Urban Chinese consumers will double their discretionary income by 2020, according to a report by Yuval Atsmon and Max Magni at McKinsey, and that has huge implications for brands.Right now 82 per cent of China’s population consists of consumers who can just cover basic needs, which McKinsey calls “value” consumers, and only 6 per cent are in the tier above that, or “mainstream” consumers. According to the report, by 2020, these numbers will shift dramatically, and the majority of the population will be mainstream.
What does this mean for brands? A few things. First, companies can no longer view China as a single market. Its diverse mix of consumers, all with varying levels of purchasing power, means that “it should be treated almost as a collection of separate countries.”
Targeting the masses will no longer work. According to Atsmon and Magni:
Over the next decade, the game will change to take account of the emergence of different categories of consumers and their own sense of their differences and individuality. Companies will need the crispest value propositions to connect with each group and to stand out from competitors.
By 2020, they will have to position brands (or sub-brands) to target narrower consumer segments and offer more tailored value propositions. Brands extended across too many consumer segments and price points may struggle to defend their market position. Hard though the transition could be, at some point companies that have focused on maximizing their brands’ scale will have to adopt a model based on a portfolio of more targeted brands or sub-brands to connect with different consumer segments.
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