By Liane Fong
Editor, Hill & Knowlton China

While a rising economic tide in China is lifting hundreds of millions of households into a consumer class with increasing disposable income, separate currents of interests and needs are also pushing them towards different directions. Chinese consumers are not only wealthier than before, they are also more interested in personal happiness, younger, increasingly online and in places you may have never heard of. Brands entering these waters must see past China as a homogenous consumer and recognize it as a nuanced market with complicated and diverse driving forces.

No article on China is complete without references to staggering economic statistics and frenzied predictions of growth. However, this optimism tends to focus on the changing cityscape of Shanghai or the humming activity of Guangzhou and often neglects China’s emerging engines of growth - second and third-tier cities.

China’s middle class is growing and spending. With the average disposable income of consumers in cities such as Chengdu (pop. 11 million) and Wuhan (8 million) increasing 15% per year, these cities are emerging as prime locations to catch the elusive Chinese consumer on the ground floor. Cheaper retail rents, an ambitious labor force and brand-conscious consumers who are less fickle than their larger-city contemporaries present a lucrative opportunity for brands looking beyond the borders of major Chinese markets.

Compared to other developed markets, the face of consumers in China is unusually young. Chinese baby-boomers born after 1978 into a more prosperous and stable economic climate than their parents follow an optimistic consumption pattern far different than the previous generation.

Dotted with ambitious white-collar workers whose incomes rise steadily each year, this generation is less likely to save, more likely to borrow and is the driving force behind new consumer trends such as e-commerce. While the cautious older generation is still saving around 40% of their income, much of consumer spending is now being led by a younger generation that is willing to buy on credit and shop online.

According to a recent Gallup Poll, over the past decade, Chinese workers have progressively begun to value personal happiness and self-satisfaction over getting rich. Many young consumers are increasingly self-reflexive, purposefully individual and are looking to express themselves with brands that reflect their desire to be unique.

However, although many Chinese youth front a punk rock aesthetic or colourful hip-hop fashions, they do not necessarily fully embrace the rebellious attitudes that accompany those trends. Brands that overstress rebellion in their marketing risk alienating Chinese youth, many of whom still adhere to traditional Chinese family values.

While the loosening of the pockets of the younger generation bodes well for brands in China, it also signifies an attitudinal direction towards spending that may unsettle the future financial stability of Chinese citizens. China’s shrinking social net guided the high savings rate of a generation carefully hoarding for the education of their children, retirement and costly medical emergencies; a balance that could be unsettled by an overly optimistic generation buying on credit.

The popularity of the internet in China, which currently stands at 135 million users, supports a large number of increasingly savvy consumers. The amount of blogging and bbs posting on China’s internet community already outstrips that of western countries and is fueling internet word of mouth in China. Users have more access to information on brands than ever before and are open to the influence of their peers around the country.

Brands must meet them on their terrain in order to build buzz and keep netizens engaged. Companies in China are spending upwards of 30% of their marketing budget to expand their presence in the virtual world.

Consumer-to-consumer dialogue on the web also allows companies to monitor the trickle-up effect driving word of mouth and trends to fine-tune their products or campaigns. When bbs and blogs lit up with criticism against Volkswagen ads on subway cars that audiences considered insulting to subway riders, Volkswagen’s keen attention to the online community enabled them to quickly pull the ads before the dissatisfaction could spread.

Brands trying to build up a loyal base in China have already learned that Chinese consumers, continuously courted with a growing choice of brands, have become a fickle bunch. Consumers brand-hop and make up their minds at the counter, increasing the necessity of point-of-sale initiatives and increased brand support post-launch. Some companies have also tried to overcome this market fragmentation by building their brand image to connect with status and to create trust - an important move in a market over-run with counterfeits. Companies such as P&G, Haier and Lenovo target campaigns to bring the corporate brand to the forefront over the product brand to create a stronger association for consumers.

Consumers are driving significant economic, social and environmental change in China. In April 2006, the central government adjusted its consumption tax for the first time in 12 years. Using additional taxes imposed on luxury goods such as golf balls and yachts as well as taxes on disposable chopsticks and energy in-efficient cars, the government hopes to guide the social and ecological effects of the changing consumer class while promoting the growth of the economy.

As the global community continues to heap great expectations on the strength of Chinese consumers, both the government and brands must keep pace with their fragmenting interests and trends. While the government continues to strive for a delicate balance of increased consumption and social stability, companies must pay attention to where their customers are heading, both in regards to geography and interests. Companies that cannot keep pace with this rising tide will learn all too quickly that they are just treading water.