2009年度中国消费者调查报告 (二)

McKinsey Asia Consumer and Retail

2009 Annual Chinese Consumer Study

Part II: One Country, Many Markets – Targeting the Chinese Consumer with McKinsey ClusterMap

McKinsey Insights China

September 2009

2009 Annual Chinese Consumer StudyPart II: One Country, Many Markets – Targeting the Chinese Consumer with McKinsey ClusterMap

McKinsey Asia Consumer and Retail


Yuval AtsmonJennifer DingVinay DixitGlenn LeibowitzMax MagniDaniel Zipser

The authors wish to thank Derek Chang, Alice Zhang, Rachel Zheng, and Cherie Zhang for their contributions to this report.

4

This is the second in

a series of reports on

Chinese consumers

by McKinsey

Insights China

Contents

Executive summary 6

McKinsey ClusterMap –

From city tiers to city clusters 8

Crafting a cluster-based strategy 14

About the study 21

5

6

By many accounts, the southern Chinese cities of Guangzhou and Shenzhen would appear to have a lot in common. Each ranks among the 4 wealthiest cities in China. Each has the population the size of a small European nation. And each churns out exports that feed the world’s demand for low-cost goods. Yet, these two cities, located in the same province and separated by just a three-hour car drive, are about as different in demographic profile, language, and consumer preference as France is to, say, Germany. Four-fifths of Shenzhen’s residents are migrant workers, mostly under the age of 35, who speak Mandarin to communicate across their local dialects, and prefer to drink in bars. In nearby Guangzhou, just

over a quarter of the population is

migrants, more people are older,

speak primarily Cantonese, and

enjoy going out to restaurants to

drink with family members.

While few companies would apply

the same strategy in France as

they do in Germany, this is in fact

what many companies appear to

be doing in China today. In the

past, companies could overlook the

distinctions between consumers

in China’s hundreds of cities

because they were focused on

establishing a foothold in China.

Or, they were chasing scale in the

biggest markets, which generally

meant tier 1 cities such as Beijing

and Shanghai, and the larger of

the tier 2 cities such as Nanjing.

Executive summary

McKinsey Insights China 2009 Annual Chinese Consumer Study: Part II 7

1 “Preparing for China’s Urban Billion”, McKinsey Global Institute

2 McKinsey has been conducting the Annual Chinese Consumer Study since 2005. This year’s study covered 15,000 respondents across 58 cities. For more details please visit McKinsey Insights China website at http://insightschina.bymckinsey.com

Yet, many companies continue to invest in the large, growing markets of yesterday, while overlooking the smaller but faster growing markets of tomorrow. Others are waking up to find that they’ve spread themselves too thin, and are failing to establish sustainable competitive positions in the handful of markets that really matter to their business.

The vast size of the Chinese market and the varying pace of growth makes prioritization a must: of China’s more than 800 cities, 200 have a population of over a million each (versus just 35 in all of Europe).1 Hundreds more cities have populations in the hundreds of thousands. Year after year of torrid economic growth means that yesterday’s smaller markets are now considerably bigger and still growing fast, while competition in the larger strongholds is more intense than ever.

Our work with companies in China, as well as our recent research on the Chinese consumer2, suggest a far more impactful and cost-effective approach to crafting business strategies than managing China

city by city, as many companies continue to do today. Rather than view China through the simple lens of city tier or region, companies should instead organize China’s 800 cities into two dozen or more city clusters as defined by the McKinsey ClusterMap. These clusters - consisting of as few as 2 and as many as roughly 70 neighboring cities - are defined not only by income and geographic location, but also by economic linkages and trade flows between cities, as well as common consumer attitudes and preferences.

Utilizing the McKinsey ClusterMap approach allows companies to define their strategic aspirations, prioritize resources, and track performance at a level that is far more practical and cost efficient than managing their business at the city level. By grouping cities in this way, companies can leverage synergies in salesforces, distribution channels, supply chain, and marketing across a wider geographic scope than by managing on a single city basis, and at a far more granular level of detail than by carving China up into large geographic regions.

