By Julia Wieczorek —
A new generation of consumers is an emerging force driving market trends in China. Chinese consumers born between 1980 and 2010, known as the “young generation,” purchased $1.5 trillion worth of goods in 2016, a sharp increase from $700 billion in 2011. The burgeoning spending habits and consumer influence of the young generation is compelling Chinese firms to develop new and competitive ways to sell their products and many U.S. firms are struggling to reach this crucial segment of China’s market.
The young generation is using their rising expendable incomes on “lifestyle” products such as consumer electronics and fashion, whereas previous generations tended to save rather than spend. According to McKinsey, China’s young generation will account for over 20 percent of total spending growth in China from 2017 to 2030.
To tap into these emerging consumers, Chinese firms are exploring new marketing techniques. China’s young generation makes up 92 percent of the country’s internet users; of that population, 90 percent own smartphones. With most of the under-30 crowd having smartphones constantly at their fingertips, e-commerce is becoming a significant avenue for consumption. Mobile e-commerce already makes up the largest share of online purchases in China as of 2015, reaching 51 percent of total online consumption. Analysis from the Boston Consulting Group shows that e-commerce is expected to account for 42 percent of China’s total consumption growth in 2020, driven largely by the habits of China’s young generation. A survey from KPMG found that 88 percent of young Chinese respondents shop online more than once a week.
The young generation’s demand for digital retail services has contributed to the rise of China’s e-commerce giants. Both Alibaba and Tencent were included on the list of global Fortune 500 companies in 2017. JD, an e-commerce firm partially owned by Tencent, made up over half of China’s mobile e-commerce market shares in April 2018. On Singles’ Day, China’s major online shopping holiday, total sales reached $17.8 billion in 2016 with the young generation comprising three-fourths of total shoppers.
Smartphone usage has also led to the development of new mobile apps targeted at younger customers. According to a report by Business Insider, China is the top country for consumer app downloads, accounting for over 38 percent of global app purchases in 2017, or $33 million. Although the primary apps downloaded are used for social media and communication, apps that cater to the e-commerce demand of young consumers, such as the mobile shopping apps Taobao and Pinduoduo, have become popular downloads.
Brands have also turned to social media for marketing. TikTok is a major video-sharing platform among China’s youth and has become the linchpin of various firms’ marketing strategies. Boasting 32.5 million daily users by February 2018, the app is used by popular brands such as Michael Kors and the Chinese cell-phone company OPPO to attract young consumers.
A similar trend exists in the United States with apps like Musical.ly and Snapchat, which have demonstrated marketing success for brands like Disney and Coca-Cola. However, these apps haven’t been able to break into the Chinese market. Snapchat is censored by the Chinese government, and Musical.ly was bought out by TikTok in an $800 million acquisition in 2017.
The spending practices of the young generation are greatly influenced by the endorsements of key opinion leaders, or KOLs. Through online platforms including WeChat and Weibo, KOLs use their influence to promote brands to their young fanbases.
One of China’s most famous KOLs, fashion blogger Becky Li, has over 3 million followers on Weibo and 4.5 million on WeChat. Another KOL, actor and singer Lu Han, starred in Louis Vuitton’s Chinese smartwatch marketing campaign. Consumer influence by KOLs is not unique to China; 49 percent of consumers in the United States reported that they relied on “celebrity influencers” before purchasing products in 2017.
China’s young generation is not only fueling overall consumption growth, but also the demand for domestic brands. Despite the high propensity for young Chinese to have traveled abroad or received post-secondary education overseas (801,000 students in 2016), products from Chinese firms are still the most likely to attract young consumer interest. Tencent found that among Chinese citizens born between 2000 and 2010, over half expressed more interest in buying products and services from Chinese firms rather than comparable foreign firms. A survey from Kantar Worldpanel and Bain shows that sales in China from domestic brands rose by 8 percent from 2016 to 2017, compared to an only 1.5 percent increase for foreign brands. Yet for some trendy products, such as sportswear, foreign brands still take the lead. RTG Consulting reports that sportswear from Nike and Adidas were some of the most popular purchases among China’s young generation in 2016.
In many cases, China’s young generation is shaping market trends and consumer interest by entering the market themselves as entrepreneurs, particularly in the internet and e-commerce sectors. According to a 2015 study from Tsinghua University’s National Entrepreneurship Research Center, of those born between 1970 and 2000, most entrepreneurs were between the ages of 25 and 35.
Despite the increasingly global purchasing power of China’s young generation, foreign companies still face challenges in accessing and advertising to the consumer base. Even with the large and growing internet penetration of China’s young consumers, foreign social media such as Google, Facebook, and Twitter are still censored in China. As a result, many advertisements posted on such platforms do not reach young Chinese consumers, opening the door further for domestic Chinese firms to take advantage of young consumer demand. The impact of tit-for-tat tariffs between the United States and China is also a budding challenge for U.S. companies’ competition in the Chinese market. U.S. firms popular among China’s youth, such as Starbucks, have seen sales slow as trade tensions rise, allowing local Chinese firms to thrive.
The trajectory of China’s market trends is likely to continue to be shaped by the young generation, as the spending capacity of the young generation is projected to rise to $2.6 trillion by 2021. For a generation that values convenience and reliability when shopping, as shown by the use of mobile e-commerce and the influence of KOLs, prominent Western brands are becoming out of touch with the rising demand and preferences of China’s young consumers. Amid intensifying challenges, foreign firms will need to develop new ways to reach this influential group of consumers or risk failing to compete against China’s domestic firms entirely.