wider and deeper than anywhere else in the world. The resulting mountains of data are impractical to manipulate and utilise with anything but AI.
Beijing understands this and has initiated a $2.1 billion AI research park to host 400 businesses in the capital, with hope of producing $7.6 billion in annual output by 2023. Even Xi Jinping has a couple of AI books on his bookshelf. China is better placed than any other country to lead the AI revolution with support from the very top in Beijing, lax attitudes to privacy and incredible amounts of data necessary to feed the AI machine. Motivated, cashed-up tech behemoths and millions of patriotic engineers are also keen to see China lead the world in the field.
The AI-affect is already starting to become more mainstream in China with mobile darling Toutiao using it to provide individual news feeds and Alibaba presenting customised storefronts. Expect more brands to embrace AI to provide consumers with personalised experiences that are relevant and unique to them. It will have an impact on convenience, New Retail and every one of the other trends above.
10. Chinese Not So Free & Easy with Data
Most of the trends above are reliant on one key ingredient – big data. Chinese consumers are among the world’s most liberal with their data which is seeing companies like Alibaba and Tencent feasting on bits and bytes with unbridled gluttony. Here are some of the creepy going-ons. Yet there are signs of consumers’ data generosity waning. Earlier this year, just days after the chairman of Geely Holding Group and Volvo Cars publicly bemoaned the lack of privacy on WeChat, Alibaba’s Ant Financial was forced to apologise to users after a consumer outcry for automatically enrolling some users in its social credit program.
The overt anger represents growing awareness and demand for privacy and data protection. Whilst the Government slapped Alibaba on the wrist for its Ant Financial debacle, Beijing is unlikely to hinder data collection any time soon. It has access every bit of data transmitted within its jurisdiction which acts as an invaluable surveillance tool and also fuels its ambition to lead the world in many ICT categories. As a result of indifferent policy, expect a host of new tools playing to consumers increasing desire to safeguard their data such as this one. Brands should take note that consumers will be increasingly aware of their privacy and are likely to respond positively to those who respect of this.
That’s the 10 big trends we see influencing marketing in China this year. Obviously every trend will effect each industry and category a little differently. Contact China Skinny to find out how your business can best prepare for them. Happy Year of the Dog: hopefully the fortune from the visiting pooch will find you!