8

Recognizing the limitations of sorting China’s cities into tiers or broad geographic regions, as most companies do today, we employed in our study a very different approach to segmenting the Chinese market, what we call the McKinsey ClusterMap. We divided China into twenty-two city clusters: groups of cities that are developing around one or two large hub cities. To ensure that the clusters are actionable and relevant to companies, spoke cities are located within 300 kilometers of one of the hub cities, and the total GDP of any individual cluster exceeds 1 percent of China’s total urban GDP (Exhibit 1).

Nanchang

Nanning

Kunming

Guanzhong

Shanghai

Central

Chengdu

Nanjing

Hangzhou

Liao central south

Shandong byland

Guangzhou

Changchun-Haerbin

Huhehaote

Taiyuan

Jingjinji

Hefei

Shenzhen

Xiamen-Fuzhou

Chongqing

Yangzi mid-lower

Chanzhutan

Exhibit 1: We divided China into 22 clusters representing ~92% of urban GDP in 2015

McKinsey ClusterMap – From city tiers to city clusters

Source: McKinsey Insights China – Consumer Survey (2009); McKinsey analysis

1 Macroeconomic, demographics and consumption data are updated twice yearly to account for rapid changing conditions in China


Nanchang

Nanning

Kunming

Guanzhong

Shanghai

Central

Chengdu

Nanjing

Hangzhou

Liao central south

Shandong byland

Guangzhou

Changchun-Haerbin

Huhehaote

Taiyuan

Jingjinji

Hefei

Shenzhen

Xiamen-Fuzhou

Chongqing

Yangzi mid-lower

Chanzhutan

AS OF JUNE 20091

Jingjinji (37)Shanghai (19)Shandong byland (67)Hangzhou (38)Guangzhou (24)Nanjing (27)Shenzhen (2)

Mega clusters10.8% | 7.9%10.8% | 6.2%9.0% | 2.1%6.7% | 1.6%6.6% | 2.6%4.8% | 1.8%4.3% | 2.9%

Liao central south (30)Xiamen-Fuzhou (42)Yangzi mid-lower (42)Central (40)Changchun-Haerbin (36)Chengdu (29)Hefei (29)Changzhutan (28)Guanzhong (15)Chongqing (6)

Large clusters4.3% | 2.4%4.2% | 1.4%4.0% | 1.8%3.8% | 0.7%3.6% | 1.6%3.2% | 1.6%2.8% | 0.8%2.2% | 0.8%1.9% | 1.2%1.8% | 1.5%

Nanning (28)Nanchang (22)Taiyuan (19)Huhehaote (10)Kunming (16)

Small clusters1.8% | 0.3%1.7% | 0.6%1.4% | 0.5%1.3% | 0.4%1.1% | 0.5%

Cluster name (# of cities)

Cluster GDP

Hub cityGDP

10

The McKinsey ClusterMap covers a total of 606 of China’s 815 cities, holding 82 percent of China’s total urban population, and comprising 92 percent of projected urban GDP by 2015. Of the 22 clusters, we classified 7 as “mega”, with populations ranging from 19 million to 55 million people, and each comprising as much as 5 to 12 percent of total urban GDP in 2008. An additional 10 clusters we called “large”, with populations of 13 million to 39 million.

The actual number of clusters that a company may identify will vary. Some companies may decide to combine clusters because of opportunities to reap scale economies in distribution, or because media viewing habits and preferences for media channels are consistent across those clusters. Some companies may choose to divide some clusters into two or more clusters because the differences within a given cluster in say, competitive dynamics or consumer behavior, are substantial enough to merit different strategies.

In mapping out the clusters, we analyzed China’s 815 cities3 along four dimensions: industry composition, government policies, demographic characteristics, and consumer preferences.

Industry composition In plotting China’s city clusters, we looked at industry structure - an economy’s orientation towards services, manufacturing, or agriculture – as well as the integration of economic activity and trade flows between cities within a cluster. Industry structure and economic linkages shape the demographic break-down, income levels, and, ultimately, consumer preferences and behavior within city clusters.

The formation of end-to-end industry value chains is one factor that reinforces the integration of economic activity within clusters. For example, the presence in Shanghai of SAIC, China’s largest domestic automobile manufacturer, and its successful joint venture with GM, has led to the formation of a comprehensive network of auto parts suppliers in the suburbs and cities surrounding Shanghai, earning the city the moniker “the Detroit of China.”

