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China’s consumer goods market expanded rapidly over the past two decades primarily because of the growing number of first-time buyers, who were eager to buy goods and services that were previously unavailable or unaffordable. With so many products and services now within people’s reach, though, it’s interesting to identify the new frontiers of growth.That’s a concern for many companies, as a recent McKinsey survey highlights. In 2010, 20% of China’s urban consumers spent more money than they did the previous year because they were first-time buyers; that figure dropped to just 5% in 2011, according to our survey. Almost every city-dweller in China owns a refrigerator and a washing machine today while mobile phones are so ubiquitous that market growth is slowing. Sure, big-ticket products, such as cars, have plenty of headroom, but it’s not clear if companies in other businesses can sustain double-digit growth rates.
Some companies, we believe, can continue to grow by nurturing the demand for novel or unfamiliar products. Fabric conditioners and pure fruit juices were rare in China a few years ago, but about half of all urban households regularly buy both now. Similarly, vitamins and mineral supplements, almost non-existent before America’s Amway launched Nutrilite in the late 1990s, has grown into a $6.5-billion business.
Geographic expansion holds promise too. Many companies can acquire consumers in China’s poorer cities, which the government has targeted for development. For example, 15% of consumers in and around the city of Chengdu said they had started using personal care products only in the past year compared to just 1% in the more developed region around Hangzhou. That’s important for growth; many multinational companies still operate only in a handful of top-tier cities in China.
In fact, making products widely available will continue to be critical for success. Master Kong, a foods-and-beverages company, has set up over 500 sales offices and 100 warehouses in the country. Almost 80% of respondents who were aware of the company’s ready-to-drink tea also bought the product compared to rival brands’ conversion rates of 55%.
In businesses where first time-buying has peaked, growth will come from making consumers buy more expensive products, or by making them purchase more of the same, either by making more frequent purchases or buying in greater quantities. By 2005, over 85% of Chinese consumers had tried drinking milk, so market leader Mengniu changed its slogan from “one cup of milk a day” to “three cups.” It introduced new products such as breakfast milk and goodnight milk as well as premium products that cost twice as much as its regular line. By 2010, its revenues had tripled to around $4.5 billion.
Growth in China will no longer come from a single front, so a monolithic country-level strategy will not suffice tomorrow. Companies must sometimes recruit new consumers; at others, they must persuade existing consumers to trade up or buy more. Marketers must pinpoint the best opportunities at a point of time, so they can prioritise the deployment of limited resources and tailor marketing strategies to the moment.
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