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How to win Chinese consumers

The 2019 Westpac Australia-China Business Sentiment Survey shows how a strong understanding of Chinese consumers’ behaviour is helping Australian businesses succeed in one of the world’s busiest markets.

Australian businesses are benefiting from the increased spending power of China’s growing middle class, but they must work hard to make sure their products and services stand out in the highly-competitive and digitally-savvy market, according to the latest research. It’s imperative for businesses operating in China to understand the behaviour of Chinese consumers and how to get their attention.

These are among the headline findings of the 2019 Westpac Australia-China Business Sentiment Survey which reveals that overall the vast majority of Australian businesses are optimistic about their prospects in China, with 71 per cent taking a positive view of the next 12 months and 82 per cent positive about the coming five years.

While the results are down slightly from last year, this is mostly a result of the trade war between the US and China and a slowing in China’s economic growth weighing on sentiment. A drop in China’s annual GDP growth from 7 per cent to 6 per cent, however, still potentially translates to very strong growth.

As China’s middle class and its disposable income continue to grow – some estimates now put its size at 400 million people – competition for the boom in consumption is also picking up pace.

Whereas in Australia consumers might see two or three brands from the same category on supermarket shelves, in China, there might be 20, with goods from the US, Europe and Australia vying with local products.

In fact, ‘increasing competition’ was the most cited driver of pessimism among this year’s survey respondents, reflecting the surge of offerings from sophisticated domestic enterprises and a rising number of foreign market entrants eager for a slice of the consumer action.

This means brands have to work much harder to attract consumers’ attention, particularly through digital channels, because the Chinese economy is significantly more digitally connected than many other countries’ economies.

Key opinion leaders – known as KOLs – play a particularly important role in endorsing products on Weibo (China’s equivalent of Twitter), WeChat and other platforms. These influencers sway consumer taste and can drive the success of a brand in China.

The power of KOLs is illustrated by Tao Liang, better known as “Mr Bags”, whose 3.5 million followers on Weibo read his ratings of luxury bags from major global brands, including Dior, Fendi and Chloé. This young entrepreneur’s pronouncements can famously make or break a bag launch.

It is equally important for a manufacturer of baby formula, for instance, to be plugged into the digital forums for new mothers, where different formula brands are discussed and rated, driving opinions and in turn, sales.


The need to educate customers

Australian brands also need to be aware of the importance of educating customers in such busy, competitive markets.

For example, Simplot Australia – which cans John West tuna – has found the need to educate Chinese consumers about its uses because of the product’s former unfamiliarity in the market. A case study in the 2019 Australia-China Business Sentiment report outlines the company’s approach.

Simplot has focused its efforts on showing Chinese shoppers how John West seafood products can be integrated into their daily eating habits with minimal disruption. By placing QR codes next to its products in stores, it allows consumers to quickly tap into information on their phones, learn more about the products and how to use them.

David Malone, International Sales and Marketing Manager at Simplot says: “The consumer might not understand the product as they see it on the shelf, but they might find it interesting. They can scan a QR code and watch a video to learn more about it, then and there on the spot. We are very much using digital to engage and also to teach the consumer about how to use our products.”


The rise of New Retail

Nowhere is China’s leadership in digital commerce more apparent than in New Retail.

New Retail aims to remove the distinction between online and offline retail and marketing experiences by combining bricks-and-mortar stores with online commerce. New Retail shifts the ‘product-push’ paradigm to ‘demand-pull’ by focusing first on supporting the personal needs of the consumer.

From there, the outlets are able to provide a tailored and integrated physical and digital shopping experience. Data from one channel informs the way products are marketed through the other channel. Not only is the shopping experience more convenient overall for the customer, but the retailer can also reap the benefit of data-driven efficiencies.

The best example of New Retail is HEMA stores, operated by online marketplace Alibaba, which offer home delivery to customers in under 30 minutes.


Dividends from the free trade deal

The middle class continues to grow in China as the government aims to boost incomes and move the manufacturing sector into higher value products through the Made in China 2025 strategy.

In fact, 74 per cent of Australian businesses in the survey identified ‘domestic consumption growth and the rising middle class’ among the most important current opportunities.

China’s government is trying to drive the domestic economy through consumption and is becoming more relaxed about foreign competition entering the market. It’s now seen as an opportunity to bring in international brands to provide competition for the local brands, which will in turn improve their own offerings and efficiency.

The openness is reflected in Australian businesses’ perceptions about the Chinese policy environment, with 36 per cent saying Chinese government policy has strengthened the business environment and only 24 per cent – down two per cent from last year – saying it has weakened the environment.

The biggest barrier to entry for businesses now is not the government, but more how businesses distribute their products and the amount of competition in their sector.

Most Australian businesses say they have benefited from the free trade deal between Australia and China. Known as CHAFTA, the December 2015 deal provides Australian businesses with better access to China across a range of our key business interests, including goods, services and investment, in sectors including agriculture, resources, manufactured goods and professional services.

Some 26 per cent of Australian businesses say they have directly benefited from CHAFTA and 32 per cent cite indirect benefits.

However, fewer Australian businesses claim they are seeing benefits from the Belt & Road Initiative, which aims to more closely tie the two ends of Eurasia, as well as Africa and Oceania with two trade routes – one overland and one maritime. It is designed to strengthen infrastructure, trade, and investment links between China and some 65 other countries.

Just 39 per cent of Australian businesses surveyed say the Belt & Road Initiative is a positive driver of their China strategy.

Overall, the 2019 Westpac Australia-China Business Sentiment Survey reveals that Australian businesses remain upbeat about their prospects in China and ready to keep benefiting from the ongoing rise of the middle class.

Read the full 2019 Westpac Australia-China Business Sentiment Survey report.

Source: Westpac Banking

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