Another factor promoting tighter economic ties between cities within a cluster is the distribution of certain business activities between cities. For example, many high tech companies have set up their administrative operations in Shanghai, while locating manufacturing in a neighboring city or economic zone such as Kunshan or Zhangjiang High-Tech Park.

10

3 This number includes around 200 additional unofficial cities that “behaved” like cities ac-cording to government criteria that prevailed in 1996 but which the government did not designate as such. For more information, see “Preparing for China’s Urban Billion”, McKinsey Global Institute.


Government policyIn China, the influence of government can be felt strongly in its approach to urban development. In recent decades, a mix of industrial, economic and population policies devised at the central, provincial and city government levels have catalyzed the formation of city clusters. Since 1989, the Chinese government has announced several policies that have encouraged tighter economic collaboration between large cities, and between large cities and smaller ones. Some of these policies were designed to ensure that smaller cities benefit from the flow of talent and investment that larger cities nearby are attracting, and to balance economic development and ease population pressures.

In its 11th Five-year Plan in 2005, for example, China’s State Council identified eleven regional city clusters with the aim of driving economic growth, strengthening transportation linkages, and influencing patterns of migration. Cross-city infrastructure and development projects have also reinforced economic and transportation linkages between cities.

Other policies are targeted at specific regions, and have very specific purposes, such as those aimed at transforming Inner Mongolia into the “dairy capital of Asia”. As the industry structure gradually shifts

towards an economy mostly driven

by, say, producing and trading milk

and dairy products, people will be

drawn to the jobs in that sector, will

earn comparable levels of income,

and will likely develop similarities in

preferences and attitudes.

DemographicsThe share of local residents versus

migrants, age break-down, income

levels, and household savings rates

are key demographic variables that

we used to define city clusters.

Massive waves of migrants from the

countryside are rapidly remolding

the contours of China’s urban

landscape. Recent research by

the McKinsey Global Institute

(MGI) showed that between 1990

and 2005, 100 million migrants

moved into China’s cities. By

2030, MGI estimates that nearly

1 billion urban residents will

be living in China’s cities.4

The impact of China’s urbanization

phenomenon varies widely across

city clusters, however, and the

contrasts between clusters can be

stark. Fully 86% of Shenzhen’s

residents are migrants from other

provinces that speak Mandarin (as

well as their local dialect), while

73% of Guangzhou’s residents were

born and raised there, and speak

primarily Cantonese. Because

of the predominance of migrant

workers, Shenzhen is a younger city

11

4 “Preparing for China’s Urban Billion”, McKinsey Global Institute

12

than Guangzhou: 55% of Shenzhen

residents are 20-34, compared with

just 35% of Guangzhou residents.

19% of Guangzhou residents are

older than 49, compared with just

7% in Shenzhen.

Consumer profilesThe litmus test of whether city

clusters really matter to companies

is the degree to which clusters

shape consume behavior. Indeed,

our study showed a very strong

correlation between the two. When

we first conducted our survey of

Chinese consumers in 2005, 9 of the

14 biggest differences in consumer

attributes such as brand loyalty or

the willingness to pay a premium

could be explained by the city-tier

a particular city belonged to, rather

than a geographically contiguous

cluster. However, in our latest

survey of 15,000 Chinese consumers,

conducted in the first quarter of

2009, 11 of the 14 attributes could be

explained by city clusters (Exhibit 2).

We observed substantial variations

in consumer behavior across China’s

clusters in most of the attributes

of consumer behavior that we

looked at in our study. For example,

while 52 percent of consumers in

the Shanghai cluster prefer well-

known brands, only 36 percent of

consumers in the “Xiamen-Fuzhou”

cluster (which includes cities such

as Shantou, Shishi and Chaozhou)

share the same preference.

Exhibit 2: Relevance of city clusters is increasing steadily as income differences across city tiers decrease

Relevance of geographic clusters is increasing steadily as income differences across city tiers decrease

Source: McKinsey Insights China; McKinsey analysis

Tier-driven

Cluster-driven

21

3

#1 determinant of variance in consumer responses (city tiers vs. city clusters)

2008

▪ Outlook towards financial future

▪ Importance of saving

▪ Concern about product safety

▪ Preference for well-known brands

▪ Preference for Chinese brands

▪ Price sensitiveness

▪ Loyalty to preferred brand

▪ Willing to try new things

▪ Individualism

General attitudes

Attitudes towards consumption

21

3

2009

Cluster driven differences 3/12 7/12 9/12

▪ Willingness to pay premium

▪ Preference for modern channel

▪ Internet activity

2005

21

3

21

3

21

3

21

3

21

3

21

3

21

3

21

3

21

3

21

3

21

3

21

3

21

3

21

3

21

3

21

3

12


Consumer preferences for product features also vary widely. For example, consumers in the Shenzhen cluster tend to prefer lighter, thinner digital cameras, while consumers in the Guangzhou cluster prefer a large preview screen.

Media preferences also vary widely among consumers in different clusters. For example, 95 percent of consumers in what we call the “Central cluster” (which includes cities such as Zhengzhou, Luoyang, and Kaifeng) prefer to watch national TV. By contrast, 62 percent of consumers in the Shanghai cluster prefer to watch local city-based TV channels. With a better understanding of TV viewing habits, consumer goods companies that

spend heavily on TV advertising may identify ways to allocate their spending across different clusters more effectively (Exhibit 3).

A virtuous cycle is at play in the formation of city clusters: government policies shape industry structure, which impact demographic composition, and which is, in turn, reflected in consumer behavior. Over time, these forces reinforce the linkages between cities, and cause consumer behavior to converge within a cluster.

Exhibit 3: Different TV channels are preferred across clusters

Local TV(City TV and Provincial TV)

National TV(CCTV and PSTV)

Different TV channels are preferred across geographic areas

62

45

44

38

31

11

16

20

25

38

55

56

62

69

95

89

84

80

75

5

Jingjinji

Kunming

Taiyuan

Yangzi mid-lower

Central

Hangzhou

Guangzhou

Changzhutan

Shenzhen

Shanghai

National TVLocal TV

TV impact1 Description

Strong preference for local media; cannot be effectively covered by national TV

Can only be effectively reached by CCTV or PSTV

1 Percent of respondents who have received product/service information from TV ads in the past 2 months, think this is a credible source, and will pay attention to the information

Source: McKinsey Insights China; McKinsey analysis

Cluster

13

14

With the clusters mapped out,

companies then need to choose

which ones to target, and what

strategies to employ for each. Four

key steps are essential in making

these decisions: look for the fastest

growing clusters; prioritize target

clusters; set cluster level aspirations;

and define strategic archetypes and

tailor go-to-market strategies.

Look for the fastest growing clustersBetween 2008 and 2015, 75 million

urban households will be joining the

ranks of the middle class, defined as

consumers that have annual income

of 50,000 to 120,000 renminbi.

As incomes go up, so does the

ability to spend: by 2015, per capita

consumption in China could reach

17,000 renminbi, up from 13,400

renminbi in 2008. Total urban

consumption could top 13.3 trillion

renminbi (US$1.94 trillion)5 by

then, making China the third largest

consumer market in the world only

after the US and Japan.

But wealth is developing unevenly

across China, and companies

that extrapolate new market

opportunities by simply looking at

past sources of growth are unlikely

to succeed. Understanding which

clusters will yield the most attractive

growth opportunities is critical

for prioritizing investments. The

decision a company takes to invest

in capturing market leadership, or

focus on holding market share, will

hinge largely on the foresight it has

about which markets will be the

most attractive in coming years.

For example, Hefei’s middle class

population is expected to swell 5 2005 real renminbi

Crafting a cluster-based strategy


from 35 percent in 2008 to 67 percent in 2015, in contrast with Hangzhou, which is expected to see its middle class population inch up from 73 percent to 75 percent over the same period. Different growth rates of the middle class translate into varying rates of growth in consumption. Of China’s 100 largest cities, 25 are expected to see a doubling of consumption between 2008 and 2015. Cities in this category include Beijing, Yantai, Weihai and Songyuan. Another 25 cities, including Shanghai, Wuhan, and Zhanjiang, are expected to see their consumption increase more than 50 percent and up to almost 100 percent over the same period. Even many of those cities that are expected to eke out single-digit growth rates will still exceed global benchmarks, representing attractive business opportunities.

As more and more Chinese

households join the ranks of the

middle class they can increasingly

afford to buy more than just the

bare necessities of life such as

food or healthcare. As they move

up the income ladder, consumers

shift their spending toward home

appliances, personal computers,

and personal care products, as

well as discretionary items such as

entertainment or luxury goods.

The rapid emergence of the middle

class in some cities will drive

above-market growth in certain

categories. For example, while

Hangzhou is expected to enjoy

an impressive 14 percent average

annual increase in the demand for

automobiles between 2008 and

2015, Hefei, with its surging middle

class, is expected to see an annual

increase in demand of 36 percent.

Crafting a cluster-based strategy

16

Prioritize target clustersAs lower tier cities grow, strategies that focus only on higher tier cities are becoming less cost effective. They also risk concentrating investments inefficiently on cities with lower synergies and missing out on a lot of the growth. Instead, utilizing McKinsey ClusterMap, companies should focus on pursuing a limited number of priority clusters where they can build scale and share distribution infrastructure, supply chain, and sales force across several cities. Companies must also make choices based on a host of factors: the prevalence of modern channels such as department stores and hypermarkets versus traditional mom and pop outlets; the degree to which consumers are brand loyal or price sensitive; and their willingness to try new products, to name just a few.

Investing in expanding their presence in cities surrounding Guangzhou, before pushing for growth in and around Xiamen and Fuzhou, for example, may be faster and cheaper, and therefore yield a better return on investment.

Beefing up presence in a cluster where a company has an established presence not only allows it to leverage longer regional expertise and share resources, but also allows a company to take advantage of synergies in TV viewership. In the

Guangzhou cluster, for example,

TV viewers prefer provincial TV

which is broadcast predominantly in

Cantonese. In addition to negotiating

better trade terms with retailers

and logistics providers at a cluster

level, one personal care company

quadrupled net margins by cutting

back on local TV advertisements

once it learned that advertising on

national TV was more effective.

Just as they make choices regarding

which clusters to target, and which

to invest in fighting for market

leadership, companies will also

need to prioritize between cities

within clusters, between distribution

channels, and even between

individual sales outlets.

Set cluster level aspirations As a company thinks about pursuing

market leadership across different

clusters, it needs to consider the

intensely local nature of competition.

Many regional Chinese players and

multinational companies have built

strongholds in some regions which

have contributed disproportionately

to their profits. While national

scale matters to a certain degree

(especially for brands using national

TV), regional scale matters even

more, and many brands have

managed to succeed regionally even

though they can’t compete effectively

at a national level.

16


Take for example the popular

Chinese spirit baijiu (白酒). With the

exception of a few super premium

brands that are pursuing aggressive

national strategies, most brands hold

as much as 40 percent to 50 percent

market share in a certain cluster

or region, but only 2 percent to 3

percent of the national market. This

phenomenon is played out in dozens

of product categories across China’s

more than two dozen city clusters.

By focusing on a handful of clusters

in southern China, for example, one

domestic food and beverage player

has built a dominant position with

market share of over 40 percent. In

other parts of China, they are either

very small or not present at all.

The role of word of mouth in

building consumer confidence in

brands is one reason why companies

can establish such strong regional

positions. Network effects come

into play: the more consumers

see a brand being consumed, the

more confidence they have in that

brand, and the more likely they

are to purchase it. This dynamic is

reinforced for products in which

their consumption is more visible

to others, or for products that are

consumed on social occasions.

Companies will need to adjust their

aspirations based on the inherent

attractiveness of the cluster as well

as their ability to compete there.

Once priority clusters have been

chosen by applying McKinsey

ClusterMap methodology,

companies should set market share

aspirations at levels that will give

them a defensible position:

40 percent, for instance.

Define strategic “archetypes” and tailor go-to-market strategiesThe idea that a company would need

to devise a different strategy for

each of China’s 22 or more clusters

sounds daunting. Tailoring products,

training salesforces, managing

distribution channels, and designing

marketing campaigns to appeal to

the vast differences among Chinese

consumers in different clusters can

quickly deplete budgets and absorb

management attention. Thus, to

prioritize and concentrate their

resources, companies should group

clusters into three or four “arche-

types” based on shared character-

istics and strategic objectives, and

design a specific strategy for each.

One food and beverage player

organized their target clusters

into 4 archetypes based on their

competitive position and aspirations

for particular clusters. The first

archetype includes clusters that

they call the “strongholds”, sizeable,

fast-growing markets where they are

already winning and they need to

defend at all cost.

17

18

“Must win” clusters are those in which they are not currently the market leader, but where they want to achieve a dominant position because of the size of the market and the rapid growth rate. “Must win” clusters are those where the company needs to deploy new product solutions and new communications strategies to convince consumers to switch brands.

“Up and coming” clusters are those in which per capita consumption for a specific category in which they compete may still be small, but the expected growth rate far exceeds market average. In these clusters, the company has earmarked marketing funds for consumer education to raise awareness among consumers of the benefits associated with products in that category.

The rest of the clusters are categorized as “wait and see”, which are either too small or too competitive to prioritize. In these clusters, the company keeps investment at a minimum to ensure that their brand is known and products are available in distribution channels.

Of course, what works for one company may not work for another. While the food and beverage company mentioned above settled on 4 cluster archetypes, a personal care company identified 3 archetypes according to whether consumers preferred traditional bar soap, whether they used liquid soap, or whether they were in the process of converting from bar soap to liquid. The company developed very different product portfolios, brand and marketing strategies, distribution models, and sales tactics for each archetype.

***

Averages no longer paint a complete picture of the Chinese consumer. By using the McKinsey ClusterMap, companies can develop a far more granular understanding of similarities and differences in consumer behavior and consumption patterns, and how consumption will likely evolve over the next several years. Equipped with this understanding, companies can develop more effective strategies, whether they are seeking to enter the Chinese market, accelerate growth by identifying new markets, or improve the profitability of their existing business.


The study included a comprehensive survey of Chinese consumers:

The consumer survey was conducted from December 2008 �

to March 2009. This is the fourth year that McKinsey has conducted a comprehensive survey of Chinese consumers

The survey covered overall consumer attitudes �

towards life, general shopping behavior, leisure activities, financial management habits, product and brand-specific purchasing behavior

The survey covered 7 major product categories, �

including food and beverages, consumer electronics, apparel, automotive, housing, home and personal care, and healthcare

Sample size of 15,000 respondents in 58 cities �

(4 tier-1, 10 tier-2, 22 tier-3, and 22 tier-4); 110-700 samples collected in each city

Respondents included key decision-makers and influencers �

in family purchases; minimum monthly household income of 800-2,000 renminbi; Age: 15-65 years old

The study also included extensive macroeconomic research:

Econometric model consisting of over 30,000+ equations, �

including macroeconomic and demographic forecasts for the period 2007-2025

Over 150 interviews with relevant experts �

City visits and interviews with more than 100 local �

government officials and business leaders to complement the model findings

More than 2 years’ of work by 25 consultants �

About the study

22


Insights China provides businesses with the data, analytics and rapid, customized problem-solving and decision-making support to help build robust strategies for China’s rapidly changing marketplace. The data and analysis combine results from McKinsey’s annual Chinese consumer surveys with proprietary macroeconomic and demographic data and analysis from the McKinsey Global Institute (MGI).

Since 2005, we have interviewed more than 30,000 Chinese consumers, giving us a deep understanding of Chinese consumers’ attitudes and spending behavior in more than 100 product categories. The respondents come from a wide range of incomes, ages, regions and cities, and represent 80 percent of China’s GDP, 90 percent of its disposable income and 50 percent of the population.

In 2008, we conducted an additional study of 1,750 consumers with annual household incomes in excess of RMB 250,000, giving us unprecedented insight into the behavior of this fast expanding and economically important segment. The macroeconomic and demographic data offers detailed historic and forecast data on population, income, and consumption for more than 800 cities. We update the information twice yearly to account for changing conditions.

McKinsey experts are at hand to offer guidance, including the facilitation of workshops to address specific business issues. In addition, we have a registered panel of more than 5,000 mainstream Chinese consumers and 500 wealthy Chinese consumers to help further explore such issues in a timely fashion.

For more information about Insights China, please contact one of the following experts:

Vinay Dixit+86 (21) 6132 [email protected]

Jennifer Ding +86 (21) 6133 4248 [email protected]

Or email us at: [email protected] Visit our website at: http://insightschina.bymckinsey.com

2009年度中国消费者调查报告 (二)

Technology